White Hat Management

h/t C.G. & K.M.

White Hat Management has been accused of bribing public officials and corrupt financial practices. In May 2010, the boards of ten White Hat-managed charter schools in Ohio filed suit against their parent company.

White Hat is the largest for-profit charter school operator in Ohio and third largest nationwide. It operates more than 50 schools in six states under the auspices of three separate educational ventures.

DELA (Distance & Electronic Learning Academies) schools are “home-based distance learning model” schools located in Colorado, Pennsylvania and Ohio.

HOPE Academies are tuition-free and are open to students in grades K-8 throughout the state of Ohio.

Life Skills Centers are alternative education charter schools serving students between the ages of 16 and 21 (16 to 22 in Colorado and Arizona, and 16 to 19 in Michigan). They are located in Ohio, Arizona, Colorado, Michigan and Florida.

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CHARTER SCHOOL LAWSUIT: A NEW ATTACK ON AN OLD COMPLAINT (WCPN, May 20, 2010)

…Under a law passed in 2006, White Hat receives nearly all government and private funding that goes to each school, with no requirement to disclose how it spends the money to the school’s governing boards. April Hart is an attorney for the boards.

Hart: “An example would be that if the board gives them 100 percent of grant funding for schools, White Hat may tell the school in turn that, yes, we it has spent the grant funding, but will not supply the detailed information as to what equipment they have purchased, what they’ve spent on the student, what they’ve spent on professional training. They will not break those numbers down. They like to report those numbers in the aggregate, and so the board never has a sense of what it is, specifically, that they are spending those funds on.”

What’s more, the boards allege that the 2006 law puts it at the mercy of its management company, when it should actually be the other way around.

White Hat Management has been a pariah in the eyes of groups like the Ohio Federation of Teachers, which has fought against Ohio’s system of charter schools since its inception. OFT sued the state in 2001, claiming the law governing charter schools violated the state constitution by allowing publicly funded schools to be managed by a for-profit enterprise, with minimal oversight and accountability. White Hat - and its President, David Brennan - are the highest-profile example, says Sue Taylor, the union’s President. And for good reason.

Taylor: “He contributed to the architects of the Ohio charter school laws.”

In fact, in the 1990s and into the next decade, hundreds of thousands of Brennan dollars went to the Republican party and its candidates. A Republican controlled legislature passed a charter school system that Brennan lobbied heavily for… and that gave White Hat and other education management organizations, or EMOs, a firm foothold in public education…

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REPORT DETAILS POWER OVER CHARTER SCHOOLS: OHIO THINK TANK ALLEGES PROBLEMS OF BOARD INDEPENDENCE, POOR ACADEMIC PERFORMANCE WITH FIRM SIMILAR TO WHITE HAT (The Akron Beacon Journal, May 19, 2010)

Akron-based White Hat Management — sued on Monday by the governing boards of 10 of the Ohio charter schools it operates — isn't the only for-profit management company to come under fire.

Last week, Ohio Policy Matters, a Cleveland think tank, published a critical report about Imagine Schools that foreshadowed many of the complaints about financial accountability and poor academic performance leveled at White Hat in the lawsuit.

Virginia-based Imagine Schools is the largest for-profit charter school management company in America, with 71 schools in 11 states and Washington, D.C., according to the report. Eleven of those schools are in Ohio and one of them is in Akron, the Romig Road Community School, in a former Apple's Grocery Store across from Rolling Acres Mall.

The striking similarity between the Imagine report and the White Hat lawsuit is the power that both for-profit corporations hold over the nonprofit school boards that are their employers — at least on paper.

''One huge issue is how hard it is for these school boards, these governing boards, to break away from Imagine or White Hat,'' said the report's author, Piet van Lier.

The White Hat lawsuit contends that changes to Ohio's charter school law in 2006 enabled management companies, under certain circumstances, to replace the governing boards that hired them.

White Hat Management noted in a response sent late Monday that it is regulated and audited by the state of Ohio and has properly accounted for all state and federal funds.

''This is not the place to argue about the politics of charter schools,'' according to White Hat's statement. ''That is properly left to the legislature.''

But it's the legislature that has caused the confusion, said van Lier.

The same law that lets management companies oust their governing boards holds those boards responsible for the school's finances and academic performance.

''The state law appears to be doing two things at the same time, sort of undercutting itself,'' van Lier said. ''You're creating these boards that are supposed to be responsible, and yet ultimately it's the management company that can wield control.''

In other words, instead of the operators working for the boards, the boards serve at the pleasure of the operators.

Longtime issue

The question of independence has been an issue in Ohio for more than a decade.

In 2000, the Akron Beacon Journal obtained a letter from the IRS to a Hope Academy at a time the Hope schools were attempting to achieve federal nonprofit status. The IRS raised concerns about the close ties between White Hat Management and the Hope school board.

Also in 2000, State Auditor James Petro, after a special review of charter schools, reiterated the IRS' concerns about management companies' relationships with school boards, which were supposed to be independent.

The Thomas B. Fordham Institute/Foundation — a staunch defender of the charter school movement nationally and the sponsor of six charter schools in Ohio — agrees that the ambiguity has made Ohio ripe for lawsuits.

''That creates a situation where you're going to have lawsuits and you're going to have muddied accountability because it's not at all clear who's on the hook for performance,'' said Terry Ryan, Fordham's vice president for Ohio Programs and Policy.

Ryan said Fordham refuses to sponsor management companies that set up the school first, then find a compliant board and sponsor to meet the Ohio regulations.

''We would not sponsor a school that worked that way,'' Ryan said. ''We've actually had conversations like that. And what we always say is, for us, we want to know who the governing board is and we want to communicate with the governing board and we want to have a relationship with the governing authority. Because at the end of the day, that's our partner. They're the ones we hold accountable for results.''

Van Lier said Imagine is one of the companies that sets up the school first and then finds a school board to oversee it.

''It's not some independent board of people saying, 'Well hmm, let's look and see who we want to get here.' It's a group that's been recruited by Imagine to run the school, so there's no question as to who they're going to contract with,'' van Lier said.

The Ohio Policy Matters report also calls for more scrutiny of Imagine's complex real estate and sponsorship arrangements.

Recommendations

The report includes several recommendations for the state, including the prohibition of for-profit management companies from operating in Ohio with public tax dollars.

Imagine Schools says on its Web site, http://www.imagineschools.com, that it functions like a nonprofit and that its application for federal tax-exempt status is under review by the IRS.

The company posted a sharp response to the report on its Web site: ''The attack on Imagine Schools by Policy Matters Ohio is not surprising given its union associations and history of bias against charter schools.''

Imagine's response does not specifically address the report's criticism of the subservient role that school boards play in the company's management.

The report cited an internal memo sent by Imagine Schools President Dennis Bakke in 2008 concerning the governing boards: ''I do not mind them being grateful to us for starting the school (our school, not theirs), but the gratitude and the humility that goes with it, needs to extend to the operation of the school.''

Bakke advises executives to get undated letters of resignation from board members that can be acted on by the company at any time.

''Probably the most important concept that needs to be grasped by potential and sitting board members for our new schools going forward is that Imagine Owns the school, not just the building,'' he said in the memo, which was published in the Fort Wayne Journal Gazette.

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OHIO PUBLIC CHARTER SCHOOLS SUE OVER PRIVATE OWNER (The Associated Press, Monday, May 17, 2010)

COLUMBUS, Ohio — A group of publicly funded Ohio charter schools filed a lawsuit Monday challenging the authority of the private management company that runs them, one of the largest for-profit charter school operators in the nation.

In the lawsuit, the governing boards of Hope Academies and Life Skills Centers in Cleveland and Akron asked to break their contracts with Akron-based White Hat Management LLC, and to prevent the company from interfering in school operations until issues raised in the suit are resolved.

White Hat's president, Akron industrialist David Brennan, is a generous Republican campaign contributor who pushed for the law that governs the schools. In a statement accompanying the suit, the schools said White Hat was able to manage "total, unchecked and unconstitutional control" over them as a result of Brennan's influence in the Ohio General Assembly.

"White Hat Management is a for-profit company. Its interest in making a profit often conflicts with the schools' goal to educate and show student progress," said April Hart, legal counsel for the schools. "There are no real rules in place to make White Hat fully account for the nonprofit dollars they receive to manage Ohio charters…"

…LoParo said the schools are willing to consider new agreements with White Hat, but they want new terms that the company has been unwilling to grant.

Through the current management agreements, White Hat has control of 96 percent or more of the public money received to run the schools and has the power to terminate teachers, administrators and board members.

The schools charge that they have been given scant accounting information to assess how the public money for their facilities is being spent, making it difficult for them to assess their financial positions as they renegotiate their contracts.

They also accuse White Hat of improperly spending, commingling or pooling state grant money, failing to file required quarterly reports, and providing property inventories that don't identify which property is owned by White Hat and which is owned by the schools.

The schools further accuse White Hat of failing to promote the academic success of students and of using public money to purchase management-owned property that is being kept in Florida.

They have asked the court to intervene and prohibit White Hat from removing any property from their schools until issues raised in the lawsuit can be resolved.

Hope Academies are publicly funded community schools serving school children from kindergarten through 8th grade, including children with disabilities. Life Skills Centers are publicly funded community schools that serve at-risk students ages 16 to 21 in a nontraditional high school setting.

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AUDIT RAPS CHARTER SCHOOLS; STATE CITES 'IMPROPER' RECORDS, PAYMENT ERRORS (Columbus Dispatch, August 15, 2007)

Charter schools operated by Akron industrialist David L. Brennan paid board members multiple times for attending the same meeting -- as much as $2,125 per session, a state audit discovered.

That "abusive business practice" was among a number of findings by state Auditor Mary Taylor in a review of 19 for-profit charter schools operated by Brennan. They are all in Cuyahoga or Summit counties.

Taylor's audits, released yesterday, also found $2,005 in improper credit-card purchases, widespread bookkeeping errors and lack of documentation to support many expenditures.

"Repeated attempts had to be made to obtain certain supporting documentation," said Taylor spokesman Steve Faulkner.

"What this audit shows is there needs to be improvement in management of public funds across the board."

Brennan is a major contributor to Republican political candidates and causes. Taylor, a Republican, received $60,000 since 2005 from Brennan and his wife, Ann, including $20,000 this year.

Nevertheless, Faulkner said Taylor doesn't play favorites because of party or personal allegiances.

"Auditing is not a political job. Auditor Taylor is always going to look at how public entities of any kind spend tax dollars."

A review by The Dispatch showed Brennan's White Hat Management made $15.4 million in profit and fees from all 34 charter schools last year. The state provides some of the money for the schools.

The new audits disclosed that all 19 schools reviewed, operating under White Hat Management, have the same fiscal officer, Ohio Community School Consultants of Dublin, and the same board president, Robert Townsend.

The individual schools have separate boards, but some individuals sit on from two to 17 boards, Taylor found. One meeting may cover issues from several boards.

Thus, some board members were paid multiple times for attending a single meeting. The audit found that inappropriate, but Taylor is not requiring the money to be repaid. Board members are supposed to be paid $125 per meeting…

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CORRUPTION MADE CHEAPER: IS COLORADO UNDERCUTTING THE BRIBERY MARKET?, August 8, 2007; Cleveland Scene (OH)

Back when Bob Taft ran this defiled land, you could win a charter-school license with a $3 bet in a craps game.

But new Governor Ted Strickland has decided that spending millions on schools that perform worse than Cleveland's may not constitute reform. So he's axed funding for start-ups, and is demanding that everyone else keep a checkbook.

It may be Ohio's greatest educational achievement in 50 years: Hey everybody, what if we decided to keep track of the money?

Unfortunately, this poses a small problem for White Hat Management, Ohio's biggest charter company with 31 schools statewide. Mission statement: Sellabratin Rok Bottm Acheevment for Way Long Times.

Compared to White Hat, Glenville High is Oxford. And despite producing lower test scores than you'd get at a Klan rally or a Cleveland City Council meeting, the company has gobbled up $109 million in state tax money -- though it refuses to say where any of it went.

Fortunately, owner David Brennan is hedging his bets by operating in multiple states. Even better, he's finding that bribery outside Ohio is more competitively priced.

Take the Denver Public Schools. In February, leaders voted unanimously to yank White Hat's charter, due to the small matter of sucking something fierce. So Brennan fixed the problem by Ohio rules: He bribed a guy.

Enter Bob Schaffer, former congressman, current member of the Colorado State Board of Education, and prospective U.S. Senate candidate. Schaffer's board essentially overruled Denver, forcing the city to keep White Hat. In return, Schaffer received $4,000 in campaign contributions from Brennan, most of which arrived just a month after the vote.

ProgressNowAction, a Denver advocacy group, accused Brennan of buying Schaffer's vote. "They're the worst of what's going on in the school-reform movement," spokesman Michael Huttner says of White Hat. "It's all purely driven by greed…"

…Brennan has given $40,000 to Ohio Auditor Mary Taylor, and thousands more to her predecessor, Betty Montgomery. If you don't want anyone looking at how you're spending state money, these are the people to pay.

And just to make sure he never runs afoul of the law, Brennan has given $130,000 to Ohio Supreme Court justices…

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ADDITIONAL ARTICLES

• "FOR-PROFIT MANAGEMENT COMPANY SUED BY 10 NORTHEAST OHIO CHARTER SCHOOL BOARDS." The Plain Dealer (OH), 5/17/2010)
• "10 CHARTER SCHOOLS SUE WHITE HAT OVER ASSET." Akron Beacon Journal (OH), 5/18/2010
• "CHARTER SCHOOLS REBEL IN SUIT: TEN TAKE ON FOR-PROFIT MANAGEMENT FIRM’S LACK OF OPEN FINANCES" The Columbus Dispatch (OH), 5/18/2010)
• "CHARTER-SCHOOL OPERATORS' BOOKS MIGHT OPEN." The Columbus DispatcH, 10/19/2011