Understanding the Opportunities and Challenges of Charter Management Contracts for Public Schools

This report contains a correction.

In a survey administered this spring, two-thirds of American voters said they believe public schools in this country are doing only a “just fair” or “poor” job, and nearly half of respondents did not rate the public schools in their own community favorably.¹ This is just one institution in which the public lacks faith and trust, perhaps even more so in the wake of the COVID-19 pandemic. But where public charter schools are involved, that lack of trust has only grown over time—especially among white Democrats—threatening the broad support that charter schools have enjoyed for years across demographics and political parties.²

Even as public trust in charter schools diminishes, enrollment continues to rise. During the pandemic, amid widespread confusion and frustration over the quality of remote learning options, charter school enrollment increased by 7 percent.³ As students return to in-person learning, there are simply not enough seats in schools meeting the needs of all students. Black, Latino, and Native American students and students from families with low incomes disproportionately lack access to a quality education.⁴ In fact, a recent Bellwether report found that the combination of how school district lines are drawn and where accessible housing is located for families with low incomes has created an average per-pupil funding gap of $6,355 between affluent and under-resourced districts.⁵ When charter schools open in places that have the most need and incorporate input from families and educators in the community, they have offered an important opportunity for historically underserved students.⁶

One persistent complaint about charter schools has been how and by whom they are managed. Although charter schools are public schools, some choose to partner with external management organizations—not always public entities—which can open the door for bad actors. There is rightful concern about management companies that may have conflicts of interest, run a for-profit model, or have no knowledge of the communities they claim to serve.⁷

High-profile incidents of management companies profiteering and using public money for private goods have sparked a public debate about charter school management. Beyond these news stories, however, little data exist on what makes an effective charter management company or how contracts between charter schools and their management companies can fail. With significant differences between states regarding contract requirements, it is important to understand what causes these issues and how future contracts can include provisions that protect students and taxpayers, no matter where they attend school.

This report reviews the risks of failed contracts and provides examples of both strong and problematic management contract requirements. It concludes with recommended steps for the oversight of charter schools, including the roles that school boards, authorizers, states, and the federal government can take to improve not only how charter schools are run, but also how they serve communities and ultimately improve student outcomes. This report’s recommendations are informed by conversations with a variety of stakeholders, including parents of charter school students, charter school leaders, employees of management companies and authorizers, and state charter school associations.

Simply put, contracts between charter schools and management companies are agreements that allow the school to outsource the performance or delivery of certain services and resources. This is separate from the agreement, or “charter,” between the school and its authorizer that all charter schools must ratify to begin operating in the first place.¹⁰ Management contracts are not a requirement of all charter schools but rather an option for schools that want or need some external help with operations.

Charter schools can choose to partner with management companies for many reasons, including to run or oversee human resources, manage organizational operations, provide equipment and technology, or deliver educational materials such as curricula and assessments.¹¹ The management company can be in charge of some, none, or all of these pieces of school operations. In these situations, there is a contract between the operator or board of the school and the management company covering the services provided, in addition to the financial relationship. In some cases, the management company has applied for the charter and is authorized to operate the school itself.

“Sweeps” contracts, meanwhile, refer to arrangements in which the management company completely runs the school and also receives most of the school revenue.¹² This is common for virtual charter schools in some states and has recently come under scrutiny for providing loopholes for private, for-profit entities to funnel public money from the federal Charter Schools Program.¹³

As of the 2018-19 school year, approximately 40 percent of all charter schools had a relationship with a management organization.¹⁴ Some of the most commonly known external management companies are nonprofit charter management organizations (CMOs) such as the Knowledge is Power Program (KIPP).

CMOs manage 29 percent of all charter schools nationwide, typically providing broad support across systems and schools to ensure that curricula, schedules, and other day-to-day operations look similar across a network. For-profit education management organizations (EMOs) manage 10.5 percent of all charter schools. EMOs are often set up as vendors that have less of a role in day-to-day school operations and are more likely to provide backend support and resources such as hosting web platforms or providing staffing assistance.¹⁵

A 2017 Center for Research on Education Outcomes report provides some evidence that, on average, charter schools run by nonprofit CMOs perform slightly better than freestanding charters or traditional neighborhood schools. But EMOs do not seem to boost performance in the same way, and in certain cases, charter schools run by EMOs perform worse than traditional schools.¹⁶ The expectation for publicly traded companies is that their first and foremost responsibility is maximization of shareholder value. As a result, when choosing between what is in the best interests of shareholders and what is best for students or schools, they are going to side with their shareholders.

Some state laws recognize this tension. As a result, there are a number of differences between states regarding whether a management company can be a for-profit entity and, if they are, what the public transparency requirements are for those companies.¹⁷ There are also state-by-state disparities in authorizer requirements around the management contracts that schools enter. For example, in Arizona, the management contract is part of the initial charter review for new charter applications and replications, but the authorizer does not have access to the contract language after it is approved.¹⁸ This means that they may not know what was in the agreement and how the management company is operating if any conflicts arise. Meanwhile, in Washington, D.C., the authorizer only reviews management contracts worth more than $100,000.¹⁹

Although the authorizing field has promulgated best practices and expectations for management contracts, there is no national policy standard. As such, refining expectations for management contracts is one clear opportunity to confront a problem in the sector and expose bad actors while also recognizing and sharing good policies that protect communities and help kids. The protections recommended in this report aim to ensure that critical decision-making power remains with the board, provide full transparency and communication to families, and set strict length and severability requirements. These are achievable through policy changes at the local and state levels and can cut across the lack of state consistency in existing regulations.

When management contracts lack input from the families and educators they affect and are written without key protections such as severability and board decision-making authority, they can cause serious problems for schools and students. Leda Nereida, a parent and community organizer helping to build family-school connections in Brooklyn, New York,²⁰ cited lack of care and services for students with disabilities as one common problem she has seen from management companies that come into a school quickly and do not take the time to understand the students or their needs.

When it comes to bad actors taking advantage of poorly executed contracts, financial mismanagement is one of the biggest problems, yet it is also one that can be easily addressed through clearer requirements for contract language. Financial mismanagement is an equity issue that not only wastes taxpayer money but also means that schools are compromising on student learning, ruining public trust, and preying on kids who already have not been served well by the system and who looked to charter schools as an alternative solution. As Cristina Gulacy-Worrel emphasized in a conversation about her own experience with charter schools as a student, a parent, and now an employee, “The people that hurt the most from [bad management contracts] are the Black and brown people, the people in the communities that actually need these options.”²¹

The media has recently tracked several instances of common problems in charter management contracts. In 2018, the Arizona Republic revealed stories of profiteering and leadership conflicts of interest among multiple schools and management companies in the state. In one instance, the founder of the American Leadership Academy made more than $37 million by building school campuses through his separate development company and then selling them to his charter company—paid for by taxpayer dollars—for far more than market price.²⁴

Unfortunately, Arizona statute has made the state vulnerable to such issues, as the Arizona State Board for Charter Schools has no real enforcement mechanism to prevent this type of profiteering.²⁵ Arizona has the most students enrolled in charter schools per capita and also has one of the largest concentrations of for-profit EMOs running charter schools in the country.²⁶ A number of officials and nonprofit organizations in the state have been working to improve protections, but underfunding and political pressure have prevented the Legislature from addressing these issues in full.²⁷ What is more, all operational decisions for charter schools in Arizona are made outside of public meeting laws, preventing communities from easily recognizing and speaking out against these conflicts.²⁸

Michigan, which has an even higher concentration of for-profit EMOs than Arizona, is another state that suffers from conflict of interest issues due to a lack of clear charter policy and coordinated state-level oversight.²⁹ The state Legislature has deemed authorizers the main source of oversight for schools and has not granted itself oversight authority to hold authorizers accountable.³⁰ While some authorizers provide boards with extensive training to ask questions and prepare strategic plans before partnering with management companies,³¹ others have taken advantage of the free rein, creating systems that allow board members to profit off of their charter schools while academic performance falls behind that of traditional neighborhood schools.³²

For example, Southwest Detroit Community School (SWDC) made headlines in 2019 when it closed suddenly at the end of the school year, leaving more than 300 families with only a month or two to find a new placement for their children.³³ The majority of these families were Latino, and many did not speak English, making the transition especially challenging. The charter authorizer, Grand Valley State University, provided transitional support and translation services throughout the summer.³⁴

SWDC had been having problems for years, many stemming from an out-of-state management company called Lighthouse Academies that failed to comply with state reporting, did not understand local funding sources, and generally did not meet expectations when it came to overall support of the school. These issues resulted in hemorrhaging staff and students, putting the school in financial jeopardy. In 2016, the board of directors transitioned management of the school from Lighthouse to Educational Alliance Solution. However, the school’s lease, which was originally negotiated by Lighthouse Academies, had an escalating clause that made rent more expensive each year. In June 2019, after the facility owner—who had been brought in by the management company—refused to negotiate, the school was unable to pay for its building.³⁵

In another example of students scrambling to find education options when these relationships go wrong, Georgia Cyber Academy, a virtual charter school, made headlines in 2019 when students attempted to log in to computers on the first day of school only to find that they had been locked out.³⁶ The school had been experiencing poor academic performance and problems with its management company K12 Inc.—a publicly traded company with a history of questionable financial practices and a lack of academic success to show for it. In fact, a 2018 CAP report found that schools run by K12 had lower language arts and math proficiency and lower graduation rates than the average school in the states they operated in.³⁷

Although K12 was initially an enticing partner for many other virtual schools because of its size and operational capacity, a former board member of a virtual charter school that had a contract with the EMO believes that the company structures its contracts in a manner that is so complicated and financially penalizing that it becomes difficult for any school board to truly hold them accountable. The former board member shared that, at their school, “The more we attempted to carve out necessary autonomy in certain levels, the more pushback and hostility we got from K12.”³⁸

In the situation with Georgia Cyber Academy, board members realized that they were paying more than market value for a curriculum from K12 that was not fully aligned with state standards.³⁹ When they opted to purchase new curricula outside of K12, the private company retaliated by taking control of the computers and other resources bought with public money.⁴⁰ Moreover, the contract was not severable, so K12 had the ability to end other parts of the contract when the curriculum purchase ended. According to meeting minutes and other documents attained through a public records request, since that incident, the school has made several necessary changes: Employees are now employees of the school and board rather than employees of the management company, and the school negotiated clear guidelines for the board’s authority to set the school budget and other priorities.⁴¹

The state of Georgia has also taken important steps to prevent conflicts between management companies and schools that disrupt learning. A law passed last year requires ownership of student records to stay with the nonprofit school entity in the event of closure and requires that the information be made accessible to the local school system if requested.⁴² While these specific policy changes may not address all of the concerns that schools like Georgia Cyber Academy could have, they seem to be a step in the right direction to better separate management companies and school boards.

Bonnie Holliday, executive vice president of policy and external relations at the Georgia Charter Schools Association—a nonprofit entity that advocates for quality charter schools in the state—shared that Georgia has been moving toward new provisions for management contracts. For example, the State Charter Schools Commission of Georgia—which approves and supports almost all Georgia charter schools—has done away with automatic renewal, or “evergreen clauses.” Under this change, explicit action is required to renew agreements between schools and management companies to demonstrate good faith in the management of school operations or services.

The State Charter Schools Commission has also stipulated that charter schools in Georgia cannot enter into an agreement with a management company that exceeds the existing charter contract term.⁴³ This had proven to be issue in the past when charter schools were up for renewal and failing to meet academic performance standards, but the board or authorizer could not put new management in place for the duration of the management contract.

While these are all important first steps in states with major policy gaps, much more can be done to put real guardrails in place in every state with charter schools and to protect students and taxpayer money from bad actors. Such actions must also ensure transparency for families and community members. Anashay Wright, a parent of a child in charter school and a former school board member, explains, “If you’re taking dollars from my local community, I want to know what you’re giving back.”

Cristina Gulacy-Worrel, vice president of development and advocacy at the Ohio-based management company Oakmont Education noted, “If you’re going to be a management organization, you need to have a full C-suite [group of executive-level employees] in the state you’re in; a lot of the time, people go into the state and drop one staff member, and that just doesn’t work.”⁴⁴ Too often, management companies that are headquartered in a different state do not put in the necessary time, resources, and manpower behind schools in new states as they expand. Having just one or a few staff members makes it impossible to fully understand the needs of schools in that state and shows communities that the company is not fully invested in children’s education. In her current work as an education consultant, Wright said that she often has to ask national management companies coming into new neighborhoods, “What made you target this community, and why, from a business standpoint, are you prioritizing this location? What do you want to get out of it?”⁴⁵

Especially for management companies that are not from the area, answering these questions upfront and soliciting family input from the start is the best way to create buy-in for new schools, understand the local context, and ensure that schools are truly serving their unique student populations. As Leda Nereida explained: “You can’t do this without us. We know what’s best for our kids. We are a partnership.”⁴⁶ Through these partnerships and carefully crafted management contracts, charter schools that enter into agreements with management companies can ensure that they are still meeting families’ needs.

Seven percent of students in the United States—more than 3 million in total—currently attend a charter school.⁴⁷ These students and their communities deserve access to quality education and schools that provide education with the public interest in mind. While prominent problems such as conflicts of interest and profiteering exist in the charter sector, they are not true of all or even the majority of charter schools.

Because the needs of each school and location are unique, relationships between management companies and their schools will not look the same in every situation. In some cases, it may be in the best interest of a local charter school to remain fully independent. Still, when external companies are brought in, it is imperative that contracts are written and implemented with a critical eye toward ensuring student and family well-being as well as the public good.

In CAP’s conversations with families, board members, school leaders, and charter school authorizers, as well as through a review of existing best practices and recommendations from the National Association of Charter School Authorizers⁴⁸ and National Alliance of Public Charter Schools,⁴⁹ several key considerations stood out as important solutions. Contracts between a charter school and any external management company should, at a minimum, ensure that critical decision-making authority remains with the board, provide full transparency and communication to families, and have strict length and severability requirements.

There are several steps school boards, authorizers, states, and the federal government can take to put these protections in place and help ensure that a few bad actors do not overshadow the many successful schools serving millions of students, especially Black and Latino students who are overrepresented in charter school enrollment.⁵⁰

Critical decision-making must remain with the school board

Because of the risk of conflicts of interest and profiteering, it is critical that charter schools’ boards maintain authority over major decisions. In other words, while they can assign certain decisions to the management company where they see fit, it should be clear that the board is not required to do so and that its decision would override that of the management company in cases of disagreement. Major decisions include, but are not limited to, staffing, buildings, and operations. Similarly, it is critical that the board has full and continuous access to financial, operational, and academic information.

To be sure, giving the board decision-making authority does not matter if the people making decisions do not represent the community. Anashay Wright, a former board member for BES schools and parent of a student who has almost exclusively attended charter schools, said she would be wary of giving school boards unilateral decision-making authority and that the more important concern is transforming charter school governing structures.⁵¹ Wright shared that while she was welcomed to the BES schools board because of her unique perspective as a community member, there “has been a very real history of believing [that] people in my community aren’t qualified or even smart enough to make decisions.”

Getting the right people on the board and giving them authority over school decisions requires sufficient training for school board members. Board members should come from the local community and understand both what to look for in a management company and what to require in a management contract. For example, board members should understand severability, contract length, and financial transactions, as well as how to investigate the background and history of any provider under consideration. Critically, the authorizer does not have to be the trainer and should not be if they do not have the resources or knowledge available. But they must be responsible for making the training accessible to and comprehensive for board members.

There should be full transparency and communication with families

When discussing the overlap in her roles as a school board member and parent of a child attending a charter school, Anashay Wright shared, “At the end of the day, I just want to know the collective impact decisions will have: Will this strengthen community infrastructure, will this create a pipeline of future CEO and industry leaders, will this position children in this community to generate wealth?” Wright wants to train community members to ask, “Why are you here, and are you willing to partner and follow our lead?” She also emphasized the importance of ensuring that management organizations entering a new location are connected with the community hub of power, explaining, “We’re most proximate to the problem, which means we’re most proximate to the solution.”⁵²

Of course, it is not exclusively the community’s responsibility to vet a new school or management company. The authorizer should also properly investigate any management company’s prior history. With states often existing in a silo when it comes to the performance of management companies—especially those that are privately operated—companies with poor track records are too often able to expand to new locations. Cristina Gulacy-Worrel’s management organization spends 18 to 24 months engaging with community members before opening a new school, “not telling them what you’ll do, but asking them what [they] need.” Just like Wright, Gulacy-Worrel says companies should be initiating engagement sessions and “going to every church and talking to every pastor”—and “if you can’t, then you need to go; that’s not the place for you.”⁵³

Leda Nereida has direct experience making these connections. She shared a story of a CMO that was rejected from opening a new school based on its letters of support and signatures.* When probed on where those came from, it was revealed the CMO had only reached out to board members—none of whom lived in the communities they aimed to serve. With another CMO looking to do more meaningful community outreach, Nereida worked with them to go to local laundromats, Head Start preschools, and churches. After spending time explaining the school’s goals to community members, the organization was easily able to secure the proper signatures and more convincing letters of support. According to Nereida, a neighborhood priest apparently even said, “If I was putting a kid in school, this would be the school.”⁵⁴

Importantly, community transparency does not stop once a school is in operation. Contracts should ensure all data that the management company has access to are also fully accessible to the school board at any point in time and, preferably, also accessible to the authorizer. There should be full transparency with families and the public at large about academic progress, financial information, and any other relevant data of interest to families.⁵⁵

S.B. 126 in California is one example of state policy that can ensure this level of transparency.⁵⁶ The 2019 legislation applied public agency governance and transparency laws—which already applied to traditional public agencies, including school districts—to charter schools and any entities managing them.⁵⁷ Board meetings in California are now open to the public, school data are more accessible, and the school’s board must maintain full decision-making authority.⁵⁸ Additionally, if the school has a contract with a managing entity, the entity must be a nonprofit. The law also reinforces existing laws prohibiting individuals with specified conflicts of interest from participating in decision-making and in some instances prohibiting certain contracts altogether.

Myrna Castrejon, president and CEO of the advocacy group California Charter Schools Association (CCSA), said that while she believes California is a good example of a state with key protections such as those outlined above, she is wary of people holding up the state as an exemplar without acknowledging that it took a lot of hard work to get there. Furthermore, Castrejon specified that as a charter organization, the CCSA cannot be afraid to “call out bad apples” when necessary.⁵⁹

Set strict length and severability requirements

When contracts are written without severability, an entire school can cease to operate if ties are cut with the management company. If the school board decides to end its relationship with the management company, doing so should not nullify the entirety of the charter contract; equipment, curricula, and student data should all remain fully accessible to the school, and there must be protections in place to ensure that operations can continue without interruption.

State laws are an important source of protection for these nuances of contract language. Lauren Holcomb observed that when Georgia Cyber Academy students were locked out of their computers, “The law in Georgia was silent on what happens in that situation.”⁶⁰ Andrew Lewis, vice president of Opus Education Solutions and an advocate in the charter sector for more than 20 years, also explained that authorizers can play a central role in due diligence on the front end before the charter comes into existence: “The authorizer is well within their right to say the structure of the contract does not meet guidelines.”⁶¹

Contracts with management companies also must not extend past the term of the charter. This opens up opportunities for the management company to sever the contract and for the school to assume financial liability—or for the authorizer not to be able to recommend new management in the case of low performance during renewal. Finally, contracts should not include an evergreen clause; in other words, there should always be explicit affirmative action in order to renew a management contract, accompanied by review where necessary.

Traditional district schools and charter schools alike have work to do when it comes to listening to families and making decisions with the affected parties. Community engagement and trust should always be the first priority for all schools. In her role as both a parent and a school board member, Anashay Wright’s north star is simple: “Understand the culture and honor the collective demands of a community.”⁶²

When it comes to charter schools, families and community members know what they need in a school and deserve transparency in terms of what schools are opened and how they operate. Taxpayers also need assurance that public money is only funding materials and equipment that will remain public. While this is already true of federal funds, it should be extended to state and local funds as well. Charter schools that partner with a management company risk further separation from their community and harm to students if that company does not understand local context or has conflicts of interest that put taxpayer money at risk. Yet with proper protections in place, there are ways to execute effective management contracts and best serve students, staff, families, and community members.

The author would like to acknowledge the contributions of several people who provided invaluable help on this report. Neil Campbell, former director of innovation for K-12 Education Policy at the Center for American Progress, provided early ideas and assisted with the development of the policy recommendations. Laura Jimenez, director of standards and accountability for K-12 Education Policy at the Center; Scott Sargrad, former vice president of K-12 Education Policy at the Center; and Khalilah Harris, acting vice president of K-12 Education Policy at the Center, all gave valuable feedback throughout the development and writing of this report.

The author would also like to thank the many individuals who shared their experiences with management companies as school leaders, family members, charter school authorizers, state and nonprofit employees, and board members:

• Ashley Berg, executive director, Arizona State Board for Charter Schools (ASBCS); Serena Campas, assistant director of policy development and government relations, ASBCS
• Veronica Brooks-Uy, vice president of policy, National Association of Charter School Authorizers (NACSA); Jason Zwara, director of strategic partnerships, NACSA
• Myrna Castrejon, president and CEO, California Charter Schools Association (CCSA); Jeff Macedo, senior director of communications, CCSA; Ricardo Soto, chief advocacy officer and general counsel, CCSA; Julie Umansky, vice president of legal advocacy and executive director of the Charter Schools Legal Defense Fund, CCSA; Luis Vizcaino, chief external affairs officer, CCSA
• Don Cooper, assistant vice president for charter schools, Grand Valley State University (GVSU); Rob Kimball, associate vice president and executive associate to the president, GVSU
• Heather Gardner, president and founder, EAS Schools, Inc.
• Cristina Gulacy-Worrel, vice president of development and advocacy, Oakmont Education
• Jim Hall, founder, Arizonans for Charter School Accountability
• Lauren Holcomb, executive director, State Charter Schools Commission of Georgia
• Bonnie Holliday, executive vice president of policy and external relations, Georgia Charter Schools Association
• Andrew Lewis, vice president, Opus Education Solutions
• Leda Nereida, co-owner of community and family partnership, Community LinkED
• Greg Richmond, former president and CEO, National Association of Charter School Authorizers
• Christy Wolfe, vice president for policy and planning, National Alliance for Public Charter Schools
• Anashay Wright, chief executive disrupter, Disruptive Partners

* Correction, December 17, 2021: This report has been updated to remove incorrect location details of a rejected school.