Policy Watch Investigates

Questionable company targets NC for virtual charter school

The nation’s largest for-profit virtual education company quietly took steps this week to open up an online charter school in North Carolina that would subsist off of public funds and siphon off profits to Wall Street investors.

The move comes as the company, K12, Inc., faces mounting questions in others states over the quality of education students receive from the company.

A representative of K12, Inc., a publicly traded company on the New York Stock Exchange (NYSE: LRN), attended a Cabarrus County school board meeting Monday to ask if the school system would partner with the company to open up a virtual public charter school that would draw from students statewide.

The company first began talks with the school district by having former state Rep. Jeffrey Barnhart, now a lobbyist at the prominent Raleigh law and lobbying firm McGuireWoods, to approach the school district in his home county, according to Cabarrus County Superintendent Barry Shepherd.

Neither Barnhart nor a spokesman for K12, Inc. returned calls for comment on this story.

The move by K12, Inc., isn’t entirely unexpected, after the newly-empowered GOP-led state legislature passed a bill this summer lifting the state’s 100-school cap on charter schools. Lifting the cap has not been without controversy, with proponents arguing that charters offer more innovative ways of teaching while critics warn it could defund existing public schools and be a dangerous first step to privatizing public education in the state.

K12, Inc. kept a big presence on Jones Street during the talks, and hired seven well-connected lobbyists in 2011, according to the N.C. Secretary of State’s lobbying division.

However, the push to tap into the North Carolina market comes as the company faces mounting criticism of putting profits before education. Teachers at some virtual schools have complained of being overloading with large classes while the company loosely monitored student’s progress, at times charging states money for educating children who withdrew soon after signing up or barely attended the online classes.

“Their curriculum is limited, it looks like a pretty hollow experience for the kids,” said Gene Glass, a research professor at University of Colorado-Boulder who has been critical of K12, Inc., as well as other for-profit educational companies. “It’s just all about business.”

Booming business

2011 has been a good year for the company, with North Carolina and several other states opening up laws to allow more charter schools, including charters that are based online. K12 CEO Ron Packard, made $5 million in combined salary and stock options last year, according to filings made with the U.S. Securities and Exchange Commission. (To see a breakdown of Packard’s earnings, go to page 33 of K12’s 2011 Proxy statement.)

As of 11 a.m. Friday, the company was trading at $20.23 a share, a big drop for the company following the New York Times publication of an extensive article Tuesday that found the company “tries to squeeze profits from public school dollars by raising enrollment, increasing teacher workload and lowering standards.”

The Times mentioned a state audit in Colorado that found taxpayers paid $800,000 to the company for students that were never enrolled in the virtual school, or who lived out-of-state. It also mentioned a Pennsylvania virtual public school run by a K12, Inc. subsidiary that saw 60 percent of its students behind grade level in math, and 50 percent trailing in reading.

The virtual charter school, if the N.C. State Board of Education allows it to open, could mean a steady stream of state, federal and local funding flow through to charter as the company makes a profit off of education, as it has in over half of the states in the country.

The company uses an online-based system where children use both physical workbooks while communicating with teachers over the Internet and anticipates serving 2,750 North Carolina students in its first year. It would provide computers for low-income students and suggests using public resources like library Internet access for those not able to afford connections at their home, according to documents provided by the company to the Cabarrus County schools.

A charter school gets an average of $4,712 funds per student as well as additional local and federal dollars. A virtual charter school would be entitled to getting the same funding amount as charter school with physical buildings, despite the obvious differences in operating costs.

“There are no policies right now that would state they would get something different,” said Alexis Schauss, director of school business with the N.C. Department of Public Instruction, which oversees charter schools.

North Carolina law requires that charter schools be operated and managed through non-profit organizations, an attempt to make sure school leaders keep their interests on education and not in financial incentives.

If the company recruits 2,750 students in its first year, the cost would be $18 million to taxpayers in state and local education funds, not including federal funds, according to a 299-page application the company sent to the Cabarrus school district.

K12 staff told Cabarrus County school officials it hopes to open up in the fall, but that appears unlikely. The N.C. Department of Public Instruction set a November deadline for “fast-track” applications for charter schools hoping to open by the 2012-2013 school year, and are already well into their selection process.

By 2016-2017, the company wants to have 5,109 students, and anticipates taking in $34.5 million in public education funds, according to the application.

The virtual public charter school would be open to all grade levels, and offer diplomas for high school graduates.

But it’s not as if the state of North Carolina doesn’t offer anything by way of online education.

The state runs the North Carolina Virtual Public School, an online school that allows students in public schools to take classes online that aren’t offered in their home districts. Offerings for middle school and high school students include 17 AP classes, foreign languages like Chinese or Arabic, and other advanced classes. The cost to taxpayers is about $349 for each course a student takes, said David Edwards, a spokesman for the state-run virtual school.

It may be more cost-effective and offer a better quality education to think about expanding the state’s offerings, instead of hiring a private company to run an online school, said Alex Molnar, another University of Colorado-Boulder professor critical of for-profit virtual schools.

In order to get around state rules that require charter schools to be managed and run by non-profit organization, the company would set up a non-profit organization called “North Carolina Learns” and then contract with K12, Inc. for all services, the company wrote in its application. No non-profit by that name has been registered yet with the N.C. Secretary of State’s Office, as is required.

Molnar said founding a non-profit to act as a shell for the for-profit company is typical of K12.

“It’s a way to run around the clear intent of the law,” Molnar said.

Powerful players

It’s also not uncommon for the company to tap former elected officials to make its cases, as it appeared to have done in Cabarrus County, Molnar said.

Shepherd, the school superintendent, said he got a call from Barnhart, the former five-term state representative for the area, in October about the possibility of K12 partnering up with the school district.

Barnhart resigned from his legislative seat in late September to take a job with the McGuire Woods lobbying firm in Raleigh. K12 has hired four lobbyists from the firm, according to filing at the N.C. Secretary of State’s office.

“Jeff (Barnhart) contacted me to see if I would be interested in our district pairing with a virtual charter school,” Shepherd said. “I was impressed with what I heard.”

Barnhart stepped down from the N.C. General Assembly on Sept. 30 after serving five terms and is prevent from lobbying until the close of next year’s legislative session, according to lobbying rules outlined in a recent N.C State Ethics Commission opinion. With Barnhart prevented from lobbying at the state level until a cooling off-period passes, he was not listed as one of the four McGuireWoods lobbyists hired by K12.

Because reforms to the state lobbying laws don’t cover local government, Barnhart can push his clients’ causes on the school district level, said Bob Hall, director of Democracy NC, a government watchdog group that’s been active in lobbying reform in North Carolina.

“Lobbying local government is not covered,” Hall said.

Shepherd, the Cabarrus County superintendent, said school staff have met with K12 representatives, and that the school board members will make a decision in January about whether to partner with the school after holding work sessions to discuss the proposal.

Having a school online could help reach homeschooled children, or those unable to succeed in a traditional school setting, Shepherd said. Part of the agreement, if Cabarrus County were to partner with the school, would be receiving three percent of state and local funds the charter school would receive.

Shepherd said he wasn’t aware of some of the national criticism of the company, but plans on doing more research and passing on the information to board members. He said his goal is to increase the offerings for students.

“We’re looking at innovations that will reach all children with education possibilities,” he said.

Questions? Comments? Reporter Sarah Ovaska can be reached at (919) 861-1463 or sarah@ncpolicywatch.com.

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