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Virtual moneymakers: Private firms get big share of government funding for Idaho online charter schools(Times-News (Twin Falls, ID) (KRT) Via Acquire Media NewsEdge) Jun. 29--Millions of dollars in state money for Idaho virtual charter schools -- which teach classes over the Internet -- can go only to schools operated by non-profit organizations, according to Idaho law. But the Times-News has found that two of the state's four virtual charter schools are effectively run by out-of-state companies, which take home most of the public support. One percent of Idaho public school students are enrolled in the four virtual charter schools -- with a fifth coming this fall. Idaho lawmakers expressed concern about the prevalence of private companies profiting from public education four years ago, when they passed charter school legislation. Four years later, they're still concerned. "There is a lot more money to be made in this arena than we now suspect," said State Sen. Gary Schroeder, R-Moscow, a sponsor of the 2004 bill. "I think politicians in the past were in love with school choice, and there were some entrepreneurs who took advantage." State Sen. Elliot Werk, D-Boise, who voted for the 2004 bill, said spending patterns show a need to revisit the law. "How much profit do the people of Idaho want to pay with their tax dollars to private education providers? That's a question I don't have an easy way of answering," Werk said. " ?- How much for-profit activity can you have in delivering what is in essence public education? When does a public school turn into a private school?" Virtually for-profit In a review of Internal Revenue Service reports, state records, audits covering the 2006-07 tax year, and information provided by the schools and associated for-profit companies, the Times-News found: --Idaho Virtual Academy Inc. -- the state's largest with 2,366 students -- received $8.97 million from the state and passed nearly 70 percent on to K-12 Inc., a for-profit company based in Herndon, Va., that has operations in 23 states. The Idaho Virtual Academy buys curriculum from K-12 and the virtual school's top ad ministrators are all K-12 employees working under a contract awarded without competitive bidding -- which was not required by the state. The academy board allows some K-12 workers to sign checks drawn on academy accounts. The first academy board included Peter Stewart, a Virginia-based K-12 senior vice president for school development. K-12 spokesman Jeff Kwitowski said parents on the first IVA board asked for K-12's help when it was chartered through the 500-student Butte County School District. "Peter (Stewart) helped them for a short period of time and left before the school was established and began operations," Kwitowski said. "No K-12 employees or contract workers sit on the IVA board (though) K-12 is a public company, so anyone in the world can purchase stock" Eighty percent of IVA funding goes toward student instructional costs, Kwitowski said. --At least one prominent Idaho businessman who helped start some of the state's charter schools is now in a position to profit from a virtual charter school contract. Start-up grants from the Boise-based J.A. and Kathryn Albertson Foundation in recent years helped establish various charter schools in Idaho, including virtual charter schools. The foundation's director and chief executive officer, Thomas Wilford, is a member of the K-12 board of directors and is president and a director of Alcott Inc., a Boise real estate and investment firm that holds millions of dollars in K-12 stock. He said he joined the K-12 board after IVA started, and the investment doesn't conflict with his foundation work. --Inspire Academics Inc., with 255 students, received $829,831 from the state, and spent 85 percent on services provided by Connections Academy, a Baltimore-based company that has school management contracts in 15 states. Connections Academy is owned by an investor group led by Apollo Management LP, a $20 billion private equity firm. The contract between Connections and INSPIRE for 2007 totaled $706,831. School and company officials referred questions to Roseanne Hardin, a Boise-based attorney who said "Connections Academy provides a wide-range of quality services to the school that have enabled the school to provide a quality learning experience to Idaho students in a very cost-effective manner." Hardin confirmed the Baltimore firm received 85 percent of the school's public support, but noted that the total included federal funds passed through the state. --iSucceed, the state's newest online school, has yet to report on its finances but it, too, has close ties to a private, for-profit company. It will open in the fall with a contract through Insight Schools. Insight helps operate online public schools in seven states, including Idaho. Two of the five founding directors of the Idaho-based school hail from Tucson, Ariz., and received salaries from Portable Practical Education Preparation Inc., which operates Insight School of California. Apollo Group Inc., a publicly traded company unrelated to Apollo Management, owns Insight Schools and the University of Phoenix. Different Approaches Not all virtual charter schools spend the same -- two Idaho non-profits without management links to for-profit education service companies spend a relatively small share of state money on for-profit vendors. Idaho Distance Education Academy (IDEA), launched in 2004 by the White Pine School District in Deary, spent about 26 percent of its $5.6 million from the state on services from three different for-profit companies. Its single biggest payment to any one company was $201,000 -- 4 percent of its state support -- in fiscal 2006-07 to World Wide Independent Distance Education of America, based in Missoula, Mont. IDEA saves money by buying services from numerous companies, said Daryl Bertelsen, IDEA superintendent. Mountain Home-based Idaho Virtual High School, also known as the Richard McKenna School, spent about 2 percent of $2.25 million in state funding on contract services in 2006-07 -- all for software maintenance, said director Larry Slade. Teachers at McKenna develop their own courses, and all services provided through the school come from Idaho. "We're home-grown," Slade said, adding that his school operates at lower cost because it does its work in-house. "It's a different philosophy," Slade said. "I like to own rather than rent." But K-12 prefers the opposite approach ?¿??¿?" it makes more money when it provides "complete, turn-key services" to virtual schools, as it does the Idaho Virtual Academy, according to federal regulatory filings. "A non-managed school is one where K-12 provides our curriculum and materials but only limited management services," the company reported to the Securities Exchange Commission. "A managed school enrollment generates significantly more revenue than a non-managed school enrollment ?- Student enrollment is the primary driver of both revenue and profitability, not (public school) funding increases." IVA is a managed school, but it's unclear how much profit K-12 makes in Idaho. "We do not measure profit by school," said Kwitowski, the company's vice president for public relations. Nor does the state require disclosure. Legislative leeway When asked about virtual school finances, Idaho Superintendent of Public Instruction Tom Luna -- a proponent of online education and himself a graduate of an online college -- compared the financial arrangements to those for traditional public schools, which buy textbooks from for-profit vendors and may contract with companies to bus students. Luna and others note that traditional public schools also contract for services, but most of their state support flows through the regular district budget. The Twin Falls School District, for example, spends about 20 percent of its state funding on services from for-profit companies including those required to build a new high school, officials said. Luna said he isn't aware of any in-depth analysis of public school spending for services from for-profit companies, though he said "We're comfortable we know where every dollar is being spent." "Virtual schools are a cutting-edge delivery model for education and, by nature, might need to spend money differently than more traditional schools when it comes to staff, curriculum and technology" Luna said. "As education moves more into using a 21st Century model of delivery, I expect we will see more differences between the new models and the traditional models of education." While virtual charter schools receive state funding, they are not held accountability in the same way as traditional public schools. Their trustees, for example, usually are appointed, not elected by taxpayers. Nor are they subject to the same "use it or lose it" funding requirements as traditional public schools: If public charter schools don't spend all their state money for teachers and instruction in a year, than they can keep the money. Bert Marley, an Idaho Education Association regional director and past candidate for Luna's job, said he's concerned about the degree that public money is being spent on educational services from for-profit companies associated with some virtual charter schools. "In a sense, the darker side is who's benefiting? Who's profiting?" Marley said, stressing that he's speaking for himself rather than the IEA. "Is it taking money from the educational system as a whole to line the pockets of out-of-state companies, or is it benefiting people in the state like we'd like to see?" The IEA hasn't analyzed how much virtual charter schools pay to for-profit companies. But the state's teacher's union recognizes all public schools buy from for-profits. "It's difficult for me to say that charter schools should not be spending money and doing business with for-profit companies," said IRA President Sherri Wood. "We could always question the level, and who the companies are." Cody Claver, the K-12 employee who runs the Idaho Virtual Academy, said each virtual public charter school is unique and uncomparable to traditional schools. "We are running and operating a school with a different set of expenses than brick-and-mortar schools," Claver said. None of the state's virtual charter schools made adequate yearly progress in 2006-2007, which is mandated No Child Left Behind. But IVA operated through K-12, was the only school that was on alert for three criteria including reading and math. IVA also didn't make six goals for adequate progress. Idaho's other three virtual schools made all but two to three of those goals. Oversight faulted Public virtual schools send annual audit reports and budgets to the state and these financial documents must also be reviewed and approved by their appointed boards. Many legislators and state officials say the oversight system is adequate, but it has been questioned by the state's Office of Performance Evaluations, which in March 2007 suggested that "The Legislature should consider additional annual reporting requirements for virtual schools." The Legislature has yet to act, but the Charter School Commission, appointed by the governor, is working on it. "They are currently working to draft (an) administrative rule that would further define the requirements of this audit," the OPE noted in March 2008. The commission didn't respond to requests for an update. Idaho State Department of Education officials aren't complaining. They say financial oversight for virtual charter schools is sufficient. So does Claver, the K-12 employee and head of IVA, who was recently appointed by Luna to serve on the Idaho Teacher Performance Evaluation Task Force. "Superintendent Luna believes all Idaho public schools are currently operating as Idaho law intended," said McGrath, adding, "there are always areas in public education we can improve upon." But at least two state legislators still question where the money is going and the state's level of financial oversight. "I would love to see a more in-depth review done of virtual schools," said Werk, who sent his own child to a brick-and-mortar charter school. "It's very apparent virtual schools have a place in the system and provide a valuable service. On the other hand, there are key questions about the use of public money in virtual school settings and how that money is utilized." But Wilford, K-12 board member and investor, said virtual schools fill a need and there's room for more. "I think that particularly in a rural state the ability to beam in high quality, specialized topics to rural communities is a real plus," he said. "I don't think it's the state's intent, in my mind, to micromanage how a school manages their duties." Andrea Jackson may be reached at 735-3380 or [email protected]. Find more online View Web sites from the state's online charter schools Idaho Virtual Academy, http://www.k12.com/idva/ Richard McKenna Virtual High School, http://www.rmckenna.org/ INSPIRE Virtual Charter School, http://www.connectionsacademy.com/state/home.asp?schoolCodeinspire iSucceed Virtual High School, http://www.isucceedvhs.net/ Idaho Distance Education Academy, http://www.idahoidea.org/Main/Default.aspx To see more of The Times-News, or to subscribe to the newspaper, go to http://www.magicvalley.com Copyright (c) 2008, The Times-News, Twin Falls, Idaho Distributed by McClatchy-Tribune Information Services. 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