Charter School Power Broker Turns Public Education Into Private Profits

by Marian Wang ProPublica, Oct. 15, 2014, 5:45 a.m.

Versions of this story were co-published with The Daily Beast and the Raleigh News & Observer.

In late February, the North Carolina chapter of the Americans for Prosperity Foundation 2014 a group co-founded by the libertarian billionaire Koch brothers 2014 embarked on what it billed as a statewide tour of charter schools, a cornerstone of the group’s education agenda. The first 2014 and it turns out, only 2014 stop was Douglass Academy, a new charter school in downtown Wilmington.

Douglass Academy was an unusual choice. A few weeks before, the school had been warned by the state about low enrollment. It had just 35 students, roughly half the state’s minimum. And a month earlier, a local newspaper had reported that federal regulators were investigating the school’s operations.

But the school has other attributes that may have appealed to the Koch group. The school’s founder, a politically active North Carolina businessman named Baker Mitchell, shares the Kochs’ free-market ideals.  His model for success embraces decreased government regulation, increased privatization and, if all goes well, healthy corporate profits.

In that regard, Mitchell, 74, appears to be thriving. Every year, millions of public education dollars flow through Mitchell’s chain of four nonprofit charter schools to for-profit companies he controls.

The schools buy or lease nearly everything from companies owned by Mitchell. Their desks. Their computers. The training they provide to teachers. Most of the land and buildings. Unlike with traditional school districts, at Mitchell’s charter schools there’s no competitive bidding. No evidence of haggling over rent or contracts.

The schools have all hired the same for-profit management company to run their day-to-day operations. The company, Roger Bacon Academy, is owned by Mitchell. It functions as the schools’ administrative arm, taking the lead in hiring and firing school staff. It handles most of the bookkeeping. The treasurer of the nonprofit that controls the four schools is also the chief financial officer of Mitchell’s management company. The two organizations even share a bank account.

Mitchell’s management company was chosen by the schools’ nonprofit board, which Mitchell was on at the time 2014 an arrangement that is illegal in many other states.

Charters are privately run but government-funded schools that are supposed to be open to all. Policymakers and many parents have embraced charters as an alternative to poorly performing and underfunded traditional public schools. As charters have grown in popularity, an industry of management companies like Mitchell’s has sprung up to assist them.

Many of these companies are becoming political players in their states, working to shape the still-emerging set of rules charters must play by. A few, including Mitchell’s company, have aligned themselves with influential conservative groups, such as Americans for Prosperity and the Koch-supported American Legislative Exchange Council, or ALEC.

This new reality 2014 in which businesses can run chains of public schools 2014 has spurred questions about the role of profit in public education and whether more safeguards are needed to prevent corruption. The U.S. Department of Education has declared the relationships between charter schools and their management companies, both for-profit and nonprofit, a “current and emerging risk” for misuse of federal dollars. It is conducting a wide-ranging look at such relationships. In the last year alone, the FBI sent out subpoenas as part of an investigation into a Connecticut-based charter-management company and raided schools that are part of a New Mexico chain and a large network of charter schools spanning Illinois, Indiana and Ohio.

Two of Mitchell’s former employees told ProPublica they have been interviewed by federal investigators. Mitchell says he does not know if his schools are part of any inquiry and has not been contacted by any investigators.

To Mitchell, his schools are simply an example of the triumph of the free market. “People here think it’s unholy if you make a profit” from schools, he said in July, while attending a country-club luncheon to celebrate the legacy of free-market sage Milton Friedman.

It’s impossible to know how much Mitchell  is taking home in profits from his companies. He’s fought to keep most of the financial details secret. Still, audited financial statements show that over six years, companies owned by Mitchell took in close to $20 million in revenue from his first two schools. Those records go through the middle of 2013. Mitchell has since opened two more schools.

Many in the charter-school industry say that charter schools are more accountable than traditional public schools because, as Mitchell is fond of saying, “parents can shut us down overnight. They stop bringing their kids here? We don’t get any money.”

Moreover, Mitchell said, students at his two more established schools have produced higher test scores at lower costs than those in traditional public schools: “Maybe Baker Mitchell gets a huge profit. Maybe he doesn’t get any profit. Who cares?”

But many charter supporters question that perspective. The National Association of Charter School Authorizers, a group that promotes best practices for overseeing charter schools, says schools should be independent from their contractors. Mitchell’s dual roles as both a charter-school board member and a vendor, for instance, were a blatant violation of those standards.

“This kind of conflict of interest is what I would consider shocking,” said Parker Baxter, a program director for the group.

“This isn’t as if one of the board members happens to own a chalk company where they buy chalk from, and he recused himself from buying chalk,” he said. “This is the entire management and operation of the school.”

Mitchell was pushed by North Carolina regulators to step down from his schools’ board last fall, a move he derides as unnecessary. “It’s so silly,” he told ProPublica. “Undue influence, blah blah blah.”

But concerns about his influence continued even after he stepped down. One board member resigned in frustration over the role of Mitchell’s company. Two others also quit around the same time. Mitchell still serves as secretary for the board, taking notes and doing the meeting minutes. Asked about frustrations among board members over his involvement, Mitchell said, “Everybody’s free to their own opinion.”

When charter schools were first established in the early 1990s, supporters sought flexibility and freedom from the bureaucratic rules they believed hamstrung traditional schools. Charter schools have leeway over their calendar, curriculum, and who they hire and fire. In most states, they do not have to follow many of the processes meant to prevent corruption and misspending of public dollars, such as putting contracts out for competitive bidding.

Mitchell moved to North Carolina in 1997, a year after the state passed a law allowing charter schools. He said he dreamed of starting a school after selling his computer business in Houston in 1989. He had planned on a private school, but when he moved to North Carolina and read about charters, he said he figured that was his chance. He applied to open his first school in 1999, laying out his plans to teach what his company website describes as a “classical curriculum espousing the values of traditional western civilization.” He opened Charter Day School the following year.

Settled into the southeastern part of the state, Mitchell quickly connected with the state’s big political players, including conservative kingmaker