During a conversation with a charter school organizer/colleague, I learned that the Internal Revenue Service has implemented guidelines for ‘non-profit’ charter school companies. To read the full guidelines, click here. Of particular interest is this statement: The primary concern regarding charter schools is whether they are operated for exclusively charitable purposes and do not operate for the benefit of private management companies and service providers (22.214.171.124.1 (07-01-2003). The IRS also has criteria that must be met before any organization receives tax-exempt status. For example, organizations created for educational or religious purposes often qualify for 501C3 status. Given the amount of work done by the IRS and number of applications it receives each year, it is certainly understandable how monitoring of Charter Management Companies (CMOs) may go by the wayside.
Anyone in the Education business is aware of the well-known CMOs, as well as the large financial contributions they receive from philanthropic organizations such as the Bill and Melinda Gates Foundation, the Walton Foundation, etc. But how many people actually consider where the money really goes? Sure, their first-year teachers probably earn more on average than those at traditional schools, but they also work more hours. Essentially, it practically evens itself out except for the fact that teachers at traditional schools work as many extra hours but do not receive extra compensation. That’s another blog post altogether.
Perhaps most alarming is the fact that some CMOs hand-pick their board members. This practice is in direct conflict with IRS rule: When examining a charter school that has contracted with for-profit entities for management services, the examiner should determine whether the charter school board remains in control and continues to exercise its fiduciary responsibility to the school. The board may not delegate its responsibility and ultimate accountability for the school’s operations to a for-profit management company without raising the issue of whether the organization is operating for the private benefit of that company. In the state of Georgia, any group submitting a charter petition must be recognized as a non-profit by the IRS. This is interesting, given the statements made in an email by Dennis Bakke, CEO of Imagine Schools. Bakke stated that they (Imagine) own the schools and board members should either do what they are told or resign. Is that the spirit of a true non-profit? If it is, it definitely explains why I had no interest in business until recently. from a financial standpoint, Imagine does own the schools because they ‘convince’ these parents and board members that they need a brand new, multi-million dollar building to close the achievement gap. The schools are eventually strapped with high-interest loans that come due if the board should decide to part ways with the CMO. This scenario seems much worse than any mafia business transactions I have ever seen or heard of. Food for thought.
Stay tuned. I hope to provide a list of CMOs/EMOs that are being investigated by the IRS some time next week.