• Alyse DiNapoli

California’s Ban on For-Profit Charter Schools Reinforces Mixed Feelings on School Choice Movement

Updated: Oct 22, 2019

On September 7, 2018, California passed a law banning for-profit charter schools from operating in the state. The legislation was supported by the powerful California Teacher’s Association and while they initially rejected a similar bill in 2015, the California Charter Schools Association also jumped on board to support its passage. Even though less than 3% of charter schools in California are technically for-profit, the law cements the direction that the charter movement is heading in the Golden State.

The reasons why many people have a visceral reaction to for-profit schools are quite intuitive. Not only is there an assumption that student education takes a backseat to profits, but they’re usually less accountable to their districts’ citizens than traditional public schools, and the concern over the lack of operational transparency extends to for-profit and nonprofit charters as well. But if judging solely by student test scores, it’s hard to proclaim that all charter schools drop the ball.

“It will vary a lot depending on state context and what student groups you’re looking at, but research seems to show that students in charter schools tend to perform about the same if not a little better than their peers,” says Micah Ann Wixom, policy analyst for Education Commission of the States. “Sometimes charter schools will show more improvement for some groups, such as more vulnerable or at-risk students, than their peers in a traditional public school, so it really is wide and mixed. But generally, it shows about the same or improved performance.”

But the little research available specifically regarding for-profit versus nonprofit student performance paints a less promising picture. A study conducted by University of Wisconsin-Whitewater found that student achievement was overall lower in for-profit charter schools than nonprofit schools. The report looked at Michigan students’ statewide assessment scores and found that schools run by for-profit companies had approximately 4-5% fewer students scoring at a level 2 (which is the second to highest level one can earn) than their nonprofit counterparts. In addition, they had about 3-4% more students scoring at a level 4 (which is the lowest score). The paper also highlighted that the educational system in Chile has consisted of both types of charter schools for over 2 decades. Not only do Chilean for-profit schools have students that achieve lower test scores on average, but they also hire a greater number of part-time teacher and pay lower salaries.

Despite the useful insight, research studies were not the impetus for the bill. Many agree that the legislation was actually in response to the increasingly questionable behavior of virtual charter schools, particularly K12 Inc., the online charter network that was involved in a 2016 lawsuit with California in which they settled for $168.5 million. The company allegedly exaggerated enrollment records to gain additional funding and published misleading information about students’ progress. It also doesn’t help that research shows weaker student growth in virtual charter schools than those in both traditional public schools and brick-and-mortar charters. Michael Barbour, Associate Professor of Instructional Design at Touro University, says that between public outrage and the fact that full-time online K-12 education only comprises 1-2% of the learning population, it became a lot harder for charter supporters to continuously defend these cyber schools.

“Even the Charter School Association has agreed to some of this. And part of that is because they know that in a general sense, the online charters are making them look really bad,” he said. "I think they’ve realized that there are a lot of battles that are coming in the school choice movement in the coming years and decades, and this is not the hill to die on.”

Charter schools are funded by taxpayer money, but they are not necessarily subject to all of the same rules as a public school. In California, public schools have been required to serve at least 1 free or reduced-price meal to low-income students for decades, but charter schools had been exempt from that rule up until 2018. Perhaps a bigger concern, though, are the less stringent transparency laws, as nonprofits can still enjoy less financial accountability than public schools. For example, nonprofit educational management organizations (EMO)-the firms that essentially run the charter schools’ operations-may be required to disclose IRS 990 tax returns, and while that provides more information to the public than a for-profit (such as leadership salaries and revenue), it does not have to disclose finer details on expenditures or contracts in the same way that public schools must.

According to Julian Vasquez Heilig, Professor of Educational Leadership and Policy Studies at California State University-Sacramento, while we may not like a school board’s financial decisions, at least there is an opportunity for residents to do something about it.

“There’s direct democratic accountability. So if we’re unhappy with the way that money is spent, we can go and vote that person out and we can change that contract. With charter schools, that can’t happen,” he said.

Concerns around conflicts of interest also arise, especially regarding contractual agreements. Without explicit legislation banning this behavior, nonprofit charters can hand over virtually all operations to their associated for-profit enterprises, who then have the ability to overcharge for services, such as curriculum development or teacher training. Even public schools contract out services to corporations, but according to Barbour, they are usually one-off deals and for a specific service, such as for textbooks or exclusive rights to be the soft-drink vendor. In addition, a research report published by the National Education Policy Center found that, because teacher unions are much stronger in public schools, these agreements typically do not come at the expense of employee salaries or benefits.

But Wixom says that less transparency and questionable contracting practices are not inherent to the charter school model. She says that having strong charter authorizers (the organizations who have been granted authority by states to approve and oversee these schools) can ensure that adequate financial reporting and other pertinent information is disclosed, particularly if strong laws are on the books.

“When it comes to transparency, I think one of the most important things that you can do is provide really good oversight and strong authorizing practices. And I think strong authorizing practices can do a lot to mitigate those concerns around transparency, whether founded or not,” she said.

In addition, it’s possible for parents and local citizens to have a say in a local charter school’s operations, especially if they are in a state like California, where school districts-not just state boards-are able authorize.

“It goes back to the state structure around authorizing. If you have a school board that is the authorizer, you as the citizen, might have a little more say than the state board of education.”

With this approach, charter authorizers must be willing to take a close look at questionable practices that are less obvious to the public, such as property acquisition. Traditional school facilities are oftentimes funded by bonds, and voters will agree to pay the interest. When a charter operator buys up a vacant school, they typically must guarantee their investors a higher rate of return, meaning taxpayers are not only paying twice for the building, but at a higher interest rate than a general obligation bond.

But there is reason to believe that charter authorizers are indeed willing to crack down on suspicious behavior, and Barbour says to look at Pennsylvania as an example. The state’s authorizers, who do not allow for-profits to directly run virtual schools, have denied a majority of the cyber charters in the past few years because they did not feel that the nonprofit boards were independent of the EMO that was running the school. Previously, authorizers would approve any handpicked board that the company chose to run the school, even if obvious conflicts of interest were at stake, he mentioned.

“Without any change in regulation or legislation, there was a new group of people that came onto the authorizing board, plus a sort of growing political pressure, and the board started making decisions. And within the existing law in most states right now, states have the ability to do that now under current regulation. They just choose not to,” Barbour said.

While it may not always take additional regulation for charter oversight to improve, the law will at least provide less grey area for authorizers. Among other restrictions, for-profit companies are prohibited from managing the charter school’s day-to-day operations, as well as handling the budget without authorization from the governing body. It also states that they may not enter into a subcontract to avoid any of the requirements. Many proponents of the legislation, including Heilig, are hopeful that this will close remaining loopholes, as long as it’s truly implemented.

“Do I think the law’s design is strong enough to create more transparency and accountability in the charter school movement and ensure that for-profits do not operate in California? I think it is,” he said. “But the question will be, will we see the enforcement of the law? That’s the open question.”


“State lawmakers call for deeper regulation of charter schools”. LA School Report. March 26, 2015.

Growth & Enrollment. California Charter School Association.

AB-406 Charter Schools: operation. Assembly Floor Analysis.

Micah Ann Wixom, policy analyst, Education Commission of the States.

“Is There a Difference Between For-Profit and Not-For-Profit Charter Schools?” University of Wisconsin-Whitewater, Department of Economics. Hill, Cynthia D and Welsch, David M. October 2007.

“Charter Management Organizations”. Center for Research on Education Outcomes. 2017.

“Attorney General Kamala D. Harris Announces $168.5 Million Settlement with K12 Inc., a For-Profit Online Charter School Operator”. Press Release, State of California Department of Justice. July 8, 2016.


“Online Charter School Study”. Center for Research on Education Outcomes. 2015.

Michael Barbour, Associate Professor of Instructional Design for the College Of Education and Health Sciences, Touro University.

“Governor Signs Bonta’s AB 1871 to Provide Healthy Meals for Low-Income California Students in Public Charter Schools”. Assemblymember Rob Bonta, District 18. September 18, 2018.

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