Michigan Charter Schools Face Scrutiny After Taking Billions in Public Funds

More than 80% of Michigan’s charter schools are operated by for-profit management firms, which aren’t subject to Michigan’s open records laws, meaning there’s little transparency about how they spend public dollars.

MICHIGAN—Michigan’s charter schools will collect at least $1.5 billion in state funding this year, but the public knows little about how that money gets spent or where it ultimately winds up. 

Sen. Rosemary Bayer (D-Beverly Hills) hopes to change that.

Long-sought state legislation set to be introduced this fall by Bayer aims to shine a brighter light on how hundreds of Michigan’s charter schools are spending state tax dollars—and ensure Michiganders are getting the biggest educational bang for their collective buck.

“Fundamentally, as a government, we should not be giving money to for-profit entities not even knowing how they’re spending it. But we do it with the (charter) schools,” said state Sen. Rosemary Bayer (D-Beverly Hills). “We don’t ask them what they’re doing with the money.”

She added: “We just give ‘em money.”

What is a charter school?

Decades ago, under Republican Gov. John Engler, Michigan lawmakers passed a bill to create a new category of schools called public school academies, or charter schools, as an alternative to traditional K-12 public school systems. Today, about 150,000 Michigan students—nearly half of whom are Detroiters—are enrolled at an estimated 370 charter schools across the state. 

Any parent, teacher, group, or entity—as long as it’s not religious—is allowed to start a charter school. Enrollment is free, though unlike public schools, charter schools usually have enrollment limits. And although independently managed, they’re still regulated by an intermediate school district, local education agency, community college, or public university.

The Michigan Department of Education also monitors student achievement at charter schools, and holds them accountable when they fall below targets. Teachers, though often paid less at charter schools, are also held to the same state licensing standards. And charter students are required to take a number of the same state tests as those at traditional public school districts.

Research shows that charter schools can close abruptly, which can disrupt thousands of students. A federal analysis of charter school failure rates between 1999 and 2017 found that more than 25% of charter schools closed after five years, and about half closed after 15 years.

How are they funded?

Although the vast majority of Michigan’s charter schools are operated by for-profit management companies, they are still considered public schools—which means they each receive the same per-pupil funding allowance from the state government as every other public school in Michigan.

This year, that funding is at an all-time high. 

An education spending bill passed into law by Democratic lawmakers and signed earlier this year by Gov. Gretchen Whitmer shattered records. The $24.3 billion school aid budget represented the most taxpayer dollars that have ever been earmarked for public schools in a single year—and the largest ever per-pupil allocation at more than $9,600 per student.

Naturally, that educational windfall carried over to charter schools. State officials confirmed this week that the Michigan Department of Education will provide at least $1.56 billion in state funding to charter schools this year alone, setting another state funding record in Michigan.

Charter schools can receive some federal aid, but they aren’t legally able to collect local tax revenues through millages like traditional schools. Some are also supported by donations.

What’s the problem?

Charter schools don’t play by the same rules as public schools when it comes to publicly reporting their financial information, including how much they actually spend on education.

More than 80% of Michigan’s charter schools are operated by for-profit management firms. And in many cases, those firms set the prices and bill charter schools for just about everything—from finding custodial staff and buying textbooks, to hiring teachers and managing the budget.

These arrangements are known as “sweeps” contracts because they “sweep” nearly all of a school’s public dollars—anywhere from 95 to 100%—over to their management companies.

“There are substantial amounts of money being made here, and it’s being made almost entirely within our disproportionately at-risk and vulnerable communities,” said Josh Cowen, professor of education policy at Michigan State University. “That in and of itself needs to be examined.”

Some charter school operators in Michigan—like ACCEL Schools—also run their own real estate arms, which reportedly allow them to acquire properties and then basically rent their own buildings to themselves (with taxpayer dollars) through the charter schools they manage. 

In the case of ACCEL, running charter schools in Michigan was a lucrative enough endeavor to earn the backing of Safanad Limited in 2014, an investment firm with Saudi ties based in Dubai. 

And because those private entities aren’t subject to Michigan’s open records laws, nobody—not even the state Board of Education—knows whether or not those contracts are offering taxpayers a fair deal, or bilking them out of millions of dollars in sweetheart real estate contracts.

“What is it about Michigan’s vulnerable and at-risk students that make these for-profit management firms see dollar signs?” Cowen asked. “The system doesn’t allow for answers, and if you care about children in our state, you should want to know how our dollars are being spent.”

In 2021, state officials encountered the transparency problem for themselves after they sent Freedom of Information Act (FOIA) requests to hundreds of Michigan’s charter schools, seeking details about their financial structures and relationships with their management and vendors.

Because those management firms weren’t legally required to provide audited financial statements to the state or its taxpayers, many of them simply didn’t respond, officials said.

Of those that did, 90% of charter schools reported that more than half of their operating expenditures were contracted out—resulting in at least $1.3 billion in state funding that was not reported and audited with the same level of detail required of traditional school districts.

“Charter school (management firms) have total financial control over their charters and can squish them if they want to squish them,” said Tanner Delpier, an economist at the Michigan Education Association. “This system has turned an industry that is really focused on educating kids and serving their communities into one that is somewhat about the extraction of resources.”

He added: “The problem with the financial data is that we just cannot track their spending in any reasonable way. The fundamental problem with charter schools is that they’re not public. They don’t have to abide by the will of the public, and they really don’t have to be that transparent.”

What’s the plan?

With such little oversight on how that cash is actually being spent once it ends up in the hands of corporate management firms at charter schools, some state lawmakers are growing concerned—and have plans to introduce legislation to hold them accountable later this year.

“They’re not breaking any laws. We just don’t have any laws that say they actually need to publish their financial data,” Bayer explained. “It’s really fundamental, and it just drives us crazy. It’s out of control. … Most of our charter schools are for-profit and we don’t have any control over what they’re doing with the money we give them. Everything about that is wrong.”

Bayer told The ‘Gander that she’s working with Sen. Dayna Polehanki (D-Livonia) and Rep. Matt Koleszar (D-Plymouth)—among other lawmakers—to reintroduce a package of bills from last year that would create new financial reporting requirements at Michigan’s charter schools.

Charter schools and the corporations that run them owe a duty to every taxpaying Michigander to be much more transparent about how they’re spending the hundreds of millions of dollars in state funds they receive every year, she said. And this year, lawmakers hope to force their hand.

The bills Bayer plans to reintroduce are known as the School Freedom, Accountability, Choice and Transparency (FACT) Act. The bills may not carry the same title when they reappear this year, but Bayer said the legislation will aim to accomplish the same general goal: Ensure that all taxpayer funds are closely monitored after they’re sent off to Michigan’s charter schools.

Specifically, the legislation would require all contracts with charter school management firms, as well as copies of their annual audited financial statements, to be made publicly available. Bayer said the added reporting requirements will allow state officials (and taxpayers) to keep a closer eye on how charter schools are spending their cash. 

The bills would also subject charter schools to FOIA requests.

Koleszar, the chair of the House and Senate Education Committees, declined to comment for this story. Polehanki, the chair of the Senate Education Committee, didn’t respond to emails. Gov. Gretchen Whitmer, who didn’t mention charter schools in a recent speech outlining legislative priorities for the remainder of the year, also didn’t return a request for comment.

Still, Bayer is confident there’s enough momentum to get the bills passed into law this year.

“Most of us hope to do it this year,” Bayer said. “We’ve been working on it for a long time. I think right now, it’s purely in the hands of the leadership of the House and the Senate.”

Michigan Education Association spokesman Thomas Morgan said the MEA is focused on a variety of other education-related issues—including fixing Michigan’s “broken teacher evaluation system.” But it still stands in “strong support” of the efforts to hold charter schools accountable.

“Charter schools receive massive amounts of taxpayer dollars, yet they aren’t held to the same transparency standards as traditional public schools or other entities funded by our tax dollars,” he said. “Michigan taxpayers—including parents of children attending charter schools—deserve to know how their tax dollars are being spent, including how much is going toward CEO profits.”

The state Board of Education also issued a resolution in support of the bills last year, which encouraged lawmakers to reintroduce and pass them sometime before the end of the year.

“I don’t think it’s any secret that charter management organizations are profiting from operating charter schools in the state—that’s the goal of for-profit charters,” state Board of Education member Mitchell Robinson told The ‘Gander in an email earlier this month. 

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