Update regarding ODE “operational independence” challenge to conversion community schools

Over the past several months, the Ohio Department of Education has issued a series of directives to conversion community schools and their school district sponsors aimed at requiring the schools and sponsors to establish “operational independence” from one another. The current article provides information regarding recent events.

As reported earlier, ODE sent letters to conversion community schools and their school district sponsors beginning in November 2009 alleging that the schools were in violation of state and federal law due to a lack of “operational independence” from their sponsor districts. ODE specifically cited to such shared resources as teachers, treasurers, administrators, and facilities.

In response, we wrote to Superintendent Delisle questioning ODE’s legal authority to make these demands and requesting a meeting to discuss the ramifications. On December 30, we met with Superintendent Delisle and other representatives of ODE. At the meeting, ODE identified three legal authorities it claimed supported its position: section 3314.01 of the Ohio Revised Code (which introduces the statutory chapter devoted to community schools); non-regulatory guidance regarding grant eligibility issued by the federal government in July 2007 (something ODE continues to cite despite the acknowledgment of former ODE legal counsel Matthew DeTemple that such guidance is not applicable to the issues at hand); and a potential concern with incompatibility when positions at the district and conversion school are held by the same person (i.e., conflict of interest concerns).

On February 4, 2010, we participated in a conference call hosted by ODE in which ODE expressed concern for the conversion schools but did not back off any of the demands it had made in its letters to the schools. ODE asked participants to identify the most problematic challenges from the local perspective so that alternative, best practices could be presented at a meeting of the conversion schools on February 26. The presenters, we were told, would represent those conversion schools – four of 46 – that ODE had found to be compliant with law. ODE expressly indicated that it would ensure ahead of time that the practices described by the presenters were lawful so that other schools could replicate the practices with confidence.

The February 26 meeting was well-attended. ODE opened by characterizing its site visits to the schools last spring as “validating,” with the visited schools described in highly positive terms. The “best practices” presentations were, however, confusing, as it was apparent that some of the four model conversion schools were practicing the very forms of collaboration ODE has prohibited – including shared treasurers and superintendents. In break-out sessions, participants were asked, among other things, to describe what a community school should look like – a puzzling question given that community schools are not intended to conform to preconceived notions about what constitutes a “school.” In closing the meeting, ODE announced that, for the time being, the corrective action plans it was requiring of the conversion schools would not need to address the three issues referred by ODE to the Attorney General – that is, the overlapping conversion school/sponsor district treasurers, superintendents, and governing board members. ODE indicated that remaining elements of the corrective action plans still were due by the 90-day deadline established in ODE’s original letters to the schools.

However, on March 12, ODE announced by email that it would send new letters to the schools this week, identifying “which items previously cited are on hold pending feedback from the AG, which require attention prior to next school year, and which have already been addressed according to our latest information.” ODE also indicated that the deadline for submission of the corrective action plan has now been extended to May 1 for all schools.

While its request for an Attorney General opinion has thus caused ODE to delay the deadline for corrective action plans, schools and sponsors should note that the opinion requested of the Attorney General will not, in fact, be capable of resolving the “operational independence” controversy for two reasons. First, the Attorney General will only be weighing in on three of the numerous violations alleged by ODE in the letters to the schools. The Attorney General’s opinion will not address other important demands of ODE, such as separate teachers and facilities. Second, and more critically, there is no possibility that the Attorney General’s opinion will resolve even the treasurer/superintendent/ board member issues, since the Attorney General will only analyze these three issues in terms of compatibility, whereas ODE also asserts two other, independent legal theories in support of its demands (i.e., an unrelated provision in Ohio law, and federal law as embodied in the 2007 non-regulatory guidance). It also is relevant to note that Attorney General opinions, while regarded as persuasive authority, are not law. In other words, an opinion of the Attorney General is not legally conclusive even as to the limited legal issues addressed in the opinion.

ODE has recently made available the “Ohio Monitoring Report” (without most appendices) prepared for the U.S. Department of Education in connection with the federal Public Charter Schools Program grants. This Report was cited by ODE at the February meeting in support of ODE’s claim that separation of conversion schools and sponsor districts is required by federal law. However, the Report does not appear to support ODE’s claims. Several aspects of the Report, in particular, are worth noting.

• The Report solely evaluates Ohio’s compliance with law in connection with federal PCSP grant eligibility.

• There is no discussion in the Report of independence as between conversion schools and sponsors, nor is there any specific criticism of Ohio’s conversion schools on this or on any other ground.

• The Report does express concerns related to autonomous operation of community schools, but these concerns are directed solely at schools operated by for-profit management companies (which the Report suggests may fail to meet the federal definition of a charter school).¹

• The Report concludes that Ohio is doing too little to “ensure that the authorized public chartering agency [here, sponsor districts] will provide for the continued operation of successful charter schools”² – a finding that seems inconsistent with ODE’s effort to curtail relations between conversion schools and sponsors, which, if successful, will likely lead to the closure of many conversion schools.

• The Report finds that Ohio’s community schools are sufficiently autonomous in terms of state regulation. However, the monitors who prepared the Report visited Ohio in March of 2009. Since then, ODE has sought to comprehensively regulate the manner in which conversion schools operate by demanding that they conform to ODE’s vision of separateness.³

At this point, conversion schools and their school district sponsors are at a critical crossroad. Many do not believe the schools can continue operating under the new “operational independence” requirements imposed by ODE, and many do not believe they have the luxury of waiting to plan for the 2010-2011 school year. These schools and sponsors must decide in the coming days whether the community school is capable of changing in the ways demanded by ODE in time for the 2010-2011 school year or whether the school must shut down – and, in either event, how they will manage the repercussions.

Conversion schools and sponsor school districts are considering their options. If you would like to know more regarding the current status of the controversy and options that may be pursued, you might want to contact legal counsel. Meanwhile, as we have in the past, we would suggest that you consider communicating with your legislators, State Board of Education members, or others who may be able to be of assistance.

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Footnotes

1. The Report states as follows (at page 12-13, emphasis added):

   Whether charter schools operated by for-profit management companies are operating independently from the management company was a question that appeared when the monitoring team visited school sites. In two of the schools visited, for-profit management companies contracted with the governing board of the community schools to provide turn-key systems and services to the school. The for-profit management company employed all staff, including the treasurer (required under Ohio statute to be the person designated to receive CSP funds) and superintendent/designee. At one of these schools, the governing board president stated that he was not aware of conflict of interest requirements and prohibitions, nor had he been asked to sign any disclosure documents. It is not clear how the State monitors for-profit school management organizations to ensure that “managed” schools established as nonprofits, but operated wholly by for-profit organizations, are autonomous and clearly under public supervision.

   Generally, the charter schools’ boards sign a five-year contract with the for-profit management companies. Although a school can terminate its contract if the management company “fails to remedy a material breach” of the contract (see Appendix 21: Management Agreement between Mosaica, Inc. and the Academy of Arts and Humanities, p. 12), it was unclear what would happen to the school in the instance that all staff, services, and facilities are wholly owned by the management company. This further calls into question whether the school, in such a situation, meets the Federal definition of a charter school.

   It was not clear how the State monitors for-profit school management organizations to ensure that “managed” schools established as nonprofits, but operated wholly by for-profit organizations, are autonomous and clearly under public supervision.

   Rating and Justification: 1 – State does not meet the indicator. The State cannot ensure that all community schools, especially those managed by management companies, are in full compliance with Federal requirements.

   Recommendations: The State needs to strengthen its policies and procedures for both sponsors and subgrantees to ensure understanding and compliance with Federal statute and guidance, including addressing the potential/real conflicts of interest when for-profit management companies operate community schools on a day-to-day, full-service basis.

2. See page 24 of the Report.

3. The “autonomy” requirement is described in the Report as follows (at page 22, emphasis in the original):

   Indicator 2.5: The SEA affords a high degree of flexibility and autonomy to charter schools. In accordance with sections 5204(b)(2) and 5202(e)(3)(C) of the ESEA, the State demonstrates that it provides charter schools with a high degree of flexibility and autonomy over the school’s budget, expenditures, personnel, and daily operations.

   The Report finds Ohio in compliance with the foregoing requirement, stating as follows (at page 23):

   With regard to whether the State is monitoring and ensuring that charter schools are operating autonomously, the State reported, “All community schools must be uniquely incorporated entities; each receives an independent State audit, which would reveal any issues pertaining to independent operation.” (See Appendix 20: Overview of Indicator 4.1.) The monitoring team found no evidence that schools are not autonomous from the State.

   In connection with the monitors assessment of whether the state “affords a high degree of flexibility and autonomy to charter schools,” the Report notes (at page 22-23) the state’s recent focus on conflicts of interest and procurement practices, as follows:

   Interviews with OCS staff indicated that the primary areas of flexibility concern instruction and staff. The school administrator can be hired by the governing board or by a management company that is hired by the governing board. The same groups can hire and fire teachers. But similar to traditional public schools, teachers must be highly qualified. At-will contracts are allowable to get newer, less expensive teachers. Community schools control their own budgets. The sponsor monitors expenditures but cannot determine how a school spends its funds.

   An area being discussed at the State level is the need for competitive bidding for procurement. Previously, community schools were exempted from such requirements. A new budget bill raises the procurement and conflict of interest issue. Last spring, ODE sent a letter to sponsors that included the ED message about procurement. (See Appendix 19: ODE Advisory Letters to Community Schools.) OCS officials told the monitoring team that the State is focused on resolving the issue in the best interests of the students and that they have consulted with Delaware and Texas officials on this issue.

   As is true of the rest of the Report, the monitors do not identify any problems with the conversion schools with respect to the foregoing. The only entities singled out for conflict-of-interest concerns are those schools managed by for-profit operators (see footnote 1 of this article).