How for-profit companies, paid millions in SC tax dollars, are driving online schools

South Carolina’s two largest online charter schools paid nearly $39 million to for-profit companies last year to help manage the schools and provide the technology that connects students and teachers.

Protecting their S.C. interests, the two companies – K12 and Connections Education – and their S.C. online school partners have spent $1 million lobbying state lawmakers since 2009.

That effort has paid off.

Since 2012, S.C. taxpayers have invested heavily in online charter schools. The state has paid nearly $370 million for the online schools in the statewide S.C. Public Charter School District, now in its 10^th year of operation. Enrollment in the virtual schools is growing — now almost 10,600, up from almost 1,600 a decade ago.

However, some legislators and educators are raising questions about whether the virtual schools are succeeding and whether the millions they are spending with for-profit companies is money well spent.

“My primary concern is that the track record of for-profit virtual companies is not strong,” said Elliot Smalley, superintendent of the S.C. Public Charter School District.

Supporters say questions about the relationship between the virtual schools and their management companies “is a red herring.”

School districts – and other public agencies – routinely contract with private companies for a range of services, from lawn maintenance to computers and other technology, said Jay Ragley, senior vice president of state relations for Connections Education. “It’s no different than any delivery of a public service.”

‘We were not fully supported’

Public charter schools were formed to create a publicly funded alternative to traditional K-12 schools.

The charter schools are granted more freedom than traditional public schools from state rules and regulations. In return, they promise innovation and better results.

However, results have been far from ideal.

While some charter schools are high fliers, others lag behind traditional S.C. public schools in academic performance, raising questions about whether the state’s experiment in public-school choice is working.

Virtual charter schools — a subset of the state’s public charter schools — are persistently among the lowest performers, according to the statewide charter district’s leaders.

Some of those schools now are in “breach” of their charter contracts. That status, if not corrected, could lead to a school closing.

However, three of the district’s online schools – S.C. Virtual Charter School, Odyssey Online Learning and Cyber Academy of South Carolina – are leaving state supervision. Starting July 1, they plan to operate under the oversight of private Erskine College’s Charter Institute.

The schools seeking a new boss in Erskine say the statewide charter district has treated them unfairly, not taking into account the at-risk and transient population of students they serve or strides they have made to improve student outcomes.

“We felt like we were not supported fully with the district, that our individuality was not taken into account” when the district evaluates the schools’ performance, said David Crook, head of school at the Cyber Academy, a K12 partner.

But the move has raised questions among lawmakers tasked with setting the state’s budget for charter schools. They wonder whether the schools are trying to escape accountability by getting a new boss.

“It’s getting out of hand,” state Sen. John Matthews, D-Orangeburg, said, adding that the state needs to evaluate whether the charter schools are “performing or not or whether they’re just collecting a paycheck.”

State Sen. Vincent Sheheen, D-Kershaw, said the state needs to set realistic performance goals for online charter schools, taking into account that some of their students are at-risk when they enroll.

But for-profit companies making millions off of struggling public schools raise questions in his mind, he added.

“The more it looks like the school exists to make a profit, the more concern I have,” he said. “I don’t think the state is providing sufficient oversight” of how charter schools are spending tax dollars.

Sheheen said he wants to look at the state Department of Education having more oversight of the finances of charter schools.

“We should have as much transparency and accountability when there are private companies managing schools to make sure students are being educated” and the money is not being misspent, he said.

Virtual schools criticized nationally

Nationally, virtual schools have come under fire for poor academic performance while paying national companies to manage the schools. Critics also have raised questions about the multimillion dollar compensation packages for K12 executives.

However, Cherry Daniel, head of S.C. Virtual Charter School, defends K12, saying it is the reason her school exists.

When the school was getting started, K12 gave it $18 million in “deficit credits” — credits for its services — so the school would make its budget. The school has not had to pay that money back, she said.

S.C. Virtual paid K12 $13.2 million last school year. That money covered computer leases, curriculum and materials provided to the school and to students around the state, and access to the online portal connecting students and teachers. K12 also handles the school’s enrollment process and other administrative functions.

K12 takes up to 15 percent of the school’s revenue for a management fee, $3.1 million last year, according to S.C. Virtual leaders.

K12 isn’t the biggest for-profit company involved in South Carolina’s virtual public schools.

Connections Education, a subsidiary of Pearson, contracts with S.C. Connections Academy, which accounts for about half of the state’s online charter students.

Last school year, Connections Academy paid Connections Education about $25.3 million. About $8 million of that was pass-through expenses that the company paid on behalf of the school with the school board’s approval, including payroll expenses, said Connections Education’s Ragley, a former state Education Department spokesman.

The remaining $17.3 million went for services the company provided, including technology, curriculum development, technical assistance, marketing services, accounting and human resources support.

Responding to critics who say private companies are making money off of low-performing charter schools, Ragley said, adding that traditional public schools have been hiring for-profit companies to provide services for decades.

“Critics have been asleep at the wheel for the last 50 years in public education.”

This story was originally published March 9, 2018 at 6:58 PM with the headline "How for-profit companies, paid millions in SC tax dollars, are driving online schools."