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Legislation that would prohibit for-profit management companies from selling or leasing property to the charter schools they run is one step closer to becoming Michigan law.

The measure, which cleared a vote in the Senate Education Committee on Wednesday, targets an issue that advocates for charter school oversight have raised alarms about for years: the use taxpayers’ money to buy private propertyfor the benefit of for-profit companies that operate charter schools.

The legislation was part of a package of bills aimed at require more financial transparency for charter schoolsincluding open public access to financial audits of individual expenditures.

The intent of the bills is not to force charter schools to close, limit the number allowed in the state or eliminate their funding, state Sen. Dayna Polehanki, a Livonia Democrat, said during a Senate Education Committee hearing , on Wednesday, before the vote. Rather, she said, it’s to hold the for-profit companies that operate charter schools more accountable to taxpayers.

“When over 80 percent of Michigan’s charter schools are connected to private companies, most of which exist to make a profit using Michigan taxpayer money, it is important that they no longer be allowed to do so in secret,” she said.

In all, Democrats on the Senate Education Committee approved moving nine charter school bills to Senate votes on Wednesday.

Five of the bills — which deal with charter schools publishing salary information and displaying the names of charterers and their management companies — have already passed the House and would likely be signed by Gov. Gretchen Whitmer if approved by plenum Senate.

The other four bills have not yet been voted on in the House or Senate. If approved by the Senate, they would go to the House Education Committee for consideration.

Charter school transparency reforms are Michigan Democrats’ last major education policy priority in their lame-duck session before losing control of the House to Republicans.

Republicans have long opposed such bills, saying they hinder school choice by adding more costs and regulations.

Buzz Thomas, board chairman of the Michigan Association of Public School Academies and a former Democratic state senator, said during the hearing that charter schools are already being held accountable by public chartering entities.

“They are overseen by public school boards that hold open meetings,” he said.

Charter school boards are appointed, not elected.

How do charter schools work in Michigan?

Public school academies or charter schools are public schools that receive state and federal funding. They must comply with state and federal education laws.

Charter schools have been around in Michigan for nearly 30 years. Today, they serve about 150,000 K-12 students in the state, or about 10 percent of the total. Most of the schools are in urban areas like Detroit, where nearly half of public school students go to charter schools.

Anyone can operate a charter school in Michigan, but they must sign a contract with an outside body known as an authorizer, which is usually a college or university and sometimes a local school district. The authorizer appoints a board to oversee the school.

In Michigan, most charters are run by for-profit companies known as education management organizations, which are not subject to public disclosure of how they spend money on behalf of schools or how much they make. These companies may offer full management services or handle key administrative functions such as balancing ledgers or hiring teachers.

Polehanki said some management organizations with full-service agreements are estimated to take about 95 percent of the taxpayer money allocated to the schools they run. “Michiganders have a right to know how much of their tax dollars goes to the children and teachers of charter schools, compared to how much is kept by the private companies that oversee them as pure profit,” she said.

All public schools must report financial information on their websites, but unlike traditional public schools, charter schools often roll all expenses into a single line item for “services purchased.” The practice makes it difficult for the public to see what schools are spending taxpayer money on.

Gary Miron, a professor at Western Michigan University who has done research on charter school operations, told the hearing that Michigan is known as the “wild west” because of the light oversight of charter schools compared to other states.

Real estate holdings for management companies

The legislation that advanced Wednesday targeted a concern about management companies’ real estate holdings and investments.

A 2014 Detroit Free Press investigation found that National Heritage Academies, a for-profit company and the largest OEM in the state, owned most of the buildings in which its schools operated, along with everything in them.

When EMOs own charter school buildings and their contents, the school board has little power to remove the company as school manager.

“The company makes money building or renovating these schools, recouping its investment through rents charged to the schools,” Polehanki said. “Those rents paid with our taxpayer dollars generally do not decrease or disappear, even after the company has recouped or recouped its initial investment.”

As EMOs often own all the materials and property that schools use, they can threaten to sell them if they are unhappy with the council’s actions.

Changing the law to prohibit EMOs from selling or leasing property to the charter schools they operate would change the power dynamic, the professor said.

The full package of Senate bills that advanced Wednesday would:

• Require school boards to ensure that the terms of lease or purchase agreements reflect market prices determined by an appraisal.
• Prohibit councils from entering into lease or purchase agreements with their EMOs or any person or entity associated with them.
• Require charter authorizers to review the terms of their school ownership agreements and notify the State Board of Education or the Michigan Department of Education if the new requirements are not met.
• Require that representatives of the licensing bodies attend each of their charter’s board meetings.
• Require authorizers to prepare reports at least twice a year detailing their oversight efforts and present them at board meetings.
• Make sure your charterers ensure that the bylaws for their charter boards require a majority vote to approve any decision.
• Have charterers oversee all contracts the charterer enters into to ensure all terms and conditions are met.
• Apply the current Financial Disclosure Guidelines for Charter Schools, Schools of Excellence, and Academics from Urban High Schools to Strict Discipline Academies.
• Require EMOs to submit audited financial statements to charter school boards detailing the expenditures of money received through their management agreement. This provision would only apply to charters with operating contracts signed or renewed after the passage of the bill.
• Require EMOs to disclose benefits in compensation packages for employees, officers or board members who earn more than $100,000 per year.
• Make charter school boards post all financial information on school websites for public access within 30 days.
• Require charter schools to publicly post any notices that they are not following educational standards, guidelines, or rules.

The provisions of the House bills would require the following:

• Names of charter school and EMO authorizers to be publicly listed online, on student applications and on campus signs.
• Average salaries of educators to be made public online.

Hannah Dellinger covers K-12 education and state education policy for Chalkbeat Detroit. You can reach her at [email protected].