Office of Inspector General’s Audit of Charter Schools

Oct 18, 2016 by

Double double toils and troubles

Charter schools and bank loan “bubbles”

In the case of the sub-prime mortgage crisis of a few years ago, the “bubble” got an afterlife as a mentor to the charter school industry.

In an exhaustive audit and analysis, the Office of the Inspector General, a federal agency, delineated clear linkages between the way that charters are set up and run and what precipitated the emergency that wrought havoc on the housing market. Their study, “Are Charter Schools the New Subprime Loans?” identifies a “bubble” that is chillingly reminiscent of what drove the epidemic of avoidable foreclosures.

If the charter “bubble’ bursts, protracted litigation and absorption of losses will be the least traumatic of consequences. The most catastrophic toll will be to our most vulnerable children.

Specifically, the fault lies with what Business Insider calls “the principal-agent problem”, in which there is a “misalignment with third-party management organizations”. It’s a dichotomy of interests. A clash of priorities between “originators” and “servicers”.

In the case of the banks involved in the sub-prime loan scandal, the administrative responsibilities were signed over to servicers who had a financial incentive in the proliferation rather than the avoidance of foreclosures. They had an investment in catastrophe. In the case of charter schools, which is essentially private commerce funded by public assets, there is an inducement to the point of it being a fiduciary duty to conserve costs to maximize profits.

They don’t recognize kids as “special needs”. They see them as “special expense”.

Public schools are funded by taxpayers for the sole purpose of delivering educational services. Necessity prevails over cost effectiveness.
Charter schools are generally run by private managers seeking to meet investor goals of revenue generation and liability avoidance. At-risk kids are liabilities. To the charter managers, the more that students require, the more a debt they represent. A child crying for help is an obstacle to dividends.

The Office of the Inspector General outed the “significant financial, lack of accountability and performance risks that charter school relationships with charter management organizations pose to Department of Education program objectives” which “the Department’s internal controls were insufficient to mitigate.”

The word “bubble” is most immediately associated with baths and the innocent amusement of small children seeing them burst in the wind.  It is word that lends itself to myriad adaptations. Kids live in a “bubble” of trust. But the housing “bubble” and the charter school “bubble” reflect the flip side of innocence.

As the charter school entrepreneurial leeches have discovered to their advantage, being a racketeer according to moral law is not illegal.

Ron Isaac

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