The IRS has concerns about for profit Charter Management Organizations (CMOs or EMOs) running non profit charter schools. The important term here is "running." While it's perfectly OK for a non profit charter to contract out parts of its curriculum and operation to CMOs, it's a violation of tax regulations for the CMO to be in charge.
The investigative series on Imagine Schools in the Fort Wayne Journal Gazette, Education Inc., showed just how little power most Imagine school boards have. The power rests with the corporation.
The IRS has created a 15 page Charter School Guide Sheet whose purpose is to point out warning signs that a for profit CMO is running the show. Here's a summary of the concerns:
The predominant issue in charter school exemption applications is the possibility of impermissible private benefit to a management company. Therefore, the Charter School Guide Sheet is designed to examine whether the charter school is independent of the for-profit management company and whether the management agreement has been negotiated at arm's length.[emphasis added]
...a charter school's governing body is likely to be independent of a management company where (1) the board members are unaffiliated with the management company and consist of members of the community or persons who are otherwise qualified to serve on a school board; (2) the board members have authority over and are actively involved in major school policies, including the budget, curriculum, and hiring and firing; and (3) the board members negotiated with the management company before signing the management agreement.
The Education Inc. investigative series pointed to direct involvement by Imagine Schools in every aspect of the Indiana schools' beginnings and ongoing operations. In other words,the way Imagine Schools corporation runs its business should be one gigantic IRS red flag.
Imagine's CEO, Dennis Bakke, wrote an email describing his view of the boards which, by IRS regulations, are supposed to run the school. Bakke disagrees.
"I have been to 3 school openings in the last month where I was thanked for helping the local board start the (our) school. In none of these cases did the board have a major role in 'starting' the school. They didn't write the charter. They didn't finance the start up of the school or the building. They didn't find the principal or any of the teachers and staff. They didn't design the curriculum. In some cases, they did help recruit students. . . . I do not mind them being grateful to us for starting the school (our school, not theirs), but the gratitude and the humility that goes with it, needs to extend to the operation of the school."
The boards didn't start the schools. They didn't hire principal or staff. Therefore, Bakke believes the schools are wholly owned subsidiaries of the corporation, and the boards should understand their roles as rubber stamp organizations.
If the IRS looked at a slew of newspaper articles around the country, then read the entire Bakke email, it would (or should) be looking at the entire Imagine Schools empire from top to bottom.
And that includes Arizona. As I've written before, each of the 13 non profit Imagine Schools is a separate entity with its own board -- on paper anyway. In fact, there are only 2 boards that run all the schools. Nine are run by one board and four by the other. The chair of both boards is the same person, Leonora Farrah. The boards are not local in any sense, and it's very unlikely that they make decisions independent of the Imagine Schools corporation.
This is one of a series of posts, Peeking into Charter Schools. If you have information you wish to contribute, you can post comments or email me: firstname.lastname@example.org.