Back in January 2013, I wrote about three Kansas judges who saw right through the state’s claim that deep funding cuts would cause no harm. The Shawnee County District Court panel in Gannon v. State of Kansas (decision, p. 188) put it this way:

Simply, school opportunities do not repeat themselves and when the opportunity for a formal education passes, then for most, it is most likely gone. We all know that the struggle for an income very often – too often – overcomes the time needed to prepare intellectually for a better one.

If the position advanced here is the State’s full position, it is experimenting with our children which have no recourse from a failure of the experiment.

The Kansas experiment was a legislature cutting school budgets and betting that nobody would be hurt. That was bad enough. But at least in Kansas, the children were still in schools. There were still teachers, curricula, and test results that a court could look at.

A decade later, Arizona and Florida are running a different experiment. They hand public money to parents, place few limits on how it is spent, and ask almost nothing about whether the child learned anything. If that experiment fails for a particular child, who answers for it? Who does the 18-year-old sue?

The new experiment: money out, no questions asked

Arizona’s universal Empowerment Scholarship Account (ESA) program, expanded to all students in 2022, now serves more than 100,000 children and is expected to cost over $1 billion a year. Florida followed in 2023 with universal eligibility and a homeschool ESA, the Personalized Education Program (PEP), worth roughly $8,000 per child.

Consider what the statutes actually require of the parent. Under A.R.S. § 15-2402, the Arizona parent signs an agreement to use “a portion” of the money to provide instruction in reading, grammar, mathematics, social studies and science. That is the whole of the academic obligation. Then comes the remarkable part, subsection I: a signed agreement “constitutes school attendance” for purposes of the state’s compulsory attendance law. The contract is the education, as far as the state is concerned.

There is no testing requirement for ESA students in Arizona, no curriculum approval, no portfolio, and no evaluator. Even homeschool guides that are friendly to the program say so plainly. The state checks receipts, not learning.

Florida asks slightly more. PEP families must submit a student learning plan and have the child take a nationally norm-referenced test each year, with results sent to the scholarship funding organization (FLDOE PEP FAQ; Step Up PEP Family Handbook). But what triggers loss of funding is failing to take and submit the test, not the score. A child can test at a first-grade level in tenth grade and the money keeps flowing.

That is the experiment. The state funds the choice, defines the choice as compliance, and measures nothing that would tell anyone whether the child is learning.

What the money has bought

Reporters in both states have spent three years documenting what this money buys. Some of it was approved under the rules. Some was flagged as improper only after the fact. All of it was spent from accounts that exist, by law, to educate a child.

In fairness to the programs’ defenders, Arizona’s education department maintains that most purchases are valid and that misspending is a small share of the total. Florida’s administrator, Step Up For Students, requires a statement of educational benefit for theme park tickets and caps them at $500 a year (WFTV). When Florida legislators tried to tighten the list in 2024, families lobbied against it and the restrictions failed.

But “small share” is the wrong frame. Arizona auto-approved purchases under $2,000 — over a million requests and $124 million — to clear a backlog, with plans to audit later. Of 18,000 parents flagged for $10.3 million in banned purchases, only six were referred for prosecution. And every audit is an audit of purchases. None asks the only question that matters to the child: was anyone teaching me to read?

The legal question: who does the 18-year-old sue?

Imagine a young woman turning 18 in Phoenix or Orlando. For a decade, her ESA paid for theme park passes, a television, a trampoline and a lot of LEGO. Nobody ever taught her to read beyond a primer. She has no transcript and no diploma. The state that funded all of it called her “in attendance” the entire time. What are her options?

I’m not a lawyer, and what follows is a policy researcher’s tour of the doctrinal terrain, not legal advice. But the terrain is not encouraging.

1. Sue the parent. Arizona abolished parental immunity in Broadbent v. Broadbent (1995), replacing it with a “reasonable and prudent parent” standard. Florida has never gone that far. So in Arizona, at least, a negligence claim against a parent is not barred at the door. But she would then run into the doctrine of educational malpractice. Since Peter W. v. San Francisco Unified School District (1976), courts have refused to recognize a duty of care for academic outcomes. They cite the lack of a workable standard of care, uncertain causation, and the burden on schools. If courts won’t hold trained, licensed educators to a duty to teach a child to read, a court is unlikely to impose one on a parent the legislature expressly freed from any measurable standard.

A narrower theory may be stronger: misappropriation. The Arizona statute says ESA money may be used “only” for the expenses of the qualified student. A diamond necklace or a family Disneyland trip is not that. A custodial-account or constructive-trust theory, treating the parent as having diverted money held for the child’s benefit, at least fits the facts. But that recovers the misspent dollars, not the lost education. And a judgment against a parent with no assets is worth little.

2. Sue the vendor. The private school, the online program, the tutoring center or the “ESA-approved” camp are private actors. A contract or consumer-fraud claim might reach a vendor that took money and delivered nothing. But a vendor that delivered exactly what was purchased (a ski pass, a paddleboard) did nothing wrong. And educational malpractice bars claims that the instruction itself was inadequate.

3. Sue the state, under the federal Constitution. This is where the Kansas panel’s warning bites hardest. San Antonio v. Rodriguez (1973) held there is no fundamental federal right to education. DeShaney v. Winnebago County (1989) held the Due Process Clause generally imposes no duty on the state to protect a child from harm inflicted by a private actor, including a parent. The one federal appellate ruling to recognize a right to a basic minimum education, Gary B. v. Whitmer (6th Cir. 2020), was vacated when the full court took it up after the case settled. She might argue that the state created the danger by funding the deprivation and deeming it lawful attendance. That theory is untested in this setting.

4. Sue the state, under the state constitution. Both states have education clauses. Florida’s is among the strongest in the country, declaring education a “paramount duty” and requiring a “high quality system of free public schools.” In Bush v. Holmes (2006), the Florida Supreme Court struck down a voucher program for diverting public funds to private schools outside that uniform system. But in Citizens for Strong Schools v. State Board of Education (2019), a divided court held that “high quality” offered no judicially manageable standard. More fundamentally, state adequacy litigation produces prospective, system-wide remedies. It is not a damages action for an individual who already aged out.

5. Ask the state to step in. Ordinarily, a child receiving no education might trigger truancy enforcement or an educational neglect inquiry. In Arizona, that door is closed by statute: the signed ESA agreement constitutes school attendance under § 15-2402(I). When the state does catch misspending, its remedy is to suspend the account or send it to collections. Any money recovered goes back to the state, not to the child whose education it was meant to buy.

So the honest answer to the legal question is: almost none. The 18-year-old is, in the Kansas panel’s words, a subject of an experiment with no recourse from its failure. The difference is that in Kansas, the state was cutting the budget of institutions still obligated to teach her. In Arizona and Florida, the state has written itself out of that obligation and handed the obligation, and the money, to someone the law does not hold to any measurable standard.

Tallying the damages

If she could get into court, what would she claim? The Kansas panel named the core harm: the opportunity does not repeat itself, and for most people, once it passes, it is gone. The U.S. Supreme Court said much the same in Plyler v. Doe (1982): the inability to read and write “will handicap the individual deprived of a basic education each and every day of his life.”

Start with what can be counted. Using 2025 Bureau of Labor Statistics data on earnings by educational attainment (full-time workers, age 25+):

These figures understate her loss. The “less than high school” group includes people with ten or eleven years of real schooling who can read, write and do arithmetic. She has none of that. And the earnings figures cover only those working full time. Her higher odds of unemployment, part-time work and no work at all are not in the table.

Then add what is harder to price:

• No credential. Without a recognized diploma or transcript, she must first earn an equivalency credential before she can enroll in most colleges or apprenticeships. That means years of remedial work as an adult, while also trying to earn a living, exactly the trap the Kansas panel described.
• Foreclosed paths. Military enlistment, many licensed trades, and most postsecondary programs screen on a diploma or basic skills she does not have.
• Lost literacy and numeracy. Learning to read as an adult is possible but far harder, and adult literacy services are thinly funded.
• Civic and personal costs. Reading a lease, a ballot, a prescription label or a court notice.
• The money itself. At roughly $7,000–$10,000 a year in Arizona and about $8,000 in Florida, a K–12 career in the program represents on the order of $100,000 in public funds spent in her name. Whatever went to theme parks and televisions was money the state set aside for her education and allowed someone else to spend.

And under the current statutes, the state has no obligation to notice any of this until she shows up, at 18 or 25, needing an adult education program that the same legislatures have every incentive to underfund.

Closing: whose choice?

Voucher advocates frame all of this as parental choice, and most parents in these programs surely are trying to educate their kids. But a choice program that funds a parent’s decision, defines that decision as legal attendance, and never checks whether the child learned anything has made a choice of its own. It has chosen not to know.

The Kansas judges understood that the burden of a failed policy experiment falls on the children, who did not consent to it and cannot undo it. Arizona and Florida have built that lesson into statute in reverse. If the experiment fails a particular child, the law offers her almost nothing: no duty anyone owed, no standard anyone missed, no defendant she can realistically sue.

At a minimum, a state that funds a child’s education should be able to tell that child, at 18, what it bought. Right now, Arizona can tell her how much it spent at Disneyland.

Policy brief

The full policy brief, No Recourse: Universal Education Savings Accounts, Public Money, and the Students They Leave Uneducated, includes a side-by-side comparison of the Arizona and Florida program requirements and six recommendations for legislators.

Or: how to be highly efficient at producing mediocre outcomes, and why your scatterplot of spending and test scores is lying to you.

Every few months someone rediscovers the same chart. Per-pupil spending on one axis, test scores on the other, a shapeless cloud of dots, and a headline that writes itself: We spend more than ever and get nothing for it. Money doesn’t matter. Schools have an efficiency problem. Cue the think-tank panel, the op-ed and the legislator who wants to “hold the line” on school funding.

That chart is not just lazy. It is wrong in a way that points policy in exactly the wrong direction. And the reason is a word the people who make it rarely bother to define: cost.

First, some definitions (yes, again)

I’ve been through this before, but since the lesson apparently hasn’t landed, here are the four terms that get mashed together in nearly every “school efficiency” argument:

• Productivity is what the system produces: the level of student outcomes. More learning, higher outcomes, more productive.
• Spending is what districts actually spend, whatever it buys and whatever the result.
• Cost is the minimum amount that would have to be spent to achieve a given level of outcomes, given the students a district serves and the conditions it operates in (labor markets, scale, poverty, disability, language needs).
• Efficiency is the gap between the two. Spending minus inefficiency equals cost. An efficient district gets the most outcome it can out of what it has, or spends no more than it needs to for the outcomes it gets.

Notice what that last definition requires. You cannot say a district is wasting money unless you know what its outcomes should cost. Efficiency is a statement about spending relative to cost. No cost estimate, no efficiency claim. Full stop.

Back in 2012 I used a car-buying analogy for this: you want an Escalade and you’ve budgeted $25,000. Nobody would call the dealer “inefficient” for failing to sell it to you at that price. The Escalade costs what it costs. Educating a district full of kids in deep poverty, many still learning English, in a high-wage labor market, costs what it costs too. Pretending it costs the same as educating kids in a wealthy suburb is not rigor. It’s just wrong.

Efficiency is not productivity

Here’s the part that tends to get lost. Efficiency and productivity are different things, and they can point in opposite directions:

• You can be highly efficient at producing low outcomes. Spend next to nothing, get outcomes about as good as next to nothing buys, and congratulations: you’re efficient. Your kids are still behind.
• You can be highly productive without being especially efficient. Spend a lot, get well above-average outcomes, fall somewhat short of the best that level of spending could buy. Less efficient. Much better outcomes.

If your policy goal is “kids learn more,” the second is the better place to be. An efficiency ranking alone won’t tell you that. An efficiency ranking with no cost adjustment won’t tell you anything at all.

Why the spending-and-scores chart is garbage

Here’s the chart the money-doesn’t-matter crowd loves, built from real data: 8,000+ districts in 38 states, 2022–2024, with outcomes from nationally normed grade 6–8 reading and math assessments. On the left, per-pupil spending against outcomes. Flat. Slightly negative, even (r = −0.08). Money doesn’t matter!

On the right, the exact same districts and the exact same test scores, but spending is expressed relative to what it would cost each district to reach national-average outcomes, given its students and circumstances (from the National Education Cost Model). Now the correlation is about +0.6. Districts with more resources relative to need get substantially better outcomes. Same data. Opposite conclusion.

What happened? The districts that spend more are, on average, the ones serving higher-need kids in higher-cost settings. They do spend more, just nowhere near enough more. The highest-cost fifth of districts spends about $16,700 per pupil against $13,900 in the lowest-cost fifth. But reaching average outcomes would take about $25,200 per pupil in the former and $11,100 in the latter. The high-spending, low-scoring districts aren’t squandering riches. They’re underfunded relative to what their kids need, and it shows.

Now think about what the sloppy chart tells a legislator: those high-spending districts with low scores are the “inefficient” ones, so cut them, or at least stop adding money. That is precisely backwards. It takes the districts that are furthest behind their cost targets and labels them wasteful. That’s not an analytical quirk. It’s a policy recommendation to take money away from the kids who need it most, dressed up as fiscal responsibility.

So what does it look like when you do it right?

In a new brief (full PDF here), I estimate a stochastic frontier model of district efficiency using the National Education Cost Model: roughly 129,000 district-years for about 8,100 districts in 38 states, 2009–2024. The frontier is the best outcome achievable at a given level of spending relative to cost. Each district’s efficiency is its distance from that frontier, expressed as the share of its current resources a fully efficient district would need to reach the same outcomes. I estimate it with and without state fixed effects, because (more on this below) comparing test scores across states is its own can of worms.

The headline findings:

• Money matters, with diminishing returns. A 10 percent increase in resources relative to cost raises frontier outcomes by about 0.07 SD nationally, and about 0.09 SD when comparing districts within the same state. That’s not nothing. It’s a lot.
• Most districts are about equally efficient. The median district operates at about 86 percent efficiency, and nearly three-quarters of district-years fall between 80 and 90 percent. There is a long lower tail, but there’s no evidence here of a system drowning in waste.
• The tail has been growing, and it’s growing within states. The share of districts below 80 percent efficiency doubled, from 11 percent in 2011 to 22 percent in 2024, and the pattern is the same when districts are compared only with others in their own state.
• The “bloated administration” story is tiny. Within their own states, the least efficient districts are more heavily staffed across the board, with more teachers, more aides and more administrators, and they are also smaller and higher-cost. The general administration gap between the most and least efficient districts works out to something like $80–100 per pupil. Anyone promising to close achievement gaps by trimming the central office is selling something.

Florida is efficient. New Jersey is better.

Rank states by average efficiency and you get Idaho, North Carolina, Utah, Florida and Georgia at the top, with Rhode Island, West Virginia, Connecticut, Wyoming and New Jersey at the bottom. Cue the triumphant op-ed about Florida.

Except that across states, average efficiency has essentially zero correlation with average outcomes (r = 0.00). What it does correlate with, strongly, is spending little relative to cost (r = −0.70). The state efficiency ranking is mostly a ranking of how little states spend.

• Florida, North Carolina, Georgia and Texas spend 67–78 percent of what national-average outcomes would cost them, sit close to the frontier, and produce below-average outcomes. They are efficient at producing relatively low outcomes.
• Mississippi is the reductio ad absurdum: it spends 58 percent of cost, ranks 37th of 38 on outcomes, and ranks 7th on efficiency. Very efficient. Very behind.
• Massachusetts, New Jersey and Connecticut spend 50–70 percent above cost and rank 1st, 4th and 7th on outcomes, but 28th, 34th and 36th on efficiency.

New Jersey spends about twice what Florida does per pupil ($19,124 against $9,636 on average over the period), and its students score about 0.20 SD higher. Less efficient? By this measure, sure. But that extra money buys substantially better outcomes. Which would you rather have: Florida’s efficiency or New Jersey’s results?

Is New Jersey’s “inefficiency” just a functional-form artifact? Fair question. Diminishing returns, right? If the frontier flattens out at high spending faster than my log curve allows, it would overstate what New Jersey’s money could buy and make New Jersey look worse than it is. So I checked. The log frontier fits fine all the way up the spending range, including where the data are mostly New Jersey, Connecticut and Massachusetts districts. Quadratic, cubic and spline frontiers trace nearly the same curve, and if anything bend slightly up at the high end. And within states, the payoff to spending relative to cost is steeper, not flatter, in the high spenders: about 1.2 in New Jersey, Connecticut and Massachusetts, against 0.44 in Florida and 0.70 in Texas. New Jersey’s districts simply sit about 0.3 SD below the national frontier across the board. That’s a level shift, not a bend, and it’s exactly what state fixed effects soak up. Once they do, New Jersey (0.905) and Florida (0.917) are about equally efficient. Which brings us to the next problem.

A necessary caveat about test scores across states

The outcome measure here comes from the Stanford Education Data Archive (SEDA), which takes each state’s own reading and math tests and puts them on a common, nationally normed scale. SEDA covers grades 3 through 8, but I use only grades 6 through 8, and on purpose. Middle-grades scores better capture the cumulative effects of state and local education systems: what kids actually know after years in those schools. Some states have particularly inflated early-grade scores, for a variety of reasons, and those scores drop dramatically by grade 8. Lean on grades 3–5 and you reward states for looking good early rather than for what their systems deliver over time. Even so, SEDA can only do so much. Many states have adopted common assessments, but the tests still differ across states and are reported on different scales, and states report spending under different accounting rules. It’s impossible to fully equate these measures across states. So a sizable share of the differences between states, on both the outcome side and the spending side, may be measurement error.

That’s why the brief also estimates everything within states. Once you do, state effects soak up nearly all of the state rankings: the share of variance in efficiency between states drops from about 20 percent to 1 percent. The frontier gets steeper, not flatter, which is what you’d expect if cross-state measurement noise was hiding the payoff to money. And the within-state picture is the one I’d trust for judging districts.

Which is, by the way, one more reason to be skeptical of anyone who throws all fifty states onto one spending-and-scores chart and calls it a finding. They’re stacking measurement error on top of the missing cost adjustment.

The bottom line

• No cost, no efficiency. Any claim about school “efficiency” that doesn’t account for what outcomes cost for the kids actually being served isn’t an efficiency claim. It’s a spending claim with an agenda attached.
• Efficient isn’t the same as good. Being efficient at producing low outcomes is still producing low outcomes.
• Sloppy analysis isn’t harmless. A spending-versus-scores chart systematically labels the most underfunded, highest-need districts as wasteful. Policy built on it takes money from the kids who need it most.
• Money matters. Measured properly, more resources relative to cost buy better outcomes, and the states that spend more get more, even when they don’t spend it perfectly.

The full brief, with methods, state tables and the staffing and spending comparisons, is here: Technical Efficiency in Producing Educational Outcomes: A Stochastic Frontier Analysis Using the National Education Cost Model (PDF).

A decade after I last published these lists, 47 districts with at least 2,000 students still have more than 1.5 times the child poverty rate of their labor market and spend less than 90% of what their neighbors spend. Half of them were on my lists 10 to 13 years ago.

Where this started

For years I produced lists of what I called America’s “most screwed” school districts. The idea is simple: a district is financially disadvantaged when it serves far needier children than the districts around it, with less money.

• 2013 blog update (2009–2011 data). I flagged city and suburban districts with more than 1.5 times their labor market’s poverty rate and less than 95% of its average state and local revenue per pupil. The list included Chicago, Philadelphia, Reading, Allentown, Bridgeport, Waukegan, Utica and dozens of others.
• 2014 Center for American Progress report. America’s Most Financially Disadvantaged School Districts and How They Got That Way used a somewhat looser screen: poverty above 125% and revenue below 90% of the labor-market average. It grouped the causes into five types: savage inequalities in property wealth (Illinois, Pennsylvania); “stealth” inequalities in illogical state aid formulas (Michigan, Arizona); local budgeting that undercuts state aid (Bridgeport); tiny segregated enclaves (south suburban Cook County and Phoenix elementary districts); and demographic shifts in smaller, increasingly Hispanic cities (Waukegan, Reading, Allentown). It also found that the odds of being fiscally disadvantaged rose with a district’s Black and Hispanic enrollment shares, even among districts equally dependent on state aid.
• 2015 blog update (2011–2013 data). Same logic, tighter screen: poverty above 150% and state and local revenue below 90% of the labor-market average, limited to K–12 unified districts of 2,000 or more in non-rural labor markets.

The core point hasn’t changed. The value of a school dollar is relative. Schools compete for teachers against the districts next door, and graduates compete for college seats and jobs in the same regional pool. A district that spends $15,000 per pupil can still be badly shortchanged if its neighbors spend $18,000 on far less needy kids.

Data and methods

This update uses a district-by-year panel built from the Census Fiscal Survey of school district finances (F-33), Census Small Area Income and Poverty Estimates (SAIPE), and the NCES Common Core of Data. The panel runs through fiscal year 2024.

• Relative poverty. Each district’s SAIPE poverty rate for children ages 5–17, divided by the average for all districts in its labor market.
• Relative spending. Each district’s current operating spending per pupil, divided by its labor-market average.
• Labor markets. Core-based statistical areas, following the NCES Education Comparable Wage Index, as in the earlier lists.
• Screen. Relative poverty above 1.5 and relative spending below 0.9, using 2022–2024 averages of both ratios. Districts must average at least 2,000 students.
• Ranking. Within each state, districts are ordered by the gap between relative poverty and relative spending, the same “gap” measure used in the CAP report.
• Race and ethnicity. 2024 Black and Hispanic enrollment shares from the Common Core, compared with each state’s share of all students.

Two differences from the earlier lists matter. First, this screen uses current spending rather than state and local revenue. Current spending includes federal money, and 2022–2024 were the peak years of federal pandemic relief (ESSER), which flowed disproportionately to high-poverty districts. That temporarily lifted spending in many of the districts that have always topped these lists. Second, this version includes elementary-only districts, which the 2015 list excluded, so several south suburban Chicago elementary districts appear.

The 2022–2024 list

Forty-seven districts in 16 states make the cut. Illinois leads with 8, followed by Missouri and New York with 5 each. Missouri’s Riverview Gardens and Jennings are the most extreme in the country: each has nearly three times its labor market’s child poverty rate and spends 81–85% of the regional average.

These are overwhelmingly districts that serve Black and Hispanic children. In 38 of the 47, the combined Black and Hispanic share of enrollment is higher than the state’s. The exceptions are mostly small, largely white towns and small cities: Potosi, MO; Rochester, NH; Macon County, TN; Jamestown and Watertown, NY. Union County, TN reports a 14.9% Black share, which looks implausible for that county and may be a data error.

Relative poverty and spending are 2022–2024 averages of each district’s ratio to its labor-market average. Gap = relative poverty minus relative spending. Racial shares are 2024; state figures are the share of all students statewide.

Then and now

Twenty-four of the 47 districts appeared on at least one of the earlier lists, and 12 appeared on all three. These are the chronic cases: districts that have served far needier children with less money for well over a decade.

The 23 newcomers fall into three groups:

• South suburban Cook County elementary districts. Prairie-Hills, Lansing, Indian Springs, Ridgeland, Burbank, North Palos and Matteson. The CAP report flagged this area’s fragmented elementary districts (Posen-Robbins, Lincoln) as the “not-so-blurred lines” problem. They show up in force now partly because this version includes elementary districts.
• Older inner-ring suburbs. Upper Darby and Southeast Delco outside Philadelphia, Malden outside Boston, River Rouge outside Detroit, and Riverhead on Long Island. Most serve predominantly Black or Hispanic students.
• Smaller cities and towns. Chickasaw, AL; Barstow, Hollister and San Rafael, CA; Nogales, AZ; Steubenville, OH; Wilkes-Barre, PA; Watertown, NY; and Union and Macon Counties, TN.

Who dropped off, and why that isn’t good news

The biggest names from the old lists are gone: Chicago, Philadelphia, Allentown, Waukegan, Lowell, New Britain, Hamtramck, Eastpointe (formerly East Detroit), Woonsocket and Manchester. Each still has between 1.6 and 2.7 times its labor market’s child poverty rate. They drop off because their current spending ratios now sit at or above 0.9.

For most of them, that reflects federal money, not a fix. On state and local revenue, the measure used in the earlier lists, most remain well below their neighbors:

Swap in the revenue screen (relative revenue below 0.9) and the national count jumps from 47 to 139 districts. As pandemic relief runs out, many of these districts will likely fall back below the spending line. Philadelphia is the notable exception. Its state and local revenue is now above its labor-market average, but its poverty rate is still more than double that of its neighbors, so equal funding is still far from adequate funding.

The bottom line is the one I wrote in 2015. There is no excuse for public school districts with twice the poverty of their surroundings to have less to spend on those children. Ten years later, many of the same districts are still in that position, and many more have joined them.

Sources

• Baker, B.D. (2013, May 24). Most Screwed Local Public School Districts Update 2009–2011. School Finance 101.
• Baker, B.D. (2014, July). America’s Most Financially Disadvantaged School Districts and How They Got That Way. Center for American Progress.
• Baker, B.D. (2015, June 24). America’s Most “Financially Disadvantaged” (e.g. Screwed) School Districts 2013 and Table 1. School Finance 101.
• Current data: U.S. Census Bureau Annual Survey of School System Finances (F-33) and Small Area Income and Poverty Estimates; NCES Common Core of Data; fiscal years 2022–2024.

Five cases, four mechanisms, one ranking: this post lines up the biggest fraud prosecutions, the biggest company-store combination, and the biggest sweeps contract in the charter sector’s history against the single largest real-estate deal any operator has ever built, and asks which one moved the most money. The answer isn’t the one with an indictment attached.

In The Grift Model I group the ways charter operators route public money into private hands into four repeating types: enrollment inflation (getting paid for students who aren’t really being educated — phantom seats, unverifiable attendance, ghost enrollees); related-party transactions (a school’s own board or executives sitting on both sides of a contract); the company store (a captive vendor a school is required to buy from — curriculum, credentials, back-office services — that happens to be owned by the people running the school); and real estate (buying, or arranging for a related party to buy, the very buildings public dollars already financed, then leasing them back at a markup).

What I hadn’t done before is put the five biggest documented cases — regardless of category — on the same page and rank them by dollar figure. A caveat before I do: these numbers come from different kinds of documents (a criminal restitution order isn’t the same instrument as a municipal bond prospectus), cover different time spans, and in a couple of cases reflect an auditor’s or a prosecutor’s counting choice as much as anyone’s. I’m ranking them anyway, because the comparison itself is the point — and because the single largest number on this list isn’t attached to anyone’s indictment.

Here they are, five to one.

5. White Hat Management, Ohio: about $100 million over a decade

White Hat’s “sweeps” contracts with ten Hope Academy and Life Skills Center campuses in Cleveland and Akron routed roughly 95 percent of each school’s state funding to the management company, which then handled teacher salaries, facilities, and operations with minimal board oversight — company-store logic applied to an entire school’s back office rather than one vendor line. Over a decade that added up to something like $100 million. When several of the nonprofit boards tried to switch management companies, White Hat argued the computers, furniture, and classroom equipment it had bought with that money belonged to White Hat, not the schools — meaning the boards would have to buy back the property their own public funding had already paid for once.

In 2015, a divided Ohio Supreme Court sided with White Hat, 4–3, upholding the buy-back scheme as an enforceable contract term. Justice Paul Pfeifer’s dissent put it about as plainly as a judicial opinion gets: “the contracts require that after the public pays to buy those materials for a public use, the public must then pay the companies if it wants to retain ownership of the materials.” Justice William O’Neill called it, in a dissent The Progressive covered in full, “a fraudulent conversion of public funds into personal profit.” Neither dissent changed the outcome. Nobody broke a law here — a state’s highest court looked at the arithmetic and, on the merits, said it was fine. (Court News Ohio’s case summary has the full procedural history.)

4. ECOT, Ohio: $117 million ordered repaid

Electronic Classroom of Tomorrow was, at its peak, Ohio’s largest online charter school. Ohio funds schools on a formula built around enrollment and documented hours of learning activity — a formula that works fine when “attendance” means a body in a classroom, and considerably less well when it means a login timestamp nobody is verifying. A state audit covering fiscal years 2016 through 2018 found ECOT couldn’t substantiate the participation hours behind a large share of the funding it had claimed. The Ohio Auditor of State’s office ultimately found the school owed $106.6 million to the Ohio Department of Education, plus additional findings against ECOT-affiliated management entities, for a combined total just over $117 million. ECOT shut down in January 2018 rather than pay it back; Ideastream’s coverage of the final audit and the Dayton Daily News both note the state has spent the years since trying to collect. A related judgment against affiliated entities separately reached $161.6 million. It remains the largest attendance-fraud clawback in the sector’s history: virtual schools, virtual kids, real dollars.

3. Chester Community Charter School / CSMI, Pennsylvania: roughly $122 million combined

This is the case I use to show what happens when the company store, related-party real estate, and plain self-dealing all show up in a single school under a single owner. Chester Community Charter, Pennsylvania’s largest brick-and-mortar charter, is managed by CSMI, a company controlled by Vahan Gureghian. A 2009 Philadelphia Inquirer public-records fight established that CSMI had been paid roughly $60.6 million in management fees since 1999. In 2010, Gureghian sold the school’s buildings — which he owned personally — to a newly created nonprofit, for the specific and sole purpose of leasing them back to the school, for $50.7 million, financed through municipal bonds and requiring roughly $4 million a year in lease payments; Pennsylvania’s Auditor General found the school had also improperly claimed $1.27 million in state lease reimbursements on buildings the program’s own rules made ineligible, because the “related parties” on both sides of the lease were, functionally, the same person before and after the sale. Then, in 2016, a federal Office of Inspector General audit found that the school’s CEO — Gureghian himself — had written checks to himself totaling $11 million without board approval. Add the pieces up and you get a single owner, across roughly fifteen years, sitting on every side of upward of $122 million in transactions with the school he ran. No criminal charges resulted from any of it.

2. The A3 charter network, California: $400 million generated, about $80 million allegedly diverted

Between 2015 and 2019, Sean McManus and Jason Schrock used a network of 19 online charter schools, partnerships with struggling private schools, and summer athletic programs to enroll thousands of students who, per prosecutors, never took a class. The scheme generated roughly $400 million in California public education funding; investigators alleged about $80 million of it was funneled into companies the two men controlled. Voice of San Diego’s account calls it, by the state’s own description, one of the largest charter-school fraud cases in the country’s history — and yet neither man served a day in prison. McManus, an Australian citizen, was sentenced to four years but served it under house arrest with an ankle monitor in Australia; Schrock’s ankle-monitor time was credited against his sentence. Nine other defendants pleaded to reduced or misdemeanor charges. Both men paid roughly $19 million each in fines and restitution, and the California State Controller’s office says the state has recovered more than $240 million overall — real money back, on a fraud whose architects never spent a night in a cell.

1. National Heritage Academies, Michigan and six other states: $853.6 million

In 2021, National Heritage Academies — the country’s third-largest for-profit charter operator, with more than 90 schools — arranged to sell 69 of its campuses across seven states to Campus Partners 1, a nonprofit newly created for the transaction, with no operating history and, at the time reporters looked, no registration on file with Michigan’s attorney general. NHA’s owner, J.C. Huizenga, controls both the seller’s side (through Charter Development Co., which retained the facility-maintenance and ground-lease contracts) and, through his general counsel installed as the new nonprofit’s president, effectively the buyer’s side as well. The purchase was financed through $853.6 million in tax-exempt municipal bonds, issued by an industrial development authority in La Paz County, Arizona — a jurisdiction with no obvious relationship to any of the seven states where the schools actually sit. The schools then signed 30-year leases back to the very entities that had just “sold” them. Network for Public Education’s account and NCSPE’s coverage at Teachers College, Columbia University both flag the same detail: nothing about this required hiding anything, and no one has been indicted. Local commissions in Michigan raised transparency objections and briefly slowed a few approvals, but the deal closed.

It is, by a wide margin, the largest single dollar figure on this list — more than double the other four cases combined — and it’s the cleanest illustration in the sector of this project’s core argument: the extraction that scales isn’t the kind that needs a prosecutor. It’s the kind a bond market is happy to underwrite.

The comparison, side by side

Here’s the scale, side by side, with the same caveat as above: a bond-financing total, a prosecutor’s estimate of diverted funds, a cumulative audit finding, and a state’s repayment order are four different kinds of numbers, generated by four different kinds of process, over four different lengths of time. I’m not asserting they measure the same thing. I am asserting that when you line up the five largest figures anyone has ever documented for this sector, the biggest one belongs to the case where nobody was ever accused of anything.

The pattern underneath the ranking

Look at what actually separates the number one case from numbers two through five. A3 and ECOT required someone to falsify or fail to substantiate enrollment records, and both produced real legal consequences — restitution, a repayment order, a company’s collapse. Chester Community Charter and White Hat required boards to sign contracts most of us would call self-dealing on its face, and both were reviewed — by a federal inspector general, by a state auditor general, by the state’s own supreme court — without anyone concluding a law had been broken. National Heritage Academies required nothing but a lawyer, an investment bank, and a jurisdiction willing to issue the bonds.

That’s the throughline of The Grift Model, and this ranking is about as clean a demonstration of it as I’ve been able to build: the sector’s single largest documented extraction of public education money didn’t need a scheme. It needed a structure. Enrollment inflation, related-party transactions, the company store, and real estate aren’t ranked by severity in anyone’s statute book, and this list is the reason I don’t think they should be. The mechanism that moves the most money is the one nobody had to break the law to run.

Sources

• Court News Ohio. (2015). Case summary, Hope Academy Broadway Campus v. White Hat Mgt., L.L.C.
• Ohio Supreme Court. (2015). Opinion, 2015-Ohio-3716.
• The Progressive. Ohio Supreme Court rules private charter school management firm owns public assets.
• Ohio Auditor of State. (2022). Press release on the $117 million ECOT finding for recovery.
• Ideastream Public Media. (2022, June 28). Final audit shows online charter school ECOT owes $117 million to Ohio.
• Dayton Daily News. Defunct online charter school owes Ohio $117M, state auditor says.
• The Philadelphia Inquirer. (2009, May 25). Inquirer wins appeal; Chester charter school must produce records.
• Pennsylvania Auditor General. (2013). Chester Community Charter School performance audit (PDF).
• The Philadelphia Inquirer. (2016, October 5). Federal audit spotlights charter school financial practices.
• Voice of San Diego. (2022, June 13). In one of the largest charter school scams in history, no one will serve jail time.
• California State Controller’s Office. Press release.
• NCSPE, Teachers College, Columbia University. San Diego charter leaders found guilty for massive fraud.
• Network for Public Education. Charter schools are publicly funded — but there’s big money in selling them.
• NCSPE, Teachers College, Columbia University. National Heritage Academies plans massive sale.

Related reading: The Charter School Company Store, Revisited and the Edu-Grift hub for the rest of this series.

A decade ago on this blog I wrote about charter operators who require the people paid with public money to spend a share of it back at a store the operator itself owns. The mechanism hasn’t gone anywhere. Here it is again, in five cases across four states, with the receipts — and, this time, a schematic for each one.

In 1947, Tennessee Ernie Ford hadn’t yet recorded “Sixteen Tons,” but every coal miner in Appalachia already knew the joke wasn’t really a joke: paid in company scrip, redeemable only at the company store, “I owe my soul to the company store.” Nobody pays a teacher in scrip anymore. But in 2009, new teachers walking into Uncommon Schools’ North Star Academy in Newark discovered a tidier version of the same arrangement: as a condition of taking the job, they had to enroll in a master’s program at Relay Graduate School of Education — an institution chaired by the same person who chaired Uncommon’s own board, housed in the same Newark building as the school employing them, and priced at roughly $17,500 a year, with the new teacher’s own paycheck covering close to half of it.

I wrote about this back in December 2016 under the headline “The Charter School Company Store.” I’ve spent the years since researching a much bigger version of this book chapter, and the honest news is that the mechanism hasn’t needed updating so much as re-cataloging. It shows up in real estate, in curriculum contracts, in management fees, and — this is the detail I keep coming back to — in the credential a new teacher is required to buy from their own employer’s affiliate before they’re allowed to start the job. Below are five fully documented cases, one from the archive and four from the last twelve months, each with a schematic showing exactly where the money enters, where it’s required to leave, and where it lands back in the same hands it started in.

Newark: the credential you’re required to buy

Start with North Star Academy, because it’s the cleanest specimen. Relay Graduate School of Education was co-founded in 2011 by, among others, Norman Atkins, who also chaired Uncommon Schools’ board. Jamey Verrilli held Relay’s Newark deanship and a board seat at North Star Academy at the same time. Both organizations’ IRS filings list the same street address — 10 Washington Place, Newark, the same building housing North Star Academy itself. None of that is illegal. What it means, in practice, is that the decision to require a credential and the decision about who gets paid for supplying it sat with the same small group of people. (Source: my own 2016 reporting, drawing on Uncommon’s and Relay’s IRS Form 990 filings.)

Running New Jersey’s own staffing data against Relay’s published tuition figure, I get a rough cumulative estimate on the order of $6 million flowing from Uncommon’s own new hires toward Relay by 2015 — money that started as a teacher’s salary, and ended up, in significant part, back inside the same corporate family that had just hired her. New Jersey Department of Education staffing reports for North Star Academy alone counted 103, then 134, then 153 “novice” teachers across three consecutive years between 2009 and 2015 — each one, under Uncommon’s own hiring policy, a plausible Relay enrollee. That’s the arithmetic behind the $6 million; it’s my own back-of-envelope calculation from public staffing data and a published tuition figure, not a number either organization has itself disclosed. A related fundraising affiliate, Uncommon Knowledge & Achievement, separately reported $500,000 to Relay and $100,000 to Zearn, a curriculum company sharing board leadership with Uncommon, in a single tax year. Individually, every one of those looks like a grant. Read together against the shared address and the shared board seats, they look like an organization funding itself in triplicate.

Miami: two invoices, one family

Academica, the charter management company Fernando Zulueta built starting in 1999, runs the same idea at regional scale — and shows something the Newark case doesn’t: a company store with two separate registers. By 2011, StateImpact Florida’s reporting (drawing on the Miami Herald’s own investigation) found Zulueta family interests controlling more than two dozen companies doing business with the schools Academica managed. Academica itself collected roughly $9 million a year in management fees. A separate set of Zulueta-controlled real estate entities collected another $19 million a year in rent from the same network, on a portfolio of more than $115 million in South Florida properties that, because they house public schools, pay no property tax at all — nine schools were paying more than a fifth of their total revenue in rent alone.

A 2014 federal audit found Fernando Zulueta sitting on the board of Mater Academy, one of his own network’s schools, while that school signed leases with his family’s development companies, and turned up a vendor relationship with an architecture firm that employed his brother-in-law — Erik Fresen, a sitting state representative who sat on the House’s PreK-12 Appropriations Committee, the panel with jurisdiction over the same charter-facilities funding stream his brother-in-law’s schools drew on, while sponsoring legislation requiring public school districts to share construction-tax revenue with charter schools. Academica disputed the inspector general’s characterization of these findings when the report was released; I note the dispute because a company’s denial belongs next to a federal auditor’s finding, not in place of it.

Two contracts, two boards could in theory negotiate independently — a school could push back on the management fee without touching the lease, or vice versa. In practice, $9 million and $19 million a year both terminated in the same family’s accounts, and no single filing was ever built to add the two together.

Chester, Pennsylvania: the books it took a lawsuit to open

Then there’s the case that shows what happens when nobody can see the invoice at all. Chester Community Charter School, Pennsylvania’s largest brick-and-mortar charter, enrolling roughly 3,000 K–8 students, has been run since the 1990s by CSMI, a for-profit company controlled by Vahan Gureghian — a developer, lawyer, and, per Inquirer reporting, the largest individual donor to Governor Tom Corbett. In January 2009, The Philadelphia Inquirer filed a Right-to-Know request for CSMI’s salaries, payments to Gureghian, and profit figures. CSMI’s lawyer refused, arguing the records belonged to “a private management company, not a public charter school.” Pennsylvania’s Office of Open Records disagreed, ruling on May 8, 2009 that CSMI, in running the school’s day-to-day operations, was performing “what is otherwise a governmental function,” and ordered the books opened. What came out: $60.6 million in public subsidies to CSMI since 1999, for a school then enrolling roughly 2,150 kids.

Seven years later, a federal inspector general reviewing charter management organizations found that Gureghian had the authority to write checks to himself from the school’s accounts without board approval, and had done so to the tune of roughly $11 million in the 2008–09 school year alone (CCCS’s attorney disputes the “without approval” characterization, telling investigators each payment had in fact received board sign-off). By 2014–15, CSMI was collecting nearly $17 million in a single year, for a school then enrolling roughly 2,900 students — and CSMI’s profit margin on the arrangement has never been publicly disclosed, then or since. And in 2010, Gureghian sold the school’s own buildings — which he owned personally — to a newly created nonprofit, Friends of Chester Community Charter School, for $50.7 million, financed by Delaware County industrial development authority bonds, then leased them back. Pennsylvania’s auditor general, Eugene DePasquale, flagged the whole arrangement as improper, since the school, through its own affiliate, still effectively owned the building it was collecting lease reimbursement to rent — the “we bought it twice” mechanism this project documents elsewhere, run one more time through a services company instead of a REIT.

Arizona, 2024–25: three cases in one school year

None of this ended when the last decade did. ABC15 Arizona documented three related-party arrangements running in the 2024–25 school year, in a state where roughly 97 percent of charter schools are exempt from competitive bidding even as related-party transactions are required to surface, after the fact, in an annual audit. At Crown Charter School in Litchfield Park, co-founders James Shade and T.C. Crownover — a married couple, Shade as chief executive and Crownover as board chair — directed $111,200 to Five Star Educational Research, a California-based nonprofit curriculum provider where Shade serves as CEO and Crownover as chairman. At Burke Basic School in Mesa, the Gaddie family, which founded the school, leases its building from a for-profit entity the family manages, collecting $542,000 at a rate the family itself put at $10 per square foot annually. And at Calibre Academy and its affiliated Thrivepoint Alternative High Schools, serving roughly 2,100 students combined, a for-profit called Learning Matters Educational Group supplied curriculum, technology, and management services under contracts totaling $5.3 million in a single year. (Source: ABC15 Arizona.)

None of these arrangements, on the reporting available, has been found unlawful; all were disclosed, as Arizona law requires, in the schools’ own audited financial statements. What they share with Newark in 2009, Miami in 2011, and Chester in 2009 is simpler than a legal violation: in each case, the person deciding what the school would buy and the person collecting payment for the sale were, functionally, the same person, and the disclosure requirement’s only real function was to make that fact locatable, not to change it.

New Jersey, 2026: when the vendor also runs the board

A parallel January 2026 finding by New Jersey’s Office of the State Comptroller extends the pattern from curriculum and real estate into something closer to full operational control. Reviewing College Achieve Public Schools, Inc. (CAPS, Inc.) — the for-profit manager of three New Jersey charter schools, including College Achieve Greater Asbury Park — investigators found the schools’ own board had, in the Comptroller’s word, ceded “sweeping authority” to the vendor: hiring and evaluating the schools’ own executive directors, running core administrative operations across all three campuses, and controlling the fee structure governing its own compensation. Across its eleven-campus network, CAPS, Inc. had received $57 million in public funds between 2016 and 2023; in the single year 2022–23, the company forgave $385,568 in debt the school owed it, without disclosed board approval, and separately paid more than $100,000 to a business owned by the brother-in-law of the network’s own executive director. A vendor empowered to hire its own overseer, forgive its own debts, and route six figures to its chief executive’s in-laws is not managing a school’s company store so much as it has become the only store left standing — the board that was supposed to shop elsewhere no longer meaningfully can.

The scale, side by side

Here’s the scale, side by side, with the caveat that these cover different time periods and shouldn’t be read as directly comparable — they’re listed to show that the mechanism spans small dollar amounts and very large ones, not to rank the cases:

The one thing every case shares

Every one of these arrangements was, at the time it was examined, either fully legal or defensible under existing disclosure rules. That’s the finding that matters more than any single dollar figure. A related-party disclosure requirement that surfaces the relationship only in an audited financial statement’s footnote, months after a board has already signed the contract, isn’t stopping anything — it’s documenting it. Every case above cleared the bar its state actually set. None of them was stopped by it.

I go into all five of these in more depth — with the full sourcing, the underlying filings, and a field guide for anyone who wants to trace their own local charter operator’s related-party contracts — in a chapter of the same name in the book I’m currently drafting, The Grift Model. If you want to run the same check on a school in your own community, start with three documents: the school’s Form 990 (Schedule L for related-party transactions, Schedule R for related organizations), your state’s charter-authorizer annual audit, and your state’s corporate registry for whoever’s name is on the vendor’s paperwork. None of it requires a subpoena. It just requires running the same name through more than one place and seeing whether it comes back twice.

Sources

• Baker, B. D. (2016, December 12). The charter school company store. School Finance 101.
• StateImpact Florida. (2011, December 14). How Academica became the biggest name in Florida charter schools. NPR (drawing on Miami Herald reporting).
• StateImpact Florida. (2014, April 21). Feds investigating Florida’s largest charter school management firm. NPR.
• The Philadelphia Inquirer. (2009, May 25). Inquirer wins appeal; Chester charter school must produce records.
• WHYY. (2016). Federal report on charter schools elicits more calls to revise Pa. law.
• CAPS. (n.d.). How Chester Community Charter School got a 9-year deal (summarizing Philadelphia Inquirer reporting).
• Chalkbeat Philadelphia. (2016, June 14). Own a school? Or rent? For charters, it’s complicated.
• ABC15 Arizona. (n.d.). All in the family: Arizona charter schools and “related-party” transactions.
• New Jersey Office of the State Comptroller. (2026, January 12). OSC presses for oversight after charter school delegates sweeping control to vendor.

Related reading: The Charter School Company Store (2016) and the Edu-Grift hub for the rest of this series.

Charter schools generally can’t issue the kind of low-interest, taxpayer-backed general obligation bonds that districts use to buy land and build schools. That basic financing gap has, over time, produced two distinct and well-documented problems in how charter operators end up housed. They’re often talked about as one blurry story about “charter real estate deals,” but they’re actually separate mechanisms, with separate fixes, and it’s worth treating them that way.

Neither problem requires resolving the larger, separate argument about whether chartering itself is good policy. Both are fixable with fairly ordinary transparency and pricing rules — the kind already applied to public companies and, in places, to districts themselves.

Problem 1: districts selling public buildings to charters for far less than they’re worth

A handful of states require or strongly encourage school districts to sell closed public school buildings to charter operators at a mandated discount, skipping any real appraisal or competitive process. The public built and maintained these buildings; the transfer price reflects almost none of that investment.

Indiana’s so-called “$1 law,” on the books since 2011, requires school districts to sell or lease closed buildings to charter schools for a dollar. Indianapolis Public Schools has made exactly two such sales: the former School 11 building went to KIPP Indy for $1 in 2012, and the former School 98 building went to the Tindley charter network for $1 in 2017 — buildings IPS taxpayers had financed construction and decades of upkeep on. The charters note they then had to sink hundreds of thousands to millions of dollars into renovations, and neither made a taxable profit on eventual resale — but the initial transfer price, for a facility the public built and maintained, was a dollar (Chalkbeat Indiana, February 2024).

California law requires districts to offer surplus school property to charter schools before anyone else, at a sale price that can legally be set as low as 25 percent of the property’s current market value (California Legislative Analyst’s Office).

And in 2025, Ohio’s state budget process included a provision that would let the state force closure of public school buildings and then force the district to sell those buildings to charter or private schools below market value — over the objections of the state’s largest districts. The superintendent of Canton City Schools called it “a bad deal for taxpayers” in a district that had just approved bond levies to build new neighborhood schools (WYSO / Statehouse News Bureau, May 2025).

The fix here is simple: require an independent appraisal, and price the sale at or near market value, or at minimum require the district to be compensated for its documented capital investment. A state can still prioritize charter access to vacant buildings without simply giving those buildings away.

Problem 2: charter operators paying inflated rent to a landlord tied to their own leadership

Because most charters lease rather than own, someone else typically holds title to the building and collects rent from the school’s public per-pupil funding. That’s ordinary and not inherently a problem — landlords take on real financing risk purchasing or building facilities whose only realistic tenant is a five-year-renewable charter school. The problem is a specific, recurring variant: when the landlord and the charter’s own leadership turn out to be the same people, and the rent is priced well above what an arm’s-length market rate would produce.

Cornerstone Charter Schools, a five-school Detroit network, is a clean illustration. Cornerstone’s founder, Clark Durant, also leads the New Common School Foundation, which owns and leases the buildings his schools occupy — and Cornerstone Education Group, the management company that collects 10 to 13.5 percent of the schools’ per-pupil funding on top of the rent. One Cornerstone elementary school alone paid more than $500,000 a year to rent its own building, under a triple-net lease that also stuck the school with taxes, insurance, and maintenance (WXYZ Detroit). “A really big, disconcerting piece of this puzzle,” I told a Detroit reporter, “is that these are a number of entities drawing on the public dollars and then sending that money back and forth between themselves.” That arrangement escalated past a policy question in November 2020, when the estate of the network’s largest historical donor filed a complaint with Michigan’s attorney general accusing Durant of running the foundation “as a for-profit entity with the primary purpose of financially benefiting Mr. Durant” himself — pointing to a compensation package that rose 61 percent in a single year and a pair of interest-bearing loans running in both directions between Durant and the foundation he leads (WXYZ Detroit; Crain’s Detroit Business).

Most of this architecture never sees a courtroom, which is part of why it persists. Hellenic Classical Charter Schools, in Queens, is a rare exception. Hellenic’s lease on its building — originally about $660,000 a year, held by a Greek Orthodox parish — was transferred to “Friends of Hellenic Classical Charter Schools,” a nonprofit that shares a chairperson with the school itself, which then subleased the same building back to Hellenic at more than $2 million a year. New York City, on the hook to reimburse charter rent under state law, balked; the state education commissioner sided with the school anyway. In March 2025, an Albany judge overturned that decision, citing “multiple red flags” — the related-party sublease and the rent’s exponential jump chief among them — and ruled the city need only reimburse a school’s “actual rental cost,” not whatever a related party decides to charge it (Chalkbeat New York).

New Jersey supplied its own entry in January 2026: a state comptroller’s investigation into CAPS Asbury found the charter’s management company, CAPS Inc., holding the master leases on all three of the school’s buildings, subleasing them back to the school it manages, and collecting 14 to 15 percent of the school’s revenue in management fees on top — the same landlord-and-manager combination, filed under a different agency’s letterhead (NJ Office of the State Comptroller).

The aggregate pattern shows up in the data, too. Ohio’s state auditor found charter schools leasing from a management company paid an average of $2,325 per pupil in rent, against $848 at comparable charter schools with no related-party lease — nearly three times as much, for materially identical buildings (Ideastream Public Media).

The fix here is also simple, and it’s the one a court already improvised in Hellenic’s case: require any related-party facilities lease to be benchmarked against a market comparison before an authorizer approves it, or before public reimbursement is owed, and require the same related-party disclosure a public company already owes its own shareholders — applied to a nonprofit spending public money instead of investor money.

What ties the two together

Both problems have the same shape: a transaction involving public money and a public asset, priced without the scrutiny a genuine market transaction would face. In Problem 1, the state itself mandates the discount by statute. In Problem 2, the discount runs the other direction — a related party charges above market — but the missing ingredient is identical: nobody with the authority to say no is required to ask whether the price is fair.

Neither fix requires banning charter schools or deciding the broader argument about chartering. It requires only what every case above was missing until, in Hellenic’s case, a judge finally supplied it: someone with the authority to ask whether the person filing the paperwork was also the person collecting the money — and the power to say no when the answer was yes.

Sources

• Baker, B. D., & Miron, G. (2015). The business of charter schooling. National Education Policy Center.
• Pak-Harvey, A. (2024, February 15). Charter schools bought two IPS buildings for a dollar each. What happened next? Chalkbeat Indiana.
• California Legislative Analyst’s Office. Rules regarding surplus school property.
• WYSO / Statehouse News Bureau. (2025, May 23). Public schools could be forced to close some buildings, sell them cheaply to charter schools.
• WXYZ Detroit. Ethical questions raised around Cornerstone Charter Schools’ real estate deals.
• WXYZ Detroit. Clark Durant in battle with Pulte Trust, a major Cornerstone charter funder.
• Welch, S. Crain’s Detroit Business. Pulte estate, Cornerstone foundation battle over millions.
• Chalkbeat New York. (2025, March 24). Judge backs NYC in dispute with state over charter school rent reimbursement.
• New Jersey Office of the State Comptroller. (2026, January 12). Investigation of CAPS Asbury.
• Eddings, A. (2019, January 24). State auditor: Charter schools paying higher-than-market-rate rents. Ideastream Public Media.

Following public dollars through a traditional school district is, by comparison, straightforward. District budgets are public record. Board meetings are open. Every dollar of state and local revenue flows into a single governmental entity that files public financial statements, undergoes independent audits, and answers to elected or appointed boards bound by open-meetings and public-records law. You can follow the money because the law requires the money to be followable.

Charter school finance doesn’t work that way — not because it’s illegal, but because it’s structured differently from the ground up. A single public funding stream can pass through a nonprofit school corporation, a for-profit management company, a related real-estate entity, and a tax-exempt bond issuance — and at almost every hop, the entity receiving the money is under no obligation to disclose anything to the public. Some links in that chain file a Form 990. Some don’t file anything at all. The paper trail doesn’t disappear, but it moves from one regulatory regime to another — nonprofit tax filings, corporate registries, county property records, municipal bond disclosures — each with its own rules, its own audience, and its own blind spots. Tracing it means knowing which of several unrelated public filing systems to check at each step, and accepting that at some steps, no public filing exists at all.

The walkthrough below maps that structure stage by stage: what becomes public, what doesn’t, where to look when it is, and where the trail goes cold when it isn’t.

Field method — public-records tracing. How one dollar of per-pupil funding can travel from a school budget line, through a management company, into a related real-estate entity, and out the far end as a municipal bond — and which public filing catches it at each hop.

• Three hops: management fee → related-party transfer → bond-financed real estate
• Filings used: IRS Form 990 · Schedules L & R · EMMA bond disclosures
• Audience: reporters, auditors, curious taxpayers

How to read the boxes

• Public money / public agency — district, state aid, or a bond authority
• Nonprofit entity — solid border, files a Form 990
• For-profit entity — dashed border, no 990 ever filed
• Where to find it — the specific public filing to pull
• Disclosure gap — the point the paper trail usually goes cold

1. Budget line to management fee

Public per-pupil funding lands in the nonprofit charter school’s checking account, then a slice of it leaves the same year as a fee to whoever runs the school day-to-day. Most large CMOs — Charter Schools USA, Academica, National Heritage Academies — are for-profit LLCs or corporations, not nonprofits, so the fee (often 8–15% of revenue, or a flat per-pupil rate) typically leaves the nonprofit school’s books and lands somewhere that files no Form 990 of its own.

Where to pull it

Form 990, Part IX (Statement of Functional Expenses) on the school’s own return — look for a “management fees” line, or a lump “other expenses” figure explained in Schedule O. Search both entities by name or EIN on ProPublica’s Nonprofit Explorer, which hosts the full 990 as filed, including Schedules L, O, and R. The school’s state charter authorizer annual financial report and independent audit, filed with the state education agency, almost always break out the management fee separately and by percent of revenue.

If the management company is itself a nonprofit, the fee shows up as revenue on its own Form 990, Part VIII — compare it against the school’s expense line, and check the CMO’s Schedule R, Part II, where the school should be listed as a related tax-exempt organization. If the management company is for-profit (the common case), no 990 exists for the recipient at all; the only federal trail is the school’s own return, Schedule L, Part IV (Business Transactions Involving Interested Persons), and only if an officer, founder, or family member holds an interest in the CMO above IRS thresholds. Otherwise, the fee is visible only in the school’s audited financial statements (related-party footnote) and its state authorizer filing.

2. Management company to related-party real estate

A second, related entity — often created and controlled by the same people who run the CMO — now receives money for land or a building, typically a development fee, a capital contribution, or a building bought low and resold high. This is the hop courts and auditors call “self-dealing” when it’s priced above market. In reporting on Charter Schools USA, the network’s founder is also tied to Red Apple Development, the firm that buys and builds the network’s school buildings.

Documented pattern

Reporters tracing county property records found a Charter Schools USA building bought for $2.2M in March 2011 and resold six months later, to the network’s own real-estate arm, for $9.3M — a markup the school then paid off through rent. A second building followed the same path, $3.75M to $9.7M. — Truthout, 2014, citing county deed records

Adjudicated example

A federal court found Imagine Schools breached its fiduciary duty by routing a charter board into an above-market lease with SchoolHouse Finance — Imagine’s own wholly owned real-estate subsidiary — and ordered $935,400 in damages, calling the arrangement “self-dealing.” — Renaissance Academy for Math & Science of Missouri v. Imagine Schools, Inc., W.D. Mo. 2014; see also St. Louis Post-Dispatch coverage of the ruling

Where to pull it

Run the real-estate entity’s name through your state’s Secretary of State / corporate-registry search (e.g., Florida’s Sunbiz, Delaware’s Division of Corporations) — registered agent and officer names are what tie it back to the CMO’s leadership. If the entity is a nonprofit “Friends of” corporation rather than an LLC, it files its own Form 990 — check Schedule L for the lease or purchase transaction and Schedule R for the ownership link. Pull the county property appraiser and recorder of deeds records for the parcel: purchase price, resale price, and date — this is how property flips like the one above are actually caught. The school’s audited financial statements (related-party transactions note, usually near the end) should disclose the lease and the related party, even when the 990 doesn’t.

3. The building gets bond-financed

Rather than pay cash, the real-estate entity typically borrows the purchase or construction price through tax-exempt bonds, applying for conduit financing through an Industrial Development Authority or state finance authority. The authority lends its tax-exempt bonding power but takes on no repayment risk itself; the bonds are underwritten and sold to bondholders and municipal-bond investors, who buy the debt on the strength of the lease revenue described in the offering document — not on the authority’s credit. The bonds are issued in the name of a public authority, but repaid entirely by the charter school’s lease payments.

Adjudicated example

The SEC charged UNO Charter School Network with failing to disclose, to buyers of a $37.5 million bond offering, that a construction contract had gone to a company owned by a senior officer’s brother. — SEC v. UNO Charter School Network, settled June 2014

Where to pull it

Search emma.msrb.org — the SEC-designated municipal-disclosure archive — by issuer name, borrower/”obligated person” name, or CUSIP to find the Official Statement (OS). Inside the OS: the “Security and Sources of Payment” section names the lease or loan agreement that backs repayment; the maturity schedule gives the par amount and interest rate for every maturity; the cover page names the underwriter, bond counsel, and trustee. EMMA also holds every continuing-disclosure filing made after closing — the charter school’s annual audited financials and enrollment figures, filed for as long as the bonds are outstanding. That’s the ongoing monitoring trail, not just a one-time snapshot.

The loop closes here. The charter school’s per-pupil funding — the same dollars that started at Stage 1 — now also makes the lease payment that services this debt. One public revenue stream is paying, in the same fiscal year, a management fee, a related-party real-estate return, and municipal bond debt service.

Reporter’s toolkit

Six free lookups, in the order you’ll actually use them, to run any charter network through the three stages above.

On the examples above: the Winthrop/Woodmont property-flip figures are as reported by Truthout (2014) from county deed records; the SEC and Renaissance Academy/Imagine Schools matters are settled federal enforcement and adjudicated court findings, cited to the SEC’s June 2014 press release and the W.D. Missouri court’s December 2014 ruling respectively. Charter Schools USA and Red Apple Development are named here only as the illustrative structure that reporting has already documented — not every CMO/real-estate pairing follows this pattern, and not every instance of it is unlawful. This piece describes a documented mechanism and where its paper trail lives; it is not an allegation about any specific school’s current finances.

Related reading

• The Charter School Company Store — more on the range of methods charter operators use to convert public revenue into private gain
• We bought it twice but we no longer own it — the bad public policy behind charter school real estate deals
• Pondering Chartering: Who’s actually running America’s charter schools? — on the governance structures behind charter management

Figure 1 – left panel – compares nominal per pupil spending by U.S. Census Poverty rates for all school districts nationally. Per pupil spending is measured as a ratio of each school district’s spending to the average spending for all other districts in the same labor market (metropolitan or micropolitan core based statistical area or rural area outside of CBSA, within each state). A district with a spending ratio of 1.0 would be spending at the average of those districts around it. This approach compares districts subject to similar input prices. What we see here is that on average, districts with higher rates of child poverty tend to have higher per pupil spending. In fact, moving from 0% to 100% child poverty would be associated with .62 increase in per pupil spending (from average to 62% above average). More realistically, within the actual range of data, the highest poverty district would be expected to have about 31% higher relative spending than the lowest poverty district, in 2023, weighted for district enrollment. That sounds rather progressive. But, is it progressive enough? To provide equal opportunity? Similarly, as we can see in Figure 2 – left panel – districts that serve majority black student enrollments tend to be above the “average” line, while also being generally high in child poverty rate. Measured this way, a district that is 100% black would be expected to have about 25% higher relative spending. Again, progressive.

Figure 1 – right panel – shows what happens when we measure current spending with respect to the cost of achieving national average outcomes in reading and math. Despite the uphill (progressive) slope in the left panel, we see a regressive slope with respect to poverty in the right panel. If the slope in left panel was steep enough – progressive enough – the right panel would have all districts falling along the horizontal line. The right panel captures both adequacy and equal opportunity. Adequacy – measured as a low bar of national average outcomes in reading and math, is captured in the dashed horizontal line. Many low poverty (left) districts spend well above what would be needed to achieve merely “adequate” outcomes measured by this low bar. Meanwhile, most high poverty districts and nearly all majority black districts fall below spending needed to achieve “adequate” outcomes. The distance of each district to the horizontal line, or ratio to it, measures equal educational opportunity.

Figure 1

Figure 2 shows why this reframing is so important. It is important that we understand the outcome implications of inadequate funding. That the goal of a well-designed funding formula is to ensure that all children have resources adequate to achieve a common set of educational outcomes. State school accountability systems are premised on as much – that all children are expected to achieve “X.” And that school and district officials shall be subject to penalties if or when they do not. That is, even if the state has not calibrated the school funding formula to provide equal opportunity to do so.

Figure 2 – left panel – shows that if we look just a relative spending and student outcomes, higher spending districts have lower outcomes, with majority black districts having relatively higher spending but particularly low outcomes (combined, normed index of reading and math achievement). The opposite is true (right panel) when comparing the adequacy of spending to outcomes – more adequate spending leads to higher outcomes, consistent with the research on how and why money matters. Additionally, the adequacy of district spending explains nearly 40% of outcome variation, whereas relative spending alone explains about 5%, but in the “wrong” direction.  Spending adequacy is simply the better, more correct (more valid[1]) measure for comparing access to fiscal resources across children and setting. These are the same data used above, also for 2023. Collectively what Figures 2 and 3 tell us is that while spending on average is “progressive” it is far from “progressive enough,” leaving large gaps in equal educational opportunity, including significant racial gaps.

Figure 2

[1] Valid in the sense that the measure has predictive validity – can predict the outcome measures of interest (with the correct sign, sufficient magnitude and variance explained) – which, in this case are measured student outcomes in reading and math. See also: Baker, B. D. (2006). Evaluating the reliability, validity, and usefulness of education cost studies. Journal of Education Finance, 32(2), 170-201.