At first blush, Baker Mitchell’s chain of North Carolina charter schools look like a portrait of free-market success.
He boasts that students schooled at his sprawling, rural campuses produce better test scores at a lower cost than those in traditional public schools.
The schools, however, do more than just teach children. They are also at the center of Mitchell’s business interests. Every year, millions of public education dollars flow through his chain of four nonprofit charter schools to for-profit companies he controls.
Unlike with traditional school districts, at Mitchell’s charter schools there’s no competitive bidding. No evidence of haggling over rent or contracts. The schools buy or lease nearly everything from companies owned by Mitchell. Their desks. Their computers. The training they provide to teachers. Most of the land and buildings.
Sign Up and Save
Get six months of free digital access to The News & Observer
The schools have all hired the same for-profit management company to run their day-to-day operations. The company, Roger Bacon Academy, is owned by Mitchell, 74.
It functions as the schools’ administrative arm, taking the lead in hiring and firing school staff. It handles most of the bookkeeping. The treasurer of the nonprofit that controls the four schools is also the chief financial officer of Mitchell’s management company. The two organizations even share a bank account.
Mitchell’s management company was chosen by the schools’ nonprofit board, which Mitchell was on at the time – an arrangement that would be illegal in many other states.
Lawmakers and advocates at the state and federal level have embraced charter schools – both single schools and chains of charters – as an alternative to poorly performing and underfunded traditional public schools.
Charters are privately run but government-funded and, like most public schools, they aren’t supposed to pick which students to accept. As charters have grown in popularity and expanded, an industry of management companies has sprung up to assist them.
Many of these companies are becoming political players in their states, working to shape the still-emerging set of rules charters must play by.
This new reality – in which businesses can run chains of public schools – has spurred questions about the role of profit in public education and whether more safeguards are needed to prevent corruption. The U.S. Department of Education has declared the relationships between charter schools and their management companies, both for-profit and nonprofit, a “ current and emerging risk” for misuse of federal dollars. It is conducting a wide-ranging look at such relationships.
Two of Mitchell’s former employees told ProPublica they have been interviewed by federal investigators. Mitchell says he does not know whether the schools are being investigated and that he has not been contacted by any investigators.
To Mitchell, his schools are simply an example of the triumph of the free market. “People here think it’s unholy if you make a profit” from schools, he said in July while attending a country-club luncheon to celebrate the legacy of free-market sage Milton Friedman.
It’s impossible to know how much Mitchell is profiting from his companies. He has fought to keep most of the financial details secret. Still, audited financial statements show that over six years, companies owned by Mitchell took in close to $20 million in revenue from his first two schools. Those records go through the middle of 2013. Mitchell since has opened two more schools.
‘Shocking’ conflict of interest
Mitchell and others in the charter-school industry often say that charter schools are more accountable than traditional public schools, because they have to answer for their performance.
“Parents can shut us down overnight,” Mitchell is fond of saying. “They stop bringing their kids here? We don’t get any money.”
Moreover, he said, students at his two more established schools have produced higher test scores at lower costs than those in traditional public schools. “Maybe Baker Mitchell gets a huge profit. Maybe he doesn’t get any profit,” Mitchell said. “Who cares?”
But many charter supporters question that perspective. The National Association of Charter School Authorizers, a group that promotes best practices for overseeing charter schools, says schools should be independent from their contractors. Mitchell’s dual roles as both a charter-school board member and a vendor, for instance, were a blatant violation of those standards.
“This kind of conflict of interest is what I would consider shocking,” said Parker Baxter, a program director for the group.
“This isn’t as if one of the board members happens to own a chalk company where they buy chalk from, and he recused himself from buying chalk,” he said. “This is the entire management and operation of the school.”
Mitchell was pushed by North Carolina regulators to step down from his schools’ board last fall, a move he derides as unnecessary. “It’s so silly,” he told ProPublica. “Undue influence, blah blah blah.”
Mitchell still serves as secretary for the board, taking notes and doing the meeting minutes. Asked about frustrations among former board members over his involvement, Mitchell said, “Everybody’s free to their own opinion.”
Battle with IRS
When charter schools were first established in the early 1990s, supporters sought flexibility and freedom from the bureaucratic rules they believed hamstrung traditional schools.
Charter schools have leeway over their calendar, curriculum, and who they hire and fire. In most states, they do not have to follow many of the processes meant to prevent corruption and misspending of public dollars, such as putting contracts out for competitive bidding.
Mitchell moved to North Carolina in 1997, a year after the state passed a law allowing charter schools. He said he dreamed of starting a school after selling his computer business in Houston in 1989.
He opened Charter Day School in 2000 and quickly connected with the state’s big political players, including conservative Art Pope.
By 2002, he was sitting alongside Pope on the board of the John Locke Foundation, which is, in turn, part of the State Policy Network, a group of free-market think tanks whose education agenda includes expanding “school choice” by steering public funds away from traditional schools and toward charters, vouchers and tax credits for home-schoolers.
From the beginning, concerns about excessive profits and Mitchell’s conflicts of interest dogged the new school.
In 2001, the Internal Revenue Service rejected the group’s application for tax-exempt status, noting Mitchell’s dual roles as both a board member and head of a company doing business with the board. The IRS also noted the joint bank account shared by the schools’ nonprofit and Mitchell’s for-profit company, and that the school was leasing space from another company owned by Mitchell.
“Mr. Mitchell thus controls both your management company and your lessor,” the IRS wrote in a denial letter. “He has dual loyalties to you and his private, for-profit companies. This is a clear conflict of interest for him.”
The school’s board – with Mitchell as a member – protested. It went back and forth with the IRS and eventually made some concessions. For example, it set a limit on the management company’s fees and required board members to recuse themselves from votes in which they had financial interests.
Many of the things flagged by the IRS were left unchanged. Mitchell and an employee of his remained on the board. The joint bank account and the leasing arrangement also stayed the same. But the IRS approved the school as a tax-exempt nonprofit in March 2002.
Mitchell’s second school, Columbus Charter School, opened in 2007, in rural Columbus County. That school and Mitchell’s first, Charter Day School, have won recognition several years in a row for their performance on state tests.
But comparing the performance of these two schools to their traditional-school counterparts is complicated because the charters have a comparatively low percentage of needy students, who tend to score lower on standardized tests. For instance, 37 percent of test-takers at Columbus Charter School earlier this year were “economically disadvantaged,” compared with the county’s 74 percent.
The two schools do not provide busing or participate in the federal free and reduced-price lunch program – services that are considered key to ensuring broad access.
Mitchell says his third school, Douglass Academy, is the only one that provides transportation and food for students. Its target population is children in several Wilmington housing projects. There’s no test data yet to show how they’re faring.
Help in high places
North Carolina, like many states across the country, had been cautious when it first allowed charter schools and had placed a cap on their growth.
Mitchell wanted to get rid of the cap. In 2011, he got what he wanted. Republicans took control of the state legislature and swiftly eliminated the cap on charter schools.
Mitchell was also given a coveted position on the state’s new Charter School Advisory Council, an influential committee tasked with reviewing charter applications and making recommendations to the State Board of Education. (He resigned from a subsequent version of that board earlier this year while under pressure about conflicts of interest. He said in an interview he quit because it became a lot of work.)
It was a turning point for Mitchell. Over the next two years, he got the go-ahead to open two more schools. With both of these schools, he appeared to benefit from unusual exceptions or political intervention.
One of them was Douglass Academy, Mitchell’s school for needier students in downtown Wilmington. Charter schools must have at least 65 students enrolled, according to state law, and Douglass Academy was well below that. Mitchell’s colleagues on the advisory council gave him a temporary waiver that allowed the school to avoid closure while it tried to boost enrollment.
“I would say it was unusual,” Joel Medley, head of the state’s Office of Charter Schools, said of the temporary waiver. According to Medley, the only other charter schools in the state that received such waivers got them on a permanent basis because of geographic isolation or because they had set out to serve special student populations deemed ill-suited to large-school settings.
The school has since cleared the state’s minimum, though enrollment is still far below the school’s own projections.
Mitchell’s fourth school also lucked out. In 2013, the school’s application failed an initial screening and was put in a stack of applications excluded from further consideration. But then the president of the state Senate, Sen. Phil Berger – the same Republican lawmaker who appointed Mitchell to the council – intervened on behalf of frustrated applicants.
The whole stack was re-evaluated – a “one-time decision,” said a memo from the advisory council, due to “extraneous circumstances.” Berger did not respond to a request for comment.
Mitchell’s fourth school was approved, with the stipulation that members of the management company, including Mitchell, step down from the board. South Brunswick Charter School opened its doors this summer at a temporary site. A permanent spot is in the works – on land purchased by another of Mitchell’s for-profit companies with plans to lease it back to the school.
Lobbying against regulation
Mitchell’s influence has reverberated beyond his own schools.
In 2013, the state legislature passed a sweeping bill on charter schools, rolling back pieces of oversight and regulation. The law relaxed requirements on how many of each charter school’s teachers had to be certified, giving schools more flexibility and potential savings on labor costs. It even included a perk – a tax exemption – for landlords who, like Mitchell, rent property to charter schools.
Mitchell was intimately involved in seeing the bill through as chairman of a pro-charter lobbying group, the NC Alliance for Public Charter Schools. Asked about the tax break and whether he had pushed for provisions that would directly benefit him, Mitchell told ProPublica, “There was another group that pushed that through. I didn’t have anything to do with it.”
But a lobbyist for Mitchell’s group, Debbie Clary, said, “It was our bill. I was the only lobbyist working on it.” Clary added, “The person most engaged was Baker (Mitchell).”
Mitchell has expressed frustration with a state law passed this past summer that requires charter schools to comply with public-records laws. Still, the new law does not apply to charter management companies such as Mitchell’s.
The board of Mitchell’s charter schools has repeatedly tangled with local news outlets that have made public-records requests seeking salaries and other financial details from the schools. Last month, the Star-News of Wilmington filed a lawsuit against the schools’ nonprofit board, alleging that it has violated the state public-records law. The board chairman for Charter Day School Inc., John Ferrante, did not respond to requests for comment.
Mitchell himself has taken a hard line against disclosures of financial information concerning his for-profit companies. For private corporations, he wrote on his blog in July, “the need for transparency is superfluous” and is simply a mechanism for the media to “intrude and spin their agenda.”
Public or private?
In North Carolina and many other states, the battle over charters is no longer about whether to have them. Instead, it’s largely between those who believe in regulating them and creating mechanisms for public accountability and those, like Mitchell, who believe that’s the job of the free market.
“That’s the fight in North Carolina,” said Damon Circosta, executive director of the A.J. Fletcher Foundation, which sees charter schools as a way to improve public education. “That free-market ideology has taken hold with this newer legislature.”
Gov. Pat McCrory, a Republican, has tried to step in where the legislature has not. At his urging, the State Board of Education has gone beyond what the law requires and has ordered schools to submit salary information for employees of charter-management companies – numbers that Mitchell believes should be private.
“There’s no statutory basis for it,” Mitchell said of the new requirements. His schools’ board submitted basic budget documents in response to the agency’s request, but it withheld the requested information on management-company finances, stating that the board “does not possess individual salaries paid by any private corporation that furnishes services.”
He views these new requirements as a sign that North Carolina is moving in the wrong direction, toward an over-regulation of charter schools.
“I see the banks of the river narrowing,” he said. “In a few more years, there will just be a very narrow channel to navigate in. A lot of the freedoms will be regulated out.”
Heather Vogell contributed to this report. ProPublica is a Pulitzer Prize-winning nonprofit investigative newsroom. Sign up for its newsletter at www.propublica.org/forms/newsletter_daily_email.