market failure
Source Jim Devine
Date 04/09/18/02:40

September 17, 2004

Collapse of 60 Charter Schools Leaves Californians Scrambling


Ken Larson was pacing the floor of his office in a tiny elementary school in Oro Grande, Calif., surrounded by the chaos of fax lines beeping, three beleaguered secretaries peppering him with questions and phone lines ringing for the umpteenth time.

It had been a month since one of the nation's largest charter school operators collapsed, leaving 6,000 students with no school to attend this fall. The businessman who used $100 million in state financing to build an empire of 60 mostly storefront schools had simply abandoned his headquarters as bankruptcy loomed, refusing to take phone calls. That left Mr. Larson, a school superintendent whose district licensed dozens of the schools, to clean up the mess.

"Hysterical parents are calling us, swearing and shouting," Mr. Larson said in an interview in Oro Grande last week. "People are walking off with assets all over the state. We're absolutely sinking."

The disintegration of the California Charter Academy, the largest chain of publicly financed but privately run charter schools to slide into insolvency, offers a sobering picture of what can follow. Thousands of parents were forced into a last-minute search for alternate schools, and some are still looking; many teachers remain jobless; and students' academic records are at risk in abandoned school sites across California.

Investigators are sifting through records seeking causes of the disaster, which has raised new questions about how charter schools are regulated.

"Until the Charter Academy went into its tailspin, few people predicted that these crashes could be so bloody, but this has been a catastrophe for many people," said Bruce Fuller, a professor of education at the University of California, Berkeley. "The critics of market-oriented reforms warned of risks with the philosophy of let-the-buyer-beware, but in this case, buyers were just totally hung out to dry."

Jack O'Connell, the California superintendent of schools, said in an interview that a majority of the state's 537 charter schools were making a solid contribution to public education. But Mr. O'Connell has concluded from the disaster that the state must apply "tough love" in regulating them, "to keep this kind of near-bankruptcy and chaos from happening again," he said.

"If there's mismanagement and malfeasance, we'll come in and put you out of business," he said.

Back in 1999, the national movement to provide alternatives to parents through charter schools, which face less burdensome regulation than other public schools, was gaining steam. Many charter schools have since flourished, and experts say that some of them offer an excellent education. But in Southern California, there were signs of trouble soon after C. Steven Cox, a former insurance executive whose only educational credential was his brief service on a local school board, founded the Charter Academy.

State auditors are now scrutinizing Mr. Cox's financial records to determine whether he exaggerated enrollments and to sort out claims from a line of creditors, said Scott Hannan, director of school fiscal services at the California Department of Education.

"But our highest priority is securing the student records," Mr. Hannan said. That is a sore point with Mr. Larson, who said that thousands of students' immunization and academic records had been virtually abandoned all across California.

Mr. Larson, superintendent of a tiny school district in Oro Grande, a Mojave Desert village 88 miles northeast of Los Angeles that looks like a set for "Bad Day at Black Rock," has converted a storeroom at his school into a warehouse for the records. He has arranged for dozens of file cabinets holding student records to be trucked to Oro Grande from schools that have closed across the Mojave Desert, he said, but he has no way to collect records and equipment left behind elsewhere.

Mr. Larson said Mr. Cox approached him in 2001, preaching the charter school gospel that money spent on filing reports to government regulators would be better spent in classrooms, and asking the Oro Grande district to license him to found charter schools. The Oro Grande school board approved the idea, and two other California districts forged similar relationships with Mr. Cox between 1999 and 2001.

Mr. Cox eventually founded 60 satellite schools in low- and middle-income communities stretching from Chula Vista near the Mexican border to Gridley, 140 miles northeast of San Francisco, and under California's financing formulas the state paid him about $5,000 annually for each student he enrolled. As his business grew, he hired his wife, son, daughter-in-law and other relatives to work at his corporate headquarters in Victorville, near Oro Grande.

But by early 2003, Mr. Cox had become mired in several costly confrontations with the California Department of Education; one centered on whether 10 of his schools were in violation of a 2002 law barring charter operators from opening schools in counties they had not registered in. The state withheld more than $6 million that Mr. Cox had expected to receive.

Mr. Cox sued, seeking to force payment, but lost that battle after running up huge legal fees, and the state withheld money as a result of other disputes, too. By the summer, Mr. Cox's financial difficulties had grown severe, and on July 28, the trustees of one of the four charters responded to the mounting crisis by voting to close the schools they had licensed. Mr. Cox stalked out of that meeting and stopped responding to most phone calls.

Within a week and a half, trustees voted to close the rest of Mr. Cox's schools, and his second in command announced to scores of employees gathered at the Victorville headquarters that they were out of a job. Kim Ehrlich, a billing supervisor, said she spent the first half of August with workers dismantling the offices around her, phoning local utility companies across California to turn off the power at Charter Academy schools, then lost her job.

The sudden collapse blindsided even the charter school principals. Melody Parker, whose Village elementary school in Inglewood was one of the most popular schools in Mr. Cox's organization, said that although her budget had been slashed and Mr. Cox had grown aloof, she never imagined that his organization could fall apart.

"It hit us like a tornado," Ms. Parker said. On Aug. 12, she informed teachers that their jobs were gone, and the next day she told hundreds of parents gathered at the school that it would not open for the fall term. Many had still not found schools by the second week of September, she said.

"The collapse was so disheartening,' said Dwayne Muhammad, who works in a funeral home and whose daughter Aisha was to attend the Village's fourth grade this fall. "Everybody began rushing to find alternate schools."

Mr. Muhammad has visited eight schools in the weeks since, all of which have been full, he said Monday. "We've been left by the wayside."

The nonprofit California Charter School Association said in a report this week that 80 percent of the students displaced from Mr. Cox's schools had since enrolled in other charter schools. Some teachers, like Maria Boatwright, who taught first grade at the Village, have found new jobs at other charters.

But teachers all across the state have reported difficulties in finding new teaching positions because most schools had hired their staffs by the time the academy collapsed, Mr. Larson said.

At the interview in Oro Grande, he produced a stack of letters from distraught, jobless teachers. Travis D. Taylor, who taught art and science to students at a Charter Academy school in Gridley, wrote to say that he had not been repaid the hundreds of dollars he spent on books and science equipment for his students.

Mr. Taylor's mother, Shelly, said that since the collapse, Mr. Taylor had been unable to find another teaching job. With his debts mounting, he has been harvesting rice "to keep his head above water," she said.

Mr. Cox did not respond to requests for an interview left on his voicemail, sent by e-mail and relayed through former employees. Mr. Larson has not been able to reach him either, he said.

One of Mr. Larson's secretaries interrupted the interview to announce that the landlord of a school forced to close in Los Angeles was threatening to dump desks and student records in the street to make way for a new tenant. Mr. Larson wrestled with the notion of driving a truck to Los Angeles himself to fetch the assets.

"There's 100 desks down there," he muttered. "What would we do with 100 desks?"

Copyright 2004 The New York Times Company

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