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Five points from Sahan’s examination of charter school contracts

Nearly 70,000 Minnesota children attend charter schools, and two-thirds of them are students of color. That’s more students than attend any single school district in the state, and more than the undergraduate and graduate students combined at the University of Minnesota’s Twin Cities campus. Yet despite their large educational presence, charter schools rarely receive extensive coverage from local newsrooms.

Charter schools in Minnesota, like charter schools across the country, operate with a great deal of autonomy. During my four years of covering education for Sahan Journal, I learned that autonomy sometimes means no one to step in when problems arise. Substandard buildings, unfair leases, high-volume school boards, faulty accounting: The Sahan Journal has reported on charter schools that have had all of these difficulties — and in some cases have closed as a result, leaving students and families scrambling to find a new school.

In reporting on these schools, the Sahan Journal uncovered a much broader problem in the way Minnesota charter schools award millions of dollars in large outside contracts. These are contracts worth more than $100,000 – some over $1 million – that go to independent companies for bus services, educational software and more. Because of a loophole in the law, these outside contracts are not subject to the same oversight that applies to the contracting practices of public school districts and other local government units. And the complicated (and often straightforward) state oversight structure for charter schools makes it difficult to say who is responsible.

A few years ago, these contract issues came to a head at Noble Academy — a school in Brooklyn Park that serves primarily Hmong students and has repeatedly been recognized by the state as a “high-quality charter school” — when a former employee filed a formal complaint with the Department of Education of Minnesota. The state agency required the school to adjust its policies but imposed no consequences. Ultimately, the department closed the complaint.

The Sahan Journal picked up the story here. Here’s what our investigation into charter schools’ contracting practices found.

When charter schools in Minnesota award contracts, they do not have to follow the same laws as cities, counties or school districts.

If a public school district wanted to purchase 1,000 desks, it would have to follow a competitive bidding process under Minnesota law. This means the company would have to place an ad in a newspaper, obtain multiple bids, and award the contract to the “worst bidder.”

But charter schools are exempt from this law, just as they are exempt from many other state laws that apply to local government entities.

Without a mandatory bidding process, a school may be overpaying for transportation, desks, or software. But it could also mean that a school awards money based on personal relationships.

Procurement laws that regulate how local governments award contracts were put in place to combat corruption, said David Schultz, who teaches political science and law at Hamline University and government constitutional law at the University of Minnesota Law School.

“What we have essentially said is that we will exempt companies that have enormous amounts of money from the standards that we would expect for any other government entity,” Schultz said. It was as if the state had “forgotten the reason why we put all these rules in place,” Schultz added – namely “to deal with corruption.”

The amount of money involved is significant. A Sahan Journal investigation found that charter schools distribute more than $132 million in state funding annually through large outside contracts.

The Sahan Journal collected publicly available tax returns from 172 of 180 charter schools across Minnesota during the 2021-2022 school year. Then Cynthia Tu, Sahan’s data and artificial intelligence reporter, used AI tools to comb through all 172 of those tax reports and create a database of large contracts over $100,000. (Nonprofits, including charter schools, must disclose their five largest contracts above this cutoff line.) To ensure our final number is as accurate as possible, we excluded food service contracts that involve federal funding and must comply with federal procurement laws.

Ultimately, our analysis found that charter schools spend more than $132 million in state funding on major contracts each year. Keep in mind that these only apply to contracts valued at six figures or higher.

The individual school authorities approve them and are supposed to monitor them. But these volunteer-led boards often experience high turnover and low participation. The commissioners who oversee charter schools say evaluating charter school contracts is outside their purview. If someone files a formal complaint, the Minnesota Department of Education may intervene in the investigation.

The school that triggered our investigation, Noble Academy, awarded contracts to the vice principal’s daughter and the school’s founder.

In 2019, the Noble Academy school board awarded a $20,000 lawn care contract to a business started by the assistant principal’s 18-year-old daughter. Ultimately, the Minnesota Department of Education concluded that this conflict of interest “appears to have been mitigated.”

Then, two years later, as the founder and longtime principal sought retirement, the school entered into a contract for a brand new management company, Excellence in Education, which he controlled. The contract gave the founder’s company 10% of all school funding – about $1 million per year.

Noble Academy and its author, Osprey Wilds Environmental Learning Center, said these funds will go to consultants who provide financial, operational and tax accounting services; operating and plant costs; and salaries and benefits for Excellence in Education employees. The company made more than $200,000 in profit last year.

A state investigation required the school to update its policies on nepotism and conflicts of interest. But the state did not impose any penalty on Noble Academy.

The Minnesota Department of Education ultimately closed the complaint filed against Noble Academy after the school promised to terminate the management contract and enter into a competitive bidding process. This tender resulted in only one offer – from the same company as the founder. Therefore, Excellence in Education again received a contract with Noble Academy for 10% of all school fees. Over the past three years, the company has received approximately $3 million in government funding.

The Minnesota Department of Education has proposed a new law to address the problem.

The state legislature’s proposal would require charter schools to adopt a procurement policy that requires a competitive bidding process for all contracts over $25,000. It would also allow the state to withhold funding if a school enters into a contract that does not comply with the school’s own procurement process or state law.

In other words, if a school enters into a $1 million no-bid contract with its founder, the state could cut the school’s funding by $1 million.

The procurement proposal is part of a larger education policy bill. The Minnesota House and Senate are expected to vote on it this week.

INSIDE SAHAN JOURNAL: THE STORY BEHIND THE BIG NUMBER

How Sahan Journal used AI tools to identify $132 million in charter school spending in Minnesota

How Sahan Journal used AI tools to identify $132 million in Minnesota charter school spending

Today, the Sahan Journal publishes an article about how charter schools in Minnesota hand out $132 million in contracts that are often difficult to detect. This story is the result of an investigation that spanned eight months. Let’s go back to the beginning. When I joined the Sahan Journal in September 2023, our education reporter Becky Dernbach told me about an allegation of accounting fraud at a Brooklyn Park charter school. We combed through school board minutes and legal filings to determine the footprint of a popular charter school accounting firm that later collapsed. We realized that no…

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