Last of two parts.
When an unusual coalition of Republicans and Philadelphia Democrats led by State Rep. Dwight Evans joined forces to pass a law bringing charter schools to Pennsylvania, they spoke in glowing terms about this "innovative" alternative to troubled public schools.
At that time - 11 years ago - few could have predicted the explosive growth - and controversy - that now surround the charter movement.
About 67,000 students are enrolled at 127 charter schools statewide, including several in Philadelphia that are now under criminal investigation.
The "innovation" most in evidence at the Philadelphia Academy Charter School in Northeast Philadelphia, as The Inquirer has reported, has led to allegations of nepotism, conflicts of interest and financial mismanagement, all now under investigation by federal authorities.
Philadelphia Academy Charter is hardly alone.
While many charter schools are hailed in their communities as educational beacons, the state auditor general has found financial and ethical problems at charters across the state.
In Philadelphia, the federal criminal probe has spread to at least three other city charters, including Germantown Settlement, where charter money allegedly was used to prop up related agencies.
State Education Secretary Gerald L. Zahorchak, meanwhile, is demanding a full accounting of administrative and instructional costs at Chester Community Charter School. That school, however, is not under criminal investigation.
Zahorchak also has complained that "cyber" charters, which offer online instruction to students at home, have amassed $28 million in cash reserves.
A growing chorus of legislators and others say the law that launched the educational experiment needs an overhaul.
An Inquirer examination reveals:
The law allows little scrutiny of charters. Districts approve charters but have limited power to shut them down. The state exercises scant oversight on charter spending, which totals more than $633 million this year.
The law dictates a crazy-quilt pattern of funding for charters. Each district pays a different amount even when the students attend the same charter. For example, Philadelphia pays $8,088 per student; Jenkintown, $15,174. Cybers get the same payments as other charters even though students receive online instruction at home.
Charters are paid extra for special-education students, regardless of their disability. There is no requirement they spend all the money on special-education services. Chester Community Charter spends only 20.7 percent of its special-education funds on special education.
The law bars school board members from serving on charter boards, but it does not prohibit politicians or a founder's friends and relatives. State Rep. Dennis O'Brien (R., Phila.), for example, is a board member of Maritime Academy Charter School in Bridesburg.
Weak oversight and legal loopholes have enabled some charter operators, such as Philadelphia Academy founder Brien N. Gardiner, to build empires by creating related companies that do business with charters.
The state's fiscal watchdog, Auditor General Jack Wagner, says it's time to revamp the law. He plans to issue a charter report early next year based on his department's audits. "You can't have the same law in an ever-changing environment," said Wagner, a newly re-elected Democrat.
Wagner will find support in the Rendell administration, where Education Secretary Zahorchak supports changes, especially in funding and special education.
In the legislature, the situation is more complicated.
State Sen. Jeffrey E. Piccola (R., Dauphin), new chair of the Senate Education Committee, said he's open to holding a hearing to see if the law needs to be altered.
"We would hear from both sides," said Piccola, who cosponsored the 1997 law. "The people who operate charters have some ideas about how we should change the law to make it easier for them to operate."
State Rep. James R. Roebuck Jr. (D., Phila.), chairman of the House Education Committee, also supports hearings.
"There are things that have happened that no one anticipated," he said.
With 65 percent of the state's charters based in Southeastern Pennsylvania, it may be difficult to marshal political support for change, especially when Evans, one of the most powerful politicians in Harrisburg, doesn't see the need.
After becoming frustrated by persistent problems in city schools and the lack of educational options for working parents, Evans became one of the staunchest charter advocates in Harrisburg. "I still think it's a good law," Evans said. "I would give it a B-plus."
Nationwide, Pennsylvania is considered a "charter-friendly" state. The Center for Education Reform in Washington, a charter advocacy organization, rates Pennsylvania's law as the 12th strongest of the nation's 41 charter laws.
Back in 1997, charter advocates said the taxpayer-supported, independent schools would jumpstart educational reform. They reasoned that charters could experiment with creative educational approaches because they are free from many rules and regulations restricting public schools.
Charters provide educational choice by giving parents of low-income and working families an alternative to failing public schools, especially in the inner city. And competition from charters, supporters said, would force public school districts to do a better job and boost test scores.
The first charter opened in Minnesota in 1992. By the time the Pennsylvania legislature adopted its law, 26 states had charter laws on the books, including New Jersey, which had passed its law in 1996. The laws varied widely.
Paula Hess, an education policy expert who worked with state House Republicans in developing the law, said it was "crafted to be Pennsylvania-specific."
With 501 districts, the state favored local control. School boards were given the responsibility for approving and overseeing charter schools instead of the state Department of Education, as is done in New Jersey.
But because charter advocates feared school boards would reject applications out-of-hand, Pennsylvania's law limited districts' ability to deny applications, and it established a state appeals board with power to overrule local boards. As a result, charters flourished in Pennsylvania. They grew more slowly in New Jersey, where there are just 62 charters statewide, including seven in Camden County.
In Pennsylvania, Philadelphia has the greatest concentration of charter schools: almost exactly half, 63, of the state's 127. What began as a modest expense has ballooned to $320 million per year, 14 percent of the city school district's $2.3 billion budget.
Philadelphia officials know all too well the limitations of the state law. While the district is responsible for ensuring that charters operate properly, the law allows the district to exert close scrutiny only every five years, when a charter is up for renewal.
In the interim, it's up to the charters to report major changes. Districts cannot withhold money from charters even if they are mismanaged, under-performing or fail to file required reports.
"Responsibility, transparency, accountability and performance," said Michael J. Masch, a former member of both the Philadelphia Board of Education and School Reform Commission, who is now the district's chief business officer. "When public money is being given to a private organization, those are the four things you have a right to demand. And the charter law, as written, does not give the public sufficient ability to meet those goals in reviewing the performance of charters."
Lawrence Jones, president of the Pennsylvania Coalition of Charter Schools, said charters already are required to submit piles of documents.
"They have a tremendous amount of paperwork and accountability," said Jones, CEO of Richard Allen Preparatory Charter School in Southwest Philadelphia. "For the most part, people running charter schools want to do a pretty good job. They don't mind accountability because they know that was the arrangement."
The law allows charters to behave very differently from regular public schools, and it is silent on many issues. The law does not set academic qualifications for charter CEOs or bar charter officials from hiring relatives. It does not limit officials' salaries or prevent founders from creating entities that do business with their charters.
Hess said lawmakers set no requirements for CEOs because they wanted to give charter boards the flexibility to hire nontraditional leaders. She said salaries were not limited, and nepotism was not barred, because districts did not face those restrictions.
CEOs and board members are supposed to report their financial interests and any conflicts of interest annually to the state. But the auditor general has found that not everyone complies.
Hess was taken aback when she learned in the spring that Philadelphia Academy Charter School had hired Kevin M. O'Shea, a former police officer with a high school diploma, to be CEO.
As The Inquirer reported, a web of charter and business entities enabled O'Shea and school founder Gardiner to earn more than most superintendents in the region. Both men and relatives on the payroll were later fired.
In July, the legislature responded by changing the school code to bar charter administrators from collecting salaries from more than one school or from entities doing business with charters.
Senate Majority Leader Dominic Pileggi (R., Delaware), a charter supporter, favors examining the law in light of what happened at Philadelphia Academy. "If an analysis shows that stronger oversight and greater transparency would decrease the possibility of wrongdoing, I would support such changes," he wrote in an e-mail.
Other charters' business practices have come under scrutiny.
As The Inquirer reported yesterday, state officials have raised questions about Chester Community Charter School's spending on administration and instruction and its classification of special-education students. The school, which spends the highest portion of any charter in the state on administration, pays millions of dollars in annual rents, management fees and salaries to a for-profit company run by Vahan H. Gureghian, a wealthy lawyer.
Ted Kirsch, president of the American Federation of Teachers Pennsylvania, said that in 1988 the late Albert Shanker, then AFT president, first proposed charter schools to empower educators and promote innovation.
"I think if he could see how some of these 'entrepreneurs' are making money out of this, he would be appalled," said Kirsch, whose union represents teachers at a few charters. The union has no plans to join any debate on the law.
After Philadelphia Academy was rocked by allegations of conflicts of interest, nepotism and financial wrongdoing in the spring, the federal criminal probe was launched. It has expanded to encompass at least three more city charters, according to sources with knowledge of the inquiry.
One of those schools is Germantown Settlement Charter School, which is being investigated by several law enforcement agencies for allegedly diverting some of the $31 million in taxpayer funds it received over nine years to prop up other nonprofits operated by its parent group.
And two former administrators at the former Raising Horizons Quest in Philadelphia are awaiting sentencing after pleading guilty to federal charges they tried to cover up the theft of more than $14,000 in charter funds. The former chief executive of a now-defunct Philadelphia charter was sentenced in 2006 to 33 months in federal prison for defrauding the school district of $206,554.
Evans said there is no need to amend the law based on problems at a few schools.
"The vast majority are good and solid," he said. "Laws against fraud and stealing are already on the books. You don't need a special charter-school law to deal with that."
Although charters were intended to boost academics, local, state and national studies say the results have been mixed. Some charters consistently have produced top test scores.
Statewide, 73 percent of traditional public schools met the academic benchmarks of the federal No Child Left Behind Act in 2007-08, while only 56 percent of charters did, an Inquirer analysis found.
But in Philadelphia, charters out-performed traditional schools, 55 percent to 43 percent.
Besides academic achievement, charters and districts have long sparred over how much charters receive per student.
The law's funding formula deliberately gives charters less per student than the public district spends because the rate excludes such district costs as busing and debt service. The state reimburses districts 30 to 40 percent of their charter costs.
And just as there is disparity in how much is spent per student in regular public schools, the same holds for charters.
Philadelphia, which has nearly 35,000 students in charter schools, pays $8,088 for each student receiving regular instruction and $17,658 for a special-education student this academic year. Upper Darby's rates are $8,097 and $17,249; Jenkintown's, $15,174 and $31,586.
The special-education rate is based on a district's average special-education costs.
But the Rendell administration claims that some charters do not spend all the special-education money they receive on special-education services. Last summer, the administration proposed that charters return excess funds to districts, but the legislature never acted.
An Inquirer analysis shows that most special-education students in charter schools have relatively mild learning problems that require the least expensive services. In Philadelphia, where 69 percent of the special-education students in charters are in that category, the School Reform Commission favors amending the law to create a tiered payment system based on services students need.
Education Secretary Zahorchak also supports that approach.
Especially in Philadelphia, charters have been a magnet for politicians, their staffers and their families.
Several politicians helped found schools, including Evans and former State Sen. Vincent J. Fumo, now on trial on federal corruption charges. Sheryl S. Perzel, wife of State Rep. John M. Perzel, the former Republican House speaker, was the driving force behind New Foundations Charter School in Tacony and headed its board for several years.
At least five elected state officials serve on charter boards, which are responsible for setting policy, hiring staff and approving budgets. Many more have aides on charter boards.
Evans sees no problem with politicians serving on charter boards "as long as they are open and transparent and not abusing their powers."
Critics argue that having a legislator on a charter board presents a conflict of interest because a district may ignore problems at that charter rather than risk offending the lawmaker.
"That's an issue that identifies why this law needs to be looked at again," said Wagner, the state auditor general.
To read earlier articles on charter schools, go to http://go.philly.com/charterEndText