New Report Exposes the Cyber Charter School Racket in Pennsylvania

Taxpayers are funding asset hoards, property purchases, advertising, and gift cards for cyber charters. What this money is not funding is quality education.
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A couple of decades ago, a retiring superintendent gave me some advice about future wealth. No, not plastics. Cyber charters. “Start a cyber charter school,” he said. “It’s like printing money.”

That was not quite right. Pennsylvania cyber charters have turned out to be extremely lucrative, but rather than printing money, they just keep taking it, hand over fist, from Pennsylvania taxpayers. As revealed by a new report from Education Voters of Pennsylvania, the collecting of assets by cyber charters has accelerated dramatically in the past six years. 

In 2018, the four largest cybers in the state reported net assets and fund balance of $566,858.

In 2022, they reported net assets and fund balance of $486 million. 

That’s an additional $485.5 million of taxpayer dollars squirreled away in just four years.

How did we get here?

States started passing laws allowing charter schools in the early 1990s, and cyber charters followed soon after. Pennsylvania passed its own charter school law in 1997. The law was tweaked to include cyber charter schools in 2002, and Pennsylvania quickly became one of the leading states in the cyber charter movement. 

Why is Pennsylvania the cyber charter capital of the United States? The likeliest answer is funding: while other states use a variety of formulas and oversight methods, Pennsylvania simply and generously funds cyber charters as if they were bricks and mortar charter schools. As pointed out by a 2022 report from the PA Charter Performance Center of Children First, of the 27 states that have cyber charters, none fund them as Pennsylvania does. And while other states may require cyber charters to win approval from school board members elected by taxpayers in local districts, Pennsylvania cybers need only win approval in Harrisburg.

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Pennsylvania has more students enrolled in cyber charters than any other state, with that number swelling during the height of the pandemic. In 2021, cyber charters took in an estimated $980 million in revenue. The Pennsylvania Cyber Charter School Association estimates the current price tag is $1.4 billion, but that assumes $10,000 per student for 144,000 students, and many of those students will be bringing even more taxpayer dollars to the cyber coffers—taxpayer dollars that have been diverted from public school systems. And a 2019 study suggests that poor districts get hit the hardest

Some of the pioneers

Cyber charters, like brick and mortar charters, are privately owned and operated but funded with taxpayer dollars. From the beginning, the sector has attracted investors whose primary interest is not delivering quality education to students. 

K12 (now rebranded as Stride) was founded in 2000 by Ron Packard, former banker and Mckinsey consultant, and quickly became the leading national company for cyber schooling. 

One of its first big investors was Michal Milken. That investment came a decade after he pled guilty to six felonies in the “biggest fraud case in the securities industry” ending his reign as the “junk bond king.” Milken was sentenced to 10 years, served two, and was barred from ever securities investment. In 1996, he had established Knowledge Universe, an organization he created with his brother Lowell and Larry Elison (Oracle), who both kicked in money for K12.

In 2011, the New York Times detailed how K12’s schools were failing miserably, but still making investors and officers a ton of money. Former teachers wrote tell-alls about their experiences; tales of overwork and pressure to make the numbers abound. Florida caught them using fake teachers. The NCAA put K12 schools on the list of cyber schools that were disqualified from sports eligibility. In 2014, Packard turned out to be one of the highest paid public workers in the country, “despite the fact that only 28% of K12 schools met state standards in 2011-2012.”

Packard was himself sued for misleading investors with overly positive public statements, and then selling 43% of his own K12 stock ahead of  a bad news-fueled stock dip. Shortly thereafter, in 2014, he stepped down from leading K12 to start a new enterprise. But the list of K12 legal troubles continued on and on.

But Steve Fink, one of Milken’s “most trusted confidants,” still sits on the Stride board. His brother Larry is the founder of BlackRock, the largest money management company in the world; BlackRock, according to deposition by CEO James Rhyu, is a long time investor in Stride. Stride reported record profitability with revenue of over $400 million in 2022

An Education Week study in 2017 found that K12 was spending more money for lobbying in Pennsylvania than in any other state.

The largest cyber charter in the state was launched in 2003 as Commonwealth Connections Academy (CCA). In 2011, the Connections Academy business was purchased from a group of investors led by Apollo Management, L.P.; the new owners were Pearson, the education behemoth that was trying to expand its tech-based business. 

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During these early, high-expansion days, K12 used Mickey Revenaugh as a lobbyist; Revenaugh was also the chair of the Education Task Force of ALEC, the notorious right-wing corporate bill mill. Revenaugh worked in ALEC with Lisa Gillis of K12, to write bills for states like Tennessee legalizing cyber charters (as detailed in this report from Education Week).

In 2016, they became Commonwealth Charter Academy (also CCA), apparently severing their connection with Pearson. 

Perhaps the biggest pioneer in cyber charter self-dealing was Nicholas Trombetta, the co-founder of PA Cyber Charter School. PA Auditor General at the time Eugene DePasquale (who once called PA charter laws the worst in the nation) uncovered a number of issues, including hiring family members for big-money jobs, and funneling giant gouts of money to a no-oversight management company. 

All shady and costing the taxpayers millions of dollars, but also, as DePasquale noted, perfectly legal under Pennsylvania charter law. It took the feds finding Trombetta pocketing $8 million of taxpayer money to finally stop him. PA Cyber, who said they were also the victims, is still in business, saying that things are different now.

“Pa Cyber doesn’t have an airplane,” said Brian Hayden, CEO of PA Cyber told KDKA. “I live in a one-bedroom condo in Bridgewater and I’ve been there for 20-some years. The people who did those things aren’t here anymore. We are a fully accountable public school. Every penny that we have is accounted for.” 

But former state legislator Karen Beyer had this to say in 2013  when Trombetta first got in trouble:

I figured that justice would ultimately be served, that they would be found out — how he had defrauded the taxpayers of Pennsylvania. We still have cybercharter schools that are unregulated. This plea should stand as a warning to the Legislature that they have got to do something about regulating these schools.

That still hasn’t happened.

How much money do cybers make?

Cyber schools do not have many of the costs of brick and mortar schools. Their staffs carry huge numbers of students (reportedly 200 for core subjects and 400 or 500 for non-core). 

The per pupil money that cybers get is based on the “sending” school’s per pupil costs. This results in different districts paying wildly different amounts to send students to same cyber school; regular education students would cost anywhere from $9,000 to $23,000. Imagine going to the grocery store and paying different prices based on where you live.

Kenneth Berlin, superintendent of Wattsburg Area School District, offered this observation about costs:

When the pandemic started, our district contracted an online learning system from K12 Learning Solutions (Stride) to offer our students an online schooling option facilitated by our teachers. Because we use our teachers and equipment, the average cost per student to the district is about $3,000. I want to note that the K12 Learning Solutions platform we purchased is the exact same platform used by Insight PA Cyber Charter School. I also want to point out that if a regular education student enrolls in Insight PA Cyber Charter School, our taxpayers are billed a mandated $13,118 per student. For special education students, the cost rises to $23,587 per student. Given that we can provide the exact same cyber learning experience as the Insight PA Cyber Charter School for just $3,000 per student, I believe that the current cyber school funding scheme is an unjustified waste of taxpayers’ hard-earned money.

But cyber charters have not been subjected to much in the way of state audits, so despite Brian Hayden protestations, we don’t know much about where all the taxpayer money goes. Except for the spending that goes on in plain sight, and what groups like Ed Voters are dogged enough to dig out through Right To Know requests.

Where does the money go?

Ed Voters has previously dug through thousands of pages of invoices to look at the marketing expenses of cybers. 

In 2019-2020 and 2020-2021, cybers spent over $35 million on marketing. The leading spender in the group is Commonwealth Charter Academy, which paid out almost $19 million for advertising and marketing over the two years. EdVoters attempted to find out how much CCA spent on the Jerold the Bookworm parade float and was told that information was “a trade secret and confidential proprietary information.” 

PA Cyber sponsored 5K races,  the “Easter Eggstravaganza” at Erie’s Millcreek Mall, the PA Shakespeare Festival, New Brighton Youth Baseball, the Harrisburg Senators baseball club summer reading program, Da Vinci Discovery Center of Science and Technology in Allentown, New Castle YMCA, and the Bradbury-Sullivan LBTQ Community Center Lehigh Valley Pride. PA Cyber is particularly generous in their home community of Beaver, PA, where they have supported everything from the humane society to the local library to the Habitat for Humanity Zombie Festival and Trail Run.

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Ed Voters did the same work for 2021-2022, unveiling at least $16.8 million in marketing and brand building, including branded swag, sponsorships, and a big pile of Target gift cards. CCA threw family parties at Dave & Busters, and a sponsorship deal with the Wilkes-Barre/Scranton Penguins.

The new report brings us up through 2022-2023, and the spending remains huge. In that year, advertising and gift card spending for 11 Pennsylvania cybers hit over $21 million. CCA led the pack with over $8 million, including $1.1 million in agency fees and $695K per month on advertising. CCA was followed by Insight PA with $5 million and PA Cyber with $3 million. 

REACH Cyber Charter spent $1.1 million on “Thank You Grocery” gift cards. Agora spent $220,000 on search engine optimization,  almost $40,000 in minor league sports sponsorships, and CCA spent $24K on lawn signs and window stickers.

But what’s really striking is what CCA has done with almost $90 million of the taxpayer dollars sent to them.

The Real Estate Empire

The Ed Voters report finds that CCA has purchased 29 buildings since 2018, plus six previously-purchased properties and nine others that they lease.

CCA has paid a total of $88.7 million for properties; those properties have an assessed value of $43.1 million, according to the report. The properties are varied in type and use.

In 2020, near Pittsburgh, CCA purchased a redeveloped office complex that used to be a Macy’s. CCA had previously leased the first floor of the complex (about 70,000 square feet); now they own the whole building, while the same company they previously leased from manages it for them. 

That same month, they spent $15 million on a the former headquarters of Ricoh in the Greater Philly area. (In that story we learn that there is such a thing as a “charter school niche broker,” in this case Avison Young, a nationwide real estate company).

Back in 2016, CCA bought the former PA State Employees Credit Union headquarters in Harrisburg for $5 million to replace several leased offices. They house headquarter offices there at the renamed 1 Innovation Way; PSECU is now one of their tenants.

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In Johnstown, CCA purchased an office building and several nearby vacant lots. In Moosic, CCA purchased the former Cigna building for $17,788,381 (the previous owners had the assessed value dropped to under $300K). In Dubois, CCA is planning to build an office complex on the vacant lot they purchased. In Erie, CCA bought the former Erie Business Center. In West Manchester, CCA spent $4.4 million on a building with an assessed value of $314K.

It’s an awful lot of real estate square footage for a school that students do not have to physically attend. What is it for, exactly?

Tim Eller, senior vice president of outreach and government relations for CCA, said the properties “serve a variety of purposes, including work locations for staff; student state testing sites; student and family meetings with teachers, counselors, and administrators; student field trips; career and post-graduation planning; and enrollment as well as being open to members of the community for events and meetings for their local groups,” according to the Philadelpia Inquirer’s Maddie Hanna. 

All of this is paid for by taxpayer dollars. This is property tax money paid by homeowners, some of whom, as Ed Voters points out, live in districts that cannot afford to fix and maintain their own buildings. 

Ask yourself how you would react if your local school board decided to spend big piles of money on advertising, or gift cards for student families, or buildings that it couldn’t really explain the need for. Would you be willing to see your taxes increased to foot that bill?

Every ad you see, including all the ads currently telling you that reducing funding to cyber charters would hurt children—it’s all paid for with your own property tax dollars.

“That’s fine,” you might answer. “As long as they get the job done.”


Are We Getting Bang For Our Buck?

The short answer is no. 

Students typically average about two years in cyber charters. The Center for Research on Education Outcomes (CREDO) at Stanford University found that cybers have an “overwhelmingly negative impact” and that a year at a cyber charter left students a half year behind in English, and a full year behind in math. Pennsylvania’s cyber charters have not outperformed other schools in the state — not public schools, not brick and mortar charter schools, not even high poverty schools.

The National Alliance for Public Charter Schools and the National Association of Charter School Authorizers, groups that exist only to promote charter schools, issued a report saying that cyber charters were in big trouble. The Thomas Fordham Institute, a group that promotes charter schools, issued a report highly critical of Ohio cyber charters in what turned out to be a prescient alarm before Ohio’s cyber charter ECOT turned out to be defrauding the state to the tune of $117 million. 

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In Indiana, cyber charters were caught ripping off taxpayers a full $85 million. California’s cyber charter scandal was so bad that the state put a moratorium on new cyber charters.

If you think Pennsylvania’s cyber charters are better monitored than those in other states, many critics will disagree. The report “The PA Disconnect in Cyber Charter Oversight and Funding” from the PA Charter Performance Center of Children First shows our oversight compares poorly to that of other states. Meanwhile, Pennsylvania charters may go years without a state audit. In 2019, Maddie Hanna at the Philadelphia Inquirer found that many cybers were operating years after their charter had expired.

Bottom line: Pennsylvania taxpayers are overpaying for a shoddy product coming from an industry led by folks more interested in return on investment than in educating Pennsylvania’s children.

What Can We Do?

Shutting down virtual schools is not the answer. There are students for whom cyber charters are a useful lifeline, and they should not lose that.

Politicians from both parties have made attempts to implement common sense reforms for cyber charters and been stymied at every attempt. Last summer, the PA State House passed HB 1422, a bill that has since languished in the Senate. Almost every school board in the state has signed a resolution calling for cyber charter reform, and the Pennsylvania School Board Association has rallied in support of the reform. PSBA surveys of board members show that for five consecutive years, cyber charter tuition payments are the top source of budget pressure.

Your school board gets it. Even your Representative gets it. Call your Senator and ask them to get behind common sense reform for cyber charter regulations.

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Peter Greene

Peter Greene is a recently retired classroom secondary English teacher of 39 years. He lives and works in a small town in Northwest Pennsylvania, and blogs at Curmudgucation.

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