Innovation Ohio

What you need to know about Ohio Politics and Policy

Innovation Ohio’s New Report Finds Exploding Voucher Payments, Return to Lax Oversight of Charters in Ohio Budget

FOR IMMEDIATE RELEASE
September 25, 2019
Contact: Michael McGovern, mcgovern@innovationohio.org
 
Columbus, OH – A report from Innovation Ohio focused on the state’s new budget finds a huge increase in spending on voucher payments to private schools and a return to lax, pre-ECOT scandal charter school oversight. This is the latest budgetary explosion for a voucher program that has increased more than 600% since 2011.
 
“Given the ECOT scandal, it is astounding that statehouse leaders would loosen rules around failing charter schools that suck money out of Ohio public school classrooms,” said Innovation Ohio Education Fellow and report author Stephen Dyer. “What we need is closer scrutiny and reigning in these payments to private schools.” 
 
The report highlights four key giveaway to poor-performing, privately run schools: 
1. Weakening rules to automatically close failing charter schools
2. Lowering standards for dropout recovery schools
3. Weakening oversight of charter school sponsors, many of whom are for-profit companies
4. A huge increase in public dollars flowing to private schools via vouchers
The voucher expansion alone could cost Ohio public school districts another $73 million over two years, on top of an already ballooning $389 million per year private school voucher program.
Over the last several years, Innovation Ohio has been leading the fight to expose Ohio’s failing charter school system and sounding the alarm bells around expanding voucher programs. 
 
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Innovation Ohio Statement on Charter School Provisions in Operating Budget

FOR IMMEDIATE RELEASE
July 17, 2019
Contact: Michael McGovern mcgovern@innovationohio.org
Columbus, OH – Today, Innovation Ohio President Janetta King issued the following statement regarding the charter school provisions in the state operating budget:
“It is disappointing that Republicans in the legislature have once again placed the interests of failing charter schools ahead of Ohio students and communities. The budget passed today weakens state oversight of charter schools like ECOT, which ripped off Ohio schools and taxpayers to the tune of $200 million. After the ECOT debacle, we should be strengthening, not loosening, the rules regulating charter schools. Ohio taxpayers – and more importantly, Ohio students – deserve better.”
Founded in 2011, Innovation Ohio is a nonpartisan, nonprofit think tank that blends policy research and advocacy to fight for working families in Ohio.

When Did ECOT’s “Corrupt” Relationship Start?

There’s been a lot of talk lately about why, all of a sudden, officials are declaring the relationship between ECOT founder and political super donor Bill Lager’s for-profit companies “corrupt” when we’ve known they existed for a long time. Perhaps a little context would help illuminate the debate here. The relationship of concern at the moment is self dealing between Altair Management — Lager’s for-profit company that ran the nation’s largest dropout factory — and IQ Innovations — Lager’s for-profit firm hired to provide the software for ECOT. So when did this relationship begin? That’s where things get interesting. According to an audit released Dec. 22, 2009 by then State Auditor Mary Taylor, IQ Innovations started doing the software work for ECOT Jan. 1, 2009. But it wasn’t until Taylor also mentioned in the Dec. 22 audit that “IQ Innovations, LLC and Altair Learning Management I, Inc. have the same principal owner” that it became publicly known that Lager ran both firms — a relationship now called “corrupt”. Importantly, though, you would have had to know to look at ECOT’s audits. The only people that would have clearly and directly known about this relationship early on most likely would have been Auditors of State Mary Taylor and David Yost. The first widely dispersed mention of IQ Innovations was in a June 12, 2010 Columbus Dispatch story about Jeb Bush speaking at ECOT’s 2010 graduation where it was passingly mentioned that “Lager … (also) founded the online learning company” IQ Innovations. However, the additional founding wasn’t referring to Altair and IQ’s now “corrupt” relationship; it was referring to ECOT and IQ’s relationship. The first media mention that Altair and IQ Innovations were affiliated was in a July 30, 2012 story about a new CEO taking over Altair. According to the three-sentence note in the Columbus Dispatch, the new CEO “will direct daily operations of Altair and its associated companies, including IQ Innovations and ECOT, the state’s largest online K-12 charter school, the company announced last week.” So the only way to know about the “corrupt” relationship prior to July 30, 2012 would have been to know to read ECOT’s audits from 2009 on, or know the inner workings of the company. Of course the five-alarm fire was rung May 18, 2016, when the New York Times wrote a huge ECOT expose whose headline read “Online School Enriches Affiliated Companies if Not Its Students.”

New Analysis: ECOT Overbilled State Nearly $200 Million

New Analysis: ECOT Stole Nearly $200 Million from State

Estimate shows ECOT scandal is largest in state history
Columbus, OH – Today, Innovation Ohio Education Policy Fellow Stephen Dyer released a new analysis of the Electronic Classroom of Tomorrow (ECOT) scandal, finding that the shuttered charter school defrauded the state by at least $189 million since 2000. This is the first published estimate of the total amount stolen by ECOT. When ECOT was caught billing the state a total of $80 million in 2015-2016 and 2016-2017 for students they couldn’t prove they actually educated, the immediate question arose: how much more did they potentially rip off taxpayers during their entire 18 years in operation? In 9 of the 18 years of ECOT’s existence, the Department of Education found and documented overpayments of various sizes. Based on these findings, Dyer took the percentage overpayment in each of those years, calculated an average percentage of overpayment during those FTE reviews, then applied that to the years in which ECOT’s enrollment wasn’t scrutinized. The estimated overpayment was combined with the previously reported overpayments, and the result is that approximately $189 million was overbilled during the school’s time in operation. “This is easily the largest scandal in Ohio history,” said Dyer. “ECOT stole nearly $200 million in taxpayer money that should have gone to educate our children. Instead, this money enriched ECOT’s founder and his political allies.” A full explanation of Dyer’s methodology can be found here. In terms of scale, the infamous Tom Noe “Coingate” scandal in 2006 involved $50 million in unemployment insurance money (technically not taxpayer money). Even with this relatively conservative estimate, the ECOT scandal could be four times larger than Coingate – likely even more. Tom Noe was given more than 20 years in prison for his scandal. Will this much larger, taxpayer funded scandal produce similar results? “While it is important to have this number and understand the scope of this scandal, this also raises many more questions that must be answered. The Department of Education and state Auditor owe us a full explanation of how they allowed this to happen for 18 years,” Dyer continued. Despite the size and scope of this scandal, lawmakers have yet to address the underlying issues that allowed this to occur. KEY NUMBERS IN THE ECOT SCANDAL Total taxpayer dollars diverted to ECOT since 2000 – More than $1,000,000,000 Total diverted since 2012 that we can document by each school district – $591,000,000 Estimate for the total amount stolen – $189,000,000

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For more information: All of Innovation Ohio’s ECOT research can be found here: innovationohio.org/ecot  

Estimate: Total 18-Year ECOT Overpayment

When the Electronic Classroom of Tomorrow (ECOT) was caught billing the state a total of $80 million in 2015-2016 and 2016-2017 for students they couldn’t prove they actually educated, the immediate question arose: how much more did they potentially rip off taxpayers during their entire 18 years in operation? In 9 of the 18 years of ECOT’s existence, the Department of Education found and documented overpayments of various sizes. Based on these findings, we took the percentage overpayment in each of those years, calculated an average percentage of overpayment during those FTE reviews, then applied that to the years in which ECOT’s enrollment wasn’t scrutinized. The estimated overpayment was combined with the previously-reported overpayments, and the result is that approximately $189 million was overbilled during the school’s time in operation.* >> Bottom Line: ECOT may have overbilled Ohio taxpayers appoximately $189 million This estimate is likely lower than the true amount because for many years, the Ohio Department of Education simply didn’t examine ECOT’s enrollment with the same scrutiny it did in the 2000-2001, 2015-2016 and 2016-2017 school years thanks to a deal it cut with ECOT early in its existence — a deal that has been at the heart of the ECOT legal battle. However, every court that has heard this case — including judges who received political contributions from ECOT founder Bill Lager — has agreed that the Department could have kept using the standard it used in its first and final two reviews for all the other reviews. The Department simply chose not to do so. Also telling is that in the 2016-2017 school year, after ECOT knew the Department was actually going to require participation figures, they still overbilled by about 20 percent and were actively trying to game the system, according to a whistleblower. In terms of ripoff scale, the infamous Tom Noe “Coingate” scandal from 2005-2006 involved $50 million in unemployment insurance money — technically not even taxpayer money . And even with this relatively conservative estimate we’ve calculated, ECOT’s taxpayer ripoff could represent more than four times as much money as Coingate, likely even more. Tom Noe was given more than 20 years in prison for his scandal.  Will this much larger, taxpayer funded scandal produce similar results? We’ll see.
*Note: Please see attached methodology for a detailed explanation, data and reference material for how this estimate was calculated.

No Type of District or Community Immune to ECOT

Now that we’ve released district-by-district deductions to the scandal-ridden and potentially criminal enterprise that was the Electronic Classroom of Tomorrow, it’s helpful to examine what types of districts lost money and students to the scammy school. The state has nine categories of districts it tracks. Within those categories the state classifies them based on location (urban, suburban, rural, small town) and poverty from very low to very high. About 1/2 of the $591 million came from urban districts, but not just large ones like Cleveland and Columbus, but smaller urbans like Mansfield and Lima. Surprisingly, the next largest category of losses to ECOT — about $200 million — came from small town and rural districts which tend to be much smaller sizes. Even large, wealthier suburban districts lost money and students to ECOT to the tune of about $100 million. Looking at just the districts’ poverty classification, ECOT received about 2/3 of its money from poor or very poor Ohio school districts. No surprise there. However, the next largest category of funding came from low poverty districts. More money came from Ohio’s wealthiest districts than school districts with average poverty. What does all this mean? It means that ECOT’s largest impact was on Ohio’s poorest districts and students — areas and populations that have traditionally suffered outsized portions of public scandals like ECOT. However, the scale of ECOT’s scam was so large that even Ohio’s wealthiest school districts were not immune from this school’s politically connected tentacles.    

ECOT’s Cost to Ohio Local Schools

Prior to its closure, the Electronic Classroom of Tomorrow (ECOT) received state tax dollars the same way as all Ohio charter schools  — by deducting state aid from the local public school district where the ECOT student lives. Since the 2012-2013 school year, ECOT collected $590 million in taxpayer funding from all but 6 of Ohio’s 613 school districts. Included in that $590 million was the $87 million the school was slated to receive this school year before closing in January.
  Using data from the Ohio Department of Education, we have compiled a spreadsheet showing what state revenue local school districts lost to ECOT each year since 2012-2013, including how much they were set to lose this year prior to the school’s closing.

Here are a few points about how the deductions shook out overall:

  • Columbus City Schools accounted for more than 10 percent of ECOT’s funding, even though last year the district outperformed ECOT on more state report card measures.
  • While $286 million transferred to ECOT came from urban districts, the next highest amount came from districts listed as low-poverty suburban districts.
  • Rural and small town school districts lost $198 million to ECOT
  • By contrast, the state’s wealthiest, highest performing school districts lost $27.2 million to ECOT
  • Schools in generally affluent Butler County lost $19 million to ECOT, which was about the same as Akron’s Summit County. Butler lost more than all but six of Ohio’s 88 counties
>> Elected Officials and Candidates: Look up School Districts in your Congressional or Legislative District

ECOT Campaign Contributions

Few individuals have been as involved in Ohio political giving than ECOT founder Bill Lager and his cohorts. Since 2000, over $2.8 million dollars in campaign contributions have flowed from ECOT-associated individuals to state and federal candidates and party committees. The overwhelming majority of these contributions went to Republicans. All this while more than $1 billion in taxpayer funds were funneled to the school over its 18-year existence. In the wake of these contributions, state officials essentially allowed the e-school to operate despite a record of poor performance. As politicians scramble to unload this tainted money, fueled by reports the FBI is investigating a “straw-donor scheme” to exceed campaign contribution limits, the issue is not likely to go away soon. As a convenience, we have summarized historical political contributions to state and federal candidates and party committees associated with ECOT. 
 

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