Ohio Attorney General Says Charters Violated Charitable Trust Laws

Published December 1, 2007

Ohio Attorney General Marc Dann (D) has taken action against three underperforming charter schools in the Dayton area.

The move, which coincided with the Ohio Education Association (OEA) dropping its lawsuit against the state for charter governance issues, has called into question the status and sanctity of Ohio’s charter school laws.

Dann’s suit, filed in September, alleges the charters are violating charitable trust law, meaning their obligations as nonprofit organizations, by failing to serve students, as indicated by poor academic performance.

Broad Implications

Terry Ryan, vice president for Ohio Programs and Policy at the Thomas B. Fordham Foundation, said the suit could have broad implications for nonprofits and other charter schools in Ohio. Though existing law revokes the charters of failing schools, Ryan said Dann’s suit is an attempt to circumvent it.

“Other charities that work to deliver a public good should be concerned about this,” Ryan said. “If you can say a charter school isn’t doing its job, and we are going to revoke its charter, couldn’t you make the same argument against a hospital or a university or an art institute? It goes beyond the mechanisms that have been put in place to measure school quality in the state of Ohio.

“There [are] law, school sponsors, and the department of education, and [Dann’s suit] bypasses all of these regulatory mechanisms. The AG is both judge and executioner, and it opens up the issue to a costly court battle,” Ryan continued.

‘Organizational Problems’

Leo Jennings, Dann’s communications director, countered that the office is obligated to address organizational problems that could be broadly categorized as failure to perform academically.

“The AG has the responsibility to regulate and oversee the operation of charitable trusts,” Jennings said. “Just as he would do with a hospital system misusing charitable assets, or failing to meet its purpose, the AG is interested in schools that are not meeting charitable goals.”

Complex Background

Charter schools have long been under pressure in Ohio courtrooms. In October 2006 the state supreme court ruled the charter program constitutional, capping off a five-year legal battle.

On the heels of that decision, the OEA, the state’s largest teachers’ union, sued the state in Franklin County Court in March 2007, alleging public officials were failing to provide systematic oversight of Ohio’s charter school program.

The OEA settled with Dann just before he filed his lawsuit against three Dayton-area charters. Skeptics such as Ryan note the attorney general most likely would have prevailed against the union in those suits, given the Ohio Supreme Court precedent established in 2006.

Redirected Funds

According to Dann’s office, the attorney general’s power in the matter derives from the office’s authority to regulate charitable trusts. Under Ohio law, charitable trusts are 501(c)3 tax-exempt organizations or 501(c)4 charitable health care organizations. Charter schools in Ohio, termed “community schools,” are 501(c)3 organizations.

Jennings said Dann is not interested in taking down the charter school system.

“While Dann is the first to use this authority for charters, the office uses this authority hundreds of time a year,” Jennings said. “In the past, there hasn’t been an interest in holding charters accountable. Marc had that interest as a member of the Assembly.

“These schools have consumed over $17 million in public funds that would be better spent in traditional schools or charter schools that do perform,” Jennings continued. “This is not an assault against charters. It’s an effort to hold underperforming schools accountable.”

Poor Schools

Dann brought suit against three Dayton-area schools–Moraine Community School, Colin Powell Leadership Academy, and New Choices Community School. In each case, he asked the court to find the organization a failed charitable trust, and in turn for the governing boards of the schools to close down the organization.

“Hopefully, as a result of this suit … that money will now be redirected to traditional public schools and community schools,” Dann said in a September 21 news release.

Both Moraine and New Choices failed to reach Adequate Yearly Progress (AYP) goals established under the No Child Left Behind Act in the past four years. Of the applicable indicators gauging school performance, Moraine met three of 32, New Choices met one of 29, and Powell Leadership Academy met just one of 61.

According to the Ohio Department of Education, approximately 62.4 percent of Ohio schools and 29.7 percent of districts met AYP standards in 2006-07.

Existing Law

Ryan questions why the attorney general is chasing charters. He notes charter laws have been tightened in recent years and further legislative action would accomplish the goal of ensuring performance.

“One could argue that charter school accountability mechanisms could be strengthened, but that is a debate the Assembly has been having,” Ryan said. “They have increased procedures and authorizing pressures for sponsors–deliver results or close.”

Jennings said Dann is taking action because the Assembly has been too slow to do so.

“There is very little regulatory structure for charters, and only last year did the legislature pass legislation, meaning action cannot be taken until 2009,” Jennings said. “The AG believes that one day spent in an underperforming charter school is one day too many. So he is going to act to hold these schools accountable.”

Strange Bedfellows

If Dann’s charitable trust approach wasn’t enough to stir the charter school community’s suspicions, his settlement with the OEA was, since the teachers’ union had targeted the state and its oversight of charter schools.

Public records obtained this fall by the Columbus Dispatch newspaper revealed Dann and the OEA had been communicating for several months about the suit, and that the OEA had suggested the charitable trust angle.

“The AG coming in seems a little invasive,” Ryan said. “It seems like political payback to the unions, who were one of the largest donors to his campaign. Going after charters’ charitable status is a questionable approach, and the timing of the communications between the union and his office is very interesting.”

With three suits already filed, Dann most likely will file similar suits against other underperforming charter schools in the coming months, although Jennings says his office is “proceeding cautiously.”

Kate McGreevy ([email protected]) writes from Washington, DC.

For more information …

“2006-2007 Annual Report on Educational Progress in Ohio,” Ohio Department of Education: http://www.ode.state.oh.us/GD/Templates/Pages/ODE/ODEDetail.aspx?page=3&TopicRelationID=116&ContentID=34744&Content=34857