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School Choice & Charters Opinion

Sidebar on Social Entrepreneurship: Has TEP Made A Breakthrough in Charter Finance or Are They the Movement’s Realians?

March 15, 2008 8 min read
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Alexander Russo noted a March 14 story in the New York Times describing plans for a charter school in New York City that plans to pay its teachers at least $125,000 per year. As it happened, I read the same story on The Equity Project Charter School some time earlier and requested a copy of their business plan. Russo’s post prompted me to leave a comment on his This Week in Education website.

Here’s the post, somewhat revised:
Andrew:

I’ve asked for the business plan to review the organization’s assertion below:

“TEP (The Equity Project) has created a sustainable and conservative financial model that allows the school to compensate its teachers appropriately without relying on outside private funding.[ii] It accomplishes this primarily through cost savings that result directly from the tremendous quality and productivity of its teachers.”

I have yet to hear back.

I was responsible for due diligence on many investments in k-12 nonprofits, and have written frequently on individual charter and CMO finances.

Some examples:

Quantity Counts: The Growth of Charter School Management Organizations (Center on Reinventing Public Education)

Are Charter Schools Getting More Money into the Classroom? A Micro-Financial Analysis of First Year Charter Schools in Massachusetts (Center on Reinventing Public Education)

• What Has Become of the Charter Idea? (I-VII) (School Improvement Industry Week Online), starting here.

CMOs Won’t Work As EMOs (School Improvement Industry Week Online)

Consequently, I’m skeptical about the accuracy, special circumstances and/or sustainability of TEP’s claim. I would love to be proved wrong, because Zeke Vanderhoek and his management team would have made a real breakthrough for the charter movement - and especially independent schools outside the Charter Management Organization framework. Doubt could be resolved simply by making the business plan and supporting financial detail public.

In the absence of financial data, the Times article reminds me of the Raelians claim in 2002 to have cloned a human child - without producing any evidence, let alone an infant. “Although few believe the claim, it nonetheless attracted national authorities, mainstream media, and young adults....” In the absence of some concrete financial data, this looks like another PR stunt in social entrepreneurship designed, in Russo’s words, to advance “a media darling in the making.”

One of the more significant problems with social entrepreneurs and venture philanthropists is that most treat the business affairs of their social enterprises with more secrecy than the managers of publicly-held firms. Maybe the legacy of hiding the true valuation of new starts from the outside world is one of the downsides of this social trend’s roots in venture capital.

In most cases, secrecy is entirely justified for a privately held for-profit. There are no outside financial stakeholders who might be disadvantaged, and potential investors go into a negotiation with such a firm, in part for the purpose of prompting disclosure. Publicly-held firms are required to disclose a great deal of financial information because millions of small investors are not in the best position to keep track, and if they cant trust the numbers, there wont be a lot of investment.

It seems to me that nonprofits are closer to publicly-held firms than private companies. First, always remember that philanthropic investment is merely a privilege permitted by the taxpayers. Since government can’t do everything, or well, we allow very wealthy people substantial tax breaks if they give the money away instead of paying it into the Treasury. Second, remember that we taxpayers have agreed that nonprofits with 501(c) (3) status don’t pay taxes because they are furthering the broader social good. This gives we taxpayers some rights to understand how our money is being used. Nonprofits are supposed to be doing social good, particularly in the case of public education and charter schools’ nonprofit financial sustainability is of vital importance to scale. Here, withholding information that might reasonably be seen as a disclosure of competitive advantage over market rivals, is actually contrary to the broader social purpose of bringing charters to some kind of scale, as well as disseminating innovations – including financial innovations – throughout public education.

Finally, in the absence of full financial disclosure, the charter movement: 1) exposes itself to constant speculation about the improper use of funds by private individuals, 2) accepts that fraud and abuse are more likely to take place, and 3) knows that will be much easier for opponents to paint the whole movement with the taint of corruption every time the media manages to pull one bad apple from the barrel.

I’d be very interested in hearing TEP management, any social entrepreneur or venture philanthropist, or any charter school advocate make a principled case for any level of financial secrecy. After all, nonprofits are already required to disclose the compensation of board members and the highest paid employees on their public IRS Form 990’s – so why hide the rest?

A few hours after I posted the above on edbizbuzz, I received an email from TEP Charter School Principal, Zeke Vanderhoek. First my original email, then his, and then our ongoing dialogue:

edbizbuzz:

From: Marc Dean Millot
Sent: Monday, March 10, 2008 3:51 AM
To: info@tepcharter.org
Subject: Your Business Plan/Model

Dear Sir/Madam:

I’ve reviewed the website and have read your claims on costs and reaching break-even around 2013. I’ve spent a lot of time reviewing education nonprofit and charter school budgets. Here are three relevant links:

• Quantity Counts: The Growth of Charter School Management Organizations - Center on Reinventing Public Education
http://www.ncsrp.org/cs/csr/view/csr_pubs/15

• Are Charter Schools Getting More Money into the Classroom? A Micro-Financial Analysis of First Year Charter Schools in Massachusetts
http://www.crpe.org/pubs/introCharterMoreMoney.shtml

• What Has Become of the Charter Idea? Parts I-VII starting here
http://www.siiwonline.libsyn.com/index.php?post_id=174316

I would very much appreciate a copy of your business plan or model for review. I’m skeptical, but would like to be proved wrong.

Thanks,

Dean

Vanderhoek:

Hello Dean,

Thanks for your inquiry and interest in The Equity Project (TEP) Charter School.

We’ve actually had numerous request for this and we will be posting our budget up on the TEP website within the next several weeks. One of our goals is to inspire other schools to make a radical investment in teacher equity and hopefully the financial details will, at the very least, be a useful resource for them and for researchers such as yourself.

Thanks in advance for your patience. We’ve been inundated with requests over the past week and are doing our best to respond to them in as timely a fashion as possible.

Warm Regards,

Zeke Vanderhoek

Principal
The Equity Project (TEP) Charter School
www.tepcharter.org

edbizbuzz:

Zeke:

Thank you, I look forward to it., and will post your email on my post on this subject on edbizbuzz ASAP.

I have to say that I would have thought you would have in hand a plan sufficient to back up your claim before you made it. This state of affairs only undermines your credibility, whatever the reality might be.

In your shoes I would go to edbizbuzz and This Week in Education to comment on both our posts for the record and by way of damage control.

I’m not out to prove you can’t do this, just to see how well the business plan holds up to critical review. I honestly hope you can make a plausible case, not a perfect case - just a reasonable one.

Dean

Vanderhoek

Hello Dean,

Thanks again for your email and interest.

We in fact do have an extremely comprehensive budget in hand - our charter would not have been approved by the NYC DOE or the NY State Board of Regents without it. In fact, this budget (along with the entire charter) is already public record. In posting it to our site, we are simply making it easier for people such as yourself to access it.

In terms of the timeframe, the only reason for the delay is that we are writing a brief preface to the budget document to ensure that readers (both academics and laypeople) (1) understand the basic assumptions behind the numbers and (2) are provided with a mechanism for asking questions about the document.

Our goal is to be as transparent as possible. Again, I appreciate your patience.

Best,

Zeke



edbizbuzz:

Zeke:

I really think you’d be helping the broader community if you posted these comments to the website yourself. I encourage debate and want you to be able to go directly to the edbizbuzz audience - and by extension edweek.org, which hosts the blog.

I’ve looked for your application, and gather no applications are actually maintained in an online database.

In any case, I did download the financial template. Without additional, more detailed financial data and some insight into your planning assumptions, it’s not going to be all that easy to tell if you are engaged in wishful thinking or have thought through the problems others have faced and figured out how to surmount them.

Re: “We in fact do have an extremely comprehensive budget in hand - our charter would not have been approved by the NYC DOE or the NY State Board of Regents without it....”

This is a response that will work for a reporter or some anti-charter nut. I know a great deal more about this matter than most - you might click on “about the author” on the edbizbuzz page. Agencies have approved the charters of schools that failed financially. Agencies do not enquire all that deeply into the viability of the business plan, few staff have the capacity to do so. Moreover, they might approve your plan even with some doubt about long term financial viability projections

Dean

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The opinions expressed in edbizbuzz are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.

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