Reviewing Charter Proposals Involving EMOs and CMOs:
Due Diligence Can Avoid Later Problems
By Alex Medler
Charter school authorizers evaluating a charter application need to understand all the relationships between the applicant and any Education Management Partners (EMP) involved in the school. CACSA recently updated its Standard Charter School Application and the related Charter School Application Rubric. These tools now include expanded due diligence sections that help districts explore an applicant’s links to any EMPs. Recent developments for a charter application before the Johnstown Milliken School District illustrate the importance of this type of due diligence.
Definitions and a little background information help when discussing these potential challenges. EMPs include both non-profit entities, referred to as Charter Management Organizations (CMOs); and for-profit entities, referred to as Education Management Organizations (EMOs). In Colorado, an independent non-profit board applies for a charter if they propose to work with an EMO. If awarded, the charter is between the board of the school district and the applicant’s founding board. The founding board, then enters a management contract with the EMO to run the school. In the case of charters proposing to work with CMOs, authority can be arranged in several ways, including through networks of schools working with a single CMO or an independent founding board contracting with a CMO.
Some cases are more complicated. An independent board may propose to work with a CMO to operate the school on a day-to-day basis. That CMO plans to work with an EMO that will provide the CMO with support for financial, personnel, or facilities issues. In some cases, the EMO builds a facility, which they lease to the school. The founding board holds the charter, oversees the CMO through a management contract, and is in a long-term relationship with the EMO regarding the facility and its financing. This last model and its variants are used regularly in Florida.
In the case of the Johnstown Milliken School District proposal, the application was from a board planning to work with CIVICA, a Florida-based CMO; which proposed working with Academica, a Florida-based EMO. In Florida, CIVICA operates successful charter schools that regularly partner with Academica. In the Colorado proposal, the applicants proposed to have Academica plan, finance, and lead the construction of a new facility.
The application lacked details regarding the nature of the financial relationships between all the parties and the details of their governance relationships. CACSA supported the district by contracting with an expert in district and charter school finance who reviewed the applicant’s proposed budget. Informed by that review, the district asked for more information on the details of the financial and facilities plans and for documentation of any agreements. The district wanted to know how much money the EMPs were allocating to the school, whether support was a loan or gift, and the school’s repayment obligations. In the absence of such information, the authorizer could not determine whether the proposal was viable, whether the school would have enough funding to implement its proposed program, or enough money and expertise to build the planned facility.
This led the charter applicant group to go back to their EMP partners to work out details of their financing and facilities plans. Ultimately, the charter applicants determined that they could not secure the financial deals that they had outlined in their application. The applicant is now seeking other partners for their facilities construction and financing. In late January, it is not clear the school is viable and planning to start in August of 2021 appears increasingly unrealistic.
Since budgets and buildings are fundamental to successful charter school opening, school districts like Johnstown Milliken are doing appropriate due diligence when they ask questions about an applicant’s partners and their financial, governance, and contractual relationships. The financial arrangements, contracting mechanisms, oversight tools, and facilities plans all represent core decisions about a charter school that can affect whether a new charter school can open and operate successfully. Authorizers also want to ensure there are no conflicts of interest among the various parties.
This case and similar stories in Colorado reinforce the need for charter school authorizers to use materials like the CACSA Standard Application Package and the CACSA Charter Application Rubric. Their updated sections on schools with EMP partners provide a road-map to understanding details of a proposed school’s governance and the financial relationships when EMPs are involved.
CMOs and EMOs play crucial roles in the charter sector and many operate excellent charter schools in the state and nationally. Their contributions can benefit Colorado students and they are likely to play an increasing role in Colorado’s charter school sector in the future. But sometimes, plans are not as concrete as they appear and some EMPs have been reluctant to answer important and appropriate questions. Authorizers must become adept in exercising due diligence when assessing proposals that include these partners. CACSA’s materials can help.