NC virtual charter operator disputes details of California court settlement

Virtual charter schoolsK12 Inc., a controversial for-profit, virtual charter operator running a school in North Carolina, is disputing the terms of a multi-million dollar settlement the company announced late last week with the California Office of the Attorney General.

As we reported Monday, California Attorney General Kamala D. Harris touted a $168.5 million settlement with the company, which was accused of inflating student attendance and test scores in its California virtual schools.

From Harris’ statement:

“All children deserve, and are entitled under the law, to an equal education,” said Attorney General Harris. “K12 and its schools misled parents and the State of California by claiming taxpayer dollars for questionable student attendance, misstating student success and parent satisfaction, and loading nonprofit charities with debt.  As my office continues an industry-wide examination of for-profit academic institutions, this settlement ensures K12 and its schools are held accountable and make much-needed improvements.”

As we’ve reported at Policy Watch, K12, along with British multinational education corporation Pearson, runs one of two publicly-funded virtual charters in North Carolina dogged by high withdrawal rates in its first year.

And virtual charters nationwide have been troubled by reports of poor academic performance, with a Stanford University study last fall finding that virtual charter students trail their traditional school students by as much as a full academic year.

The Mercury News in San Jose, Calif., offered an extensive report on the California settlement here, detailing allegations that the operator “used deceptive advertising to mislead families about students’ academic progress, parents’ satisfaction with the program and their graduates’ eligibility for University of California and California State University admission.”

The report added that California critics of K12 are hoping the settlement sparks state legislation banning virtual charters from operating publicly-funded schools.

However, K12 is claiming that both the attorney general’s office and The Mercury News are incorrectly stating the terms of that deal. According to Harris’ office, the settlement included an $8.5 million payment from the company, as well as $160 million in debt relief to the 14 nonprofit schools that the for-profit company runs in California.

In its release, K12 is packaging the agreement very differently. K12 says the settlement does not include any admission of wrongdoing by the company.

And, according to the company, the deal includes a $2.5 million settlement with the state and $6 million in payments for the attorney general’s investigative costs.

From the K12 release:

“The Attorney General’s claim of $168.5 million in today’s announcement is flat wrong,” said Stuart Udell, K12’s Chief Executive Officer.  “Despite our full cooperation throughout the process, the Office of the Attorney General grossly mischaracterized the value of the settlement just as it did with regard to the issues it investigated.  There is no ‘debt relief’ to the CAVA schools.  The balance budget credits essentially act as subsidies to protect the CAVA schools, its students and teachers against financial uncertainties.  CAVA schools have not paid that money to K12 and K12 never expected to receive it given California’s funding environment.”

“K12 never accrued these balance budget credits on its financial statements, and the CAVA schools similarly never incurred financial statement liabilities,” Udell added.

The deal also includes apparent policy changes from K12, as the company explained in its release.

In addition, K12 and the CAVA schools will implement a series of conduct provisions, most of which K12 had planned on investing in over the next three years.  These include accessibility improvements in the company’s curriculum and technology platform. Udell pointed out that these investments would have been made by the Company in the ordinary course of compliance and product and service enhancements to improve the student experience regardless of the Attorney General’s actions.

“Opponents of K12 and skeptics of public online education have spent years making wild, attention-grabbing charges about us and our business,” said Udell. “The State of California used the full authority and investigative resources of the Office of the Attorney General to investigate these charges for over eight months.  In the end, we demonstrated industry leading levels of service and compliance with regulations and benefits to families.   There is a reason families keep coming to our programs and it’s because we are committed to deliver valuable education services within the laws and rules of every state.”

Despite the criticisms of virtual charters, North Carolina lawmakers moved in this year’s budget to ease several restrictions for the programs, including allowing the virtual charters to exempt from their withdrawal count students who leave within 30 days after enrolling.

The budget also relaxes a requirement that 90 percent of virtual charter teachers be North Carolina residents, lowering that bar to 80 percent (see the changes beginning with page 24 of the approved budget document here).

“There are far too many questions about their track record in other states, combined with how new these schools are to North Carolina, to already be proposing ways to make them less accountable,” Keith Poston, president and executive director of the nonpartisan, Raleigh-based Public School Forum of N.C., told Policy Watch in a report on the new virtual charter regulations in May.

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