August 2011 Newsletter: Conflicts of Interest: Matters to Avoid and Manage for Charter Schools

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Conflicts of Interest: Matters to Avoid and Manage for Charter Schools

Should a charter school governing board do business with a board member's company? This is one of a diverse field of potential conflict of interest questions that can arise with charter school operations and relationships. This month's newsletter feature provides context for understanding the issues, examples of recent developments, guidance from the Internal Revenue Service, a charter school attorney's views about managing conflicts of interest, and a Michigan authorizer center's approach to disclosure by school board members. The newsletter also provides links to resources, such as sample conflict of interest policies.

The scrutiny of charter schools has increased. Delaware's governor, on August 19, 2011, signed into law a bill that requires charter school board members to disclose any financial interests they have in the school as part of a measure that requires tighter financial oversight, according to a bill synopsis. In New York in 2010, in the wake of concern about inappropriate self-dealing by some charter school boards, the state legislature decided to put charter schools under the same laws governing ethics and conflicts that apply to school districts. The change also gave the state comptroller authority to audit charter school finances, work that has begun, according to a statement by the agency. In Ohio, a conflict of interest is apparent in a lawsuit that pits a group of charter school governing boards against their operators in a dispute over who has what rights and responsibilities, with a judge ruling in an August 2011 pretrial matter that the operators must abide by state law and turn over extensive financial information to the boards. The state legislature in Minnesota tightened the rules for charter schools following a 2008 report by the state legislative auditor's office that identified conflict of interest concerns, including the role of teachers on school governing boards. And Michigan took steps to more closely monitor conflict of interest issues involving its charter schools following a 2002 report by its state auditor.

The details of conflict of interest provisions vary across the country. Over 10 years ago, the Internal Revenue Service, recognizing the increasing presence of charter schools, provided guidance focused on charter school operations; the granting of tax-exempt status; and key areas where the potential for conflicts of interest exist, including board governance, compensation, and contracts. The guidance involves charter school organizations operating as nonprofits and for-profits. The guidance covers relationships between schools and school managers or operators and addresses the distinction between private and public interests and the importance of whether school boards are independent or "appointed or dominated by a comprehensive management company."

Conflict of Interest Requirements Do Not Necessarily Mean Forgoing School Board Members' Connections

Abiding by the spirit and the letter of conflict of interest rules does not necessarily mean, for example, that a school must avoid any deal where there may be a connection with a board member. But it is a common reflex, according to Jim Taylor, a lawyer who represents the Delaware Charter Schools Network and most of the state's charter schools. His general sense is that the board members he works with are "hypersensitive" about conflicts of interest and are so "worried about it that they see conflicts where, legally, there may not be."

Part of the value of a board member is that his or her knowledge, skills, and connections can be useful for a school's development. However, caution is required in how those assets are leveraged, Taylor said in an interview with the National Charter School Resource Center (Resource Center). There are real conflicts of interest to address as well as appearances of a conflict of interest.

"There is nothing wrong with school X getting a loan from bank Y even if it has a board member who is an officer at bank Y," Taylor said. "If it's a good deal for the school, it's a good deal for the school." But Taylor urged full disclosure about the deal and said that the "board ought to be careful in documenting it and determining who was involved. As with any big decision, what are the alternatives? Try to shop it [the loan] around if you can. Sometimes, it isn't even an option."

"If you can show that you did your due diligence and that you didn't just take the first deal that came down the pike because Johnny told you to and that you can further show that Johnny didn't push you into it-ideally, he recused himself-then I think you're home free in terms of the school," Taylor said.

And if there is a benefit, such as a commission for making the deal, Taylor recommended that the board member refuse it. "That just looks bad. It smells bad," Taylor said. "And therefore it may be bad. So why put yourself or your school in that position?"

For Michigan Center, Conflict of Interest Monitoring Starts With Board Member Application

The Center for Charter Schools (the Center) at Central Michigan University incorporates conflict of interest issues into its application for charter school board appointment process and requires that board members annually submit a conflict of interest disclosure form.

Central Michigan University authorizes nearly 60 of Michigan's charter schools, and the university created the Center to, among other duties, monitor the actions of school boards.

The Center's process to address conflict of interest issues was initiated in part because of a state audit, which recommended that the state department of education address conflict of interest concerns with charter schools statewide. The Center's process is a way of warding off potential problems as well as an effort to build relationships with charter school board members, according to Orlando M. Castellon, the Center's director of board appointments and development.

The university's board of trustees appoints charter school board members to four-year terms and is empowered to remove them. "We look at board membership as a comprehensive process," Castellon said in an interview with the Resource Center. "They are public officials, and they fall under certain laws."

State law does not prohibit conflicts. "But there are ways that they have to disclose them and mitigate the issue," Castellon said, although the Center would prefer that board members avoid conflicts. "So those are a lot of the conversations that we have," Castellon said.

Part of the application process also includes a conversation with board members about what service means and the university's expectations. "Part of that expectation is that they are going to be submitting that conflict of interest disclosure, and that they really should avoid any actual conflicts or any perceived conflicts," Castellon said. "We talk to them about that right up front so we're all on the same page."

Occasionally, issues are identified that are "pretty minimal in nature," Castellon said. "So you manage those," he said.

The disclosure form questions were revised about five years ago. "Rather than ask very specific questions, we broadened them out a little bit so that we would never have someone come back and say my relationship doesn't fit that definition."

Sometimes, board members will call asking to be reminded why they have to submit the disclosure form. The answer is standard. "All of our board members swear the constitutional oath of office," Castellon said. "They are public officials, and they have to follow the same rules that our representatives in Lansing do. We can lean on that say, 'Listen, it's not just the university that wants to make sure that we don't have conflicts in place.'"

The Center considered its charter contract, university expectations, state law, and policy in developing its process. The charter schools have 5 to 9 board members, and some have board members who have served for 15 years, according to Castellon. The vacancy rate on boards is between 5 and 6 percent.

"We don't want to make this a bureaucratic process, but at the same time we want to understand and know the relationships our board members have in place with not only the entity but [also] any other members," Castellon said. It spurs deeper conversations that, ultimately, serve student achievement.

"If we have that relationship in place," Castellon said, "then when we have to have a difficult discussion about achievement, we're not getting the push back because they know that we care like they do."


U.S. Department of Education Grants $217 Million to New York and Florida Over Five Years to Boost School Choice

The U.S. Department of Education has awarded grants to New York and Florida that total more than $217 million over five years to increase school choice options. The first year of the grant for New York is $28.2 million, with the five-year amount totaling more than $113 million. The first year of the grant for Florida is $21.4 million, with the five-year amount totaling more than $104 million.

The grants come from the Department of Education's Charter Schools Program's state education agency competition, which provides funds to states to create new, high-quality charter schools and disseminate information about existing charters. The purpose of the Charter Schools Program is to increase financial support and build a better national understanding of public charter schools while expanding the number of high-quality public charter schools. Read more.

Native American Charter School Gets $500,000 Grant for Health Center

A New Mexico charter school plans to build a school-based health center with a $500,000 grant from the U.S. Department of Health and Human Services.

Native American Community Academy in Albuquerque, founded in 2005 and serving about 385 middle and high school students, plans to construct a 2,685-square-foot health center as part of the school's new 75,000-square-foot facility, according to the federal agency. Read more.

Charter School Educators Among Department of Education 2011-12 Teaching Ambassador Fellows

Two of the 16 educators chosen as Teaching Ambassador Fellows for 2011-12 are from charter schools. The fellows were chosen from among 750 applications. The fellowship program was created to "give outstanding teachers an opportunity to learn about national policy issues in education, and to contribute their expertise to those discussions," according to the Department. Read more.

New Orleans Military Base Charter School Starts Expansion

Construction is under way on a $6 million expansion of Belle Chasse Academy, a K-8 charter school on Naval Air Station/Joint Reserve Base New Orleans. Work on the 26,600-square-foot facility began in July 2011 and is expected to be completed by July 2012. Read more.

Connecticut Charter School Student Gains, on Average, Outpace District, State Charter Group Analysis Says

Annual improvement in math and reading proficiency for students in Connecticut charter schools, on average, is outpacing gains for students in host district schools, according to an analysis of state standardized test scores by the Connecticut Charter School Network.

The analysis used a growth model to show the performance of student groups from 2006 to 2010 and involved Connecticut Mastery Test results and federal demographic data. The analysis also examined performance for economically disadvantaged students, as well and black and Hispanic students. The report was the subject of a Hartford Courant article.

The analysis involved 12 of Connecticut's 17 charter schools, with 5 schools excluded because there were too few test takers or because they are high schools. The Connecticut Mastery Test is given to students in Grades 3 and 8.

All 12 charter schools outpaced the host district in math gains, with the highest margin being 16.7 percentage points and the lowest 0.9 percentage points, according to the analysis report, Measures of Success: What Standardized Test Scores Reveal About Charter Schools in Connecticut.

In reading, 3 of the 12 charter schools did not outpace the host district, with the lowest being minus 11.5 percentage points. But the average overall for all schools was ahead of the host district by 3.9 percentage points, with the highest margin being 20.9 percentage points.

Webinar Focused on Exploring Grant Opportunities and Effectively Competing for Funds

A webinar focused on exploring grant opportunities and effectively competing for funds was presented by the Resource Center.

The hour-long webinar featured Erin Pfeltz and Ann Margaret Galiatsos of the Charter Schools Program; Danny Corwin, vice president of development at the California Charter Schools Association; and Rhonda Kochlefl, chief development officer of the Noble Network of Charter Schools in Chicago.

The presenters shared information about grant programs, best practices, development strategies, and tips that have helped charter schools enhance and sustain their programs. Read more.


October 24-27: The National Association of Charter School Authorizers will host its 2011 Leadership Conference on Amelia Island, near Jacksonville, Florida.

February 27-29, 2012: The Second Annual Green Schools National Conference will be in Denver, Colorado.


  • New York City Charter School Center, General Municipal Law.This section of the New York Charter School Center website provides information about the impact of a May 2010 change by the state legislature to the Charter Schools Act that is intended to increase accountability and transparency. It includes a list of responses to frequently asked questions, a model code of ethics, a model conflict of interest policy, and an overview of changes to the state Charter Schools Act dealing with school trustees and employees.
  • Electronic Code of Federal Regulations: 75.525 Conflict of Interest: Participation in Project. This section of the Code of Federal Regulations describes limits on participation in administrative decisions involving grantees and their projects.
  • Electronic Code of Federal Regulations: 80.36 (b)(3) Procurement. This section of the Code of Federal Regulations describes rules and limitations on the awarding of contracts supported by federal funds.
  • IRS: Purpose of Conflict of Interest Policy. This summary from the Internal Revenue Service reviews key points for understanding the conflict of interest concept and why the issue matters, including its relevance to obtaining and maintaining tax-exempt status.
  • IRS: Sample Conflict of Interest Policy. This is a sample conflict of interest policy from the Internal Revenue Service.
  • Charter Schools: Tax Exemption Application Issues. This section of the Internal Revenue Service website provides three documents that offer detailed information about conflict of interest issues and guidance for applications for tax exemption, with a specific focus on the impact for charter school governance and operations. A list of critical questions is provided as well as background and analysis addressing relationships between charter schools and management companies.