PROFITS COULD SOAR FOR ONLINE SCHOOLS - AKRON - Akron Beacon

Journal (OH) - May 11, 2002 - page A1

May 11, 2002 | Akron Beacon Journal (OH) | Doug Oplinger and Dennis J. Willard, Beacon Journal staff writers
| Page A1

T here aren't many businesses that can turn a 50 -cent profit on $1 in revenue.

In the taxpayer-funded charter school business, operators of online schools that serve children at
home may be turning profits that dwarf the best performers in U.S. industry.

As a result, pitched battle has broken out between the for-profit companies trying to corner the
business and the public schools that are trying to block the flow of tax dollars to them.

Among the entrants is an education company run by former Education Secretary William Bennett
and funded by former junk-bond dealer Michael Milken, who served prison time in the early 1990s
for fraud.

Meanwhile, the Ohio Department of Education - facing a major drain of tax dollars for these
privately run schools - is about to change rules that in the end could give established for-profit
companies an edge over public schools.

Akron Public Schools joined the fray yesterday when the board agreed to join about 55 Ohio public
districts in starting their own online - or "cyber" - charter schools through a group called T RECA.

Each district would start its own charter school - run separately from its public schools - to serve
children who want or need to be educated at home.

About 62 children in Akron already have opted to enroll in other online schools. Education officials
estimate there are another 800 who would find the charter schools appealing.

T he 62 cost Akron about $327,500 this year as the funds for those students were shifted by state
officials to the charter schools. About $100,000 of that is local property tax dollars approved by
Akron voters for Akron Public Schools.

WHO'S COMPET ING?

T here are four cyber schools in business - two managed by for-profit companies and two
controlled by public schools.

In the next few years, cyber schools statewide project they will enroll 12,000 children. T hat could
make them eligible for at least $67 million in state and local tax dollars.

T he cyber schools use the money to purchase computers, software and printers for the students,
to provide online teachers and to maintain a sophisticated computer monitoring system. However,
they provide no science labs, transportation, cafeterias or other features of a traditional school.

PROFIT POT ENT IAL HUGE

Mike Carder, superintendent of the 700-student T RECA Digital Academy, says the potential profit
margin at an online school is about 36 cents on each dollar of revenue for high school students
and 54 cents for elementary school children. His academy is one of the public school charters
controlled by T RECA, a consortium of 44 Ohio school districts.

In comparison, the most profitable industry in the nation - pharmaceuticals - makes about 17
cents on the dollar. Wal-Mart, the nation's largest retailer, has a profit margin of 2 percent .

With its enormous potential for profit, Ohio has become one of the nation's biggest battlefields for
Internet-based schools.

Bennett, a member of the Reagan administration, is one step from final approval by the University
of T oledo Charter School Council. His group, called K12, expects to enroll 600 pupils in grades K-5
this fall.

Milken, communications magnate Rupert Murdoch and investors in the software industry are
K12's financial backers.

Akron businessman David Brennan's White Hat Management, already the largest operator of
charter schools in Ohio, has begun enrolling students in OHDELA, his company's online school, and
expects as many as 5,000 students by 2006.

T he Electronic Classroom of T omorrow has been in operation for two years and enrolls 3,000
children. It has encountered serious financial difficulties because the Ohio Department of Education
refused to accept ECOT 's enrollment figures and ordered the school to return $1.6 million in state
aid.

ECOT , OHDELA and K12 are run by for-profit management companies.

BAT T LE LINES DRAWN

Reynoldsburg Public Schools east of Columbus began a marketing effort this week to enroll 2,600
students in the Virtual Community School, operated by the school system and a private contractor.

Reynoldsburg stirred the pot by asking every public school and charter school to turn over the
names, phone numbers and addresses of all home-schooled and charter school-enrolled children
in their districts. In essence, public school superintendents are being caught in the middle of a
battle for public dollars and are being required to help shift money away from traditional schools.

In an act of defiance, T RECA is attempting to convince every public school district in Ohio to start
its own online school, keep the profits within their districts and at the same time tap into the
$500,000 every charter school can receive for start-up costs.
Carder has been in negotiations with Akron for about six weeks and has been talking to other area
districts. Yesterday, Akron board members authorized Superintendent Sylvester Small and the legal
counsel to prepare a contract with T RECA.

Carder is proposing that public districts hire T RECA for three years to help start their charter
schools. T RECA gradually would turn over management to local officials.

Although he is a superintendent of a charter school, Carder called them "a concept I don't believe
in." He told the Akron board that public districts must establish their own charter schools to avoid
losing money to for-profit companies.

He urged the Akron board to act quickly because the state is about to change how it determines
funding.

FOLLOWING T HE MONEY

Currently, a group with a solid plan to open a charter school can receive a $50 ,000 state grant to
finalize a proposal. Once the proposal is approved, the group immediately receives $150,000 in
federal aid to start operations. After school opens the first and second years, it receives an
additional $150,000 in federal grants, for a total of $500,000.

A school needs only 25 children to receive all of the $500,000.

Steve Burigana, administrator of charter schools for the Ohio Department of Education, said the
state is revising its guidelines and expects to base grants on enrollment beginning in July. He said
there is no shortage of money; the issue is fairness.

As for profitability, Don Musick of the Reynoldsburg school and Jeff Forster, whose Altair Learning
Inc. manages ECOT operations, disagreed with Carder. Both said they need all of the money they
receive - on average about $5,500 per pupil.

A battle that has erupted in Pennsylvania over cyber schools has resulted in several lawsuits and a
state study of the issue. T hat report quoted Bennett, of K12, as saying his program costs are
$895 to $1,000 per pupil."
Copyrig ht (c) 2002 Akron Beacon Journal