California Looks Into K12 Inc. The Result: a $168.5 Million Settlement (or $2.5 Million, Depending on Who’s Counting)

Imagine a group of students walk through the school doors sometime during the day, spend a few minutes lounging around the office, then leave. The school marks them present and collects their per-student money from the state.

According to an investigation by California’s Attorney General, that was business as usual at K12 Inc.’s online school, California Virtual Academy—emphasis on the word “business,” because K12 Inc. is a publicly traded, for-profit corporation. Students would sign into school on their home computers, then leave a few minutes later, and they would be marked present. That’s not just a problem at the California school. According to a number of investigative articles about K12 Inc.’s online schools around the country, teachers are urged to hang onto students who are enrolled but don’t spend enough time online or do enough work to pass their classes. Once they’ve been around long enough to qualify for state funding, they can be cut loose.

Misreporting attendance was only one issue that led California to reach a $168.5 million settlement with the company. According to the Attorney General,

“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.”

The settlement is $2.5 million plus $6 million to cover legal costs to the state, and $160 million to wipe out debts CAVA owes to K12 Inc. 

Charter school supporters aren’t complaining about the ruling. The California Charter Schools Association joined the California Teachers Association in applauding the decision. K12 Inc. is a major reason why some pro-charter organizations recently published a paper demanding improvement of online charter schools.

K12 Inc. hates that $168.5 million figure. According to a corporate press release, it’s really only a $2.5 million settlement with no admission of liability or wrongdoing. As for that $160 million in debt relief to CAVA,

“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.”

I’m not savvy enough about how K12 Inc. operates to know why it keeps those “subsidies” on the books if it doesn’t expect them to be paid, but I know that another national charter chain, Imagine Schools, also shows outrageously high debts individual schools owe the parent company. It may look good on the books to list it as money to be collected at a later date rather than writing it off, or it may be a way of making sure the schools are too financially indebted to declare their independence from the larger corporation and go their own way.

Problems with CAVA and K12 Inc. were exposed in an excellent series of investigative reports by San Jose’s Mercury News, but the publicly traded corporation has been the subject of continued scrutiny by journalists across the country for years without resulting in state investigations. One probable reason is, K12 Inc. has less political clout in heavily Democratic California than in other states like, say, Arizona, where Craig Barrett, ex-CEO of Intel and current president and chairman of BASIS Schools, Inc., sits on the K12 Inc. Board and is compensated $190,000 for a few hours work. Also, California Attorney General Kamila Harris is running for the U.S. Senate, so a high profile case like this can only help her campaign in a progressive state.

This article appears in Jul 7-13, 2016.