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Monday, November 16, 2015

Kelley on North Carolina Charter Schools & Charity Law

Thomas A. Kelley III (University of North Carolina School of Law) recently published North Carolina Charter Schools' (Non-?) Compliance With State and Federal Nonprofit Law93 N.C. L. REV. 1757 (2015). Here is the abstract:

In North Carolina, as in most jurisdictions across the country, state law requires that charter schools be governed by nonprofit corporations. This Article examines the governance practices of a select group of North Carolina charter-holding nonprofits and asks whether they are complying with state and federal nonprofit law. It scrutinizes with particular care a group of North Carolina charter-holding nonprofit corporations that have entered into comprehensive management agreements with for-profit educational management organizations, also known as EMOs. Based on an exhaustive analysis of the nonprofit corporations’ board meeting minutes, contracts, financial reports, tax filings, and real estate records, this Article concludes that certain North Carolina charter-holding nonprofits have very likely violated nonprofit law by in essence handing the keys of the charter schools over to the for-profit EMOs, permitting them with minimal supervision or disclosure to convert public educational dollars into significant corporate profits. This Article calls for legal and regulatory reform to rein in abusive practices by for-profit EMOs and more effectively safeguard the public funds that North Carolina citizens have devoted to education.

I really enjoyed reading - and was deeply troubled by - this article. I am agnostic about the merits of charter schools, and my sense is that Kelley is as well. But his detective work very strongly suggests that some NC charter schools are flagrantly violating state and federal charity law, not only by failing to satisfy governance standards, but possibly (& quite plausibly) by providing private benefits & possibly even by distributing assets. And the main reason we don't know is because the worst offenders refused to provide relevant (or any) documents. This should come as no great surprise, as there is a lot of money on the table & little or no oversight. But still, I found Kelley's findings quite shocking.

But in addition, I would suggest that the article could be a fantastic teaching tool for nonprofits classes. Kelley provides refreshingly clear and concise explanations of many of the most important doctrines relating to charitable purpose and the fiduciary duties of board members, and then proceeds to apply them to rigorously documented & crisply described factual scenarios. I highly recommend this article.

Posted by Brian Frye on November 16, 2015 at 10:47 PM | Permalink

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