Flunking Out

Under state law, the board may issue an unlimited number of charters to schools that specifically serve students at risk of dropping out. The next batch, however, probably won't be granted until late 2000 or early 2001. In September, the board is to consider a more stringent, albeit still imperfect, screening process for charter school applicants -- a process the board wishes it would have started using four years ago.

Bush says he would never pressure the Board of Education about charter schools, although his actions on the presidential campaign suggest otherwise. Bush led an embarrassingly large entourage of reporters and photographers inside a Massachusetts charter school last month. And two weeks later, he visited a Los Angeles charter campus to extol the virtues of those schools.

"Governor Bush believes innovation and competition will inspire our public schools while offering more choices for parents and students," says Mindy Tucker, a Bush campaign spokeswoman. "That's why he strongly supports charter schools and chose to highlight two successful charter schools on recent campaign stops."

Texans, however, might be better off if the governor had been paying more attention to charter schools that were failing in his own state.

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Four charter schools under the umbrella of Houston-based Life's Beautiful Educational Centers Inc. -- P.O.W.E.R., H.O.P.E., L.O.V.E., and F.A.I.T.H. -- are finding that life's ugly these days. In less than one year, the nonprofit corporation has racked up debts totaling several hundred thousand dollars.

All the power, hope, love, and faith in the world may not be able to salvage the good intentions of the recently deceased founder, Sylvia L. Terry, a teachers' union activist who started the schools as an alternative for African-American youths who were failing in traditional public schools.

"Some of the people who applied for charters said, 'Well, I want to help children,'" explains Allen, the Board of Education member. "Sure, there are a lot of people out there who want to help children, but they have no sense of the business side of education. And that's basically where they're getting in trouble."

Running a charter school is like running a business. Although free of many teaching regulations, charter schools still must strictly follow state and federal guidelines related to accounting and finance.

"Understanding even the minimum requirements is very difficult," says Bill Outlaw. "This field is very specialized." Outlaw was a public school budget officer from Houston who retired with more than 30 years' experience. He was hired by TEA to help clean up the Life's Beautiful mess.

Unlike the charter schools in Waco and San Antonio, Life's Beautiful appears to have made honest accounting mistakes. Still, it demonstrates the operator's appalling lack of financial sense and savvy.

"I haven't seen any evidence of misappropriation of funds," Outlaw says. "But I will say that, in my opinion, the wisdom of their spending is in question. I don't think they had a budget. I never saw it. If they did, they didn't pay a lot of attention to it."

Last fall, Life's Beautiful opened P.O.W.E.R. in the Pleasant Grove section of Dallas, H.O.P.E. in northeast Houston, and L.O.V.E. in Denton. F.A.I.T.H. was to open this fall in Carrollton. The future for the schools remains hazy as TEA auditors assess the corporation's debts. A recommendation to revoke the four charters is possible.

The amount of money a charter school receives from the state is based on the school's average daily attendance. Since September, the state has paid Life's Beautiful about $775,000. The charter operator was zapped when it grossly overestimated the number of students who would attend the three schools opening last fall. As a result, it took in far less money than anticipated. Yet Life's Beautiful officials inexplicably waited as long as three or four months to reduce expenses accordingly. Bottom line: Life's Beautiful spent its entire year's income in about four or five months, says Canby of TEA's audit division.

Life's Beautiful is several months behind in meeting payroll. Even when it was paying employees, it deducted money for health insurance from employees' paychecks -- even though the coverage had been canceled for failure to pay the insurance premium. For a while, Life's Beautiful paid no contributions to the state teachers' pension fund nor payroll withholding taxes to the IRS. Rent was late, as were payments to the bus company that transported students.

The corporation's bookkeeping was unbelievably shoddy. "Financial records had to be reconstructed from the beginning," Outlaw says. "Every receipt and every disbursement had to be re-coded. The student attendance records were the same way. Unless they can prove they had these kids in classes and taught them, the state is not going to pay for them."