Friday, December 23, 2011

The K12, Inc. North Carolina Virtual Charter School Proposal

K12, Inc.

K12 Inc., the purveyor of multi-state on-line virtual charter school programs, plans to establish a presence in North Carolina by aligning its interests with those of the Cabarrus County School Board. The K12 Inc. business plan was offered to school board officials, the chartering entity, on November 1, 2011. For its efforts, the school board will receive a 3% administration fee.

General Assembly Support for Virtual Charter Schools

The K12, Inc. note of appreciation:
In 2011, the North Carolina legislature, with the passage of Senate Bill 8, gave unlimited numbers of students and families in the state the choice of a public charter school education. The cap on charter schools imposed by the North Carolina Charter Schools Act passed in 1996 created a pent up demand for charter schools for over fifteen years based on the availability of just 99 approved charter schools—only 4% of the public schools in the state--until the 2010-2011 school year. After the passage of Senate Bill 8, the North Carolina Department of Education created the opportunity to quickly alleviate the pent up demand for charter schools by offering an expedited charter school application process this year, using a “Fast Track Application” and compressing the “planning year” to about seven months. We are submitting our North Carolina Virtual Academy “Fast Track” charter application for approval to chartering entity Cabarrus County Schools.

A second piece of legislation enacted this year, the Appropriations Act of 2011, acknowledges the opportunity in North Carolina for a “virtual” charter school Currently this type of charter school does not exist in the state. Conforming to state charter school law (§ 115C-238(A)-(K)), it will be a free-standing, diploma-granting public school for students in grades kindergarten through twelfth grade.

The company's pending, Department of Education, charter application for the North Carolina Virtual Academy would allow K12 Inc. access to funds and permit avoidance of for-profit rules by the establishment of a non-profit conduit entity. [proposed corporate name: North Carolina Learns, Inc.]

 K12, Inc. intentions as recorded in its 299-page application:
... North Carolina Learns Inc. (proposed) shall be organized as an independent North Carolina corporation doing business as the “North Carolina Virtual Academy” (hereinafter referred to as the “School”). The purpose of the corporation is to maintain and operate the North Carolina Virtual Academy School as a not-for-profit enterprise. The corporation also has such powers as are now or may hereafter be granted by the §55A-2-02 of the General Statues of the State of North Carolina. It shall be the policy of the Board of Directors and the School not to discriminate in admissions and hiring practices in violation of the law. The purpose of the School is to provide a quality education to children in the Cabarrus County area and throughout the state of North Carolina.

Credentials for North Carolina Charter School Educators as stipulated by NCGS Chapter 115C-238.29:
1. Compliance Requirement - The charter school’s board of directors shall employ and contract with necessary teachers to perform the particular service for which they are employed in the school. At least seventy-five percent (75%) of these teachers in grades kindergarten through five, at least fifty percent (50%) of these teachers in grades six through eight, and at least fifty percent (50%) of these teachers in grades nine through twelve shall hold teacher certificates
North Carolina Learns, Inc/K12 Virtual Schools LLC Financial Arrangement aka the Educational Products and Services Agreement

The cosignatories, North Carolina Learns, Inc, a non-profit benefit company and Virtual Schools LLC, a Delaware limited liability company, agree that if the North Carolina Virtual Academy venture is profitable the amount due K12 will be determined as follows:
i. Of the first $100,000 or less of the Positive Net Asset Position, the amount due K12 will be 25% of such amount, not to exceed $25,000.

ii. Of the second $100,000 or less of the Positive Net Asset Position, if any, the amount due K12 will be 50% of such $100,000 or $50,000. The amount due K12 will not exceed $75,000, for the first $200,000 of Positive Net Assets.

iii. If the Positive Net Asset Position exceeds $200,000 the amount due K12 will be 75% of the amount over $200,000 plus the $75,000 noted in the point immediately above

A North Carolina student is worth approximately $6,753 according to the K12, Inc filing.

K12, Inc. Legal Issues

Wall Street interests founded the virtual school-K12 concept in 2000. This business venture, financed by public education funds, was operating without much issue until The New York Times raised the question of academic benefit.

The December 13, 2011 Times report— “Profits and Questions at Online Charter Schools,"— had immediate repercussions: K12, Inc. stock prices dropped more than 20%.

Three days later Faruqi & Faruqi LLP, a securities law firm, opened a K12, Inc. federal securities fraud investigation. The question: Has K12, Inc. and its executives violated federal securities laws by failing to disclose material information revealed in The New York Times article?

Research on the part of The Times indicates that the K12, Inc. education model is deficient because a significant number of its virtual charter school students are not able to meet academic standards.

K12, Inc. unresolved concerns:  Improper recruitment, abnormal withdrawal rates, false advertising and corporate pressure to pass students without regard to academic achievement.

Other pertinent information reported by The Times: K12, Inc. spent $26.5 million on advertising its virtual school product in 2010 and during promotional investment events, K12, Inc. estimates that it expects to generate $15 billion in tax-payer revenue.

Related Articles & the K12, Inc. Investor News Release

K12, Inc. Investor News Release: "The New York Times article featuring K12 Inc. (NYSE: LRN) is unfair and one-sided, and advances an anti-parent choice policy agenda."

"Virtual schools are multiplying, but some question their educational value" Washington Post— November 26, 2011

"Virtual Learning and Charter Schools: Issues and Potential Impact" —William R. Thomas

"How Online Learning Companies Bought America's Schools" The Nation —December 5, 2011

"Questionable company targets NC for virtual charter school" NC Policy Watch—December 16, 2011

"Can Computers Replace Classrooms?" The Fiscal Times—November 27, 2011

"Virtual School is $3 million short" The News & Observer— November 22, 2011


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