To: Chair Jerry Berger and Members, Oregon State Board of Education

Date: November 6, 2007

To: Chair Jerry Berger and Members, Oregon State Board of Education

From: Laurie Wimmer Whelan, OEA Government Relations Consultant

RE: Proposal to waive state law regarding virtual student residency

Good afternoon. Thank you for the opportunity to address you again on the issue of virtual education. As you know, OEA opposes the idea of overturning the Legislature’s deliberately established residency cap. Last time I addressed you, I gave you the association’s concerns about financing and accountability questions. Today, I’d like to expand on the issue of this particular appellant’s waiver request, based on additional information we have.

First of all, a point about the funding formula that I did not have the opportunity to make last time: the State School Fund formula was devised to allocate the legislature’s appropriation fairly to all school districts and ESDs, but it should not be confused as an estimate of how much each student actually “costs” to educate. Frequently in discussions of alternative education uses, advocates demand that “the money” follow “the child”, as if each student costs precisely $5500 to educate, no matter the mode of delivery or special challenges of the child. That assumption is simply incorrect. When a school district receives its “share” of the State School Fund, it is based on student enrollment, adjusted for uncontrollable cost factors that impact the budget, but it is not meant to represent the literal cost of educating each child.

This point is relevant for two reasons. First of all, when money is diverted from the State School Fund, intended for public school students enrolled in the districts’ traditional programs, there may be a disproportionate impact to the school districts whose share of a necessarily smaller pot does not change, despite the loss of net dollars. Secondly, the receiving virtual school is asking you to take their word for it that they need the same resources as brick-and-mortar schools, despite the fact that their facilities needs, transportation services, food services, and many other expenses are either substantially less or nonexistent. As you consider this request to grant a waiver, we ask that you not ignore these financing differentials.

We have spoken at length about the residency cap and waivers in general in prior testimony, but today I would like to address with more specificity our alarm at the vendor whose business model you would actualize were you to agree to waive the cap.

Our research shows that Insight, Inc. is a newly acquired subsidiary of a massive for-profit education company that owns the University of Phoenix online college. This corporation, Apollo Group, as well as Insight, has an aggressive business model to capture the potentially lucrative private K12 market. The company heavily markets their schools to drive up enrollment, selling their services as “tuition-free” – not to public school parents, but to the private and home-school communities. They are seeking to expand their stake in what Business Week calls “the next promising market in online education – online charter and private high schools.” Some of you may ask, “what’s wrong with that?”

News accounts report that Insight expects to spend just 60 percent of what it normally costs to educate a child, even though the company intends to collect nearly every penny of the per-pupil expenditure for each student (less the small percentage to the sponsoring district). This bleed-off of public resources does not productively function to provide education to students, but simply winds up as profit for this out-of-state corporation.

The Apollo Group, Insight’s parent company, cites this new business program as a critical factor in future growth: in addition to securing part of the growing online k12 business, Apollo execs expect some Insight graduates to continue their educations at University of Phoenix, which the company would especially appreciate given its six consecutive quarters of declining enrollment at UP.

More troubling is the record of difficulties that Insight and its parent have weathered recently:

·  In the last year, Apollo Group has navigated a Securities and Exchange Commission (SEC) investigation over employee stock options (closed without action in July).

·  The U.S. Dept. of Education required the corporation to pay a record $9.8 million fine in September 2004 over its use of hardball recruiting tactics designed to drive up enrollment. According to DOE, Apollo supervisors paid sales personnel based on their ability to recruit new students – even if students were clearly unqualified for the program.

·  A fraud lawsuit was filed at the time of DOE review and while it was initially dismissed, a federal judge reinstated the suit in September 2006, and attorneys for the plaintiffs (two former employees) say damages could reach $1.5 billion. The U.S. Dept. of Education has filed a friend of the court brief supporting this suit.

·  Earlier, Apollo paid a $6 million Education Department fine to settle charges from an audit that claimed that Phoenix did not meet conditions for including certain services as promised and that they improperly included cost-of-living expenses for some students when calculating financial aid.

·  The company has also paid $650,000 for failing to refund loans when student receiving federal financial aid dropped out of their program.

·  Apollo is also currently facing an Equal Opportunity Employment Commission (EEOC) lawsuit for alleged discrimination against non-Mormon enrollment recruiters. The suit says that the company showed a pattern of practice of preferences for employees who belong to the LDS church and that these employees received preferential treatment in terms of student leads and fewer reprimands.

I would speculate that the Lincoln County School District and its community were unaware of this record when they signed a deal to allow Insight, Inc. to furnish this outsourced workforce to online students.

OEA believes that safeguards of students’ educational and physical interests are met by the intent of the Virtual School District law that we helped to pass in 2005. It was our hope that students always had access to a qualified and properly-licensed teacher, that teacher-student ratios would be properly scaled, that the curriculum offering would align with state standards, and that proper oversight would be in place to ensure that these schools are of high quality. Given the state’s new list of key proficiencies – many if not all of which are “process skills” that require human interaction for learning as well as assessment – we have serious doubts about these virtual vendors’ ability to deliver the required educational outcomes. To say that the schools are accountable to the district that charters them, and that if they fail students, they will be cancelled is fine for the students down the road, but not so fine for the students ill-served in the meanwhile. There are no “do-overs” for those youth. Contrary to what others have said about legislative intent, we believe the legislature clearly expressed its expectation that public virtual programs provided by public educators as outlined in the rulemaking that accompanied SB 1071 would be the model supported by public policy. Again, we urge you to deny this and all future private vendor-based residency cap waiver requests. Thank you.