Charter schools were originally conceived as centers of experimentation and innovation where educators could try new approaches quickly on a small scale with a minimum of paperwork. Many charters have lived up to that promise, but that same openness that allows new ideas to flourish may also have left the sector vulnerable to a dangerous level of corruption.

For decades, Michigan and Florida have been on the cutting edge of shifting public education into the private sector. These policies were based on a deeply held and often explicitly stated belief that choice and market forces could net only solve education’s problems but could also alleviate much of the need for regulation.

Now recent investigations from the Detroit Free Press, South Florida’s Sun-Sentinel, and the Florida League of Women Voters have painted a troubling picture of two out-of-control charter school systems.

Starting under the administrations of former governors John Engler and Jeb Bush, both Michigan and Florida have been early and enthusiastic backers of the charter school movement and have been particularly receptive to for-profit management companies. While many states prohibit full-service, for-profit companies from running charters, Michigan, and to a lesser extent Florida, has encouraged the model.

Michigan has one of the least restrictive environments for charter schools in the entire nation,” said Casandra Ulbrich, vice president of the state Board of Education,” …We basically opened the door to all types of different charter schools, most of which are run by for-profit management companies, and it’s led to a lot of issues, primarily … financial oversight and transparency.”

With 78.8 percent, Michigan is by far the leader in charter schools run by for-profit management companies (the rest of the top five are Missouri with 36.6 percent, Florida with 34 percent, Ohio with 30.6 percent and Arizona with 20.6 percent). Florida, however, may have gone even farther in opening the gates for would-be educational entrepreneurs.

State law requires local school districts to approve or deny new charters based solely on applications that outline their plans in areas including instruction, mission and budget. The statutes don’t address background checks on charter applicants. Because of the lack of guidelines, school officials in South Florida say, they do not conduct criminal screenings or examine candidates’ financial or educational pasts.

That means individuals with a history of failed schools, shaky personal finances or no experience running schools can open or operate charters.

The law doesn’t limit who can open a charter school. If they can write a good application … it’s supposed to stand alone,” said Jim Pegg, director of the charter schools department for the Palm Beach County school district. “You’re approving an idea.”

This distrust of regulation is often explicitly stated in libertarian terms.

“I remembered Milton Friedman made what I thought then was a pretty bold statement. He said if we want to see meaningful change in public education, we’ve got to privatize it. His reasoning was that only through privatization comes competition, which drives up quality and drives down costs. Those are the two biggest challenges we had – and still have – in public education.”

J.C. Huizenga, chairman of National Heritage Academies, quoted in the Governor John Engler Center for Charter Schools’ commemorative publication: 15 Years of Transforming Public Education.

This faith in the ability of market forces to supplant regulation and oversight was so strong that lawmakers in both Michigan and Florida deliberately chose to forgo conventional oversight. Governor Engler made this point clear when he explained why, despite mounting scandals, the Michigan Department of Education does not need more authority over charters.

“The oversight is ultimately the parent, just like it has always been,” Engler said. “The parent moved if (the traditional school) wasn’t working, but that was limited economically. It’s a question that misses the broader point: What goes on in schools should be the focus. The whole focus should be on education. … The structural questions, frankly, are missing the point.”

This philosophy contributed to extraordinarily opaque systems in both Michigan and Florida. The Detroit Free Press reports:

Management companies insist — without much challenge from the state — that taxpayer money they receive to run a school, hire staff and pay suppliers is private, not subject to public disclosure.

Quisenberry, the president of the Michigan charter schools association, said school expenditures are “appropriately public” while “things that would be related to the company itself and its internal operations are appropriately private.”

Greg Lambert, an NHA representative, spelled out the company’s position to the board of the Detroit Enterprise Academy in 2010 when several members were demanding more transparency.

Mr. Lambert stated that the public dollars became private when they were received by NHA. He further indicated that because NHA is a private company, the information need not be disclosed.”

The Sun Sentinel reports similar attitudes in Florida including this memorable exchange:

When [Katrina] Lunsford requested documentation for a $625 bank transaction on Sept. 25 from Dorothy Gay, the board president for the Palm Beach County school, Gay provided it — along with an indignant email:

Let the record reflect the following, which I will make perfectly clear this one time only and never again question me about any ‘funds’ or state to me, ‘show documentation’…”

In Michigan, officials were voicing concerns over conflicts of interest as early as 1996, but it was not until 2012 that a law went into effect barring board members having relatives who work for or have a financial interest in the schools and their management companies. Even now, the law still allows management companies to do business with companies owned by the family of board members and school founders.

Not surprisingly, the Detroit Free Press investigation uncovered a large number of apparent abuses.

In one case, the president of a school’s management company and the husband of its top administrator bought a piece of property for $375,000 and less than a week later sold it to the school for $425,000. This appears to have been completely legal. The two men would also go on to collect millions in contracts from the school. This is not an isolated case. See here and here.

Cozy relations have also led to exorbitant compensation, including one case where a school with less than 500 students spent more than a half million dollars on its top school administrator’s severance package.

Michigan’s largest charter school management company, which also has extensive real estate holdings, charges the state so much in rent that it gets a 16 percent rate of return on its investment, roughly double the return for comparable commercial properties.

“When you say, ‘Line up here and you can scam the state,’ you shouldn’t be surprised if people line up and scam the state.”

In Florida, the League of Women Voters recently released a long list of conflict of interest concerns. Legislators cited included the chair of the Senate Education Committee, the House Budget chairman, the future House speaker and the sponsor of the Parent Trigger Bill.

The financial impact of all of these scandals has been significant, particularly in cash-strapped Michigan. However, the greatest damage done here may lie elsewhere.

Michigan has allowed a number of severely underperforming schools to continue operating for years. At least one school in the first percentile was recently renewed for yet another year.

In Florida, the problem appears to be less about schools that should be closed and more about schools that never should have been opened. Students frequently found themselves enrolled in new schools that lacked essentials ranging from basic supplies like soap and toilet paper, all the way to buildings and electricity. Some schools even started scheduling unauthorized field trips because they had no place to put their students.

Schools were often so badly managed they closed during the school year, disrupting the lives of their students and putting a strain on the public schools that took them.

“This isn’t just a regular business. This isn’t a restaurant that you just open up, you serve your food, people don’t like it, you close it and move on,” said Krystal Castellano, a former teacher at the now-closed Next Generation charter school. “This is education; this is students getting left in the middle of the year without a school to go to.”

The charter school systems of Florida and Michigan were set up under the explicit assumptions that choice and market forces could allow a massive government funded set of private companies to run with only minimal oversight and regulation. With Michigan’s public-policy experiment starting 20 years ago and Florida’s beginning not much later, it is time to start questioning the effectiveness of these policies and their cost to both taxpayers and, more importantly, to students.

Mark Palko is a statistician and blogger (West Coast Stat Views and You Do the Math) based in Los Angeles.