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Cato Caves In 

Accused of fraud, mismanagement, maverick school loses charter

Wednesday, Nov 25 1998
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Photo: Cato Web Site
The Cato School of Reason, once one of the state’s largest public charter schools, abruptly shut its doors last week in the wake of evidence that it had used student rosters of Los Angeles–area private schools to claim millions of dollars in public-school funding. In the process, Cato "engaged in fraud and misrepresentation," according to documents released last week by investigators.

Federal agents are now reviewing Cato’s practices for criminal violations, according to sources in contact with the FBI. Targets of the review include Cato founder Tom Cosgrove and retired Congressman Mervyn Dymally, who was paid to spearhead Cosgrove’s private-school recruitment effort across the L.A. basin.

The findings of fraud stem from an investigation mounted by the Apple Valley Unified School District, which sponsored Cato’s charter to operate. The district investigation, in turn, was jump-started by a Weekly cover story in August.

District investigators contend that until last July, Cato collected millions of dollars in state education funds by entering into agreements with private, tuition-charging schools — including religious schools — to claim, and then split, public-school funds. Through bookkeeping maneuvers, Cato had, in effect, "converted private schools into public schools," according to a resolution approved last week by the Apple Valley school board. Moreover, Cato "failed to conduct" state-required student testing and "failed to meet generally accepted accounting standards of fiscal management."

The school district’s findings were made public on Wednesday, November 18, after Cato administrators virtually forced Apple Valley Unified to present its case against the charter school by publicly accusing district officials of unfairly and unlawfully persecuting Cato. The charter school’s administrators continue to deny any wrongdoing.

It wasn’t evidence of misdeeds that shut down Cato, in fact, but the school district’s control over Cato’s purse strings. Apple Valley Unified has withheld all state funding from Cato — approaching $2 million — since July 1, pending the resolution of questions regarding Cato operations.

The school’s imminent collapse brought out dozens of vocal supporters to last week’s school-board meeting in Apple Valley. Among the speakers was Cato founder Cosgrove, who made a last-ditch appeal to district officials. "You must immediately authorize the release of a minimum of $500,000 . . . tonight," he told the board.

No funds were forthcoming, and Cato has laid off teachers and released an estimated 800 students in mid-semester. Over the weekend, school officials tried to reorganize for the short term as an all-volunteer operation, but the success of that venture as well as Cato’s long-term prospects are uncertain.

The funding cutoff, however, does not necessarily foreclose all of Cosgrove’s education enterprises. Cato’s parent corporation — a nonprofit called the Education Foundation for Ethics and Principles, also founded by Cosgrove — remains active. Already this year the Education Foundation launched a second charter, sponsored by a school system near Fresno. This campus, called the Sierra School, claims an enrollment of more than 200 home-schooled students. Its sponsor, the Eastern Sierra Unified School District, has but 650 students.

Moments before last week’s meeting in Apple Valley, Cosgrove vowed to continue his foray into charter schools with or without Cato. "The other charters will continue . . . absolutely," he said in an interview. As for his school-district sponsors elsewhere: "They love us."

Cato’s closure marks a unique chapter in California’s continuing experiment with charters, which are public schools that operate independent of conventional school districts. The story of Cato underscores both the absence of rules to govern charter schools and lax oversight by outside authorities. Word of Cato’s practices helped spur legislation last year to close legal loopholes available to unscrupulous operators. But in exchange, charter proponents — who tout charters as a vehicle for real school reform — won a dramatic expansion of the program, permitting up to 250 charters next year and 100 new charters per year after that.

Cosgrove, a garrulous libertarian, obtained a charter to start Cato late in 1994. With little more than sheer hubris and a businessman’s bottom-line mentality, he quickly built the school’s enrollment to more than 3,000 students, spread across some 40 locations, most of these over the mountains in student-rich Los Angeles County.

Cosgrove’s initial strategy was to recruit home-schoolers. He provided them with books — many of them free school-district discards — and guidance from a low-salaried "facilitator" who coordinated the parents’ own teaching. He later added a prepackaged, computer-based curriculum. For this, he received the same funding that school districts must apply to maintaining schools, buying new textbooks and paying the salaries of trained teachers. From the beginning, many parents were entirely satisfied with what Cato had to offer. For them, some help with home schooling was better than no help at all, and they much preferred Cato to the local public schools. Cato’s staff included dedicated ideologues who were disenchanted with public education and viewed Cato as the wave of the future.

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