Karen Waters-Titus didn't know what to make of the enrollment form that came home from school with her fourth-grader one day last fall. Her son Cameron's private school in Inglewood was asking parents to join something called Cato, which would provide free books, computers and other school resources. Just sign on the dotted line. Any student returning the form right away would get, as a bonus, a “free-dress Friday,” meaning that he or she could skip wearing the school uniform for one day. That was a fine incentive for young Cameron, but Waters-Titus had questions.

What was Cato? And exactly why was Cato providing free services as part of a partnership with the K. Anthony's Schools, a private academy that has long served inner-city, mostly African-American families?

A visit to her son's school only heightened her concerns. A teacher who fielded parents' questions didn't know much about Cato either. When Waters-Titus demanded a phone number for Cato, then dialed it, the line rang in the high-desert town of Victorville, 100 miles and a mountain range away from Inglewood. A Cato staffer invited her to visit, but would offer little explanation other than noting that she didn't have to enroll her son.

That was when she called state regulators.

Waters-Titus had stumbled upon one of the most aggressive, entrepreneurial operations to hit public education in some time. The Cato School of Reason, a public-charter school begun in 1994, has used its Victorville base to make a play for millions in state apportionment money. Begun in part as an academic halfway house for dropouts and expelled students, the school quickly shifted gears to become a clearinghouse for home schooling – for families unable or unwilling to send their children to regular public schools. It then expanded again – almost exponentially – as it formed partnerships with private schools and social-service organizations. A significant boost came from former Lieutenant Governor Mervyn Dymally, who signed on as a member of the board and personally recruited half a dozen private schools to Cato's roster. Every step of the way, the school has emphasized the bottom line, while straddling legal and ethical ones.

A Weekly investigation into the operations of Cato has turned up a series of unorthodox and possibly illegal practices, enabled in large part by the lax state rules governing the operations of charter schools: Most notably, Cato “enrolled” hundreds of students who were actually attending private schools, claimed millions of dollars intended for students in public schools, and split the proceeds with some of these private-school operators.

The story of Cato comes at a key juncture for the state's charter-school movement. In the six years that charter schools have been authorized, restrictions on their creation have limited their growth to 125 schools so far, but last year, proponents led by Silicon Valley businessman Reed Hastings gathered signatures for a ballot initiative that would have removed all the restrictions on the growth of charters. Hastings backed down when state officials and legislators agreed to raise the cap on charter schools to 250 next year and 100 new schools per year after that.

The idea of charter schools is to encourage and unfetter fresh, creative thinking among educators. Conservatives accepted charters as the best-available alternative after their plans to win public funds – in the form of vouchers – for private schools stalled. For liberals and teachers unions, charters were endurable because the plan circumvented new voucher proposals while also keeping the charter schools firmly within the public school system. These quasi-independent schools, sponsored by local school districts, operate under their own governing councils, which have the authority to eliminate red tape, layers of bureaucracy, and even education-code regulations that supposedly have retarded so many past reform efforts.

Enter Cato – the brainchild and alter ego of founding director Thomas A. Cosgrove, a libertarian and small businessman who was in his 60s before he first pursued a teaching credential. When he launched his charter school, his experience in education consisted of nothing more than a stint of student teaching and a little work as a substitute. Now, less than four years later, he's riding the wave of charter-school reform to apparent riches. Last year, Cato's enrollment – estimated as high as 3,500 students – brought in millions of state dollars.

Cosgrove has successfully exploited the flip side to the charter-school mantra of deregulation and local control. Along with the freedom to reform came a distinct lack of oversight. Charter-school legislation never clearly addressed who was responsible when something went wrong. Nor did reformers fully consider that a charter school could exist for reasons other than the best interests of children. They never contemplated that their reforms would unchain dollars as well as ideas. And that state education funds were dangling for the taking by school operators who could obtain a local charter, then devise ways to crunch down costs for financial gain.


“Any liberties that we have taken, and we have taken a few, are because you haven't said what the rules are,” observed Cosgrove in an interview. “And until you do, we are going to make them up as we go along.”

The results of Cosgrove's capitalist audacity have been astonishing. When his speculative charter school started in late 1994, Cosgrove had little more than ambition, 25 prospective students and the charge limit on his ex-wife's credit card. He and his former spouse were the only paid staff, and they had no assurance they would earn a penny. For the 1996-97 school year, Cato was averaging 934 students. By November 1997, the school was claiming more than 2,600 students.

This growth is reflected in the finances. In the 1996-97 school year, Cato took in $3.9 million in government education funds – based on payments of about $20 a day per student. Just 56 percent of that money went to programs and expenses, giving Cato a whopping $1.7 million surplus for the year, and year-end reserves totaling $2 million. The following year was better still, with the school reaching the $7 million mark in revenues, nearly doubling its take of state education funds.

The financial picture is even more impressive on closer inspection. In the 1996-97 school year, for example, Cato could afford to hand over more than $320,000 for “administrative costs” to Cato's corporate parent, the Education Foundation for Ethics and Principles, a registered nonprofit formed and controlled by Cosgrove. It's not unusual for private or public schools to be affiliated with nonprofit foundations. But the relationship is backward here. Foundations are typically set up to lead fund-raising efforts to benefit a school. At Cato, the money has gone the other way, with school funds being siphoned off by the foundation.

What that money paid for is anyone's guess, because school officials won't say. They've declared the Education Foundation exempt from the open-meetings and public-records acts.

“I make the analogy to a private business,” explained Barbara Sledziona, the schools division head for the Education Foundation. “You wouldn't expect a private business to tell you where all of its offices were or to identify its employees or clients.” Cato officials also refused to produce their nonprofit tax filings.

Cato has secured a financial windfall by paying little in salaries, spending a pittance on textbooks and providing few employee benefits – a combination entirely compatible with both the school's format and its ethos.

Cato's advertised bill of fare is home schooling, which is seductively packaged as an alternative to public school campuses plagued with gangs, large classes and falling roof tiles. Parents who sign up with Cato become the teachers for their own children: They plan the curriculum; they do the teaching. From Cato, they get free books, and sometimes computers and Internet access. The Cato budget now also includes a small amount for loaner musical instruments.

For parents who already home-school, the Cato deal's a hard one to turn down. Just for joining, they get materials and assistance they otherwise would have to pay for. This bonus, as well as Cato's self-paced curriculum and its anti-establishment attitude, has helped the school develop a core of true believers among students, faculty and administrators. But whatever its merits, the system also has proved a gold mine for Cosgrove, who receives full state funding for students, about $3,600 a year.

Because parents are doing the teaching, Cosgrove doesn't have to pay teachers' salaries or their employee health benefits. Nor does he have to outfit or maintain schools and classrooms. Instead, parents meet once a week, at their home, for about an hour, with a Cato “facilitator” who collects student work samples and helps parents plan curriculum. Facilitators typically earn $75 per student per month. In some cases, parents act as the facilitator and are paid to teach their own kids, a practice that has raised concerns at the state level.

From the start, the profit margin per student was good, but building up a clientele – one family at a time – was plodding work. Within a year, Cosgrove began to go after groups of students by affiliating with established schools, churches and organizations.

At the K. Anthony's Schools in Inglewood, Cosgrove concurrently enrolled about 280 of K. Anthony's 500 students between September and December of last year, said Brady Johnson, founder and operator of the chain of three private schools. Johnson added that he received one-third of the state funding for every Cato-enrolled student over that period. The participating families received no tuition discount in exchange; rather, Johnson saw the extra money as funds to enhance the offerings of his school.


“The money was good,” said Johnson. “I could use it. You know how expensive computers are.” He added that he understood that “some of the money came from the state. But I was pretty sure that if the state was funding something, [Cato administrators] would understand the law.” Johnson, who became visibly agitated as the interview progressed, refused to produce his contract with Cato or state how much money he'd received. Nor would Cosgrove provide the information. He also declined to share those figures with state officials.

Waters-Titus, the parent who called the state, views the whole arrangement as a sham. Although she declined to sign the Cato enrollment form, it hardly seemed to matter. Her son soon reported that he was taking placement tests from Cato and that K. Anthony's had almost entirely converted to a curriculum consisting of cheap photocopied handouts from Cato. She saw no evidence of fancy computers or shining new textbooks. Complaints from Waters-Titus have prompted an ongoing, but slow-moving state review of Cato's business practices, no less because Waters-Titus is the daughter of Congresswoman Maxine Waters (D-Los Angeles).

How numerous were the satellite locations that Cato lined up? One indicator is a piece of Cato correspondence from November 1997. In it, Cato acknowledged having 40 satellite operations and more than 2,600 students. It's hard to say how these students divided between private-school pupils and home-schoolers, Cato's advertised target population. But at the time, for its home-schoolers, Cato employed only 35 full- and part-time facilitators. And a Cato employee from that period, who asked not to be named, said that home-schoolers accounted for less than a third of the enrolled students.a

To the extent that Cosgrove was taking public funds for students whose families also were paying private-school tuition, he was probably violating the spirit of the law, at the very least. “If students are enrolled in both public and private school at the exact same time for the same academic purposes, there is a problem,” said state deputy superintendent Patrick Keegan, “Either the parents are paying for something they shouldn't be paying for or the state is paying for something it shouldn't be paying for. No matter how you cut it, you're not supposed to do that.”

But that's exactly what Cosgrove did, in a frenetic drive to push up his enrollment numbers – and thus his state funding. Cosgrove “was actively recruiting any group he could find,” including church groups and seniors, said one former Cato insider. He hit the road to Compton, Inglewood and East L.A., not to mention Barstow and Rancho Cucamonga. He'd take any student with a pulse but no diploma.

Some of the satellites, such as Abrazar, an Orange County social-service organization, presented no apparent legal dilemmas. The Westminster-based nonprofit, which still works with Cato, already was using government grants to provide services to low-income residents. The Cato program gives it a way to offer academic classes as well.

Other affiliations were more problematic. “The idea was that you go to church groups and private schools and make them public schools with Cato,” said the former Cato employee, who asked not to be named. “In most cases, the students were still paying tuition. It was moving so fast, there was no time to keep up. It was a numbers game.”

According to well-placed sources and documents obtained by the Weekly, some of these numbers came by way of Mervyn Dymally, the former lieutenant governor and a member of Congress from 1982 to 1992, who once presided over a formidable political machine in large spans of black Los Angeles. Dymally has served Cato both as an adviser and as a member of the Education Foundation's board of directors. In addition, Dymally was personally involved in signing up African-American church-based schools for Cato across the L.A. basin. Cato staff even called these schools the “Dymally schools,” which apparently irritated Dymally. In one hand-written memo that appears to be from Dymally, the retired congressman asks that staff refer to the schools as “satellite or L.A. County schools” instead.

Cato records reviewed by the Weekly indicate that at least one high-level Cato employee had concerns that these schools could get Cato into trouble. “Students were not enrolled by their parents,” says a memo from Cato administrator Robert Turner. “We have not resolved church and state issues.”

Two hand-written Dymally memos respond to the concern about parent signatures by asserting that parental consent wasn't required: “It was the consensus that teachers are daily guardians of the students. There is no provision in the Ed. Code on this subject.”

Another former Cato worker, who also requested anonymity, credits Dymally with bringing in five or six African-American schools, some of them church affiliated, each with about 125 students. Dymally specifically requested that Cato staff avoid visiting the sites, the former employee said, and Cosgrove complied. Instead, Dymally saw to it that rosters with students' names and addresses were turned in to Cato. For his various services to Cato, Dymally was paid $5,000 a month plus expenses, according to sources who said they saw the checks. Cosgrove said last week that Dymally was paid nothing.


Dymally would not address that subject. But in a May telephone interview, Dymally said he'd taken no part in recruiting for Cato. He blamed suspicions about Cato on institutional intransigence. “School administrators are not favorably disposed to charter schools,” Dymally said. “Charter schools are the way of the future,” he added, “and if we don't get on the train, we are going to be left standing with our baggage at the station.” When contacted again last week and presented with the information from the memos, Dymally declined to comment further.

Cato has refused to release copies of its agreements with the affiliated schools, but proposed terms for one such agreement appear in the draft of a letter that Cosgrove addressed to the Orange Crescent School in Garden Grove, a copy of which was obtained by the Weekly. The letter implies that Cosgrove will split state funding down the middle with Orange Crescent. “We divide the amount of daily attendance money from the state into equal portions,” he wrote in the letter. “This means each 'half' is approximately $8.50 per education day per student.”

In the draft letter, Cosgrove implies a state sanction for what he's doing, referring to his school as “accredited by the state to educate and graduate students.” He explains, “A public school student may only be enrolled in one public school at one time. The same student may be enrolled in multiple schools in addition to the public school, but only one public school. Cato is a public school. Orange Crescent is not a public school.”

(It's not clear whether Orange Crescent ever affiliated with Cato, and attempts to contact the school's administration were not successful.)

In another memo, Cosgrove writes: “Any Cato student may attend other non-public schools or other non-public educational entities of their choice. Attendance, curriculum and practices of other entities is of no concern to Cato.”

Documents indicate that Cato's satellites included 13 religious schools and 16 schools that charged tuition. Many of these schools were low-cost or struggling private schools, many serving minorities, that clearly would benefit from Cato's income boost.

One school that accepted these terms soon came to regret the decision. In April, the operator of the venerable Anita Oaks School in Duarte shot off angry letters to Cato and to state authorities complaining that Cato had reneged on its deal to split state funds 50-50 with the school. According to the letters, the arrangement was in effect for seven months, until January 22 of this year. Over that time, the Duarte private school had received only “$46,355.20, leaving a balance of $96,167.04 still owed to Anita Oaks,” wrote school administrator Pat Thornton. In another letter, Thornton noted, “A Science Lab Mobile was promised, as were computers, etc. What I am saying is that none of these promises were fulfilled by Cato.”

Thornton evidently had no idea that state officials would frown on the entire arrangement because she sent copies of her correspondence both to the Apple Valley school district, which was Cato's sponsor, and to state Schools Superintendent Delaine Eastin.

When contacted for this article, Thornton, through her secretary, declined to be interviewed, citing the advice of her attorney. But in her correspondence, Thornton emphasized that Cato had expended little effort, other than sloppy bookkeeping, for its share of state money. Practically the only service provided was an irrelevant training session at Cato headquarters on home schooling. “Please take note,” she wrote, “there have been no expenses for services by Cato to the satellites.”

Shortly after Waters-Titus' letter prompted inquiries from the state, Cato abruptly canceled the private-school partnerships with K. Anthony's and Anita Oaks. Confronted by a reporter about the deals, Cosgrove acknowledged the connection with K. Anthony's and admitted that he'd also orchestrated such arrangements with an unspecified number of other schools. But he refused to name either the schools or the number of students involved. “We dumped them all. We don't want to get into a nose-to-nose confrontation with anybody,” he said.

Clearly, Cosgrove has no stomach to kill his golden goose by tangling unnecessarily with state regulators. Still, there's a part of him that would gladly tangle with the state establishment or anyone else who chose to stand in his way. Even on the legally sensitive issue of private-school partnerships, Cosgrove could not resist taking the offensive.


“Does that hurt me?” he asked rhetorically about the canceled partnerships. “No. It's the black kid who's not going to be able to use a computer or learn how to play an instrument who is going to suffer. We thought we were doing a good thing.”

You don't have to look further than the logo for his Education Foundation to get a thumbnail of CEO Tom Cosgrove. The school's symbol is a giant, upright bear wearing a toga. Cosgrove, 67, is a bear himself, from his sometimes lashing, bearish temper to his barrel-chested physique. Though he stands only 5 feet 11 inches, his booming voice and 280-pound frame can command a room. The foundation's Latin motto also is revealing. “Procedentes discimus,” or “We learn as we go,” aptly sums up how Cosgrove has run the school to this day. a

For Cosgrove was not a career educator, but a man who entered the profession on the back end of a midlife transformation. Until the Cato school, there was little indication that Cosgrove, who grew up in working-class Wilmington, would turn educator. After a tour of duty in Korea and a degree at Pepperdine, Cosgrove's focus was on business. His pattern was to take a low-level or midlevel job in a field, learn the ropes, then try to start his own business. After a sales job with Texaco, he opened his own gas station, but failed to survive a downturn. Later, around the time of the Watts riots, he worked in South Los Angeles as a mortgage banker. It was around this time that Cosgrove met Dymally, then an aspiring young politician. Later still, he turned around a struggling Honda motorcycle dealership in Lomita, only to see the business ultimately decline and leave him high and dry. In the 1980s, he built up a Los Angeles-area messenger service, but was dragged down by litigation over the sale of the business.

By the time Cosgrove moved to the high desert, he'd reached the age of 50 without either making his millions or leaving a mark. He wasn't down and out exactly, but his career prospects were uninspiring. He'd passed 60 when he entered Chapman College in Victorville to earn a teaching credential. He'd always been interested in education, and used to urge his ex-wife, Vivian, with whom he remains on friendly terms, to start a school with him. “I would say, 'You're crazy,'” she noted in an interview.

Cosgrove ended up substitute-teaching for a time; local school districts have no record of his taking a staff teaching position. But he wasn't invisible, either. For a while, he took a leadership role in the nascent Tri-Community Council, which represented the area's unincorporated settlements in its dealings with San Bernardino County. And he became entirely energized by Proposition 174, the so-called voucher initiative, which would have allowed California students to use publicly funded vouchers to attend private schools. He made speeches wherever people would listen or had to listen, from the local Kiwanis Club to the public-comment portion of school-board meetings. Acquaintances said he talked of wanting to open a voucher-supported private school himself.

The voucher initiative failed, but Cosgrove would only have one year to wait before putting out his shingle – not for a private voucher school, but a public charter school. Here is where the Snowline Joint Unified School District and Superintendent Dan Steele, a Kiwanis Club pal, enter the story. At one point, when Cosgrove spoke of his desire to open a private school, Steele suggested that he explore a charter school instead. Maybe it was because he liked Cosgrove, or maybe he just wanted to get the talkative, persistent Cosgrove out of his office. But the seed was planted, and Steele kept his door open to Cosgrove – when Cosgrove sought help in writing his charter, when Cosgrove circulated his petition.

If school-district records are to be trusted, officials never bothered to collect Cosgrove's resume. It was enough that Superintendent Steele was encouraging, and that some board members harbored conservative or libertarian leanings that predisposed them to admire both Cosgrove's plan and his attitude. Besides, Cosgrove's school addressed a real problem in the Snowline area: expulsions and dropouts. Cosgrove offered his “campus” as a reclamation center for students who wouldn't or were no longer allowed to attend regular schools. From the beginning, the clientele also included some home-schoolers.

There wasn't a whole lot that Tom Cosgrove knew about running a school, and it showed early and often. It took months to generate revenue, and even longer to develop a strategy for academics that passed muster – even minimally – with Snowline Unified.


Because Cosgrove started his school with little else than attitude and a flair for promotion, he had to be resourceful. To get books, Cato employees drove a truck up to the surplus storage warehouse for the San Bernardino city schools. Cosgrove, like anyone else, was welcome to cart away as many books as he wanted from the warehouse. The school system had already judged all these volumes as either too beaten up or out of date. These texts included, for example, health-ed books published in the mid-1960s. These discards became the heart of Cosgrove's 40,000-volume “state of the art” lending library for students.

He did buy new books from time to time, but not without getting into trouble. At one point, Snowline officials interviewed a Cato facilitator who noted enthusiastically that Cato had paid for books that were part of a “creationist” curriculum. Though Cosgrove denied this, Snowline hastily warned him that using public funds to buy such religious texts was expressly illegal.

That was just one misstep as the school stumbled from one crisis to the next, changing locations, curriculum and staff like a desert rattlesnake shedding skins. With a mixture of enthusiasm and desperation, Vivian Cosgrove quickly threw together a basic academic plan. For high schoolers, the materials included a graduation packet, with materials for 10 content areas, such as history, geography, science and math. Students who declared themselves seniors could earn a diploma as soon as they scored 85 percent on each of the multiple-choice and fill-in-the-blanks tests. To help them along, the graduation packets included the graduation tests – as well as the correct answers – in eight of the 10 categories. Students could formally take the tests whenever they were ready as long as they attended Cato for at least three months.

This was not a legitimate degree program, Snowline officials asserted, in one of many contentious episodes with the sponsoring school district. From the start, Cosgrove felt crowded by Snowline administrators. “School districts are just like dope dealers,” colleagues recall him saying. “It really pisses them off when someone else comes on their turf.”

But Cato also had plenty of internal problems. Cato's early clients, the expelled and problem students, persisted in many of their previous habits at the Cato facility – smoking, drinking, doing drugs, cutting class, etc. It was not long before Snowline administrators were getting complaints – from dissatisfied Cato workers and volunteers – that Cosgrove, too, was misbehaving. Cosgrove was accused of ordering teachers to avoid assigning homework – because students were threatening to drop out, and Cosgrove, remember, got funds only for days that students attended class. Eventually, said the tipsters, Cosgrove ordered staff to mark students present whether they showed up or not – or to turn over management of the roll sheets to him. Cosgrove denied any wrongdoing, but soon decided that having classes on the premises just wasn't working.

So six months into the school's young history, Cosgrove firmly opted to focus on home-schoolers. Attendance accounting is a breeze with home-schoolers, because it's based only on samples of students' work. Once a week, Cato facilitators would swing by parents' homes to collect these samples, which could then be used as backup records for attendance claims. It was legal; it was lucrative. Thus did Cato headquarters become a full-time home-school resource center.

One year into the program, Snowline assigned Assistant Superintendent Jan Vondra to perform a snapshot review of Cato's progress. On the plus side, she found a regi-ment of satisfied home-schooling families – although she questioned the propriety of paying parents to teach their own children. On the downside, she noted that the school went through a whole year, including graduation ceremonies, without approving formal graduation requirements. Moreover, Cato had failed to organize mandatory employee retirement plans, had no procedures for performing employee background checks, and had no discipline or expulsion policies.

Vondra's lengthy report included notes from interviews with five Cato facilitators, including a 19-year-old high school graduate, a minister/real estate agent, a college graduate in Christian education, a former public school teacher's aide, and a parent with experience teaching at a Jenny Craig weight-loss center. In all, only five of the 19-member teaching staff had teaching credentials – which was allowed under charter-school rules, as teachers were exempt from certification requirements.

The business side of the operation was just as disorganized as the academics. Snowline officials said they discovered, to their dismay, that Cosgrove's formal accounting system consisted of only his checkbook register. Snowline staff then helped Cosgrove set up formal accounting procedures, which Cosgrove has dutifully followed since.

Only once were auditors asked to check the reliability of the numbers behind the balance sheets. And on that occasion, Cato fared poorly. continue

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