Charter company overseeing Mendez Middle School denies sending Texas school funds out of state

Third Future Schools, which manages the Austin district's struggling Mendez Middle School, is denying reports by Spectrum News that an investigation by the cable news company has uncovered millions in Texas public education money that the charter school company allegedly funneled to campuses it oversees in Colorado, where the charter network is based.

The report has drawn outrage from Texas Democratic lawmakers who are demanding an investigation into the network's finances. Texas education officials have promised to research the allegations, though they insist they've found no evidence of mismanagement.

Spectrum News in Dallas reported this week that Third Future supplemented its cash-strapped Colorado campuses' budgets with money from the charter network's general fund, which includes Texas education funding. The report reviewed financial records, audits and network board meetings.

Third Future runs Mendez Middle School under a state program that allows districts to bring in charter schools to turn around chronically failing campuses, in part to avoid more aggressive state sanctions, such as a district takeover.

The company was founded in 2015 by Mike Miles, who left Third Future in 2023 when the Texas Education Agency appointed him to run the Houston school district. The TEA last year launched a takeover of Houston's 189,000-student district over academic campus failures after years of legal snarls.

In a statement Wednesday, Third Future denied any Texas education money was used to subsidize schools it oversees in Colorado.

“Each of our state networks oversees the funds for that state, and they do not cross from one state to the other,” company officials said in the statement.

Most paper checks and bills are addressed to the company’s central office in Colorado but are deposited in separate bank accounts for each school, according to the statement.

The network also charges administrative fees to each school to provide support for its central office such as payroll services, human resources and accounting, according to the network.

“All of our audits have been clean — the highest standard that can be met in public accounting,” the company said.

How Third Future manages Mendez Middle School

Of the 223 students enrolled at Mendez Middle School in the 2022-23 school year, 88.8% were Hispanic, almost 60% were emergent bilingual or English learners, and 91.5% were economically disadvantaged, according to TEA data.

The school hasn’t met state academic standards since 2014, and in 2018 the district contracted charter company T-STEM to manage the school. After faltering improvement, the district in 2022 replaced T-STEM with Third Future.

In addition to Mendez Middle School, the charter company operates Texas schools in the Midland, Ector County, Jasper and Beaumont school districts.

The Spectrum article mentions Mendez Middle School as well as campuses in Midland and Ector County as three of Third Future's eight Texas campuses.

Though the charter network doesn’t create an audit specifically for Mendez Middle School, in a 2023 audit it released its Texas schools' basic financial statements.

The audit listed a $4.6 million budget for Mendez Middle School with a $78,272 deficit. The bulk of the school’s budget, $2.7 million, was spent on salaries for instructional staff. The charter network also spent $438,243 on administrative salaries and benefits; $631,201 on administrative support costs; $357,316 on supplies; and $253,062 on professional services, according to the audit.

The June 30, 2023, document showed a $2.7 million deficit on a $25.9 million budget for its Texas schools combined, and it breaks out budgets for the Ector College Prep in Odessa, Sam Houston Collegiate Prep Elementary in Midland and Mendez Middle School.

Schools covered by Third Future's agreements under Texas Senate Bill 1882 don't receive state funding like traditional charter schools, which are public schools and get state funding. Texas school districts aren't prohibited from partnering with an out-of-state charter network, according to a statement from the TEA.

The charter is responsible for staff, curriculum and school-level decision making, while the district holds the charter accountable for academic and financial performance, according to the TEA. The state conducts annual audits, according to the TEA.

The Texas Public Charter Schools Association, a nonprofit charter school advocacy group, has called for transparency and clarity on Third Future's use of state education money.

"Third Future’s schools in Texas are 1882 partnerships, which means local ISD boards authorize them and approve all financial arrangements, including that Third Future has a designated bank account for each of its Texas school campuses specifically to prevent any comingling of funds," according to an association statement.

The Austin district collects all of the state and federal funds for Mendez Middle School, keeps a small portion for the cost of some district services, and it sends the rest to Third Future's headquarters, the district told the American-Statesman in a statement.

In its agreement with the district, Third Future agreed it would deposit funds it receives from Austin into an account specifically for Mendez Middle School's budget.

Mike Miles' reaction to Spectrum News' report

Miles has denied any wrongdoing and said in a statement to Houston school board members that he welcomes a TEA investigation.

“There is no wrongdoing and not even a specific allegation of wrongdoing,” Miles said. “The report was riddled with errors and does not accurately capture the relationship between the charter management organization and the schools and districts they support.”

Calls for investigation

Since the report was released, lawmakers have called for an investigation into the charter company and some education advocates have slammed state charter policy.

Texas AFT, a union that represents teachers statewide, insisted that while something might not be illegal, it could still be unethical.

"Texas tax dollars belong in Texas public schools, serving Texas public school students, not subsidizing a charter CEO’s private jet or stabilizing a Colorado charter school," President Zeph Capo said in a statement. "Until we can ensure that, we need a moratorium on all new charter schools in this state.”

In March, the TEA placed IDEA Public Schools, one of the largest public charter districts in the state, under a conservatorship after an ongoing state investigation into multiple allegations of financial mishandling, including signing off on millions of dollars to lease a luxury jet.

Rep. Ana Hernandez, D-Houston, on Tuesday called on Texas Education Commissioner Mike Morath to investigate the alleged diversion of public dollars to out-of-state schools.

“The alleged actions of Superintendent Miles are disturbing and raise further concerns about his ability to effectively lead HISD which is currently facing a $450 million dollar [sic] deficit,” Hernandez wrote.

On Wednesday, Morath told Hernandez that he referred the matter to the TEA’s complaints team but that the Spectrum report “left out some significant context.”

“Information in the news story discusses administrative expenditures made to Third Future Schools in support of the academic turnaround of the three campuses it was operating for those districts, but no information was provided in the story that related to the Texas school system fund balance transfers out of state,” Morath wrote in the letter.

The 2023-24 school year was Third Future's second year operating Mendez Middle School. The initial two-year contract with the Austin school district noted it could be renewed for three additional years after reviewing the charter's financial and student performance.

This article originally appeared on Austin American-Statesman: Third Future Schools denies sending Texas education funds out of state