By Anthony Cody.

Teacher retirement funds represent the largest amounts of money under the control of working educators. The California State Teacher Retirement System (CalSTRS) is the second wealthiest retirement fund in the nation, with $179.4 billion in assets.

CalSTRS counts among its many investments a major stake in several enterprises that are working against the interests of California teachers and students. According to this listing from June of 2015, CalSTRS owns 154,838 shares of K12 Inc, valued then at $1,959,000. (The shares have since dropped in value by about $20%).

K12 Inc is the nation’s largest chain of “virtual” charter schools, which operate by enrolling mostly vulnerable students and homeschoolers in online courses. Recent research has confirmed that these schools are delivering very poor results. This study conducted by CREDO found that:

More than two-thirds of online charter schools had weaker overall academic growth than similar brick-and-mortar schools. In math, 88 percent of online charters had weaker academic growth than their comparison schools.

On average, online charter students achieved each year the equivalent of 180 fewer days of learning in math and 72 fewer days of learning in reading than similar students in district-run brick-and-mortar schools.

This confirms the findings of a 2012 study focused on K12 Inc in particular which found that student learning and graduation rates were low at these schools.

The mean performance on state math and reading assessments of K12-operated virtual schools consistently lags behind performance levels of the states from which the schools draw their students.

Across grades 3-11, the K12 schools’ scores were between two and 11 percentage points below the state average in reading.

In math, K12 students score, on average, between 14 and 36 percentage points lower than students in their host states, with the gap increasing dramatically for students in higher grades.

The on-time graduation rate for the K12 schools is 49.1%, compared with a rate of 79.4% for the states in which K12 operates schools.

Living in Dialogue published an exclusive report from a teacher at a K12 Inc virtual charter two years ago. Teacher Darcy Bedortha wrote:

I believe K12 Inc. targets poor communities and economically struggling regions; they are easily influenced because they are desperately seeking alternatives to devastatingly under-funded schools. These financially strapped schools are being further bled by the exodus of students who are lured by what I now see are empty promises of marketing experts at K12 Inc. It is a vicious cycle in which, as far as I can see, no one but the corporate profiteers are winning, and that is no wonder to me: K12 Inc. has worked closely with the American Legislative Exchange Council, which has lobbied extensively for draft legislation to expand virtual education in 39 states or territories, potentially further crippling the financial status of public schools whose funds they siphon.

K12 Inc also operates under the name of Fuel Education, which recently was awarded a contract to deliver online high school courses for the Palos Verde School District in California. Notes from the Board meeting there state:

The Educational Services Department administrators and Online Committee members have come to consensus and are recommending a FuelEd LLC’s product to facilitate the implementation of an online program.  To that end, District and school administrators are requesting that the Board review and approve the FuelEd contract, spanning March 1, 2016 through August 31, 2017.  Course offerings will be determined, based on the direction of the curricular program.

It appears that CalSTRS is investing in a business that could take work away from the very teachers that pay into its coffers.

CalSTRS also holds 258,922 shares in Corrections Corporation of America, one of the nation’s largest private prison companies. On June 30, these shares were worth $8,565,000, but have since dropped by about 10%. This organization contributes to political leaders who are “tough on crime.”

This report from the Economic Justice Institute states:

Huge profits from the warehousing of human beings create perverse incentives and hinder efforts to reform sentencing laws, emphasize rehabilitation goals, and reduce the prison population. Private prison contracts routinely include “lock-up quotas” that require state governments to maintain a minimum level of occupancy or pay a penalty for uninhabited beds. Private prison companies fund expensive lobbying efforts to influence state criminal policies. As Corrections Corporation of America explained in its 2010 annual statement, “The demand for our facilities and services could be adversely affected by . . . leniency in conviction or parole standards and sentencing practices.”

In 2013, I sent a letter to CalSTRS expressing my distress at the investment of my pension funds in the private prison industry. Today I searched the CalSTRS web site and found this document which is titled “Investment Policy for Mitigating Environmental, Social and Governance Risks.”

It states:

As a significant investor with a very long-term investment horizon and expected life, the success of CalSTRS is linked to global economic growth and prosperity. Actions and activities that detract from the likelihood and potential of global growth are not in the long-term interests of the Fund. Therefore, consideration of environmental, social, and governance issues (ESG), as outlined by the CalSTRS 21 Risk Factors, are consistent with the Board fiduciary duties.

Unfortunately, the 21 Risk Factors do not directly address investments in predatory online schools that are displacing the public schools where CalSTRS members work. Nor do they address the exploitive private prison industry. But there is some precedent for CalSTRS taking social responsibility concerns seriously. In 2013, following the shootings at Sandy Hook, the Investment Committee of CalSTRS voted to divest from assault weapons manufacturers. Sharon Hendricks is the chair of the Investment committee, and emails regarding this issue can be sent to her attention at newsroom@calstrs.com.

What do you think? Should teacher pension funds be investing in online charter schools and profit-making prisons?