TEXAS — At a time when public schools across Texas battle huge budget deficits and drastic cuts, Spectrum News has uncovered millions of Texas public school tax dollars being diverted out of state. The man believed to be responsible is Houston Independent School District Superintendent Mike Miles, whose network of charter schools in Colorado is in need of cash.

In schools all across Texas, dedicated teachers and panicked parents speak out in passion and frustration.

“The state of public education in Texas is dire,” said Ovidia Molina, president of the Texas State Teachers Association. “We have educators leaving the profession. We have schools that are talking about closing from all parts of our state.”  

One of the largest budget deficits in the state is at Houston Independent School District.

That’s where newly appointed Superintendent Mike Miles has called for dramatic cuts to offset a $450 million budget shortfall. Miles was appointed by Texas Education Agency Commissioner Mike Morath last summer to take over and turn around the struggling school district. 

Ten years before he took over at Houston ISD, Miles spent three years as the superintendent of the Dallas Independent School District. When he left Dallas in 2015, Miles started three charter schools in Colorado called Third Future Schools.

According to both internal school records and the nationally recognized school rating agency School Digger, all three schools have since struggled with performance, enrollment and finances.

Records provided to us by TFS through open records requests reveal Miles was forced to close one of his schools, Coperni 2, last summer. The K-8 school in Colorado Springs was plagued by declining enrollment. The closure left the school with $5 million in unpaid bond debt. 

The Coperni 2 financial bind was discussed at a Third Future School Board meeting via Zoom last summer after Miles took over at Houston ISD, yet Miles was still at the meeting acting as a consultant.

According to payment records, Miles earned $40,000 consulting for TFS last year. 

During the meeting, Miles urged his old board of directors to find the money and pay the debt.

“It’s now becoming untenable,” Miles said at the meeting. “We have to subsidize to the tune of maybe $500,000 per year if it only has 180 kids or so. So, I think the time is right to do what the administration is asking to do.”

In 2020, around the time his financial troubles were beginning in Colorado, Miles began expanding his charter school network to Texas. First, Midland Sam Houston Elementary, then Ector College Prep in Odessa, then Austin Mendez Middle School. But by the end of the 2023 school year, as he was taking over in Houston, Miles’ three Texas schools were nearly $2.7 million in the red.

So why were Miles’ new Texas schools losing money? Third Future Schools’ 2023 audit shows of the $25 million public tax dollars being spent on Miles’ three Texas schools, $15 million was spent on teachers and supplies. The other $10 million, about 40% of the budget, was spent on unspecified administrative costs and services.

Spectrum News made multiple requests over several months for a detailed accounting of those administrative expenses. Third Future Schools never responded. However, included in publicly available financial audit records were the auditor’s notes revealing the deficit was “caused by the liabilities of other Third Future Network schools” outside of Texas and to “Third Future Schools Corporate” in Colorado. 

On Wednesday, Third Future Schools published a statement on its website to clarify “in light of recent media coverage.” It said the system conducts independent audits to insure financial accountability and transparency that reached “the highest standard that can be met in public accounting.” The statement says “no Texas funds have ever been diverted to subsidize schools in Colorado” and explained the flow of funds regarding some of the administrative fees questioned in our report.

The statement says:

“Since our central office is located in Colorado, most paper checks and bills are sent to this location and then deposited into separate bank accounts. Each school has its own bank account. A check meant for a Texas school may arrive in Colorado, but it is promptly deposited into that school’s Texas bank account.

“Some of the confusion in the media coverage stems from the fact that the network organization applies administrative fees to all schools in order to provide centralized support services, such as payroll, accounting, human resources, and school leadership. This is standard practice for such partnerships.”

The full statement is available here.

On Friday, TFS Colorado officials declined to answer our specific questions. Spectrum News requested and received from TFS an audio recording of the investors' call. In the recording, a TFS official confirmed Colorado charter school deficits were being offset, in part, by money coming from their charter schools in Texas.

Again, TFS Colorado officials declined to provide us with an explanation of why so many Texas public school dollars were being transferred to school operations in another state. Spectrum News requested and received from TFS an audio recording of the investors' call. In the recording, a TFS official confirmed Colorado charter school deficits were being offset, in part, by money coming from their charter schools in Texas.

“We’ve been supplementing that school with the General Fund,” said Renea Ostermiller, then TFS’s chief of finances. “Whether they are in Colorado or whether they are in Texas or whichever state they are in, (a network fee) is assessed and then if the specific school needs funding, then the network supplements them.”

Spectrum News obtained copies of two checks for more than $1 million each, sent from Miles’ charter school in Odessa, paid and addressed to Third Future Schools in Aurora, Colorado.

Our attempts over the past five months to reach Miles for an explanation of the payments and a response to our findings have been unsuccessful. Miles referred us to Third Future Schools Executive Director Zach Craddock. We sent Craddock a 23-question list detailing our findings. Craddock declined to respond.

After our report aired, Miles spoke with the Houston Chronicle and he denied any wrongdoing.

“How Third Future Schools operates is how a lot of other charter networks operate,” Miles said. “And if you operate in more than one place and more than one state, then, of course, there is money going from the schools legitimately to the network.”

Following our report, education advocates and a Texas state lawmaker called for an investigation. Miles said he welcomes it.

We also shared our findings with school finance expert and former Texas state Rep. Paul Colbert. Colbert says Texas public schools should not be spending more money than they take in. He also says TFS operators should not send Texas tax dollars out of state. 

“I was the budget chair of education for eight years and research director for the Senate Education Committee for five years,” said Colbert. “My understanding is that it is not legal in Texas for money from a school district in Texas to educate students in other districts in the state let alone in other states.”

Ovidia Molina with the Texas State Teachers Association has also reviewed the Spectrum News findings and feels the evidence is alarming. Molina is calling on state lawmakers to conduct a formal investigation.

“I don’t know where it says that we can take our public-school money and move it to another state,” said Molina. “But if it is legal, it’s wrong and needs to be changed.”

UPDATE: After becoming aware of the claims, the Texas Education Agency’s commissioner of education issued a special investigation notice to each Partnering District that launched a special investigation.

On Oct. 15, the TEA concluded that the school districts and their operating partner, Third Future Schools – Texas, have not violated any applicable Texas laws and no further action will be taken at this time. “The allegations… either reference requirements that are inapplicable to the partnership or cannot be substantiated, or have been proven to be false,” the report states.

EDITOR'S NOTE: The original story was updated to include comments from Mike Miles. He denies any wrongdoing. (May 15, 2024) 

The story was again updated to include a statement published on the Third Future Schools' website. (May 17, 2024)