How the Kasich Administration and Ohio State Had Taxpayers Fund Bill Lager’s Private Venture, Then Tried to Cover Their Tracks
Amid growing opposition to William Lager’s consistently failing online charter schools, Mr. Lager found a new cash cow: IQ Innovations, his online learning management company.
Political leaders close to Lager steered at least $2.7 million in public money to help refurbish IQ Innovations, a distance learning platform that Ohio tapped to provide online textbooks and other educational materials used by K-12 schools. The state calls the clearinghouse iLearnOhio.
Governor John Kasich’s first state budget mandated that the digital clearinghouse be housed at Ohio State University but authorized the Chancellor of the Ohio Board of Regents to choose IQ as its outside vendor.
This resulted in a highly unusual arrangement: Ohio taxpayers paid millions to help IQ, a private firm, build a sophisticated technology platform – but the state received zero ownership interest in it.
Despite the state’s generosity, IQ consistently failed to deliver on the system’s promised functionality, records show.
Its failure to perform didn’t matter. IQ had a powerful protector on the inside.
Former Lager consultant John Conley, appointed by the Kasich administration as Vice Chancellor of Educational Technology for the Board of Regents, was tasked with overseeing the project. Conley helped keep public money flowing to IQ Innovations and he helped sideline whistleblowers who tried to hold IQ accountable, according to public records.
In March 2014, the Board of Regents decided it would seek a replacement for IQ. The Regents did not make the decision public, and the clearinghouse operates today but is in transition. Soon after the Regents decided to replace IQ, Conley abruptly resigned.
Although Lager is the CEO of IQ Innovations, he is best known as the founder and operator of the Electronic Classroom of Tomorrow (ECOT), a chain of consistently failing online charter schools. Many Republican policy makers have long tolerated the schools’ terrible academic performance and long benefitted from Lager’s campaign cash. In the past few years, however, some Republican leaders have helped pass much-needed charter school reforms, but Lager and his team of lobbyists continue to try and weaken them.
From 2010 to 2015, Lager, employees of his charter-related companies and his long-time lobbyist, Bob Klaffky, contributed more than $1.5 million to campaign accounts for John Kasich, state legislators and other GOP candidates and committees that support them.
The big winners include Republican leaders in the Ohio House and state Senate. Before retiring as Ohio House Speaker, Bill Batchelder received $46,200; new Speaker Cliff Rosenberger received $47,343. And as Kasich first campaign for governor heated up in 2010, IQ Innovations gave the Republican Governors Association two contributions totaling $153,649. Batchelder’s firm now lobbies for Lager’s businesses.
Kasich’s ties to Lager run deep. A band started by ECOT students has performed at both of his inaugurations, and although Kasich shuns high school graduations, he delivered ECOT’s 2011 commencement address.
“You will have had no other speaker more committed to the ECOT idea than Governor Kasich…. With his help, we see nothing but clear sailing,’’ Lager told the graduates.
A ProgressOhio investigation into the IQ project unearthed new information that shows how the strange deal was hatched to benefit Lager’s business interests. This report examines when and why the deal began to unravel and the roles played by the Kasich administration, Ohio State University and the Ohio Board of Regents.
Among the main findings:
- Kasich laid the foundation for the debacle in his first state operating budget when it mandated that the clearinghouse be re-located at Ohio State University but authorized the Chancellor to select the vendor. The same budget increased the governor’s leverage over the Chancellor by making him an employee at will, ending a system that only allowed removal for inefficiency, dereliction of duty or corruption and giving Kasich authority to fire the Democratic Party Chancellor he inherited;
- Since 2012, taxpayers have spent more than $5 million to improve, staff, oversee and investigate IQ’s improved – but still flawed – distance learning clearinghouse that’s known as iLearnOhio;
- When it became clear that IQ could not deliver what it had promised, the Chancellor of the Board of Regents, Kasich appointee, announced in January 2013 that taxpayers would pay IQ $1.2 million for “enhancements’’ to the platform;
- The price tag included $167,401 f or one “ enhancement ” to have a single log-in for all systems. IQ responded by simply adding a hyperlink to Google Docs;
- Conley, as well as OSU leaders, were warned on at least two occasions that the Board of Regents had limited leverage to encourage performance because it had no contract with IQ. It never got one;
- Top-tier publishers such as Pearson and BrainPop, eager to add their textbooks to Ohio’s digital library, complained that IQ Innovations was missing deadlines, failing to show up for meetings and not returning calls. McGraw Hill eventually gave up on the project, citing IQ’s failure to produce a business plan;
- By December 2013, a high-ranking Board of Regents employee sent higher-ups an email stating “there are no textbooks in the iLearn repository nor are any publishers under contract to provide them. …. The BOR (Board of Regents) has no contract with the vendor, IQ…. Therefore we are on tenuous legal ground and we have no leverage to encourage performance…. Many bugs remain to be fixed….”
- Even as problems with publishers and performance continued, IQ received an additional $1.6 million in state money for an eTextbook pilot project administered by the Board of Regents. House Bill 59, Kasich’s second state budget, earmarked $6 million over two years for the textbooks but required them to be purchased “through the state’s electronic distance learning clearinghouse.’’ The payments were made between July 28, 2014 and June 30, 2015, and resulted in Lager’s company getting more than half of the first year’s eTextbook allotment;
- Mid-level OSU employees responsible for trying to hold IQ accountable grew increasingly frustrated, with many of the more persistent critics uninvited from important meetings, disciplined or simply re-organized out of their jobs;
- Three of the employees filed 2014 whistleblower complaints with OSU that singled out Conley among the main offenders. OSU found the whistleblowers provided “credible information of significant retaliation,” but could not make a final determination, saying they lacked jurisdiction to interview Conley or other Board of Regents employees. The report states that they did not try to interview them. Conley resigned before the investigation concluded.
Issues raised by the whistleblowers, and not properly investigated by OSU, prompted ProgressOhio to launch its own investigation. While doing so, we learned that Ohio’s Office of Inspector General launched an investigation following receipt of a related whistleblower complaint. We welcome the IG’s interest in this matter and are willing to provide his office with any information we have that could be helpful.
An OSU spokesman said the university is fully cooperating with the IG’s probe.
Records obtained during our review show that IQ’s main taxpayer-financed protector was John Conley, appointed Vice Chancellor in April 2011 – three months after Kasich took office. Ethics complaints filed by the whistleblowers state that Conley previously worked for Lager.
Public records show that although Conley was paid by the Board of Regents, he frequently looked out for
Lager – not Ohio taxpayers. Some examples:
- Director of eStudent Services Brad Henry said in an email that he was “scolded by John Conley’’ for attempting to recruit White Hat Management, a charter school competitor of ECOT’s, for an upcoming conference. The 2013 conference, intended to debut the new clearinghouse, was supposed to be opened to all K-12 schools – White Hat included.
- Conley told colleagues working on the IQ project not to collaborate with Battelle, an internationally acclaimed research and development non-profit based in Columbus, according to an email. Employees surmised the Conley wanted to punish Battelle for hiring Eric Fingerhut, the previous Chancellor appointed by Democrat Ted Strickland.
While Chancellor, Fingerhut sought proposals for a distance learning platform. In 2010, he picked Blackboard, Inc., an IQ competitor, for the job. Also in 2010, IQ Innovations dumped $153,649 into the Republican Governors Association. That was the same year of Republican Kasich’s first run for governor.
Fingerhut later fired Blackboard. His successor, Jim Petro, hired IQ.
In an interview with ProgressOhio, Petro said he was responsible for hiring Conley but cannot remember if the governor’s office recommended him.
“Many of the higher-level people were recommended by the governor’s office,’’ Petro said. “I don’t know if John was one of them.’’ He did point out that Conley had worked for him when he served as Ohio’s Auditor and Attorney General.
Petro also said he remembers little about why he selected IQ without issuing a new request for proposal, which is customary.
“It must have been at the recommendation of the technical staff,’’ Petro said. “That’s how these things work. The staff makes recommendations and the executive quizzes them about it.’’
Conley, who was Vice Chancellor of Education Technology, did not return calls.
In a Ma r ch 26, 2012, letter announcing IQ’ s selection, Chancellor Petro said his predecessor picked Blackboard but IQ finished a strong second. Among IQ’s main strengths, Petro wrote, “the point that IQ would provide the technology for free and only recoup user fees.’’
Nine months later, it was free no more.
IQ was first developed for ECOT, Lager’s online charter schools. Back then, it was a state-of-the-art platform but was outdated by the time Petro brought them in.
On its website, ECOT boasts about IQ, saying it is “recognized by educators throughout the United States as delivering superior learning to students online and facilitating the highest quality teaching experience for students.’’
Since IQ’s affiliation with iLearnOhio began in 2012, IQ has been plagued by problems. A 2012 critique characterized the product as “very old school.’’
By mid-2013, problems with IQ’s performance mounted, according to a series of emails. One 2013 email states that IQ promised “a 30-day fix for any defect with the system. The current time for any defect is 107 days.’’
In September 2013, Brecksville-Broadview Heights schools evaluated the IQ system and four competitors. IQ is the only one that received a “Poor” rating. Among the criticisms: “Forums … currently require a teacher to follow an 11-step process just to start a forum.’’
A 2014 email: “Testing environment outside production does not exist, vendor is delivering fixes without testing with iLearn system. Updates to systems are pushed into production without providing space or time for system testing. As a result, defects are exposed to schools and teachers.’’
Another email explains how the glitches are impacting teachers: “Examples include calendar buttons with no functionality, a selection for Grade Item Worksheet returns page not found, and an Option button inside of Class Roster returns page not found.’’
Despite the turmoil, there were times when those working on the project believed the distance learning platform would transform education and they hoped the upcoming OH-TECH conference would spotlight iLearnOhio, and IQ. The conference was put on by the Ohio Technology Consortium, the technology and information arm of the Ohio Department of Higher Education.
In a July 2013 email, Henry reported great interest in iLearnOhio from “major tier 1 and 2 research universities,” as well as “several million in potential research projects.” He outlined plans for the OH- TECH conference, and later informed colleagues of Microsoft’s interest in being a conference sponsor, Battelle’s plan for an educational movie premier and the OSU medical school’s interest in being a presenter.
But problems outpaced progress.
In an October 2013 email, Woodrow Carter from Pearson, a multinational publishing company, asked IQ and Conley for a progress report from a meeting held two months earlier. “The Pearson team has identified superb digital content and stands ready to deliver it. However, the process has stalled and various requests for more substantive discussion have not been answered…. We still do not have an understandable expectation of scope, sequence, or specifics on how to deliver our content,’’ he wrote.
In an interview with ProgressOhio, Carter said Pearson encountered no similar problems in other states
“In other states, we worked directly with departments of education,’’ Carter said. “Ohio was different. We had to go through a third-party vendor and getting meetings with them wasn’t easy.’’
By December 2013, many close to the project were clearly frustrated. Greg Davidson, who oversaw eStudent Services for the Regents, sent this email:
- Currently, there are no textbooks in the iLearn repository nor are any publishers under contract to provide them.
- The BOR (Board of Regents) has no contract with the vendor, IQ. To date, we have not received a draft to review. Therefore we are on tenuous legal ground and we have no leverage to encourage performance.
- Many bugs remain to be fixed in both the LMS (Learning Management System) and the portal dating back to the enhancements contract.
The failure to sign up any publishers, coupled with other problems with IQ, forced organizers of the long- planned OH-TECH conference to change its focus.
“The original plan … was to highlight iLearnOhio,’’ Manager of the Project Management Office Tony Kutlu wrote in a January 2014 email. “The booths surrounding OH-TECH were all aligned with iLearnOhio. When it was realized that the Market Place did not have any eTextbooks it was decided to change the focus of the conference to prevent any negative implications that could be assumed by the lack of publisher participation.’’
In 2014, the Ohio Board of Regents finally decided it was time to get rid of IQ Innovations – two years and about $5 million later. The tally includes money that directly flowed to IQ, the salaries and benefits of state employees who worked on the project and money for the internal investigations into whistleblowers’ complaints.
The Board of Regents “made the decision that they were not going to execute a contract with IQ,’’ Davidson wrote in a March 16, 2014, email to Ohio Resource Center Director Nicole Luthy. Sometime in the fall, the entire project will be rebid through another RFP.’’ The reason Davidson gives for the decision: “the project should have been rebid all along and not awarded as it was after Blackboard was fired.’’
In response to ProgressOhio inquiries, OSU spokesman Chris Davey called the clearinghouse “a valuable component of the state’s educational infrastructure,’ and said, “During the 2014-15 academic year, over
745,000 visitors accessed content disseminated from the clearinghouse.’’ OSU’s contract with IQ expired on July 31, 2013, Davey said. The university has recently launched a new web portal, Spot On, “which features reviews and product information for digital classroom resources for Ohio schools.’’
OSU’s complete written responses can be found in Appendix A.
Davey went out of his way to note that “iLearnOhio is administered under the director of the Ohio Board of Regents.
It’s worth noting that the decision to no longer contract with IQ comes under the direction of a new Chancellor, John Carey, and a new legal counsel, Michelle Chavanne.
IQ’s big breaks came under their predecessors, with major help from Governor Kasich.
With the help of Bob Klaffky, a long-time adviser to Kasich and long-time lobbyist for Bill Lager, Kasich’s first state budget, House Bill 153, required a digital learning clearinghouse to be housed at OSU but required the Chancellor to choose its outside vendor and adopt the technical specifications needed for it to function properly.
At the time, the Chancellor was former Ohio Attorney General Petro, a man so close to Bill Lager that Petro is thanked in the prologue of Lager’s book.
Soon after Petro became Chancellor, Lager confidant John Conley joined the Board of Regents as Vice Chancellor. In Conley’s new role, he oversaw the technical specifications of the newly mandated distance learning clearinghouse – and he looked out for Lager.
In addition to laying the foundation for IQ, Kasich’s first budget also created the Ohio Digital Learning Task Force which was charged with developing “a strategy for the expansion of digital learning,” including the strategy for iLearnOhio. One of the men Kasich appointed to the task force was Scott Kern, Chief Financial Officer at the Electronic Classroom of Tomorrow (ECOT), Lager’s chronically failing online charter schools.
Kern is now the CEO of Altair Learning Management, Lager’s school management firm that ECOT pays to oversee its day-to-day-business operations.
So one of Lager’s companies (IQ) got a sweetheart deal from the Kasich administration to implement iLearnOhio; the CEO of another Lager Company (ECOT) was tapped by Kasich to sit on a task force to define the strategy for Ohio’s online learning initiatives. The taxpayers helped to build IQ, and IQ sold the online-learning platform to ECOT – and the taxpayers paid for it by funding the online charter schools.
Since 2012, Ohio taxpayers have paid IQ Innovations $65,611,111 for curriculum services for ECOT students, according to state audits.
In February 2014, three whistleblowers filed complaints with OSU’s Office of University Compliance
and Integrity. They alleged retaliation for their efforts to bring IQ into compliance, and they also provided OSU information about the costs associated with IQ’s failures. In its final report, the compliance office said it “limited our review to whether the concerns raised are protected under OSU Whistleblower
Policy,” and did not look into the broader allegations of the millions of misspent public money that went to a politically connected company.
Also in February 2014, OSU lawyer Michael Mitchell and OSU lobbyist Tom Walsh met at the Statehouse with Scott Milburn, Governor. Kasich’s, communications chief, records show. The topic: IQ and Lager.
The governor’s office did not respond to a request for information about what transpired at the meeting.
OSU’s internal investigation was finalized in May 2014 but did not make news until September 2015 when the blog, Plunderbund, wrote about it and reported that OSU found the whistleblowers’ allegations credible but did not reach a final determination.
A review of OSU’s investigatory file, obtained through a public records request, raises serious questions about its scope.
It shows that whistleblowers clearly identified Vice Chancellor Conley as the person most responsible for covering up IQ’s poor performance. It also details concerns over millions of dollars in wasted money, potential conflicts of interest and the retaliation they faced for trying to hold IQ accountable and for cooperating with the investigation by OSU’s compliance office.
Investigators called the whistleblowers’ complaints “credible” but added, “we cannot draw conclusions about their allegations without investigating Board of Regents employees, which is beyond the scope of our mandate.’’ Investigators didn’t even ask Conley for an interview.
Although investigators said they lacked jurisdiction over Board of Regents employees, their report lists examples of how Conley’s reach extended into OSU – even though he did not work for OSU. They include:
- “While it does not appear that any OSU employees directly report to John Conley, interviews and documentation suggest that he is often involved in personnel decisions related to OSU employees…..’’
- “Kevin Wohlever stated that he consulted Conley … when he decided to dissolve the Project Management Office, a decision that removed several responsibilities from OSU employees…. However, Wohlever did not discuss his decision with Dr. Whitacre, despite stating that he directly reports to her.’’ Dr. Caroline Whitacre serves as Vice President of Research at OSU. Wohler is OSU’s Director of Supercomputing Operations.
- “Similarly, Complainant 1 stated that Conley directed him/her to stop inviting Complainant 2 to iLearn steering committee meeting after Complainant 2 criticized the vendor, IQ.”
- “An OSU employee’s written reprimand letter referenced Conley’s recommendation for corrective action.’’
Davey defended the scope of the investigation and said a follow-up investigation included “access to Regents staff and found insufficient evidence of retaliation as it relates to university policy.’’
Finally, the Compliance report recommended this:
“University leaders should engage Board of Regents leadership about these issues and work to address the concerns raised about IQ, possible retaliation, and the governance structure of OH-TECH.”
Absent from the recommendations: Having an independent investigation into allegations of misspent public money and circumstances that caused it.
Answers provided by Chris Davey.
Here are your answers, Sandy. Please let me know if I can be of further help with this.
Feb. 23: Progress Ohio questions about IQ innovations contract
- What is the status of the IQ agreement with iLearn. On March 16, 2014, Greg Davidson at the Regents decided “they were not going to execute a contract with IQ. The BOR wants OSU to contract with IQ for iLearn until the end of this calendar year. Sometime in the fall, the entire project will be rebid through another RFP. The BOR’s key reason is that the project should have been rebid all along and not awarded as it was after Blackboard was fired….”
ilearnOhio is a comprehensive e-learning platform funded by the Ohio General Assembly to ensure that Ohio students have access to high-quality online courses. ilearnOhio is administered under the direction of the Ohio Board of Regents by the Ohio Resource Center, located at the College of Education and Human Ecology at The Ohio State University. This statewide platform includes a searchable repository of standards-aligned educational content (courses and digital resources), an e-commerce marketplace, and a learning management system to facilitate the delivery of course content from multiple providers to various end users. The iLearnOhio project has been a valuable component of the state’s educational infrastructure. Since 2011, iLearnOhio has enhanced teaching and learning opportunities in many Ohio school districts by providing access to thousands of free digital resources, and support for teachers to technology and digital content in K-12 classrooms. During the 2014-15 academic year, over 475,000 visitors accessed content disseminated from the clearinghouse.
Due to changes in state funding, we are working with our partners to transition the program and ease the impact on users. Ohio State has continued to build on the work of its Ohio Resource Center to recently launch a new web portal called Spot On, which features reviews and product information for digital classroom resources for Ohio schools.
- Has OSU entered into a contract with IQ? If so, when and for what?
Please see attached contract. Note that this contract regarding iLearn expired on July 31, 2013. Please contact us if you have questions.
- I notice in the compliance report into the whistleblowers’ complaints that OSU said it had no jurisdiction to interview the Regents so it didn’t try. I assume the investigators could have asked Conley to sit for an interview. Why was that not done?
Ohio State University investigators do not have jurisdiction to investigate other state agencies. Our compliance office highlighted issues and recommended that university leadership engage Board of Regents leadership about these concerns. After the university did so, Ohio State University human resources investigators were given access to Regents staff and found insufficient evidence of retaliation as it relates to university policy.
- Several OSU employees told me they have been interviewed by the Ohio IG’s office over the dealings with IQ. Is the university aware of this investigation?
Yes, we’re aware of the investigation into these issues and have been cooperating fully.
- Based on my research, the taxpayers have paid at least $5 million to help with the IQ platform. My tally includes $1.2 million in “enhancements,” $1.6 million for the eTextbook pilot, LOTS of staff time was devoted to trying improve its functionality, the cost of the internal probe and assorted other cost. So it looks as if we paid to help build a private company’s digital platform but the state has no ownership interest in it. Is that a correct characterization? If so, why would OSU agree to that kind of arrangement?
As noted in the answer to question 1, ilearnOhio is administered under the direction of the Ohio Board of Regents.