A California charter school accused by state auditors of improperly collecting more than $180 million in K-12 funding has sought bankruptcy protection following revelations of lavish and questionable spending. The expenses included a $1.96 million San Diego retreat, an $80,000 conference trip to Maui and a Paris technology conference flight for an employee whose mother served on the school’s board.
Highlands Community and Technical Schools filed for Chapter 11 bankruptcy in federal court Sunday as it challenges the state’s substantial funding claim and works to keep its campuses operating.
Based in the Sacramento region, the charter school network serves thousands of adult learners pursuing high school diplomas, career education and related programs.
The bankruptcy filing arrived more than a year after a California State Auditor’s report concluded that Highlands had received over $180 million in K-12 funds it did not qualify for. The investigation also cited millions of dollars in questionable expenses, potential conflicts of interest, hiring issues and inadequate oversight.
Highlands has rejected the state auditor’s conclusions.
“Highlands is taking this step to protect our students and preserve the future of our schools,” Executive Director Jonathan Raymond said in a statement announcing the Chapter 11 filing.
“The reorganization process gives us the best opportunity to remain open and continue serving students while we address the disputed financial claims through an orderly, court-supervised process,” he added.
Although the charter system has entered bankruptcy, Highlands said it does not plan to close. The school is also preparing to operate under a new brand.
“The doors remain open. The lights remain on. Class remains in session,” Highlands said.
In its review, state auditors characterized the school’s financial practices as involving the “unlawful and wasteful spending of public funds.”
One of the audit’s most notable findings involved nearly $2 million spent on a three-day professional development gathering at San Diego’s Manchester Grand Hyatt in August 2023. Highlands defended the expense, saying grant money was used to deliver employee training in what it described as a distinctive and innovative environment.
The questioned spending extended well beyond the school’s California operations.
Auditors reported that Highlands spent $80,000 to send seven employees and a consultant to an Independent Voter Project conference in Maui. The school said the group attended to learn about legislators’ understanding of constituent concerns and to consider ways Highlands could better respond to those needs.
State officials questioned whether the Maui trip served a conventional educational or professional development purpose.
Another expense involved a $2,600 flight to Paris for an employee attending a technology conference. The employee’s mother was a member of the Highlands board.
Highlands said the Paris trip was designed to showcase the school’s in-house technology at the international conference.
The audit also highlighted an especially unusual entry on Highlands’ list of school locations: a professional baseball stadium.
When auditors conducted an oversight visit, they found neither classes nor students being held at the stadium.
Highlands later said it had ended the lease but remained obligated to make monthly payments totaling more than $33,000 through April 2026. The agreement also provided VIP game tickets.
The state auditor identified the stadium lease as another example of the spending and oversight problems surrounding Highlands Community and Technical Schools.
The audit also identified $1,900 for one employee’s hotel stay at the Hilton Waterfront Beach Resort in Huntington Beach for a conference in Long Beach — about 15 miles away.
Highlands said the on-site conference hotel was sold out.
Auditors also questioned $137,900 spent on 6,000 beanies, scarves and gloves as holiday gifts for students.
Highlands defended the purchases as an effort to increase student engagement during the holiday season and show appreciation to students.
Another $8,750 went toward holiday blankets purchased from a vendor whose spouse was a director-level Highlands employee.
The auditor classified both transactions as gifts of public funds.
And in another conflict-of-interest finding, a director-level employee initiated a $1,500-a-month contract with his wife for mentor services for two months.
The employee told auditors he was unaware the arrangement violated the law. In one case, a current executive director told auditors he believed an employee obtained a job at least partly because the employee’s mother sat on the school’s board.
Overall, auditors identified 11 employees who had at least one relative hired by Highlands during their tenure.
Highlands was not eligible for $177 million in K-12 funding it received in 2022-23 and 2023-24, and received another $5 million-plus in overpayments because of problems with its attendance calculations.
Auditors said some attendance data lacked supporting documentation and was of “undetermined reliability.”
The audit also flagged questionable spending, including $147,500 for an internal education game with unclear deliverables, a $60,000 student recruitment contract and $25,860 in high school athletics sponsorship that auditors said lacked evidence of promised marketing. Highlands also donated $50,000 to a legislative caucus foundation, saying it supported training and student outreach.
Auditors found widespread teacher-credential problems, a 51-to-1 student-teacher ratio and a graduation rate of just 2.8% in 2023-24, compared with 86.4% statewide.
The audit also found about 200 employees donated roughly $101,000 to an affiliated foundation, with 109 survey respondents saying they felt pressured to donate.
Highlands says it has since overhauled its leadership and addressed 18 of 19 recommendations.
The school is now seeking bankruptcy protection while fighting the state’s claims and says its campuses will remain open.
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