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Arizona attorney general launches investigation into micro-school company and its partner EdKey Sequoia Choice Charter Online (Click)
Rob O'Dell
Arizona Republic

The Arizona Attorney General’s Office has launched an investigation into microschool company Prenda and its partner EdKey over their relationship, which allows Prenda to educate children at people’s homes with little regulation.

Under the arrangement, EdKey enrolls students in its Sequoia online school and collects charter school funding from the state. The students, however, are taught Prenda's curriculum by “guides” that Prenda hires.

The two companies then split the $8,000 in per-student funding the state provides, garnering each of them millions in revenue.

The arrangement allows Prenda to educate children with little regulation. It doesn’t have to get a state charter, have its curriculum approved by the Arizona State Board for Charter Schools or conduct annual financial audits.
It also provides a powerful financial injection for EdKey, a charter school company that has long struggled with its finances. Nearly 4,600 more children used EdKey's Sequoia online charter school in the 2021 school year than the year before. Many of those students are handed off to Prenda and don't actually use the online charter curriculum. 

Mark Plitzuweit, EdKey's CEO, told The Republic last year that EdKey's deal with Prenda would add between $1.5 million and $1.75 million to the company’s top line this year.

Meanwhile, the coronavirus pandemic and closures of schools have been a boon to Prenda’s enrollment. It now operates more than 400 microschools serving more than 4,000 students, according to spokesman Matt McKenna. That’s up from 80 in 2019.

After The Arizona Republic published an article in September detailing the financial relationship between the two companies and Prenda’s desire to become the “Uber of education,” charter school watchdog Jim Hall filed a complaint with the AG’s office.

Lastweek, Hall said he was contacted by an attorney general fraud investigator who specializes in investigating complex white-collar crimes, cybercrimes, fraud schemes and conflicts of interest.

The investigator also contacted the Arizona State Board for Charter Schools, according to Serena Campas, the board's policy and public relations manager.

The investigator is a criminal investigator for the Attorney General's Office, but it is unclear if the investigation into Prenda and EdKey is a criminal or civil investigation. The Attorney General's Office said it can neither confirm nor deny that an investigation is underway.

In his complaint, Hall said the relationship between the two companies amounted to fraud because EdKey is not providing services. Essentially, EdKey is getting a hefty finder's fee and then passing the students to Prenda without teaching them or providing them a curriculum, Hall said.

The investigator is a criminal investigator for the Attorney General's Office, but it is unclear if the investigation into Prenda and EdKey is a criminal or civil investigation. The Attorney General's Office said it can neither confirm nor deny that an investigation is underway.

In his complaint, Hall said the relationship between the two companies amounted to fraud because EdKey is not providing services. Essentially, EdKey is getting a hefty finder's fee and then passing the students to Prenda without teaching them or providing them a curriculum, Hall said.

Other students that attend EdKey's Sequoia online school get no benefits from the arrangement either, said Hall, who operates Arizonans for Charter School Accountability.

Hall said all EdKey does is provide the state with certifications made by the parents that their children have completed the proper amount of hours each week and pass along their state testing numbers.

"We're actually seeing state money going into a charter school and then half of it being transferred out to a private corporation with no services rendered," Hall said. "And no state curriculum, no oversight, nothing."
The curriculum isn't approved by the Charter Board and the teachers aren't certified, he said.

Plituzweit, EdKey's CEO, did not respond to messages for comment. Prenda declined to comment through a spokesman.

Founded in 2015 and incorporated in Delaware, Prenda has raised more than $7 million from the sale of equity, stock options and warrants since 2017, according to Securities and Exchange Commission filings. More than $6 million of that was issued in May 2020, SEC filings show.

Although the company looks and acts like a school, Prenda founder Kelly Smith said the company is not a school but a "provider of microschools."
"We have a model, an education model, called a microschool," Smith told The Republic last year. "We provide a curriculum and tools and training and support to enable and facilitate the microschool to happen. But our goal is to work with schools as kind of a provider and partner."

Prenda's guides help the children use Prenda's curriculum. But they are not teachers, Smith said. Learning is often conducted at the guide's home.
“Their job is not to deliver content, it’s not to take responsibility for the learning of kids,” Smith said of the guides.

The Arizona Charter School Board has taken the official position that Prenda isn’t a school, but instead a contractor for EdKey.

Campas, the spokeswoman for the Charter Board, said her organization believes the arrangement between the two companies is proper because students in Prenda's microschools have been using EdKey's curriculum. But both EdKey and Prenda have said publicly that Prenda uses its own curriculum.

Despite its oversight role, Campas said the Charter Board didn't have access to the contract between EdKey and Prenda, a document The Republic was able to obtain with a public records request.

Dawn Penich-Thacker, a spokeswoman for Save Our Schools Arizona and a Prenda critic, said the Charter Board's response means they are "looking the other way."

"That's what that answer boils down to," Penich-Thacker said.
Prenda is not a private school, a charter school or a public school. But at different times it operates as all three, drawing taxpayer funding or support for all its different functions.

It teaches public and private school students together in the same classroom, which may not be legal under state law.

"We know that homeschoolers, private schoolers and charter schoolers are all sitting on the same couch in somebody's living room and we're calling that education. What does that mean? We don't know," Penich-Thacker said.

Taxpayers and family's alike deserve an authentic investigation and vetting of what's going on with taxpayer money, she said. The Attorney General's Office can establish a precedent for private companies that are exploiting gaps in state regulation, she said.

"They are exploiting that we don't know anything about them," Penich-Thacker said. "They are deliberately operating in the dark."
Contact reporter Rob O'Dell at rob.odell@arizonarepublic.com or on Twitter @robodellaz.

Charter School Crisis – 87 charter enrollments declined over 15% - a “red flag” for possible closure. 
 
Charter schools gained over 18,000 students in 2021 while districts lost over 55,000 students. Charter online schools were the clear winners, growing by over 16,000 students while three quarters of Arizona charters lost enrollment this year due to the pandemic.  Gilbert Unified laid off 152 teachers because their enrollment declined 5.5% this year.  187 charter holders lost a greater percentage of enrollment than Gilbert and 87 lost more than 15% - the threshold the Charter Board uses as a red flag for being in danger of closing.

Small charter schools are hit hardest by enrollment decline – losing 20 students in a school of 100 is devastating.  Most of the schools losing more than 15% of enrollment however were larger schools – 51 were over 200 students and 24 had more than 400 students.

Twenty-two charters in serious danger of failure are run by three large charter companies:
* Ten Leona Group managed schools lost a total of 775 students, a 27% decline.  Leona Sun Valley High School lost 44% of enrollment this year
* Five EdKey schools lost 804 students, a 32% loss. Sequoia Pathways Academy declined by 47% in 2021
* Seven Imagine schools lost 691 students, 22% less than were enrolled in 2020.  Two West Gilbert Imagine schools each lost 80% of enrollment this year.

These three companies have large real estate holdings that require substantial mortgage payments, forcing the companies to expend much more per pupil on their facilities than the average charter. All three have extensively refinanced their bonds so mortgage payments cannot go down.

Leona and Imagine have already cut classroom spending to the bone.  Imagine spent $561/pupil less in the classroom in 2020 than the average charter and Leona has the lowest classroom spending in the state - $1,176/pupil less than the average. Imagine and Leona can’t cut teachers like Gilbert Unified – they don’t have any to cut. The dramatic decrease in revenue due to enrollment decline puts these schools in real jeopardy of closing.

Most of the other charter holders losing enrollment due to the pandemic do not have national corporate offices to bail them out.  They face real challenges to keep their schools open next year.

Next, we will look at the explosion of growth in five online charter schools and the question of equity, as twice as many additional Whites students enrolled in 2021 as Hispanic students.
 

Pandemic: Segregation Increases as Charter Schools Enroll Twice as Many White as Hispanic Students  (Full report with charts and maps)

The segregation of students in district schools is a reality.  Every year the percentage of poor, special education, and minority students increases in school districts as a result of the flight of white, middle income students to charter schools.

School districts have become increasingly minority as charter schools have exponentially expanded.   White students made up 42.1% of total enrollment in districts in 2010 but by 2021 that percentage had declined to 35.8% of enrollment.

Many of those White students left district schools to go to charter schools.  Between 2010 and 2021 districts have lost 84,000 White students while charter schools have added 36,000 White students.

We recently reported that districts lost 55,000 students while charter schools gained 18,000 students between 2020 and 2021.  The dramatic increase in charter enrollment caused by the pandemic has further increased segregation in district schools.   Districts lost 29,807 White students between 2020 and 2021.  Charters enrolled 8,461 new White students last year, twice the number of Hispanic students.

We speculate that there are two major reasons why more White students enrolled in charter schools last year than Hispanics.   First, there was a large increase in enrollment in online charter schools – education that requires families to have high speed Internet and a computer that may not be available to families living in poverty. 59% of all students in 2021 receiving free/reduced lunch were Hispanic, compared to 22.2% that are White.  

Secondly, White students are much more likely to live near a charter school than Hispanic students.  A quarter of all charter students in Arizona attend schools owned by four large charter companies that are exclusively in middle/upper income neighborhoods – Legacy Traditional, BASIS, Great Hearts, and American Leadership Academy.  There is one school total from these companies in all of South Phoenix, Central Phoenix, Maryvale, Central Mesa, North Tempe, and South Scottsdale, all areas that are predominately Hispanic. (See azcsa,org for a detailed map)

The additional tragedy of the increased segregation of district schools 2010-2021 is the fact that district state revenue has decreased while charter revenue has increased.  Districts with more poor students…more special education students…more minority students…and less money – a purposeful Republican plan that assures increased enrollment of White, middle class students in new, well-funded charter schools.

(Attendance data from October 1 Enrollment Reports available at: https://www.azed.gov/accountability-research/data/)

Next:  We will look at 10 charter schools that gained over 23,000 students this year.
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Pandemic Cripples Public School Districts While Charter Schools Expand
(Full report with charts)
The news that Gilbert Unified laid off 152 teachers due to enrollment declines caused by the Covid 19 pandemic is indicative of the major decline in Arizona public school enrollment in 2021. Arizona public school enrollment decreased by 38,550 students due to the pandemic this year based on the 2020 October 1 Enrollment Report recently released by ADE.  The losses are focused in grades K-6, with preschool and kindergarten taking the greatest hit losing a total of 16,000 students. Grades 1-4 each lost about 2,000 students while grades 5-6 declined by over 5,000 each.  High schools actually gained 236 students overall this year.

Charter schools were the big winners due to the pandemic, gaining an additional 18,000 students this year. Charters averaged about 1,500 new students in grades K-12, adding students in every grade level while the state’s overall enrollment plummeted.

District schools took the biggest hit. While state-wide enrollment declined by 38,550, districts lost over 55,000 students compared with 2020. 16,000 students failed to enroll in district preschool and Kindergarten and grades 1-6 lost an average of 5,000 students. High school enrollment has fared better, losing only 1,700 students in grades 10-12.

Further study is needed to determine the demographics of both the students enrolling in charter schools and those that failed to show up in public districts.



ASU Prep Charter Schools Are Completely Controlled Without Oversight by One Person :
Anna Battle Has Sole Control Over $34 Million in Tax Funds (Full report with documentation)

The corporate bylaws of ASU Prep indicate that one person, Anna Battle, makes all business and educational decisions for the $40 million ($34 million state revenue) charter chain, including setting curriculum, hiring all employees and determining all staff salaries.  Dr. Battle has had no supervision from the ASU Prep Board, in fact the Board does little except set their own meeting calendar and approve budgets as required by law. Anna Battle appears to be the most powerful executive, not just in Arizona education, but of any non-profit corporation in Arizona.

The corporate board of ASU Prep merged with the school board in 2013. Arizona statutes require charter school boards to set the policies of the school, while the corporate board makes the operational decisions for the corporation.

The ASU Prep Board does neither.  Board meeting minutes from July 2013 to February 2021 reveal that the Board has dealt primarily with the board meetings calendar and the required school budgets every year. The Board has only approved six school policies in seven years and has not hired any employees, including the Prep CEO. No purchases were approved, no salaries were set, and no curriculum or instructional programs were discussed 2013-2021. ASU donated $13 million to ASU Prep in 2019 but the Board never discussed it.  ASU halted donations in 2020, requiring classroom expenditures to be cut in half in 2020. Board minutes show no evidence that the Board was even aware of the reduction in teachers in 2020 from 310 to 172 - while enrollment increased.

So, who runs ASU Prep?  The ASU Prep corporate bylaws reveal that all business and educational operations are under the sole authority of the “Senior Official”, the principal executive officer of the corporation. The Senior Official develops all curriculum and assessments, hires all employees and sets all salaries:

Section 7.   The Senior Official.  The Senior Official, or such other title as the Board may designate from time to time, shall be the principal executive officer of the Corporation and shall serve at the pleasure of the Board.  The Senior Officer shall, subject to the oversight of the Board, supervise and control all of the business and affairs of the Corporation including, but not limited to the development and implementation of curriculum, assessments, and teacher evaluation and development. The Senior Official has the authority, subject to the rules as may be prescribed by the Board, to appoint such agents and employees of the corporation as he or she shall deem necessary, and prescribe powers, duties, and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the Senior Official.  In general, the Senior Official shall perform all of the duties incident to that office, and other such duties as may be prescribed by the Board from time to time.

The Senior Official’s selection, retention, and termination must be approved by the University President.

The current Senior Officer is Anna Battle.  She was hired by ASU Prep in July 2018 as the chief leadership development officer, after serving as an assistant superintendent in the Tempe Union High School District.  On August 12, 2019 the ASU Prep Board voted to make her the Senior Official of the corporation, giving her a seat on the Board. The Board did not, however, discuss her compensation.  Each IRS 990 submission made by ASU Prep disclosed that CEO compensation is approved by the Board, but the Board has never discussed any employee’s salary since 2013. Based on the bylaws, Dr. Battle must have set her own salary.  

While Dr. Battle’s salary is unknown, she has supposedly hired ASU Vice President Julie Young to be the Managing Director of ASU Prep (while Battle’s title is Head of Schools).  Julie Young was paid $300,000 in 2020 by the University to manage ASU Prep. Battle also hired ASU Vice President Amy McGrath to be the Chief Operations Officer for ASU Prep Digital.  ASU paid McGrath $275,000 in 2020. By contrast, the superintendent of Mesa Unified (enrollment 59,000) made $236,000 in 2020.  ASU Prep’s total enrollment in 2020 was 3,800 students.

Both Young and McGrath work at ASU’s Educational Outreach Division that is headed by Senior Vice President James Rund.  Dr. Rund is one of five members of the ASU Prep Board and is also the President’s designee as the ASU’s charter authorization director with the authority to make all of ASU’s decisions regarding the charter schools.

There are no policies to guide Anna Battle in her overreaching control of ASU Prep.  Public records requests for ASU Prep policies and procedures resulted in the disclosure of only four documents related to the approval, amendment, and termination of a charter contract.  Based on the ASU Prep bylaws, Dr. Battle has complete control of $34 million in state funds to spend as she alone sees fit, with no policies in place to guide her and with no apparent oversight from the Board or ASU.

It is highly unlikely of course that Anna Battle is making all of the business and educational decisions for ASU Prep and it is far more likely that the University, through VP James Rund and the Educational Outreach division, is running the charter schools – without transparency or regulation from either the ASU Prep Board or the University.

But maybe Anna Battle is in sole dictatorial control of the charter schools. Either way, $34 million in tax dollars are being appropriated without transparency and oversight, making the possibility of fraud and misuse of public funds a real possibility


The Systematic Destruction of Public Education in Arizona
Republicans solved the 2009 budget crisis by starving public districts while financing a flood of new charter schools that were assured increasing budgets every year. (Full report)

The reason you see new charter school buildings all over metro Phoenix while district schools fight to buy computers and maintain aging facilities is the direct result of inequities in funding crafted by the school choice obsessed Republicans in the Arizona Legislature.

 The recession in 2009 resulted in Arizona enacting some of the largest cuts in public education funding in the nation, plummeting Arizona to 48th in per pupil in education spending.  Those cuts were made solely to school districts while charters budgets increased.

The Legislature eliminated $180 million/year in soft capital funding (textbooks, computers, equipment, buses) for districts starting in 2009.  Districts received $463 million in capital funding in 2008 but by 2013 district capital revenue declined to $249 million.  School district revenue for capital expenses is still 22% lower in 2020 than in 2008 and despite recent increases in funding to increase teacher salaries, overall state funding for school districts is still $662/pupil less in inflation adjusted dollars in 2020 than in 2008.

Arizona charter schools were not penalized in the same way – in fact they were awarded additional funding. Charter school per pupil state revenue has increased by 25% since 2008.  Charters received $2054/pupil more state funding than districts in 2008.   That number has increased to $3,495/pupil more in 2020. (Districts receive over 50% of their revenue from property taxes while charters are financed entirely from state education funds)

While the Legislature stripped districts of an average of $172 million in capital funds annually between 2009 and 2020, charter schools were allowed to expand unchecked, costing the state an average of $29 million in additional funding every year, since charters receive about $3,000/pupil more in state funding than districts.  The Republicans solved the budget crisis by starving public districts, while allowing a flood of new charter schools that were assured increasing budgets every year.

The inequity in funding has transferred millions of dollars away from public districts.  In 2008 charter schools had 9% of total enrollment and received 12% of all state education funds.  Twelve year later, charters have 18% of total enrollment but are now extracting over 27% of state education funds.

The bottom line is charter schools have over $1000/pupil more state funds to spend than districts do compared to 2008 - money charters can use to lower class sizes, build new buildings, and buy supplies.  
For example:
  -    Charters owned $511 million in land, buildings and equipment in 2008 - about $5,458/pupil in assets. In 2020 that number increased to $2.475 billion - $12,214/pupil in assets.
  -    The number of students per teacher increased for districts 2008-2020 from 17.6 students/teacher to 18.7 students/teacher as class sizes increased.   Charter schools, on the other hand, reduced the number of students per teacher by 2.5 students – 19.45 students/teacher in 2008 to 17.0 students/teacher in 2020.
  -    Charter schools averaged $176/pupil for instructional supplies in 2020.  Districts averaged $28/pupil for supplies last year.

The loss of state funding for districts means they became less competitive with charters, being forced to raise class sizes, cut programs, and forgo staff pay raises because they had to divert operating funds to fix buildings and buy buses.

Crumbling public schools with low paid teachers, few classroom supplies, and overcrowded classrooms.  New charter schools with small class sizes and ample supplies.  The perfect plan to destroy public education in Arizona.

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Audit Shows BASIS Arizona Schools Increased Losses to $56 million in 2020
BASIS 2020 Audit

BASIS Schools in Arizona went another $2 million in the hole according to their 2020 audit, posting over $56 million in red ink - the highest negative assets of any charter company in Arizona – maybe the world.  The Basis Schools in Texas, Washington D.C., and Baton Rouge are profitable, garnering over $14 million in positive assets, but the entire BASIS operation is still over $40 million in the red in 2020.

BASIS CEO Peter Bezanson sent a letter to parents when news of the huge BASIS 2019 losses made the news last year:
“BCSI is in excellent financial health. Statements and suggestions to the contrary are false. The reality is, BCSI has more than $12 million in positive equity, including the market value of land and buildings…. Our credit rating is unchanged at BB, and S&P Global Ratings has declared our financial outlook “stable.”  BCSI… has taken financial steps (including refinancing to lower interest rates, depreciating assets, etc.) that appear on paper as “debt” but save our schools millions of dollars – funds we’re able to redirect to BASIS Charter School classrooms. It appears these investors know something that certain members of the media do not.” (Bezanson's bold)

BASIS has $210 million in land, buildings and equipment but has over $250 million in debt, according to their 2020 Annual Financial Reports.  Appraisals of the BASIS Arizona facilities (disclosed by BASIS to receive bond financing) show the appraised value of BASIS school facilities in Arizona to be $213,753,000.  Owing $250 million on property worth $214 million is what we ignorant folks call being “upside down” in their mortgage.  

BASIS cut Instructional spending by almost $2 million in 2020, spending about $250/pupil less in the classroom than in 2018.  BASIS teachers average $42,815 a year while the average charter teacher earned $45,914 last year.  But BASIS administrative spending in 2020 remained identical to 2019 - $2,150/pupil when the charter average is $1,660/pupil.

If BASIS was one of us ignorant folks, they would be a family swimming in debt, spending way more than they earn year after year - even after cutting basic expenses (while still sending mom and dad to Hawaii every year?...).  They have refinanced their house several times, using the equity to pay bills.  They have a $225,000 mortgage, but the house is now only worth $200,000.

So…if this family still gets credit card solicitations in the mail, does that mean the banks are confirming that they are in “excellent” financial health?

BASIS cannot refinance their way out of this mess. BASIS has spent $10 million more than their revenue since 2018 operating their schools. That’s not including “paper losses” of depreciation, pre-payment penalties, and loan costs - that’s just paying the bills.  

BASIS is not a dot com that is losing money now, but has great income potential in the future.  The future for BASIS is here…and it is $56 million in the hole and $250 million in mortgage debt.

Mortgage costs can’t be further reduced and classroom spending cannot be cut without affecting the BASIS instructional model.  What to do?  BASIS executives need to maintain a certain standard of living...don’t they?

Arizona taxpayers supported this fiasco with $117 million last year. Is the BASIS real estate empire really the best use of scarce education funds?



The Indictment of Fraud at Incito Charter School is the Tip of the Iceberg
(Complaint filed with the Attorney General)

The Attorney General was granted an indictment against the directors of Incito Schools for fraudulently receiving $560,000 for a grant and then writing checks to employees that the school directors cashed themselves in 2016.  

Our research has shown that Incito’s directors have a long history of using school funds as a personal cash register and have bought over $1.5 in “supplies” for the school of 300 students since 2014, including over $100,000 a year in administrative supplies 2018-2020. By contrast, the four Benjamin Franklin Charter schools (2,860 students) spent $60,562 for administrative supplies total in 2020. Last year Incito supposedly spent $210,000 for classroom supplies - $665/student, the 7th highest in the state.

Incito has no net assets and spends much more for administration other charter schools - $2,463/pupil compared to the $1,665/pupil state charter average.  The red flags of huge supply purchases and high administrative spending in a school that is going broke is identical to circumstances that led to the collapse of the Starshine Academy and Bradley Creemos Academy, both of which fell due to the fraudulent practices of their owners.

The indictment is against the two directors at Incito, Amanda Jelleson and April Black, who were written up by their auditor in 2018 and in 2020 for buying “supplies” for the school and getting reimbursements without proper receipts.  The auditor tested just 6 reimbursements in 2020 and found that 210 receipts were submitted by the directors, including 5 that were actually made using the school debit card.  The auditor also found that proper internal controls were not in place - “...the same individual approved the purchase, made the purchase, and received the purchase”.  The directors simply buy stuff and reimburse themselves with the school’s state funds.

Arizonans for Charter School Accountability filed a Public Monies Complaint with the AG yesterday demanding that the AG and the Auditor General do a complete audit of Incito’s finances 2016-2020 before the directors skip town, like Daniel Hughes of the Bradley Academy did with $2.5 million in state funds.

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ASU Commits the Worst Scholarly Offense - Academic Dishonesty
The single evaluation ASU provides the charter schools it sponsors is based on Colorado statutes
Arizonans for Charter School Accountability
January 29, 2021

The only supervision ASU appears to have over the charter schools they sponsor is a required (ARS 15-183(R)) annual Performance Framework evaluation , the results of which ASU does not make available to the public. (https://asusponsor.asu.edu/sites/default/files/asu-charter-school-annual-performance-framework-phoenix-060319.pdf)

The document was created in 2018, based partly on the performance frameworks of the Arizona State Board for Charter Schools and NACSA Core Performance Framework and Guidance. Neither of these sources utilize Colorado State Statutes as guidelines for compliance, but the ASU Performance Framework sites Colorado law in four sections of the Framework:
-    Conduct of discipline procedures, including discipline hearings and suspension and expulsion policies and practices,   in compliance with CRS 22-33-105 and CRS 22-33-106
 -    Adequate Board policies and bylaws, including those related to oversight of an education service provider, if applicable (CRS 22-30.5-509(s)), and those regarding conflicts of interest, anti-nepotism, excessive compensation, and board composition
 -    Requiring annual financial reports of the education service provider (CRS 22-30.5-509(s)
 -    Compliance with the Financial Transparency Act (CRS22-44-301)

Perhaps ASU utilized Colorado charter school statutes because they require far more transparency and regulation than Arizona State Statutes.  More likely, someone at ASU cut and pasted the document together and never prof read it. A guaranteed “F” in any college course.

The Colorado Financial Transparency Act (CRS22-44-301) sited above requires the following to be reported online for every district and charter school: (https://leg.colorado.gov/sites/default/files/images/olls/crs2020-title-22.pdf)

 -    Annual budgets commencing with the 2009-2010 budget
 -    Annual audited financial reports commencing with the 2009-2010 audit
 -    Charter school’s salary schedule
 -    Actual expenditures by job category specified by the standard chart of accounts
 -    Access to federal form 990 for the charter school
 -    Maintain the prior two budget years' financial information online, in a downloadable format

Of course, ASU Prep schools did none of the above.  ASU made a fraudulent evaluation tool and never used it, a violation of law.

The ASU Policy ACD 204-01 Code of Ethics defines unacceptable conduct as:
Violation of canons of intellectual honesty, such as misappropriation of the writings, research, and findings of others.

The laziness and intellectual dishonesty displayed by the University in the one required evaluation for the charter schools it sponsors is appalling.  If ASU were to submit its charter school Performance Framework for academic publication it would be rejected for siting false and misleading sources.  

This is just one more example of how little ASU even pretends to care that ASU Prep is bound by Arizona charter school laws.  ASU sees the schools as an extension of the University to operate as they please – hiring all of ASU Prep employees and manipulating its finances as it sees fit, causing classroom spending at ASU Prep to be cut in half in 2020.  

The public should demand the Arizona Legislature pass HB2149 that would require all charter schools in Arizona to be sponsored by the Arizona State Board for Charter Schools.  While we have our differences with the Charter Board, they have extensive policies, rules, and regulations regarding their oversight of charter schools – something ASU refuses to provide.
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ASU Mismanagement is Destroying ASU Prep Academies
Arizonans for Charter School Accountability
January 26, 2021
(Full Complaint)

ASU Prep Academies are the only charter schools in Arizona that are not controlled by the Charter Board.  ASU is supposed to sponsor and regulate the 12 independent charter schools just like the Charter Board does with the rest of the charter schools in the state.  

ASU Prep cut classroom spending in half in 2020, reducing the teaching staff at the 12 schools by 47 teachers while enrollment increased by 700 students.  And more incredibly, ASU Prep somehow cut $9.5 million from their administrative spending last year, in a school system of 3,800 students.

This impossible situation is the result of gross mismanagement of the charter schools by Arizona State University. The University is controlling the schools through leadership by three ASU Vice Presidents and is manipulating their budgets to benefit the University, with disastrous results for ASU Prep.

In 2017 ASU Prep only spent $1,596/pupil for administration.  ASU “donated” $13.3 million to ASU Prep schools in 2019, increasing administrative spending at the schools to $4,596/pupil while the average charter spent $1,620/pupil and districts spent $800/pupil for administration. Classroom instruction increased to $5,203/pupil, also far above charter averages.

But last year, ASU cut off donations, leaving the 2020 ASU Prep budget $13 million short.  Classroom spending was cut in half to just $2,595/pupil and somehow $9.5 million was cut from administrative costs to continue operations.

The problem is, we can’t find where those management cuts occurred.  ASU Prep still has 28 people in their central office, including their superintendent, ASU Vice President Julie Young ($260,000/year), Tempe Mayor Corey Woods as Chief of staff ($170,000/year), and five others that averaged over $159,000 a year.  Safford Unified has the same enrollment and has 13 employees in the district office - their superintendent made $118,000 in 2020.

You see, the ASU Prep Board doesn’t really control the schools. The Board didn’t hire any of the staff, including the Managing Director who is an ASU employee. The ASU Prep Board approves budgets sent to them by ASU but doesn’t approve any expenditures.  Based on the Board minutes from all board meetings from 2014-2021, the ASU Prep Corporate Board only approves policies and rubber stamps budget and financial report submissions prepared by ASU.

Where did the $9.5 million in administrative expenses in 2019 go?? What happened to ASU’s responsibility for providing oversight and transparency for the independent charter schools they sponsor? Is ASU commingling funds with ASU Prep and at what point does that constitute criminal misappropriation of public monies?

We are asking the ASU Audit Division, University Provost, University Counsel, Board of Regents, Arizona Auditor General, and the Attorney General these questions in complaints filed yesterday...

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2020 was a very good year for charter companies...while 97,000 other small business went broke
Charters have $124 million more in cash assets than in 2019

While millions of American lined up at food banks this Thanksgiving and over 97,000 small businesses closed as a result of the Covid pandemic, Arizona charter schools posted record profits in 2020 and now have $542 million in cash sitting in the bank - $124 million more than they had in 2019.  Charter owners left $137 million of their revenue unspent in 2020, either adding to the net assets of non-profit companies or putting money in the pockets of for-profit charter owners.  A banner year.

Charter schools did not lose a single dollar of state or federal revenue last year due to the Enrollment Stabilization Grant Program which guaranteed funding based on the 40th day enrollment, regardless of the number of students actually served as schools went to online learning last spring.  Despite this guaranteed income, 130 charter owners applied for and received a total of $52 million in additional Paycheck Protection Program funds – money that should have gone to the 97,000 small companies that couldn’t make payroll or make mortgage payments that ultimately closed.

The PPP money allowed the 130 charter school companies to increase their cash reserves from $108 million to over $157 million last year.  

One example of the unmitigated greed of some charter owners is Educational Options Foundations owned by Steven Durand and partners.  Educational Options had $11,687,244 in cash assets at the end of 2019 and only spent 55% of their state revenue running the school in 2020, netting over $3 million in profits while increasing their cash assets to $13,766,553. Durand received a $278,292 PPP loan that he immediately spent. A company that clears over $3 million a year got a completely unnecessary loan just because they could – defrauding not only the system but every small business that could have legitimately given its employees a paycheck to keep them out of the food lines.

We will detail the massive abuse of this program in upcoming reports. Charters receiving PPP loans

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Charter school company EdKey “launders” student enrollment so private micro-school companies (and home school parents) can have access to public education funds.
(Complaints filed with the Charter Board re: EdKey relationships with Prenda, Venture Upward, AZ Learning Communities, and Sequoia Choice failure to report curriculum changes to the Charter Board)

EdKey, one of the largest charter school companies in Arizona,  is laundering state funds intended to educate public school students by having private micro-schools “deposit” their student’s enrollment at EdKey’s Sequoia Choice Online (worth $8,000/pupil in state funds) while Sequoia Choice “kicks back” $4,000/pupil to the micro-school companies that ends up as corporate profits and direct payments to home school parents.

Three private micro-school companies – Prenda Inc., Venture Upward and Arizona Learning Communities are using loopholes in Arizona’s lax charter school laws to divert millions in state education funds into their corporate pockets.  All three are paying homeschool parents in one form or another.  Venture Upward reimburses parents up to $1,000 for computers, paper, pens, science and art supplies - even magazine subscriptions and karate lessons.  Arizona Learning Communities pay parents a monthly stipend for “external planning things” and Prenda hires parents as “Learning Guides” for $25,000/year.

This transfer of state education funds into parents pockets is the result of charter online company EdKey Sequoia Choice Online claiming that all of the students in these three micro-school programs are students at Sequoia Choice, even though the micro-schools use their own online programs, not the state approved online program at Sequoia Choice.  Sequoia Choice submits the computer hours turned in by parents at the micro-schools and receives $8,000/pupil from the state but instead of charging the micro-school for the service of hosting their online programs, Sequoia Choice pays the micro-schools around $4,000/pupil.  Sequoia Choice only collects the state funds and administers the AzMerit test to micro-school students, keeping their cut of $4,000 - half of the state funds received for each student as a bounty.

The Oxford English Dictionary defines money laundering as:
“…the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the "clean" money to the launderer in an obscure and indirect way.

Schools are funded by the state based on student attendance (ADM).  EdKey is laundering ADM to make it appear that private micro-school students are being educated at the Sequoia Choice charter school when, in fact, EdKey is providing no education and diverting $4,000/pupil of state funds into the corporate pockets of private online home school companies.



For-profit micro-school company Prenda Inc. is receiving more state funds than many school districts
Prenda Inc. is a private school company that at one time charged parents $5,000/year to enroll their child in the company’s online “micro-school” program.  Prenda’s micro-schools consist of 5-10 students in the home of an uneducated, uncertified Prenda employee called a “Learning Guide”.  Prenda has their own educational programs and management software but apparently does not have the infrastructure of computer servers and IT staff necessary to host their programs so…

Prenda hired charter school EdKey Sequoia Choice (Arizona Distance Learning) to host their for-profit company’s educational program, which has no relationship to the online educational program at EdKey.   But instead of paying EdKey to provide this service, EdKey pays Prenda $4,000 per student – allowing the Prenda to pocket about $1,400/pupil in management fees and profit.

No, that’s not right.  Actually Arizona taxpayers are paying the profits of the private school.  You see EdKey enrolls all of the Prenda students as EdKey students, even though Prenda students do not follow the EdKey program or are served by EdKey personnel. The state gives EdKey $8,000/pupil for the Prenda students and then EdKey spilts it with Prenda.  

It’s a win - win for both EdKey and Prenda.  EdKey gets to add to their enrollment and collect $4,000/pupil for providing no educational services.  Prenda gets paid $4,000/pupil of state education funds to pay their “guides” (max $26,000/year) and pocket the rest.

Mesa Unified considered partnering their online program with Prenda, but since Mesa only receives $5,500/pupil from the state, Prenda didn’t want half…they wanted $4,400/pupil to take the students off of Mesa’s hands.  Mesa’s administration liked the deal because the district would receive $1,100/pupil with no expenses but the school board voted it down because it would replace Mesa classroom teachers with uneducated “monitors”.

The $4,000+ /pupil Prenda receives from state funds is more than state payments to many districts because districts receive state funds based on the wealth of the district and are required to collect property taxes to make up the difference.   Charters, on the other hans, are funded entirely by the state averaging around $8,000/pupil.  While Prenda is getting $4,000/pupil from state funds from EdKey, these districts received less state aid in 2019:
Tempe Elementary        $3,642/pupil
Scottsdale Unified         $1,861/pupil
Phoenix Union               $3,380/pupil
Paradise Valley Unified  $3,189/pupil    

The EdKey online school is enriching several other private companies as well.  Hillcrest Prep, one of the premier basketball high schools in the U.S., charges parents over $20,000/year but gets it’s education services free from EdKey’s online program.  Private school Crossroads Academy costs parents $19,500/year in tuition - they use state funded EdKey online for their entire curriculum.

EdKey claiming private school students as ADM to collect state funds is a new form of vouchers, transferring state education funds away from public education into corporate pockets.  It needs to stop.
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Charter School Financial Report Cards are now available
Those of us advocating for charter school transparency have pushed legislation, without success, that would require the Auditor General to report charter classroom spending like they do for every district in the state.  Arizonans for Charter School Accountability has compiled a report card for each of the 410 charter holders in Arizona with demographic data and per pupil spending for classroom instruction, administration, facilities, and support compared to state charter averages.  The reports make it clear to parents and stakeholders which charters spend their tax funds in the classroom and which ones focus on management and real estate. 

Click on this link to download the interactive Charter School Report Card 2019. It is a large file and may take a while to download.  Charter Report Cards 2019

A link to the data set compiled from the 2019 Annual Financial Reports used to create the report cards is also included.  2019 Data Set

Contact us at arizcsa1000@gmail.com
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ASU Prep is the Worst Run Charter Organization in Arizona
Their CEO made $564,000 and top executives made $1.5 million in 2018 … with just 3,000 students and “C” and “D” rated schools.
Full report 
ASU Prep 2018 990
ASU Prep 2018 Audit
ASU Prep 2019 Audit

ASU Prep is the worst run charter organization in Arizona – by far.  ASU Prep has an enrollment of 3,000 students and had a “C” and a “D” school in 2019. The CEO of ASU Prep, Beatriz Rendon, was paid $304,000 in 2018 by non-profit ASU Prep and drew an additional $260,000 from ASU as Vice President of Strategic Initiatives - making her the highest paid K-12 public school official in Arizona history.  Total ASU Prep executive salaries in 2018 were $1,549,617.  On top of that, ASU Prep has an additional district office staff of 33 people including a Talent Specialist, a Director of Student Well Being, a Communications and Relations Director overseeing a Marketing and Communications Manager.  ASU Prep spent $4,929/pupil for administration in 2019 while the average charter spent $1,600/pupil and districts averaged about $800/pupil for administrative costs.
 
The extravagant pay and unnecessary personnel are possible because ASU dumped $16 million in cash in 2019 into ASU Prep, giving ASU Prep an astounding $15,700/pupil to spend, nearly double what the average charter has available. A big chunk of that is paying for the highest K-12 administrative salaries in Arizona.
 
As a comparison, Safford Unified District in a small town in eastern Arizona also has about 3,000 students.  Safford Unified has more free and reduced lunch students than ASU Prep and more minority students - yet Safford had all “A” and “B” rated schools in 2019.  Safford Unified spent $832/pupil for administration and has a district office with a staff of 12, including the superintendent who made less than $140,000 last year.
 
Mesa Unified has been in the news recently regarding administrative bonus pay and concerns over the superintendent’s salary.  Mesa Unified has 62,000 students and their superintendent, Ember Conley, made $294,481 last year.  Mesa Unified executive salaries topped $2.6 million this year, according the AZ Central.  ASU Prep, enrollment 3,000 students, had a superintendent making $560,000 and executive salaries of $1.5 million in 2018.
 
 ASU Prep is not regulated by the Arizona State Board for Charter Schools - it is authorized solely by Arizona State University, which provides no oversight we can find.  In fact ASU appears to be using its charter schools to funnel money to pay exorbitant salaries to ASU personnel, and provide great PR for the “Innovation” University, rather than addressing why they have “C” and “D” rated schools.
 
University “lab schools” have historically been a place where professors could experiment with new educational strategies in real classroom settings – to ultimately improve classroom instruction in public schools.  ASU Prep is the opposite. They have shown that having $16,000/pupil does nothing to increase student achievement…especially when most of it is going into the pockets of ASU employees.
 
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The Big Lie About Charter Academic Achievement: 
Arizona charter schools are failing all but the brightest students
(54% of charter schools did not meet academic standards in 2019)
(Full report)
ASBCS Annual Report 2016
ASBCS Annual Report 2017
ASBCS Annual Report 2018
ASBCS Annual Report 2019
Comprehensive School Improvement List
Targeted Assistance School List

Every year the Arizona State Board for Charter Schools (ASBCS) is required to submit an annual report to the Auditor General.  Despite the claims of school choice proponents that charter schools out-perform public district schools, the ASBCS annual reports for the last four years show a steady decline in student achievement, to the point where only 46% of Arizona charter schools met academic performance standards in 2019.  Although charter enrollment makes up just 18% of total K-12 enrollment, half of all schools in Arizona that are required to be under Comprehensive Improvement Plans because of low academic performance are charter schools.
 
The tremendous growth and success of college prep charters like BASIS, Great Hearts, and Legacy Traditional (all with curriculum that are one or more years above grade level) has increased the number of charters exceeding academic standards from 29 schools in 2016 to 138 schools in 2019.  But overall, charters that met academic standards declined from 54% in 2016 to 46% in 2019.
 
ASBCS failed to evaluate the academic performance of 92 schools in 2019 - that’s down from 132 charter schools that were not evaluated in 2018.  The ASBCS Academic Performance Framework purposely excludes many charters from academic evaluation  -charters serving grades K-2 that do not take the AzMerit test, special education schools, and very small charters are not assessed by the Framework so there is no way of knowing if these schools are educating children or not. 
 
But the Board’s evaluation is random.  Some online schools and alternative schools are not assessed – others are.  For example, the second largest online charter in the state, Arizona Virtual Academy (K-12), with 3600 students was labeled “Not Applicable” and was not evaluated for academic achievement last year but Primavera Online, an alternative online school, was evaluated.  Since poor academic achievement is the primary tool used by the Board to close charter schools – the 92 schools not evaluated in 2019 could be providing no education what so ever to their students without consequence. 
 
The Every Student Succeeds Act (ESSA) became law on December 10, 2015, replacing the No Child Left Behind Act on July 1, 2017.  Under the provisions of ESSA the state is required to provide interventions to improve identified low-performing schools.  The lowest performing schools are put on a Comprehensive School Improvement Plan and are required to submit detailed plans to increase student achievement. Each school is given an Arizona Department of Education Specialist to monitor and assist the school’s progress. This year there are 196 schools in Arizona that are in Comprehensive School Improvement  - 96 are charter schools.
​
The next tier of low achieving schools that are approaching the need for Comprehensive Improvement are required to submit to Targeted Assistance according to ESSA. There are 253 districts and charter holders in Arizona receiving Targeted Assistance to increase low student achievement – 107 (42%) are charters.
 
It is easy to have high student achievement in accelerated college prep charter schools.  BASIS, for example, brags that they have the most rigorous curriculum and standards in the U.S. and they retain students in 7th grade if they cannot pass high school Algebra.  Elite college prep charters, with few poor and at-risk students, have expanded exponentially in Metro Phoenix suburbs in recent years.  There are 175 new charter schools in Maricopa County since 2008, with only a handful being opened in inner city Phoenix and Mesa.   On the other hand, rural Arizona is not a focus for charter operators.  The counties outside of Maricopa and Pima County had a net loss of 10 charter schools since 2008.
 
Despite attracting some of the brightest students in Arizona to elite charter schools in affluent Phoenix suburbs– overall charter academic performance continues to decline. 54% of charter schools failed to meet academic standards, 96 charter schools were forced into Comprehensive School Improvement and 107 are receiving Targeted Support from the state for poor academic performance in 2019...while the Charter Board simply looks the other way.
 
School choice proponents often dismiss concerns about charter transparency and oversight by saying it is the educational outcomes that are important.  The academic outcomes for the majority of Arizona charter schools are dismal. 


Charter owners threaten Arizona State Retirement – 75% of charter teachers are without pensions:
American Leadership Academy saved $3.5 million in 2019 offering teachers a worthless 401K
Data from 2019 Annual Financial Reports and ASRS website at:https://www.azasrs.gov/content/list-employers
(2019 Charter Benefits Summary) 
(2019 Large Charters not in ASRS)
(Complete 2019 Annual Financial Report Summary)
(American Leadership Academy 2019 audit with retirement data)

American Leadership Academy (ALA) had 449 teachers on the payroll and total salary expenses of $33.8 million in 2019.  If ALA participated in the Arizona State Retirement System (ASRS) they would have contributed 11.8% of employee salaries to the system – nearly $4 million.  Instead ALA offered a 401K plan for their employees and contributed just $335,091 to their retirement – saving over $3.5 million dollars to pay for management and real estate expenses.
 
Most of the larger charter corporations do not allow employees to participate in ASRS.  ALA, Leona, Legacy, BASIS, Great Hearts, Primavera, and Imagine Schools employ half of all the charter teachers in the state without ASRS pensions.  Judging from the cost savings to ALA, the big corporations are diverting tens of million of dollars away from employee benefits into corporate profits.
 
Mesa Unified, Glendale Union High School District and the Washington Elementary District each spent 32% of teacher salariy amounts for benefits in 2019 – ASRS, Social Security/Medicare, workman’s comp, unemployment, health insurance, etc. ALA spent 13.5% while Legacy spent 16.6% and BASIS spent 21% on employee benefits.
 
Overall, 73% of charter teachers (8,127) are left out of the State Retirement System while just 2,850 charter teachers receive pension benefits. 
 
This is a tragedy for charter teachers but it also affects every public school employee in Arizona.  The charters not in the ASRS system had a combined payroll of $573 million last year.  If those employees were still in a public district school, over $60 million would have been contributed to ASRS last year to support current and future retirees.
 
But, to be completely fair to ALA, they had one active member in State Retirement last year and the school paid $19,196 in premiums for him (her).  Let’s see… 11.8% of what is equal to $19,196?  Why it’s $162,677.  I wonder who at ALA made that kind of salary and was the only one worthy of a future pension?
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Getting Rich: Part 2
Charter Owner Steven Durand buys luxury homes with his 51% profit margin
(Full report with photos)
(Complete list of all 410 charter holder profits and losses reported on their 2019 Annual Financial Reports)

Public school districts are allowed to carry forward up to 4% of their unspent budget.  The average charter holder had 7% of their revenue left after expenses in 2019, a very reasonable cushion. 
 
There are, however, 31 charter owners that made over 20% profit last year.
 
Steven Durand’s non-profit Educational Options Foundation school received  $4.6 million in tax revenue but he only spent $2.3 million in 2019 – keeping 51% of the money the state paid him to educate children.  Durand also owns Kestrel Schools (44% profit margin) and James Sandoval Prep (27% profit margin). And, you guessed it - Durand’s schools are alternative schools using online instruction.
 
Just the one Durand Educational Options School has generated $14.7 million in increased net assets since 2011.
 
Twenty-six of the high earning charters are non-profits like Educational Options that merely add profits to the net assets of the company.   You might wonder what is the point of a non-profit hoarding money?
 
First is a hefty salary for the owner paid by the non-profit.  Steven Durand took home $243,933 in salary and benefits in 2017 from his four charter non-profits (from the latest non-profit 990 tax return available).
 
Secondly, the non-profit charter is able to buy equipment, materials, and real estate with their assets.  Steven Durand bought a $1.35 million house on 6710 E Calle Legos as a “school” site in 2017….using the assets of the non-profit Educational Options Foundation.
 
The next year, Durand’ Educational Options Foundation bought a second “school” site right next door at 6790 W. Calle Legos for $954,000
 
Please look at the photos of the real estate charter owners are purchasing by refusing to spend tax funds on the most at-risk students in the state.  Then read this article on AZ Central about school districts that are unable to fix leaking roofs because of a lack of funding.
https://www.azcentral.com/story/news/local/arizona-education/2019/11/20/rain-damages-some-arizona-classrooms-lacking-funds-repairs/4250177002/
 
The pot that should be funding public district school repairs is the same pot that is buying luxury homes for charter owners like Steven Durand. 

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Getting Rich: Part 1
WGRM Pinnacle sent 60% of tax revenue to India last year instead of into children’s education - $28 million since 2010
 (This report with all data)
 (LInk to a full report on WGRM Pinnacle by Arizonans for Charter School Accountability)

Public school districts are allowed to carry forward up to 4% of their unspent budget.  The average charter holder had 7% of their revenue left after expenses in 2019, a very reasonable cushion. 
 
There are, however, 31 charter owners that made over 20% profit last year.  WGRM Pinnacle led the way with two schools that kept 60% of their tax revenue as profit – profit collected by WGRM Inc.   
 
For-profit charters like WGRM Pinnacle are able to distribute the profits directly to the owners.  Multi-national corporation WGRM Inc., a for profit company based in India, owns three Pinnacle charter schools that received nearly $7 million in tax funds in 2019 but only spent a total of $2.75 million, sending 60% of their revenue back to India. The largest Pinnacle school, Pinnacle Tempe, has made $27.8 million in profit since 2011.
 
The Pinnacle schools are alternative schools providing most of their instruction online, and since alternative schools have not received an A-F grade the last two years, they cannot be closed for poor academic performance.   Pinnacle Online falls far below academic standards since they are required to be in a school improvement plan for low test scores.
 
But the Charter Board gives WGRM Pinnacle glowing ratings for their financial performance – all the Board cares about is that charters are profitable business – not how much tax revenue actually makes it to the classroom.
 
Making $27 million in profit since 2011 makes MGRM Pinnacle the most success small charter company in Arizona…just not successful at providing an education to children.
 
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Biggest Losers: A fifth of all charter schools lost money in 2019
 (Complete list of all 410 charter holder profits and losses reported on their 2019 Annual Financial Reports)
21% of charter holders (86 companies) overspent their revenue in 2019.  27 charter schools each lost over a quarter of a million dollars last year. The number of charters that lost money is actually higher because the expenditure numbers reported on their annual financial reports account for just operational expenses – charters had other expenses for depreciation and financing charges that are separate from operational expenditures.
 
The large charter management companies had 22 schools that lost money last year.  Eleven BASIS schools lost money in 2019 with BASIS South Phoenix Primary, BASIS Scottsdale and BASIS Scottsdale Primary losing over $1 million each.  Edkey had two schools in the red and Imagine Schools had 9 schools that spent more than their revenue.
 
The Arizona State Board for Charter Schools does not care how charter spend money – how little they spend in the classroom, how much they pay themselves for management contracts, or how much tax revenue is going into their real estate empires.  The Charter Board only cares about is the profitability of charter companies to assure that they are viable business that will not close and leave kids stranded without a school.  They have their work cut out for them.
 
A fifth of all charters are in financial difficulty, many as the result of excessive administrative costs and high facility mortgages.  We will look at many of these companies in future reports. 
 
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BASIS Continues to Lose Millions While the Competition Thrives:
Great Hearts Made $5 Million in 2019
(Full Report)   (BASIS, Great Hearts, and Legacy summary of spending from 2019 Annual Financial Report)
 
BASIS and Great Hearts account for 14% of all of the charter students in Arizona, both offering an accelerated, college prep curriculum in affluent suburbs across Arizona.  They each have bright new facilities and a growing enrollment.  But BASIS has lost $14 million the last three years while Great Hearts cleared $5 million in 2019.
 
We have assumed that huge real estate debt and high management costs were the cause of BASIS financial woes, but we were wrong, at least when comparing them to Great Hearts.  Great Hearts spent nearly as much on administration and more for their facilities than BASIS in 2019.  Classroom spending is nearly the same.  Why then, does BASIS consistently lose money while Great Hearts increased assets by $5 million last year?
 
The answer is Great Hearts simply has more money to spend.  Great Hearts received $9,413/pupil in total revenue in 2019 while BASIS only had $9,031/pupil to work with.  The $382 deficit per pupil cost BASIS $5,680,722in revenue.  If BASIS had as much to spend as Great Hearts, BASIS would have been in the black by $2 million.
 
What’s up?  Funding from the state is the same for both charters and both received about $150/pupil in federal funds.  The difference is in “Local Revenue”.
 
Local revenue is the money parents pay for activity fees, athletics, supplemental instructional materials, fund raising, and donations.  Great Hearts tops the state in getting money from parents - $1,687/pupil last year.  Basis only was able to extract $1,322/pupil in 2019, $365 less per pupil than Great Hearts.  Multiplied by 14,871 BASIS students, that’s over $5.4 million - the difference that prevented BASIS from being a profitable company in 2019.
 
Both Great Hearts and BASIS have extremely high administration and facilities costs compared to the average charter school in Arizona.   The only thing that allows two companies to create growing real estate empires and reap high management profits is the extensive additional funds required of parents in one form or another.  Each Great Hearts School has two employees - an Academy Giving Manager and an Academy Giving Assistant that do nothing but raise money from parents.  It seems to be paying off.
 
Both the BASIS and Great Hearts business models are lucrative, extremely expensive and completely dependent on the highest fees and donations from parents in Arizona.  The difference between BASIS and Great Hearts is BASIS can’t squeeze enough out of parents to break even.
 
We will look next at the largest charter company in Arizona, Legacy Traditional Academy, a company that gets half of what Great Hearts receives from parents but had a $13 million increase in assets in 2019.
 
(Note: the three charter companies discussed are non-profit organizations so profits are described as “an increase in assets”)
 


BASIS Once Again Tops The List:
The Three Worst Run Arizona Schools for 2019 are BASIS Schools
Three BASIS schools lost over $1 million each last year

86 charter schools lost money in 2019 with the greatest losses in the state posted by BASIS Phoenix South Primary (-$1,223,192) BASIS Scottsdale (-$1,203,131), and BASIS Scottsdale Primary (-$1,121,432). 16 BASIS schools lost money last year totaling over $8 million in red ink. Overall, BASIS Schools spent $3.5 million more than their total revenue in 2019. That revenue included $19.6 million in fees, supplemental material purchases, and donations by parents.

For BASIS that’s progress. They overspent by $7.8 million overall last year and have combined losses of over $14 million 2017-2019. These losses do not include depreciation or refinancing costs.

BASIS executives argue that my friends at the Grand Canyon Institute and I just don’t understand the complexities of creating a global real estate empire and, after all, the land and facilities they have purchased with tax funds are worth more than their debt.

But mortgages keep going up…BASIS schools in operation in 2017 had over $4 million more in interest to pay in 2019 than in 2017. BASIS claims that all of the costly refinancing (millions in pre-payment penalties) saves money, but what it actually does is free up capital to cover massive operational loses, expansion in Texas, Louisiana, and Washington D.C., and management fees that topped $19 million in 2019.

A single school losing over $1 million - that’s hiring 20 extra people at $50,000/year or buying 2000 $500.00 computers or…. buying a condo in Manhattan for BASIS founder Michael Block. All on the backs of BASIS parents and Arizona taxpayers.

What is a business that loses millions of dollars of people’s money ever year as it amasses real estate holdings and management profits? A ponzi scheme…


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Getting Rich Owning Charter Schools:
How Charter Owners Become Millionaires: Part 1
Real Estate and Alternative Schools : The Leona Group - Bill Coats

Bill Coats, owner of the Leona Group, came from Michigan in 1998 and bought 10 charter schools, either by remodeling existing charter buildings or buildings like bowling alleys into small charter schools with his partner, shopping mall billionaire A. Alfred Taubman. In 2007, Coats obtained one of the largest charter bond loans at that time, $82 million, and sold the 10 schools to a non-profit he created, the American Charter Schools Foundation (ACSF), for a $20+ million profit.

What’s the problem with business owners making a profit? All of the large charter real estate sales enriching owners have created large mortgages that must be paid every year out of taxpayer money. If the schools lose enrollment the mortgages still must be paid. The 10 Leona Schools have lost over 20% of their enrollment (1,007 students) since 2007.
As a result, classroom spending has plummeted at Leona. In 2006, before Coats “sold” the schools, leases and plant costs were $1,220/pupil. With declining enrollment and the high mortgages for the Bill Coats payday, facilities costs were $2,166/pupil in 2018. Leona has cut had to cut classroom instruction expenditures to $1,462/pupil, among the lowest expenditures in Arizona, to make the mortgage payments.
Leona can cut classroom spending because 9 of the 10 ACSF schools are alternative schools and alternative charters have not received an A-F letter grade from the state. The Charter Board only closes charters that have an “F” rating. Less than 10% of students in the Leona ACSF alternative schools were proficient in English or Math on the 2018 AzMerit test.

Students still attend Leona schools because they can go to school 4 days a week and get a full high school credit every 72 days, instead of 180 days in a traditional high school. Instruction is being increasingly shifted to computers to cut classroom expenses and there isn’t great parent involvement in these schools. The state allows low levels of achievement in alternative schools and they have become a cash cow for charter holders – like Bill Coats.

How Charter Owners Become Millionaires: Part 2
Real Estate Development: Building charter schools – leasing them to themselves (at an unknown profit) and then selling them to themselves (at an unknown profit).
Glenn Way and Senator Eddie Farnsworth:

Glenn Way, owner of the American Leadership Academy, and State Senator Eddie Farnsworth, owner of the Benjamin Franklin schools, received conventional financing to build their schools but instead of the schools receiving the financing, Way and Farnsworth had private real estate development companies they owned finance and build the schools. They then “leased” the buildings back to their charter schools at an unknown profit for several years. When they were ready to cash out, they formed a new non-profit run by business associates and acquired large bond loans to “buy” the schools from the real estate companies they owned. According to the Arizona Republic, Way made $18 million and Farnsworth $14 million selling their schools to the non-profits they formed. But Way and Farnsworth didn’t sell their businesses…they still actively run the schools through management companies they own.
While none of this is illegal - these profits come at a great cost to taxpayers. Farnsworth’s Benjamin Franklin schools had to spend 37% of their budget in 2018 on the mortgages that gave him a $13 million payday – only 12 charters out of 407 spent more on their buildings per pupil than Farnsworth.
The $7.5 million Benjamin Franklin paid in 2018 to fund and run four campuses was all state tax funds - money that public districts could have used to maybe surpass Mississippi in education funding. But, as Eddie always says, he shouldn't feel bad for being successful.

How Charter Owners Become Millionaires: Part 3
Online Schools: Online charters receive 95% of the funding of traditional charter schools but have no buildings and few teachers. Damian Creamer’s Primavera Online has made $59 million in profit and diverted $147 million to his software company since 2009

Primavera Online is an alternative online charter where students can sign up for one or more courses to complete at home. Primavera had over 26,000 students enrolled in 2018, but were paid by the state for only 6,400 full and part-time students – many thousands of students si