2020 Database of all Charter Spending
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 signed up for courses and did not complete them.
Primavera Online is the most profitable charter school in Arizona. They made $10 million in profit in a single year (2016) and had a net gain of $59 million between 2009-2018. The owner, Damian Creamer, diverted an additional $147 million to his software company from 2009-2018 in the guise of licensing fees and management costs. As a comparison, the new Boeing 737 Max sells for $99.7 million.
Creamer began Primavera as a non-profit. Between 2009 and 2015 the non-profit accumulated assets of $45 million - the most of any charter in the state. In 2016 Creamer simply turned the business over to his for-profit company, the American Virtual Academy (which is owned by Creamer’s software company Flipswitch Inc.) and began collecting distributions of profit every year. Creamer has collected $10,775,158 in personal profits the last three years, and untold millions in compensation from FlipSwitch. The non-profit Primavera Technical Academy still has $46 million in tax funds sitting in the bank drawing interest ($3.2 million in 2017) - money Creamer uses to start new school ventures.
Achievement at Primavera is dismal. In 2018 only 393 students took an AzMerit high school English test and only 222 took a high school AzMerit math test. Out of 26,000 students that signed up for a Primavera class, 138 students passed the AzMerit high school English tests and 64 students passed high school math. Their 43% drop out rate is among the worst of any school in Arizona. Primavera is an alternative school so they have not received an A-F grade the last two years…they can’t be shut down because of achievement, but they pass every financial benchmark set by the charter board with flying colors - they are definitely in no danger of going out of business.
There is no regulation of online schools in Arizona, even though ARS 15-808 states: “The state board of education and state-approved charter authorizers shall develop annual reporting mechanisms for schools that participate in Arizona online instruction.”
The State Board of Education and the Charter Board have simply ignored the law and allow online charters owners, like Damian Creamer, to become multi-millionaires that provide “virtually” no education for Arizona students.
The Charter Board and the Auditor General will require charters to accurately report revenue and expenses - for the first time since 1994.
September 16, 2019
Charter owners have been allowed since 1994 to report revenue and expenses on their required budgets and Annual Financial Reports in any manner they saw fit:
- The American Leadership Academy (ALA) didn’t report millions in athletic revenue and expenses and ran food service and bus fee programs off the books for years – with impunity.
- Great Hearts has never reported any expenses for Student Support since they opened in 2003 – costs for nurses, health aides, counselors, attendance clerks, etc. even though they have these positions in their schools. They simply code these expenses in other places – possibly padding classroom instruction spending to make it look like more money is going to the classroom than actually is.
- BASIS arbitrarily shifted $12 million from administrative spending in 2018 to Instructional Support (curriculum development and staff training for instructional staff, library/media services, instruction-related technology, and academic student assessment). BASIS Scottsdale spent $273,000 for these services in 2017. In 2018 BASIS Scottsdale claims they spent $1,029,000 for Instructional Support - while administrative spending plummeted. Nonsense.
For years the Charter Board has claimed they have no jurisdiction over charter reporting on financial reports. Dozens of complaints against charters misreporting expenditures have been closed by the Charter Board with this statement:
“Issues with the amounts disclosed on the Annual Financial Report are issues that must be raised with ADE which oversees the AFR. The matters at hand do not raise an issue of violation of law or the charter contract; therefore, the complaint is now closed”.
It is pointless to gather financial information if all schools, district and charter, are not uniformly reporting revenue and expenditures. Recent complaints by Arizonans for Charter School Accountability pointed out that all charter contracts require charter owners to report revenue and expenditures on financial reports based on the standard budget line codes used by all schools in Arizona prescribed by the Unified System for Financial Reporting (USFR). Charter contracts require charters to make “crosswalks” between their accounting systems and the object codes required by the USFR when completing financial reports. What ALA, Great Hearts, and BASIS are doing is in violation of their contracts and they should be sanctioned.
The Charter Board finally acknowledged that charter holders are required to report spending based on USFR codes in their August 2019 Newsletter stating charters must:
1. Utilize a chart of accounts that has been developed to align with the chart of accounts found in the USFRCS for the purposes of complying with budgeting and annual financial reporting (i.e., the Budget and AFR)
2. To be responsible for any “cross-walks” necessary to complete reporting requirements. This means if the charter holder uses a chart of accounts other than the one prescribed in the USFRCS, then the charter holder must “cross-walk” its account codes to those used in the USFRCS when completing the annual Budget and AFR submitted to the Arizona Department of Education.
The Office of the Auditor General (OAG) included similar guidelines for the completion of the upcoming 2019 Annual Financial Report:
Charters that are exempted from all or part of the Uniform System of Financial Records for Arizona Charter Schools (USFRCS) in accordance with A.R.S. §15-183(E)(6) must use an accounting system that provides for the proper recording and reporting of financial data using USFRCS revenue and expense object codes.
We have been requesting the inclusion of these statements by the OAG and Charter Board for years- without effect.
So what happened to ALA, Great Hearts and BASIS for systematically failing to follow the law all these years? Nothing. In fact there is no record that they were notified by the Charter Board that a complaint was even filed against them. The Charter Board seems to have a policy that dismisses wrongdoing if charters just change their ways. Try this with a policeman, IRS, or your spouse and see what happens…
The Attorney General, through the Ombudsman Office, needs to investigate the Arizona State Board for Charter Schools for failing to hold large, powerful charter companies responsible for following state law.
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Unfunded Mandate? Do What The Arizona Department of Education Does: Just Ignore It!
(Full report)
(Complaint submitted to the Ombudsman Office)
Schools are plagued with unfunded mandates – for example, they are required to serve all special education students but are underfunded by over $100 million a year to do so. The list goes on and on.
The Arizona Department of Education (ADE), on the other hand, has simply ignored the requirements for school report cards prescribed in ARS 15-746 for the last twenty years on the pretext that the state has not supplied funds to implement it.
Arizona School Report Cards have historically been where you find AzMerit test results and A-F Grades for schools. In December 2018 ADE announced a new School Report Card that includes information about enrollment, teacher experience, graduation rates, and student discipline in addition to state test results to meet the requirements of the federal Every Student Succeeds Act (ESSA) – required in order to continue to receive federal funds.
Here’s what Superintendent Diane Douglas said about the new School Report Card at the December 10, 2018 meeting of the Arizona State Board for Charter Schools:
“There are federal mandates and state report card mandates. The report we will be releasing is the Federal version because, as of yet, there has not been funding from the State to fulfill the requirements for the state report card mandate.”
The state mandate requiring school report cards is ARS 15-746 that was passed in the late 1990’s. The statue provides a comprehensive list of important information about every school to be sent home with students and posted by ADE, including education programs offered, three years of test results, class sizes, pupil teacher ratios, social services offered, expenditures for classroom instruction, supplies, and administration, transportation services, etc. None of this data is provided in the new School Report Card.
State agencies do not have the authority to ignore state laws because they are unfunded mandates. The 2018 Agency Handbook prepared by Arizona Attorney General Mark Brnovich notes that “ Public officials may not violate the plain terms of a statute because in their opinion better results will be attained by doing so. They have but one duty, and that is to enforce the law as it is written, and, if the effect of their action is disastrous, the responsibility is upon the Legislature and not upon them.
The Arizona Department of Education, under the direction of the Superintendent of Public Instruction, has blatantly refused to provide parents with critical data required in making informed school choices by failing to fulfill the mandate of ARS 15-746 since 1999. Arizonans for Charter School Accountability has requested that the Arizona Ombudsman Office investigates ADE and require the new Superintendent of Public Instruction to follow state law.
If this does not occur – every state agency (including school districts) should be given the license to only comply with the statutes that meet officials’ political agendas or that they believe are properly funded - like the Department of Education has done for the last twenty years with School Report Cards.
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More Education Funding is Needed NOW:
District schools go unrepaired and teachers underpaid…
To finance charter real estate empires
(Full report)
Since 2008, public districts have struggled to keep buildings safe for kids while new, elegant charter buildings have sprung up everywhere in Metro Phoenix suburbs- allowing charter owners, like Republican Senator Eddie Farnsworth, to become multi-millionaires. New data, from the recently released 2018 Annual Report of the Superintendent of Public Instruction, explains how this happened: charter schools are getting $916/pupil more in state funds since 2008 while districts are receiving $213/pupil LESS in 2018 than they received from the state in 2008.
Public district schools have had billions of dollars cut from their budgets since 2008 when the legislature drastically reduced district capital funding – money used to repair buildings and purchase textbooks and computers.
Charter schools received a 14% boost in state funding since 2008 and the money went straight into new land and buildings, not in South Phoenix or Maryvale, but in Scottsdale, Gilbert, and Chandler. Charter holders have added $1,400,000,000 in new land, buildings and equipment since 2008, almost all of it in suburban Metro Phoenix and Tucson.
Some charter owners have used increasing state funds to build schools and then sell them to non-profits they create for a huge profit – while still keeping control of the schools. The worst examples include Leona Group owner Bill Coats - $24 million, ALA founder Glenn Way $37 million, and Republican Senator Eddie Farnsworth $13.7 million profit – all still running the schools through their management companies.
School choice, in the form of charter schools, is very expensive. Every student that moved from a district school to a charter school in 2018 cost the state an additional $3,337/pupil in state education funds because districts receive an average of 44% of their revenue from local property taxes while charters receive all revenue from the state. A student that moves from Scottsdale Unified ($1,788/pupil in state funds) to a charter school ($7,309/pupil) costs the state an additional $5,521/pupil.
Public district schools have far more at-risk and poor students than charter schools. District class size has increased dramatically since 2008. Poor teacher pay has eroded the number of qualified teachers in district classrooms and buildings are in disrepair.
Well -funded charter schools have small class sizes, new buildings, and far fewer of “those” students. Does anyone think this is a Republican “accident”?
Charter schools are here to stay in Arizona, no question. But other states limit the growth of charter schools by having strict rules on where and how many charters can be opened every year. Arizona Republicans feel just the opposite - more charter schools provide greater school choice to their constituents in affluent suburbs while the public districts that educate all students are left struggling to educate at-risk kids, fix leaky roofs and are forced to watch hundreds of teachers leave the classroom for jobs that pay a living wage.
Arizona’s teachers are among the lowest paid in the U.S. partly because Republicans have shifted state public education funds to charter schools since 2008. Red4Ed - don’t give up the fight to adequately fund public districts.
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Why Is BASIS Losing Money?
BASIS Administrative Costs and Debt Skyrocket 2016-2018
While Parents Pay 41% of Teacher Salaries (Full Report)
We reported last week that BASIS Schools lost a $12 million in 2018 and are now $43 million in the red - but still borrowed $117 million and are expanding to Baton Rouge, LA. (See report that follows)
Where is the money going?
Not into the classroom. Total instructional expenses went up just 5% between 2016 and 2018 ($3,621/pupil to $3,803/pupil) while administrative costs went up 18% and plant maintenance and debt went up 68% over the same time period.
Shockingly, BASIS spending for instructional support (money spent on curriculum directors, staff training, and student testing) increased 220% to over $1000/pupil in 2018. BASIS Phoenix South Primary spent $2,645/pupil on instructional support in 2018. The average charter school in Arizona only spends $183/pupil on instructional support.
BASIS Scottsdale spent over $1 million on instructional support in 2018 - $587,000 just on salaries. Thing is…BASIS Scottsdale had no instructional support salaries in 2017. Did BASIS hire ten new staff at over $50,000/year at one school to oversee curriculum and testing?? Overall, BASIS claims to have spent $11 million on instructional support in 2018…enough to hire 200 people at $50,000/year.
We believe BASIS reported administrative costs as instructional support in 2018 to make it appear that management expenditures were going down. We have asked to Charter Board to look into the possibility that BASIS submitted fraudulent spending numbers on their 2018 Annual Financial Reports to hide management spending.
Classroom spending went up just $183/pupil between 2016 and 2017 while spending for instructional support, administration and facilities increased by over $1,700/pupil. It is safe to say that massive debt and increasing administration costs charged by Michael Block’s management company, BASIS.ed Inc., are burying BASIS Schools in crushing debt, unfortunately, on the backs of BASIS parents.
The total salaries of all BASIS teachers in 2018, including base salaries, overtime, and additional compensation, such as Prop 301 Classroom Site Funds and stipends for extra-curricular activities was $44,859,325. Parents paid $18,400,064 in fees and donations in 2018, providing BASIS with 41% of the total cost of teacher salaries.
Parents subsidized the cost of teacher salaries allowing BASIS to shift $58,101,419 to administrative costs and facilities, 48% of total expenditures, while only spending 37% of all funds on teacher salaries.
A note to BASIS parents – the money you give BASIS Schools in fees and donations enables them to build a multi-state real estate empire and pay exorbitant salaries to BASIS owners and executives.
We could be in error. Maybe Michael Brock would like to share the corporate finances of BASIS.ed Inc. to prove us wrong….
BASIS Sinks Further Into The Abyss
Arizona BASIS Schools Lost $12 million in 2018 and are $43 million in the red:
So they borrowed $117 million to stay afloat…and collected $18 million from parents
(Full report)
BASIS Schools lost $12 million in 2018 to create a $43 million total deficit - more than any charter chain in Arizona… by far. They still have $17 million cash to keep the schools open – largely as the result on borrowing $117 million to refinance old loans. And yes, BASIS kept expanding - $16 million in new debt went to build a school in Baton Rouge LA with Arizona schools and income as collateral.
BASIS executives like to argue that they are simply refinancing debt to get lower interest rates and the red ink is caused by having to pay substantial prepayment penalties for the new loans.
The problem is far deeper than refinancing debt. BASIS Schools in Arizona, Texas, and Washington D.C. have lost money 5 of the last six years to the tune of -$17 million, but the majority of the red ink came from simply spending more than their revenue, not refinancing costs.
BASIS Schools in Arizona overspent their revenue by $7.8 million in 2018. BASIS Ahwatukee and BASIS Prescott lost over $ 1 million each last year. Imagine a single school of less than 700 students overspending their budget by $1 million.
Oddly, the three BASIS schools in Texas and the school in Washington D.C. made money last year and have $4.8 million in total positive assets, while leaving the BASIS Arizona schools with the $5,015,013 in prepayment penalties to get the $177 million in new bonds:
Imagine where BASIS would be if they didn’t aggressively seek parent donations and charge additional fees for countless items. BASIS raised over $18,000,000 in parent fees and donations - $1,541/pupil in 2018. The BASIS plea for donations might be: “We can’t operate our schools efficiently – please give us $1,500 so we can at least get our $16 million management fee.”
It is amazing that bond speculators were still willing to lend BASIS $117 million last year with BASIS losing an average of $10 million a year over the last three years. The Arizona State Board for Charter Schools sees no problem either. Even though BASIS fails to meet board financial expectations in two categories, the Charter Board will not look into BASIS finances or require any response from them regarding their financial position as long as they don’t seek to expand enrollment caps or add new schools – in Arizona.
Here’s what your financial advisor would tell you if your personal finances were like those at BASIS:
“You can’t borrow your way out of debt, you’ll only dig yourself deeper. Make a budget and stick to it. Cut out non-essentials until the debt is reduced to manageable levels.” BASIS must believe they have a sounder business model.
BASIS Charter Schools lose huge amounts of money every year, even after soaking parents for $18 million in additional funds. On a positive note, BASIS founder Michael Brock still collected $16.7 million in management fees in 2018. The New York City condo HOA fees must be killing him…
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When Charter Schools Look More Like Organized Crime Than Public Education:
Collusion between American Leadership Academy and their auditor leaves millions unaccounted for
(Full report with exhibits and sources)
Let’s say a secretive businessman owns a legitimate company but runs several other businesses “off the books” to avoid public scrutiny. His legitimate business also makes payments to various vendors that are actually shell companies he has formed. He has a bookkeeper that keeps two sets of books and is paid to disclose as little as possible about the legitimate company while hiding revenue made by his shell companies and off the books enterprises.
Is our secretive businessman a mob boss, perhaps? Unfortunately no. Glenn Way, the founder of American Leadership Academy has been doing all of the above since 2012, with the assistance of his auditor Joel D. Huber. While every penny of public money is scrutinized in public school districts, charter schools are free to run businesses that look more like organized crime than public education.
Arizonans for Charter School Accountability believes that the American Leadership Academy (ALA), with the assistance of their long time auditor Joel D. Huber, have systematically and secretly utilized tax funds, student activity fees, bus fees, food service revenue, athletic program revenue, and public donations for the benefit of the charter owner rather than the schools, in violation of ARS. 13-1818.
Auditor Joel D. Huber has also failed to disclose any related party transactions made by ALA 2012-2017 on both annual audits and IRS 990 submissions, transactions that totaled over $30 million in 2017.
Simply stated, ALA has collected millions from parents 2012-2017 in the form of bus fees, lunch payments, student activity fees, and athletic program income that has not been reported in audits or on IRS non-profit 990 submissions by their auditor, Joel Huber. ALA has never listed expenditures for food service, extra-curricular activities, or athletics 2012-2017. They are also not forthcoming about many expenditures, claiming to spend nothing on student support (even though they have nurse’s aides and counselors that are supposed to be paid out of student support), instructional support or any supplies other than instructional supplies. The Charter Board has allowed these omissions since 2012.
New information made available on two 2017 ALA IRS 990 submissions indicate that 80% of ALA’s expenditures actually went to companies owned by Glenn Way, when their auditor had claimed there were no related party transactions of any kind on the ALA 2017 audit and 990. Way has received payments for personnel and management since 2011 - $23 million in 2017. His real estate companies collected $8.7 million in rent payments, and he sold a piece of land to ALA for $3.6 million in 2017. Joel Huber only disclosed the management payment in this revised 2017 990 form, hiding the rental payments and land purchase by Glenn Way. Huber finally revealed that three ALA board members, including Way, received six figure salaries from the related party management company. Huber listed none of these payments or salaries on the 2017 ALA audit .
Joel Huber worked with Glenn Way to hide $30 million in related party transactions made to companies owned by Way. It appears that Joel Huber also colluded with the management of ALA to hide millions in revenue and expenses for transportation fees, food service, extra-curricular activities and athletic programs by failing to report this income on both annual audits and IRS 990 submissions 2012-2017. ALA has, in essence, been running these programs “off the books” without disclosure of revenue or expenses, possibly for the financial benefit of the owners and facilitated by the lack of disclosure provided by their auditor.
Millions in unaccounted public funds at ALA cannot be explained or recovered unless a complete and accurate audit of their financial records is performed by an unbiased state auditor. To prevent future abuse, the Charter Board should conduct state audits of random charter schools to put audit firms on notice that their work might be actually be scrutinized.
The Arizona State Board of Accountancy has been contacted regarding the actions of Joel Huber. The Attorney General has an obligation to investigate charter holders that are misappropriating public funds under ARS 13-1818. Misuse of over $25,000 is a class 4 felony under this law. ALA has potentially misappropriated millions. A complete financial audit is called for.
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School Board Meetings Are A Joke At Charter Schools
19 Great Hearts Schools held one board meeting this school year - most lasted less than five minutes
(Full report)
Charter school boards only are required by state law to make policy decisions. Many charters, like Great Hearts Academies, do not allow school boards to even make informed policy decisions. 19 Great Hearts Schools had the only governing board meeting of the school year on December 4, 2018. All had the same agenda and were individually held telephonically at the Great Hearts Lead Office at 4801 E. Washington St., Suite 250 in Phoenix. The 19 board meetings were completed between 9:04 AM and 11:31 AM with 8 taking three minutes or less to complete.
If all the schools had the same board members, it would be conceivable that these meetings could be run back to back like this. But the schools, for the most part, have completely different school board members. There were 52 different board members on the phone and somehow 7 meetings were started at the same time the last meeting ended (two started before the prior meeting ended). If you have ever been a part of a telephonic meeting with 5-7 people on the phone, you have surely experienced the cumbersome task of getting everyone’s feedback in this way. Great Hearts ran the entire Archway Scottsdale board meeting with six participants on the phone in just 3 minutes. It would take us that long to call the roll.
The 19 schools boards all unanimously approved the same items:
Great Hearts, and other large charter chains, purposely make board meetings into a race to adjourn, avoiding proper consideration of policies and rubber-stamping the will of the corporate board. Local needs and concerns of individual schools are not addressed at charter school board meetings – only the lock-step approval of corporate policies. All real decisions – expenditures, hiring and firing, student discipline, and even curriculum are made in secret by the corporate board. The process is cynical and arrogant.
The Legislature needs to step up and address the secrecy of governance in charter schools. SB 1394, that is making its way through the legislative process, requires school board members to not all be family members and mandates training on procurement and discipline – activities charter schools boards take no part in. It is smoke and mirrors written by the Charter Association to allow charter corporate boards to continue to make all decisions in secret. Charter school boards should either be given authority to make operational decisions for the schools or be eliminated… saving Great Hearts a couple of hours a year in pretend school board meetings.
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Millions Are Wasted When Charter Owners Don’t Follow Procurement Laws
(Full Report)
The problem with charter schools not following procurement rules is far more pervasive than one-time sell offs that enrich owners, like the $12 million payday Republican Eddie Farnsworth had last year selling his schools’ buildings. When charter owners don’t have to gets bids for purchases or have their expenditures approved by school boards in public meetings, it opens the door to “self-dealing” - in essence buying goods and services from yourself at an unknown markup. The accounting term is “related party transactions”.
The following are charter schools that exemplify the self-dealing that is costing taxpayers millions every year and enriching charter owners.
Imagine Inc. are the masters of self-dealing. The national chain Imagine Inc. provides all operations, employees, and facilities to the 20 Imagine schools. Imagine Inc. charges their schools (themselves) “loss mitigation” insurance for 1% of revenue to help pay for their mismanagement if the schools run a deficit. They provide the schools “start-up loans” – Imagine Avondale Elementary’s $200,000 start-up loan from Imagine Inc. (themselves) is for 20 years at 10.5% interest. That works out to $30,000/year and $600,000 over the twenty years of the loan. Family members of Imagine Inc. executives are paid thousands to provide “services” to the schools - $11,200 for grant writing at Imagine Avondale for example.
Southgate Academy - Self-dealing is commonplace in small Arizona charter schools as well. Southgate Academy (enrollment 469 students) made a questionable $ 4 million real estate deal with a company owned by one of the school’s board members that ended with the board member getting $650,000 in interest payments and taking back ownership of the property free and clear.
Management companies – 186 charters have related party management companies. Owners of dozens of small charters form management companies and pay themselves to “manage” the school. Many charters also lease their facilities from companies owned by the charter holder – all for an unknown markup.
Other self-dealing schemes:
- GAR LLC purchased a vehicle from the son of a member for $16,500
- American Basic Schools owners formed SafeTrans LLC to maintain their buses but their auditor found they overpaid themselves $157,740 for services they didn’t receive in 2016. Paying yourself $157,000 for non-existent services sure looks like a red flag that should trigger a full audit by the state, but the Charter Board did nothing. In fact, no charter has ever been audited by a state agency since 1996.
Thank goodness the charter’s auditors report all of this self-dealing – or do they?
One of the biggest charter paydays came this year when Glenn Way, owner of American Leadership Academies (ALA), sold the schools owned by his real estate company to the charter school for an $18 million profit. Unfortunately, ALA’s auditor, Joel D. Huber, never revealed that Way’s real estate company, Schoolhouse Development LLC, was renting the schools to ALA for $8 million/year. We have filed formal complaints against Joel D. Huber with the Arizona State Board of Accountancy and they are investigating the charges. If this auditor can ignore $8 million in related party transactions, how many other self-dealing schemes are out there we know nothing about?
Charter owners should not be able to use tax funds as a personal checkbook. The Legislature must require charter owners to follow procurement laws and the Arizona State Board for Charter Schools must be given the authority to audit charters making inappropriate expenditures of tax funds.
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Why We Must Demand Charter Accountability: Part 2
Alternative Charters are a Path to Riches
Seventy percent of charters spending more on both management and real estate than classroom instruction are Alternative Schools (Full report)
Educators, politicians, and parents would all agree that tax funds for education should be spent primarily in the classroom on teachers, teacher aides, and classroom supplies. Twenty charter holders in the state, however, put almost no money in the classroom – they spend most of their revenue on management and real estate. Fourteen of these pathetic charter schools are alternative schools. Six are managed by one of the largest charter holders in the state, the Leona Group.
Alternative schools serve the most at-risk students in Arizona – students with histories of disruption, returning dropouts, students more than a year behind in credits, primary care givers, adjudicated, and foster kids. Alternative schools primarily serve minority students – 91% of alternative charter schools have a higher minority population than the average charter school. Alternative charters are only in session 144 days per school year instead of the standard 180 days, yet receive the same funding as other charter schools. There are no A-F grades for alternative charter schools, so they have no academic accountability. The Arizona State Board for Charter Schools cannot close alternative schools for academic deficiencies.
Students in alternative schools need an incredible amount of support to be successful – counselors, social workers, tutors, small class sizes, and an engaging curriculum. You would think it would be more expensive to educate students that couldn’t make it in regular schools but instead, most alternative charter schools have limited facilities with fewer teachers and support staff than regular schools. As a result, alternative charter schools are making millions for their owners instead of educating students. The Charter Board does not monitor charter spending, so they don’t know there is a problem.
Summary:
Of 75 alternative charter schools in Arizona:
The reason alternative charter schools can spend so little on classroom instruction is simple – they are worlds apart from traditional district high schools yet receive $1,770-$2,000 more per pupil from the state than a district school. The storefront charter schools you see in strip malls are likely alternative online charter high schools. They receive more funds per pupil than a district high school with 40 acres of buildings and fields. Brick and mortar, non-online alternative charter schools also have limited programs and few teachers. Alternative charter schools typically have 50% fewer teachers than district high schools of comparable size, offer far fewer electives, and have limited support staffs.
The question is: Do at-risk students that have failed in other academic settings benefit from a school with a stripped down curriculum, fewer teachers, and support staff? Or do owners benefit from not having to pay for better classroom instruction and student support, since the state government is clearly not providing meaningful oversight how well alternative students are being educated? In Arizona the owners win. Big time.
Recommendations:
Why We Must Demand Charter Accountability: Part 1
10 Charter Holders Spent less than 85% of their revenue and netted over $25 million Last Year (Full report)
Ten charter owners netted over $25 million in 2018 by simply not spending their tax revenue. Four of the ten are alternative schools that serve the most at-risk students in the state. Two are D-F schools. But instead of hiring counselors or additional teachers to improve academic performance, the owners added millions to their bottom lines.
What does the Arizona State Board for Charter Schools say? They all meet the Board’s Financial Framework expectations - they are making money and are successful businesses. We think each school should be thoroughly investigated and audited.
There is nothing wrong with having a little cushion – charters average having 4% of revenue left over at the end of the year and public districts are allowed to have and annual 4% carry over. The ten schools in question put $25 million in the bank.
The worst are:
The four other charters spending less than 85% of their revenue that netted over $1millon in 2018 are:
The Legislature needs to rein in related party transactions, require the Charter Board to monitor charter spending, and give the Board the power to audit charter owner’s finances when they suspect fraud. Maybe charter schools are over funded – some seem to have a hard time spending tax funds in the classroom.
When a charter school looks more like organized crime than public education:
For-profit GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012 (Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities on their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High School. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took an AZ Merit English test – only 16 passed. Eighty-four took an AZ Merit math test –only 5 passed. That’s 2% of students passing state testing. But instead of hiring more teachers, counselors, or social workers to help increase student achievement, Meehan and Lopez pocketed millions.
The school’s auditor, Henry J. Fortino, didn’t see any problem with using state education funds this way. We complained to the Department of Education about the irregularities in AZ Merit testing – they told us to complain to the Charter Board. The Arizona State Board for Charter Schools did not question how GAR Inc. was spending tax funds.
If this happened at Scottsdale Unified, people would go to jail for years. For an Arizona charter school, this is just smart business. - the Charter Board gave GAR Inc. 100% passing ratings on their 2018 Financial Framework.
The Legislature must investigate the over funding of online schools that allows owners to pocket millions – Damian Creamer at Primavera Online made $5 million in 2018. Specific legislation is needed to require the Charter Board to monitor charter spending and mandate them to audit the books of schools like Student Choice – a money-making racket disguised as a public school.
Republican Bill Could Steal Millions From Teacher Salaries.
Sen Brophy-Mcgee’s SB 1345 would allow charter schools to pocket all Classroom Site Funds earmarked for teacher salaries.
Revenue raised by Prop 301 has been earmarked as Classroom Site Funds designed to help increase teacher salaries since it was passed in 2000. Twenty percent must go to increase teacher base pay, 40% to provide performance based compensation to teachers, and 40% to be used flexibly – most districts use this 40% to increase teacher salaries as well.
SB 1345, introduced by Republican Senator Kate Murphy-McGee and the identical HB 2563 introduced by Republican Rep. Michelle Udall, would allow districts and charters to spend all of the Classroom Site Funds in new ways – character education, tutoring, or to pay for ”the increased cost of additional school days that were enacted in 2000” (the school year was increased from 175 to 180 days in 2000 adding expenses in school operations). Schools can now plug Prop 301 funds anywhere in the budget to compensate for the money it has cost since 2000 to operate schools five days longer every year. Not a nickel has to go to teacher salaries.
Brophy-McGee’s legislation still mandates that school districts have a performance based teacher compensation system and it is likely that districts will continue to use Prop 301 money to bolster lagging teacher salaries.
But charter schools are not required to have the same performance based compensation system and many charter owners have simply not given Classroom Site Funds to their teachers. They have been unable to spend the unspent money every year on purposes other than teacher compensation and have had to carry over the funds, by law.
Now charter owners will be free to spend Classroom Site Funds to replace funds they would have spent to run the schools, increasing their bottom line. Worse, charters will be able to spend the money they refused to give to teachers over the years…to benefit themselves rather than the teaching staff.
The following eleven charter owners are sitting on over $16,600,000 in unspent Classroom Site Funds - money they will now be able to spend to increase profits if the Republican bill is passed (the * indicates online schools that have few teachers and use little available funds for salary increases).
(Spreadsheet with CSF breakdown for the eleven charters found here)
This is what Republicans are offering as transparency and accountability in Arizona charter schools – a free hand to pocket money that should be going into teacher salaries.
When a charter school looks more like organized crime than public education:
GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012
Arizonans for Charter School Accountability
(Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities in their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High Schol. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took%
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 signed up for courses and did not complete them.
Primavera Online is the most profitable charter school in Arizona. They made $10 million in profit in a single year (2016) and had a net gain of $59 million between 2009-2018. The owner, Damian Creamer, diverted an additional $147 million to his software company from 2009-2018 in the guise of licensing fees and management costs. As a comparison, the new Boeing 737 Max sells for $99.7 million.
Creamer began Primavera as a non-profit. Between 2009 and 2015 the non-profit accumulated assets of $45 million - the most of any charter in the state. In 2016 Creamer simply turned the business over to his for-profit company, the American Virtual Academy (which is owned by Creamer’s software company Flipswitch Inc.) and began collecting distributions of profit every year. Creamer has collected $10,775,158 in personal profits the last three years, and untold millions in compensation from FlipSwitch. The non-profit Primavera Technical Academy still has $46 million in tax funds sitting in the bank drawing interest ($3.2 million in 2017) - money Creamer uses to start new school ventures.
Achievement at Primavera is dismal. In 2018 only 393 students took an AzMerit high school English test and only 222 took a high school AzMerit math test. Out of 26,000 students that signed up for a Primavera class, 138 students passed the AzMerit high school English tests and 64 students passed high school math. Their 43% drop out rate is among the worst of any school in Arizona. Primavera is an alternative school so they have not received an A-F grade the last two years…they can’t be shut down because of achievement, but they pass every financial benchmark set by the charter board with flying colors - they are definitely in no danger of going out of business.
There is no regulation of online schools in Arizona, even though ARS 15-808 states: “The state board of education and state-approved charter authorizers shall develop annual reporting mechanisms for schools that participate in Arizona online instruction.”
The State Board of Education and the Charter Board have simply ignored the law and allow online charters owners, like Damian Creamer, to become multi-millionaires that provide “virtually” no education for Arizona students.
The Charter Board and the Auditor General will require charters to accurately report revenue and expenses - for the first time since 1994.
September 16, 2019
Charter owners have been allowed since 1994 to report revenue and expenses on their required budgets and Annual Financial Reports in any manner they saw fit:
- The American Leadership Academy (ALA) didn’t report millions in athletic revenue and expenses and ran food service and bus fee programs off the books for years – with impunity.
- Great Hearts has never reported any expenses for Student Support since they opened in 2003 – costs for nurses, health aides, counselors, attendance clerks, etc. even though they have these positions in their schools. They simply code these expenses in other places – possibly padding classroom instruction spending to make it look like more money is going to the classroom than actually is.
- BASIS arbitrarily shifted $12 million from administrative spending in 2018 to Instructional Support (curriculum development and staff training for instructional staff, library/media services, instruction-related technology, and academic student assessment). BASIS Scottsdale spent $273,000 for these services in 2017. In 2018 BASIS Scottsdale claims they spent $1,029,000 for Instructional Support - while administrative spending plummeted. Nonsense.
For years the Charter Board has claimed they have no jurisdiction over charter reporting on financial reports. Dozens of complaints against charters misreporting expenditures have been closed by the Charter Board with this statement:
“Issues with the amounts disclosed on the Annual Financial Report are issues that must be raised with ADE which oversees the AFR. The matters at hand do not raise an issue of violation of law or the charter contract; therefore, the complaint is now closed”.
It is pointless to gather financial information if all schools, district and charter, are not uniformly reporting revenue and expenditures. Recent complaints by Arizonans for Charter School Accountability pointed out that all charter contracts require charter owners to report revenue and expenditures on financial reports based on the standard budget line codes used by all schools in Arizona prescribed by the Unified System for Financial Reporting (USFR). Charter contracts require charters to make “crosswalks” between their accounting systems and the object codes required by the USFR when completing financial reports. What ALA, Great Hearts, and BASIS are doing is in violation of their contracts and they should be sanctioned.
The Charter Board finally acknowledged that charter holders are required to report spending based on USFR codes in their August 2019 Newsletter stating charters must:
1. Utilize a chart of accounts that has been developed to align with the chart of accounts found in the USFRCS for the purposes of complying with budgeting and annual financial reporting (i.e., the Budget and AFR)
2. To be responsible for any “cross-walks” necessary to complete reporting requirements. This means if the charter holder uses a chart of accounts other than the one prescribed in the USFRCS, then the charter holder must “cross-walk” its account codes to those used in the USFRCS when completing the annual Budget and AFR submitted to the Arizona Department of Education.
The Office of the Auditor General (OAG) included similar guidelines for the completion of the upcoming 2019 Annual Financial Report:
Charters that are exempted from all or part of the Uniform System of Financial Records for Arizona Charter Schools (USFRCS) in accordance with A.R.S. §15-183(E)(6) must use an accounting system that provides for the proper recording and reporting of financial data using USFRCS revenue and expense object codes.
We have been requesting the inclusion of these statements by the OAG and Charter Board for years- without effect.
So what happened to ALA, Great Hearts and BASIS for systematically failing to follow the law all these years? Nothing. In fact there is no record that they were notified by the Charter Board that a complaint was even filed against them. The Charter Board seems to have a policy that dismisses wrongdoing if charters just change their ways. Try this with a policeman, IRS, or your spouse and see what happens…
The Attorney General, through the Ombudsman Office, needs to investigate the Arizona State Board for Charter Schools for failing to hold large, powerful charter companies responsible for following state law.
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Unfunded Mandate? Do What The Arizona Department of Education Does: Just Ignore It!
(Full report)
(Complaint submitted to the Ombudsman Office)
Schools are plagued with unfunded mandates – for example, they are required to serve all special education students but are underfunded by over $100 million a year to do so. The list goes on and on.
The Arizona Department of Education (ADE), on the other hand, has simply ignored the requirements for school report cards prescribed in ARS 15-746 for the last twenty years on the pretext that the state has not supplied funds to implement it.
Arizona School Report Cards have historically been where you find AzMerit test results and A-F Grades for schools. In December 2018 ADE announced a new School Report Card that includes information about enrollment, teacher experience, graduation rates, and student discipline in addition to state test results to meet the requirements of the federal Every Student Succeeds Act (ESSA) – required in order to continue to receive federal funds.
Here’s what Superintendent Diane Douglas said about the new School Report Card at the December 10, 2018 meeting of the Arizona State Board for Charter Schools:
“There are federal mandates and state report card mandates. The report we will be releasing is the Federal version because, as of yet, there has not been funding from the State to fulfill the requirements for the state report card mandate.”
The state mandate requiring school report cards is ARS 15-746 that was passed in the late 1990’s. The statue provides a comprehensive list of important information about every school to be sent home with students and posted by ADE, including education programs offered, three years of test results, class sizes, pupil teacher ratios, social services offered, expenditures for classroom instruction, supplies, and administration, transportation services, etc. None of this data is provided in the new School Report Card.
State agencies do not have the authority to ignore state laws because they are unfunded mandates. The 2018 Agency Handbook prepared by Arizona Attorney General Mark Brnovich notes that “ Public officials may not violate the plain terms of a statute because in their opinion better results will be attained by doing so. They have but one duty, and that is to enforce the law as it is written, and, if the effect of their action is disastrous, the responsibility is upon the Legislature and not upon them.
The Arizona Department of Education, under the direction of the Superintendent of Public Instruction, has blatantly refused to provide parents with critical data required in making informed school choices by failing to fulfill the mandate of ARS 15-746 since 1999. Arizonans for Charter School Accountability has requested that the Arizona Ombudsman Office investigates ADE and require the new Superintendent of Public Instruction to follow state law.
If this does not occur – every state agency (including school districts) should be given the license to only comply with the statutes that meet officials’ political agendas or that they believe are properly funded - like the Department of Education has done for the last twenty years with School Report Cards.
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More Education Funding is Needed NOW:
District schools go unrepaired and teachers underpaid…
To finance charter real estate empires
(Full report)
Since 2008, public districts have struggled to keep buildings safe for kids while new, elegant charter buildings have sprung up everywhere in Metro Phoenix suburbs- allowing charter owners, like Republican Senator Eddie Farnsworth, to become multi-millionaires. New data, from the recently released 2018 Annual Report of the Superintendent of Public Instruction, explains how this happened: charter schools are getting $916/pupil more in state funds since 2008 while districts are receiving $213/pupil LESS in 2018 than they received from the state in 2008.
Public district schools have had billions of dollars cut from their budgets since 2008 when the legislature drastically reduced district capital funding – money used to repair buildings and purchase textbooks and computers.
Charter schools received a 14% boost in state funding since 2008 and the money went straight into new land and buildings, not in South Phoenix or Maryvale, but in Scottsdale, Gilbert, and Chandler. Charter holders have added $1,400,000,000 in new land, buildings and equipment since 2008, almost all of it in suburban Metro Phoenix and Tucson.
Some charter owners have used increasing state funds to build schools and then sell them to non-profits they create for a huge profit – while still keeping control of the schools. The worst examples include Leona Group owner Bill Coats - $24 million, ALA founder Glenn Way $37 million, and Republican Senator Eddie Farnsworth $13.7 million profit – all still running the schools through their management companies.
School choice, in the form of charter schools, is very expensive. Every student that moved from a district school to a charter school in 2018 cost the state an additional $3,337/pupil in state education funds because districts receive an average of 44% of their revenue from local property taxes while charters receive all revenue from the state. A student that moves from Scottsdale Unified ($1,788/pupil in state funds) to a charter school ($7,309/pupil) costs the state an additional $5,521/pupil.
Public district schools have far more at-risk and poor students than charter schools. District class size has increased dramatically since 2008. Poor teacher pay has eroded the number of qualified teachers in district classrooms and buildings are in disrepair.
Well -funded charter schools have small class sizes, new buildings, and far fewer of “those” students. Does anyone think this is a Republican “accident”?
Charter schools are here to stay in Arizona, no question. But other states limit the growth of charter schools by having strict rules on where and how many charters can be opened every year. Arizona Republicans feel just the opposite - more charter schools provide greater school choice to their constituents in affluent suburbs while the public districts that educate all students are left struggling to educate at-risk kids, fix leaky roofs and are forced to watch hundreds of teachers leave the classroom for jobs that pay a living wage.
Arizona’s teachers are among the lowest paid in the U.S. partly because Republicans have shifted state public education funds to charter schools since 2008. Red4Ed - don’t give up the fight to adequately fund public districts.
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Why Is BASIS Losing Money?
BASIS Administrative Costs and Debt Skyrocket 2016-2018
While Parents Pay 41% of Teacher Salaries (Full Report)
We reported last week that BASIS Schools lost a $12 million in 2018 and are now $43 million in the red - but still borrowed $117 million and are expanding to Baton Rouge, LA. (See report that follows)
Where is the money going?
Not into the classroom. Total instructional expenses went up just 5% between 2016 and 2018 ($3,621/pupil to $3,803/pupil) while administrative costs went up 18% and plant maintenance and debt went up 68% over the same time period.
Shockingly, BASIS spending for instructional support (money spent on curriculum directors, staff training, and student testing) increased 220% to over $1000/pupil in 2018. BASIS Phoenix South Primary spent $2,645/pupil on instructional support in 2018. The average charter school in Arizona only spends $183/pupil on instructional support.
BASIS Scottsdale spent over $1 million on instructional support in 2018 - $587,000 just on salaries. Thing is…BASIS Scottsdale had no instructional support salaries in 2017. Did BASIS hire ten new staff at over $50,000/year at one school to oversee curriculum and testing?? Overall, BASIS claims to have spent $11 million on instructional support in 2018…enough to hire 200 people at $50,000/year.
We believe BASIS reported administrative costs as instructional support in 2018 to make it appear that management expenditures were going down. We have asked to Charter Board to look into the possibility that BASIS submitted fraudulent spending numbers on their 2018 Annual Financial Reports to hide management spending.
Classroom spending went up just $183/pupil between 2016 and 2017 while spending for instructional support, administration and facilities increased by over $1,700/pupil. It is safe to say that massive debt and increasing administration costs charged by Michael Block’s management company, BASIS.ed Inc., are burying BASIS Schools in crushing debt, unfortunately, on the backs of BASIS parents.
The total salaries of all BASIS teachers in 2018, including base salaries, overtime, and additional compensation, such as Prop 301 Classroom Site Funds and stipends for extra-curricular activities was $44,859,325. Parents paid $18,400,064 in fees and donations in 2018, providing BASIS with 41% of the total cost of teacher salaries.
Parents subsidized the cost of teacher salaries allowing BASIS to shift $58,101,419 to administrative costs and facilities, 48% of total expenditures, while only spending 37% of all funds on teacher salaries.
A note to BASIS parents – the money you give BASIS Schools in fees and donations enables them to build a multi-state real estate empire and pay exorbitant salaries to BASIS owners and executives.
We could be in error. Maybe Michael Brock would like to share the corporate finances of BASIS.ed Inc. to prove us wrong….
BASIS Sinks Further Into The Abyss
Arizona BASIS Schools Lost $12 million in 2018 and are $43 million in the red:
So they borrowed $117 million to stay afloat…and collected $18 million from parents
(Full report)
BASIS Schools lost $12 million in 2018 to create a $43 million total deficit - more than any charter chain in Arizona… by far. They still have $17 million cash to keep the schools open – largely as the result on borrowing $117 million to refinance old loans. And yes, BASIS kept expanding - $16 million in new debt went to build a school in Baton Rouge LA with Arizona schools and income as collateral.
BASIS executives like to argue that they are simply refinancing debt to get lower interest rates and the red ink is caused by having to pay substantial prepayment penalties for the new loans.
The problem is far deeper than refinancing debt. BASIS Schools in Arizona, Texas, and Washington D.C. have lost money 5 of the last six years to the tune of -$17 million, but the majority of the red ink came from simply spending more than their revenue, not refinancing costs.
BASIS Schools in Arizona overspent their revenue by $7.8 million in 2018. BASIS Ahwatukee and BASIS Prescott lost over $ 1 million each last year. Imagine a single school of less than 700 students overspending their budget by $1 million.
Oddly, the three BASIS schools in Texas and the school in Washington D.C. made money last year and have $4.8 million in total positive assets, while leaving the BASIS Arizona schools with the $5,015,013 in prepayment penalties to get the $177 million in new bonds:
Imagine where BASIS would be if they didn’t aggressively seek parent donations and charge additional fees for countless items. BASIS raised over $18,000,000 in parent fees and donations - $1,541/pupil in 2018. The BASIS plea for donations might be: “We can’t operate our schools efficiently – please give us $1,500 so we can at least get our $16 million management fee.”
It is amazing that bond speculators were still willing to lend BASIS $117 million last year with BASIS losing an average of $10 million a year over the last three years. The Arizona State Board for Charter Schools sees no problem either. Even though BASIS fails to meet board financial expectations in two categories, the Charter Board will not look into BASIS finances or require any response from them regarding their financial position as long as they don’t seek to expand enrollment caps or add new schools – in Arizona.
Here’s what your financial advisor would tell you if your personal finances were like those at BASIS:
“You can’t borrow your way out of debt, you’ll only dig yourself deeper. Make a budget and stick to it. Cut out non-essentials until the debt is reduced to manageable levels.” BASIS must believe they have a sounder business model.
BASIS Charter Schools lose huge amounts of money every year, even after soaking parents for $18 million in additional funds. On a positive note, BASIS founder Michael Brock still collected $16.7 million in management fees in 2018. The New York City condo HOA fees must be killing him…
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When Charter Schools Look More Like Organized Crime Than Public Education:
Collusion between American Leadership Academy and their auditor leaves millions unaccounted for
(Full report with exhibits and sources)
Let’s say a secretive businessman owns a legitimate company but runs several other businesses “off the books” to avoid public scrutiny. His legitimate business also makes payments to various vendors that are actually shell companies he has formed. He has a bookkeeper that keeps two sets of books and is paid to disclose as little as possible about the legitimate company while hiding revenue made by his shell companies and off the books enterprises.
Is our secretive businessman a mob boss, perhaps? Unfortunately no. Glenn Way, the founder of American Leadership Academy has been doing all of the above since 2012, with the assistance of his auditor Joel D. Huber. While every penny of public money is scrutinized in public school districts, charter schools are free to run businesses that look more like organized crime than public education.
Arizonans for Charter School Accountability believes that the American Leadership Academy (ALA), with the assistance of their long time auditor Joel D. Huber, have systematically and secretly utilized tax funds, student activity fees, bus fees, food service revenue, athletic program revenue, and public donations for the benefit of the charter owner rather than the schools, in violation of ARS. 13-1818.
Auditor Joel D. Huber has also failed to disclose any related party transactions made by ALA 2012-2017 on both annual audits and IRS 990 submissions, transactions that totaled over $30 million in 2017.
Simply stated, ALA has collected millions from parents 2012-2017 in the form of bus fees, lunch payments, student activity fees, and athletic program income that has not been reported in audits or on IRS non-profit 990 submissions by their auditor, Joel Huber. ALA has never listed expenditures for food service, extra-curricular activities, or athletics 2012-2017. They are also not forthcoming about many expenditures, claiming to spend nothing on student support (even though they have nurse’s aides and counselors that are supposed to be paid out of student support), instructional support or any supplies other than instructional supplies. The Charter Board has allowed these omissions since 2012.
New information made available on two 2017 ALA IRS 990 submissions indicate that 80% of ALA’s expenditures actually went to companies owned by Glenn Way, when their auditor had claimed there were no related party transactions of any kind on the ALA 2017 audit and 990. Way has received payments for personnel and management since 2011 - $23 million in 2017. His real estate companies collected $8.7 million in rent payments, and he sold a piece of land to ALA for $3.6 million in 2017. Joel Huber only disclosed the management payment in this revised 2017 990 form, hiding the rental payments and land purchase by Glenn Way. Huber finally revealed that three ALA board members, including Way, received six figure salaries from the related party management company. Huber listed none of these payments or salaries on the 2017 ALA audit .
Joel Huber worked with Glenn Way to hide $30 million in related party transactions made to companies owned by Way. It appears that Joel Huber also colluded with the management of ALA to hide millions in revenue and expenses for transportation fees, food service, extra-curricular activities and athletic programs by failing to report this income on both annual audits and IRS 990 submissions 2012-2017. ALA has, in essence, been running these programs “off the books” without disclosure of revenue or expenses, possibly for the financial benefit of the owners and facilitated by the lack of disclosure provided by their auditor.
Millions in unaccounted public funds at ALA cannot be explained or recovered unless a complete and accurate audit of their financial records is performed by an unbiased state auditor. To prevent future abuse, the Charter Board should conduct state audits of random charter schools to put audit firms on notice that their work might be actually be scrutinized.
The Arizona State Board of Accountancy has been contacted regarding the actions of Joel Huber. The Attorney General has an obligation to investigate charter holders that are misappropriating public funds under ARS 13-1818. Misuse of over $25,000 is a class 4 felony under this law. ALA has potentially misappropriated millions. A complete financial audit is called for.
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School Board Meetings Are A Joke At Charter Schools
19 Great Hearts Schools held one board meeting this school year - most lasted less than five minutes
(Full report)
Charter school boards only are required by state law to make policy decisions. Many charters, like Great Hearts Academies, do not allow school boards to even make informed policy decisions. 19 Great Hearts Schools had the only governing board meeting of the school year on December 4, 2018. All had the same agenda and were individually held telephonically at the Great Hearts Lead Office at 4801 E. Washington St., Suite 250 in Phoenix. The 19 board meetings were completed between 9:04 AM and 11:31 AM with 8 taking three minutes or less to complete.
If all the schools had the same board members, it would be conceivable that these meetings could be run back to back like this. But the schools, for the most part, have completely different school board members. There were 52 different board members on the phone and somehow 7 meetings were started at the same time the last meeting ended (two started before the prior meeting ended). If you have ever been a part of a telephonic meeting with 5-7 people on the phone, you have surely experienced the cumbersome task of getting everyone’s feedback in this way. Great Hearts ran the entire Archway Scottsdale board meeting with six participants on the phone in just 3 minutes. It would take us that long to call the roll.
The 19 schools boards all unanimously approved the same items:
Great Hearts, and other large charter chains, purposely make board meetings into a race to adjourn, avoiding proper consideration of policies and rubber-stamping the will of the corporate board. Local needs and concerns of individual schools are not addressed at charter school board meetings – only the lock-step approval of corporate policies. All real decisions – expenditures, hiring and firing, student discipline, and even curriculum are made in secret by the corporate board. The process is cynical and arrogant.
The Legislature needs to step up and address the secrecy of governance in charter schools. SB 1394, that is making its way through the legislative process, requires school board members to not all be family members and mandates training on procurement and discipline – activities charter schools boards take no part in. It is smoke and mirrors written by the Charter Association to allow charter corporate boards to continue to make all decisions in secret. Charter school boards should either be given authority to make operational decisions for the schools or be eliminated… saving Great Hearts a couple of hours a year in pretend school board meetings.
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Millions Are Wasted When Charter Owners Don’t Follow Procurement Laws
(Full Report)
The problem with charter schools not following procurement rules is far more pervasive than one-time sell offs that enrich owners, like the $12 million payday Republican Eddie Farnsworth had last year selling his schools’ buildings. When charter owners don’t have to gets bids for purchases or have their expenditures approved by school boards in public meetings, it opens the door to “self-dealing” - in essence buying goods and services from yourself at an unknown markup. The accounting term is “related party transactions”.
The following are charter schools that exemplify the self-dealing that is costing taxpayers millions every year and enriching charter owners.
Imagine Inc. are the masters of self-dealing. The national chain Imagine Inc. provides all operations, employees, and facilities to the 20 Imagine schools. Imagine Inc. charges their schools (themselves) “loss mitigation” insurance for 1% of revenue to help pay for their mismanagement if the schools run a deficit. They provide the schools “start-up loans” – Imagine Avondale Elementary’s $200,000 start-up loan from Imagine Inc. (themselves) is for 20 years at 10.5% interest. That works out to $30,000/year and $600,000 over the twenty years of the loan. Family members of Imagine Inc. executives are paid thousands to provide “services” to the schools - $11,200 for grant writing at Imagine Avondale for example.
Southgate Academy - Self-dealing is commonplace in small Arizona charter schools as well. Southgate Academy (enrollment 469 students) made a questionable $ 4 million real estate deal with a company owned by one of the school’s board members that ended with the board member getting $650,000 in interest payments and taking back ownership of the property free and clear.
Management companies – 186 charters have related party management companies. Owners of dozens of small charters form management companies and pay themselves to “manage” the school. Many charters also lease their facilities from companies owned by the charter holder – all for an unknown markup.
Other self-dealing schemes:
- GAR LLC purchased a vehicle from the son of a member for $16,500
- American Basic Schools owners formed SafeTrans LLC to maintain their buses but their auditor found they overpaid themselves $157,740 for services they didn’t receive in 2016. Paying yourself $157,000 for non-existent services sure looks like a red flag that should trigger a full audit by the state, but the Charter Board did nothing. In fact, no charter has ever been audited by a state agency since 1996.
Thank goodness the charter’s auditors report all of this self-dealing – or do they?
One of the biggest charter paydays came this year when Glenn Way, owner of American Leadership Academies (ALA), sold the schools owned by his real estate company to the charter school for an $18 million profit. Unfortunately, ALA’s auditor, Joel D. Huber, never revealed that Way’s real estate company, Schoolhouse Development LLC, was renting the schools to ALA for $8 million/year. We have filed formal complaints against Joel D. Huber with the Arizona State Board of Accountancy and they are investigating the charges. If this auditor can ignore $8 million in related party transactions, how many other self-dealing schemes are out there we know nothing about?
Charter owners should not be able to use tax funds as a personal checkbook. The Legislature must require charter owners to follow procurement laws and the Arizona State Board for Charter Schools must be given the authority to audit charters making inappropriate expenditures of tax funds.
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Why We Must Demand Charter Accountability: Part 2
Alternative Charters are a Path to Riches
Seventy percent of charters spending more on both management and real estate than classroom instruction are Alternative Schools (Full report)
Educators, politicians, and parents would all agree that tax funds for education should be spent primarily in the classroom on teachers, teacher aides, and classroom supplies. Twenty charter holders in the state, however, put almost no money in the classroom – they spend most of their revenue on management and real estate. Fourteen of these pathetic charter schools are alternative schools. Six are managed by one of the largest charter holders in the state, the Leona Group.
Alternative schools serve the most at-risk students in Arizona – students with histories of disruption, returning dropouts, students more than a year behind in credits, primary care givers, adjudicated, and foster kids. Alternative schools primarily serve minority students – 91% of alternative charter schools have a higher minority population than the average charter school. Alternative charters are only in session 144 days per school year instead of the standard 180 days, yet receive the same funding as other charter schools. There are no A-F grades for alternative charter schools, so they have no academic accountability. The Arizona State Board for Charter Schools cannot close alternative schools for academic deficiencies.
Students in alternative schools need an incredible amount of support to be successful – counselors, social workers, tutors, small class sizes, and an engaging curriculum. You would think it would be more expensive to educate students that couldn’t make it in regular schools but instead, most alternative charter schools have limited facilities with fewer teachers and support staff than regular schools. As a result, alternative charter schools are making millions for their owners instead of educating students. The Charter Board does not monitor charter spending, so they don’t know there is a problem.
Summary:
Of 75 alternative charter schools in Arizona:
The reason alternative charter schools can spend so little on classroom instruction is simple – they are worlds apart from traditional district high schools yet receive $1,770-$2,000 more per pupil from the state than a district school. The storefront charter schools you see in strip malls are likely alternative online charter high schools. They receive more funds per pupil than a district high school with 40 acres of buildings and fields. Brick and mortar, non-online alternative charter schools also have limited programs and few teachers. Alternative charter schools typically have 50% fewer teachers than district high schools of comparable size, offer far fewer electives, and have limited support staffs.
The question is: Do at-risk students that have failed in other academic settings benefit from a school with a stripped down curriculum, fewer teachers, and support staff? Or do owners benefit from not having to pay for better classroom instruction and student support, since the state government is clearly not providing meaningful oversight how well alternative students are being educated? In Arizona the owners win. Big time.
Recommendations:
Why We Must Demand Charter Accountability: Part 1
10 Charter Holders Spent less than 85% of their revenue and netted over $25 million Last Year (Full report)
Ten charter owners netted over $25 million in 2018 by simply not spending their tax revenue. Four of the ten are alternative schools that serve the most at-risk students in the state. Two are D-F schools. But instead of hiring counselors or additional teachers to improve academic performance, the owners added millions to their bottom lines.
What does the Arizona State Board for Charter Schools say? They all meet the Board’s Financial Framework expectations - they are making money and are successful businesses. We think each school should be thoroughly investigated and audited.
There is nothing wrong with having a little cushion – charters average having 4% of revenue left over at the end of the year and public districts are allowed to have and annual 4% carry over. The ten schools in question put $25 million in the bank.
The worst are:
The four other charters spending less than 85% of their revenue that netted over $1millon in 2018 are:
The Legislature needs to rein in related party transactions, require the Charter Board to monitor charter spending, and give the Board the power to audit charter owner’s finances when they suspect fraud. Maybe charter schools are over funded – some seem to have a hard time spending tax funds in the classroom.
When a charter school looks more like organized crime than public education:
For-profit GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012 (Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities on their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High School. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took an AZ Merit English test – only 16 passed. Eighty-four took an AZ Merit math test –only 5 passed. That’s 2% of students passing state testing. But instead of hiring more teachers, counselors, or social workers to help increase student achievement, Meehan and Lopez pocketed millions.
The school’s auditor, Henry J. Fortino, didn’t see any problem with using state education funds this way. We complained to the Department of Education about the irregularities in AZ Merit testing – they told us to complain to the Charter Board. The Arizona State Board for Charter Schools did not question how GAR Inc. was spending tax funds.
If this happened at Scottsdale Unified, people would go to jail for years. For an Arizona charter school, this is just smart business. - the Charter Board gave GAR Inc. 100% passing ratings on their 2018 Financial Framework.
The Legislature must investigate the over funding of online schools that allows owners to pocket millions – Damian Creamer at Primavera Online made $5 million in 2018. Specific legislation is needed to require the Charter Board to monitor charter spending and mandate them to audit the books of schools like Student Choice – a money-making racket disguised as a public school.
Republican Bill Could Steal Millions From Teacher Salaries.
Sen Brophy-Mcgee’s SB 1345 would allow charter schools to pocket all Classroom Site Funds earmarked for teacher salaries.
Revenue raised by Prop 301 has been earmarked as Classroom Site Funds designed to help increase teacher salaries since it was passed in 2000. Twenty percent must go to increase teacher base pay, 40% to provide performance based compensation to teachers, and 40% to be used flexibly – most districts use this 40% to increase teacher salaries as well.
SB 1345, introduced by Republican Senator Kate Murphy-McGee and the identical HB 2563 introduced by Republican Rep. Michelle Udall, would allow districts and charters to spend all of the Classroom Site Funds in new ways – character education, tutoring, or to pay for ”the increased cost of additional school days that were enacted in 2000” (the school year was increased from 175 to 180 days in 2000 adding expenses in school operations). Schools can now plug Prop 301 funds anywhere in the budget to compensate for the money it has cost since 2000 to operate schools five days longer every year. Not a nickel has to go to teacher salaries.
Brophy-McGee’s legislation still mandates that school districts have a performance based teacher compensation system and it is likely that districts will continue to use Prop 301 money to bolster lagging teacher salaries.
But charter schools are not required to have the same performance based compensation system and many charter owners have simply not given Classroom Site Funds to their teachers. They have been unable to spend the unspent money every year on purposes other than teacher compensation and have had to carry over the funds, by law.
Now charter owners will be free to spend Classroom Site Funds to replace funds they would have spent to run the schools, increasing their bottom line. Worse, charters will be able to spend the money they refused to give to teachers over the years…to benefit themselves rather than the teaching staff.
The following eleven charter owners are sitting on over $16,600,000 in unspent Classroom Site Funds - money they will now be able to spend to increase profits if the Republican bill is passed (the * indicates online schools that have few teachers and use little available funds for salary increases).
(Spreadsheet with CSF breakdown for the eleven charters found here)
This is what Republicans are offering as transparency and accountability in Arizona charter schools – a free hand to pocket money that should be going into teacher salaries.
When a charter school looks more like organized crime than public education:
GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012
Arizonans for Charter School Accountability
(Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities in their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High Schol. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took%
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 signed up for courses and did not complete them.
Primavera Online is the most profitable charter school in Arizona. They made $10 million in profit in a single year (2016) and had a net gain of $59 million between 2009-2018. The owner, Damian Creamer, diverted an additional $147 million to his software company from 2009-2018 in the guise of licensing fees and management costs. As a comparison, the new Boeing 737 Max sells for $99.7 million.
Creamer began Primavera as a non-profit. Between 2009 and 2015 the non-profit accumulated assets of $45 million - the most of any charter in the state. In 2016 Creamer simply turned the business over to his for-profit company, the American Virtual Academy (which is owned by Creamer’s software company Flipswitch Inc.) and began collecting distributions of profit every year. Creamer has collected $10,775,158 in personal profits the last three years, and untold millions in compensation from FlipSwitch. The non-profit Primavera Technical Academy still has $46 million in tax funds sitting in the bank drawing interest ($3.2 million in 2017) - money Creamer uses to start new school ventures.
Achievement at Primavera is dismal. In 2018 only 393 students took an AzMerit high school English test and only 222 took a high school AzMerit math test. Out of 26,000 students that signed up for a Primavera class, 138 students passed the AzMerit high school English tests and 64 students passed high school math. Their 43% drop out rate is among the worst of any school in Arizona. Primavera is an alternative school so they have not received an A-F grade the last two years…they can’t be shut down because of achievement, but they pass every financial benchmark set by the charter board with flying colors - they are definitely in no danger of going out of business.
There is no regulation of online schools in Arizona, even though ARS 15-808 states: “The state board of education and state-approved charter authorizers shall develop annual reporting mechanisms for schools that participate in Arizona online instruction.”
The State Board of Education and the Charter Board have simply ignored the law and allow online charters owners, like Damian Creamer, to become multi-millionaires that provide “virtually” no education for Arizona students.
The Charter Board and the Auditor General will require charters to accurately report revenue and expenses - for the first time since 1994.
September 16, 2019
Charter owners have been allowed since 1994 to report revenue and expenses on their required budgets and Annual Financial Reports in any manner they saw fit:
- The American Leadership Academy (ALA) didn’t report millions in athletic revenue and expenses and ran food service and bus fee programs off the books for years – with impunity.
- Great Hearts has never reported any expenses for Student Support since they opened in 2003 – costs for nurses, health aides, counselors, attendance clerks, etc. even though they have these positions in their schools. They simply code these expenses in other places – possibly padding classroom instruction spending to make it look like more money is going to the classroom than actually is.
- BASIS arbitrarily shifted $12 million from administrative spending in 2018 to Instructional Support (curriculum development and staff training for instructional staff, library/media services, instruction-related technology, and academic student assessment). BASIS Scottsdale spent $273,000 for these services in 2017. In 2018 BASIS Scottsdale claims they spent $1,029,000 for Instructional Support - while administrative spending plummeted. Nonsense.
For years the Charter Board has claimed they have no jurisdiction over charter reporting on financial reports. Dozens of complaints against charters misreporting expenditures have been closed by the Charter Board with this statement:
“Issues with the amounts disclosed on the Annual Financial Report are issues that must be raised with ADE which oversees the AFR. The matters at hand do not raise an issue of violation of law or the charter contract; therefore, the complaint is now closed”.
It is pointless to gather financial information if all schools, district and charter, are not uniformly reporting revenue and expenditures. Recent complaints by Arizonans for Charter School Accountability pointed out that all charter contracts require charter owners to report revenue and expenditures on financial reports based on the standard budget line codes used by all schools in Arizona prescribed by the Unified System for Financial Reporting (USFR). Charter contracts require charters to make “crosswalks” between their accounting systems and the object codes required by the USFR when completing financial reports. What ALA, Great Hearts, and BASIS are doing is in violation of their contracts and they should be sanctioned.
The Charter Board finally acknowledged that charter holders are required to report spending based on USFR codes in their August 2019 Newsletter stating charters must:
1. Utilize a chart of accounts that has been developed to align with the chart of accounts found in the USFRCS for the purposes of complying with budgeting and annual financial reporting (i.e., the Budget and AFR)
2. To be responsible for any “cross-walks” necessary to complete reporting requirements. This means if the charter holder uses a chart of accounts other than the one prescribed in the USFRCS, then the charter holder must “cross-walk” its account codes to those used in the USFRCS when completing the annual Budget and AFR submitted to the Arizona Department of Education.
The Office of the Auditor General (OAG) included similar guidelines for the completion of the upcoming 2019 Annual Financial Report:
Charters that are exempted from all or part of the Uniform System of Financial Records for Arizona Charter Schools (USFRCS) in accordance with A.R.S. §15-183(E)(6) must use an accounting system that provides for the proper recording and reporting of financial data using USFRCS revenue and expense object codes.
We have been requesting the inclusion of these statements by the OAG and Charter Board for years- without effect.
So what happened to ALA, Great Hearts and BASIS for systematically failing to follow the law all these years? Nothing. In fact there is no record that they were notified by the Charter Board that a complaint was even filed against them. The Charter Board seems to have a policy that dismisses wrongdoing if charters just change their ways. Try this with a policeman, IRS, or your spouse and see what happens…
The Attorney General, through the Ombudsman Office, needs to investigate the Arizona State Board for Charter Schools for failing to hold large, powerful charter companies responsible for following state law.
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Unfunded Mandate? Do What The Arizona Department of Education Does: Just Ignore It!
(Full report)
(Complaint submitted to the Ombudsman Office)
Schools are plagued with unfunded mandates – for example, they are required to serve all special education students but are underfunded by over $100 million a year to do so. The list goes on and on.
The Arizona Department of Education (ADE), on the other hand, has simply ignored the requirements for school report cards prescribed in ARS 15-746 for the last twenty years on the pretext that the state has not supplied funds to implement it.
Arizona School Report Cards have historically been where you find AzMerit test results and A-F Grades for schools. In December 2018 ADE announced a new School Report Card that includes information about enrollment, teacher experience, graduation rates, and student discipline in addition to state test results to meet the requirements of the federal Every Student Succeeds Act (ESSA) – required in order to continue to receive federal funds.
Here’s what Superintendent Diane Douglas said about the new School Report Card at the December 10, 2018 meeting of the Arizona State Board for Charter Schools:
“There are federal mandates and state report card mandates. The report we will be releasing is the Federal version because, as of yet, there has not been funding from the State to fulfill the requirements for the state report card mandate.”
The state mandate requiring school report cards is ARS 15-746 that was passed in the late 1990’s. The statue provides a comprehensive list of important information about every school to be sent home with students and posted by ADE, including education programs offered, three years of test results, class sizes, pupil teacher ratios, social services offered, expenditures for classroom instruction, supplies, and administration, transportation services, etc. None of this data is provided in the new School Report Card.
State agencies do not have the authority to ignore state laws because they are unfunded mandates. The 2018 Agency Handbook prepared by Arizona Attorney General Mark Brnovich notes that “ Public officials may not violate the plain terms of a statute because in their opinion better results will be attained by doing so. They have but one duty, and that is to enforce the law as it is written, and, if the effect of their action is disastrous, the responsibility is upon the Legislature and not upon them.
The Arizona Department of Education, under the direction of the Superintendent of Public Instruction, has blatantly refused to provide parents with critical data required in making informed school choices by failing to fulfill the mandate of ARS 15-746 since 1999. Arizonans for Charter School Accountability has requested that the Arizona Ombudsman Office investigates ADE and require the new Superintendent of Public Instruction to follow state law.
If this does not occur – every state agency (including school districts) should be given the license to only comply with the statutes that meet officials’ political agendas or that they believe are properly funded - like the Department of Education has done for the last twenty years with School Report Cards.
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More Education Funding is Needed NOW:
District schools go unrepaired and teachers underpaid…
To finance charter real estate empires
(Full report)
Since 2008, public districts have struggled to keep buildings safe for kids while new, elegant charter buildings have sprung up everywhere in Metro Phoenix suburbs- allowing charter owners, like Republican Senator Eddie Farnsworth, to become multi-millionaires. New data, from the recently released 2018 Annual Report of the Superintendent of Public Instruction, explains how this happened: charter schools are getting $916/pupil more in state funds since 2008 while districts are receiving $213/pupil LESS in 2018 than they received from the state in 2008.
Public district schools have had billions of dollars cut from their budgets since 2008 when the legislature drastically reduced district capital funding – money used to repair buildings and purchase textbooks and computers.
Charter schools received a 14% boost in state funding since 2008 and the money went straight into new land and buildings, not in South Phoenix or Maryvale, but in Scottsdale, Gilbert, and Chandler. Charter holders have added $1,400,000,000 in new land, buildings and equipment since 2008, almost all of it in suburban Metro Phoenix and Tucson.
Some charter owners have used increasing state funds to build schools and then sell them to non-profits they create for a huge profit – while still keeping control of the schools. The worst examples include Leona Group owner Bill Coats - $24 million, ALA founder Glenn Way $37 million, and Republican Senator Eddie Farnsworth $13.7 million profit – all still running the schools through their management companies.
School choice, in the form of charter schools, is very expensive. Every student that moved from a district school to a charter school in 2018 cost the state an additional $3,337/pupil in state education funds because districts receive an average of 44% of their revenue from local property taxes while charters receive all revenue from the state. A student that moves from Scottsdale Unified ($1,788/pupil in state funds) to a charter school ($7,309/pupil) costs the state an additional $5,521/pupil.
Public district schools have far more at-risk and poor students than charter schools. District class size has increased dramatically since 2008. Poor teacher pay has eroded the number of qualified teachers in district classrooms and buildings are in disrepair.
Well -funded charter schools have small class sizes, new buildings, and far fewer of “those” students. Does anyone think this is a Republican “accident”?
Charter schools are here to stay in Arizona, no question. But other states limit the growth of charter schools by having strict rules on where and how many charters can be opened every year. Arizona Republicans feel just the opposite - more charter schools provide greater school choice to their constituents in affluent suburbs while the public districts that educate all students are left struggling to educate at-risk kids, fix leaky roofs and are forced to watch hundreds of teachers leave the classroom for jobs that pay a living wage.
Arizona’s teachers are among the lowest paid in the U.S. partly because Republicans have shifted state public education funds to charter schools since 2008. Red4Ed - don’t give up the fight to adequately fund public districts.
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Why Is BASIS Losing Money?
BASIS Administrative Costs and Debt Skyrocket 2016-2018
While Parents Pay 41% of Teacher Salaries (Full Report)
We reported last week that BASIS Schools lost a $12 million in 2018 and are now $43 million in the red - but still borrowed $117 million and are expanding to Baton Rouge, LA. (See report that follows)
Where is the money going?
Not into the classroom. Total instructional expenses went up just 5% between 2016 and 2018 ($3,621/pupil to $3,803/pupil) while administrative costs went up 18% and plant maintenance and debt went up 68% over the same time period.
Shockingly, BASIS spending for instructional support (money spent on curriculum directors, staff training, and student testing) increased 220% to over $1000/pupil in 2018. BASIS Phoenix South Primary spent $2,645/pupil on instructional support in 2018. The average charter school in Arizona only spends $183/pupil on instructional support.
BASIS Scottsdale spent over $1 million on instructional support in 2018 - $587,000 just on salaries. Thing is…BASIS Scottsdale had no instructional support salaries in 2017. Did BASIS hire ten new staff at over $50,000/year at one school to oversee curriculum and testing?? Overall, BASIS claims to have spent $11 million on instructional support in 2018…enough to hire 200 people at $50,000/year.
We believe BASIS reported administrative costs as instructional support in 2018 to make it appear that management expenditures were going down. We have asked to Charter Board to look into the possibility that BASIS submitted fraudulent spending numbers on their 2018 Annual Financial Reports to hide management spending.
Classroom spending went up just $183/pupil between 2016 and 2017 while spending for instructional support, administration and facilities increased by over $1,700/pupil. It is safe to say that massive debt and increasing administration costs charged by Michael Block’s management company, BASIS.ed Inc., are burying BASIS Schools in crushing debt, unfortunately, on the backs of BASIS parents.
The total salaries of all BASIS teachers in 2018, including base salaries, overtime, and additional compensation, such as Prop 301 Classroom Site Funds and stipends for extra-curricular activities was $44,859,325. Parents paid $18,400,064 in fees and donations in 2018, providing BASIS with 41% of the total cost of teacher salaries.
Parents subsidized the cost of teacher salaries allowing BASIS to shift $58,101,419 to administrative costs and facilities, 48% of total expenditures, while only spending 37% of all funds on teacher salaries.
A note to BASIS parents – the money you give BASIS Schools in fees and donations enables them to build a multi-state real estate empire and pay exorbitant salaries to BASIS owners and executives.
We could be in error. Maybe Michael Brock would like to share the corporate finances of BASIS.ed Inc. to prove us wrong….
BASIS Sinks Further Into The Abyss
Arizona BASIS Schools Lost $12 million in 2018 and are $43 million in the red:
So they borrowed $117 million to stay afloat…and collected $18 million from parents
(Full report)
BASIS Schools lost $12 million in 2018 to create a $43 million total deficit - more than any charter chain in Arizona… by far. They still have $17 million cash to keep the schools open – largely as the result on borrowing $117 million to refinance old loans. And yes, BASIS kept expanding - $16 million in new debt went to build a school in Baton Rouge LA with Arizona schools and income as collateral.
BASIS executives like to argue that they are simply refinancing debt to get lower interest rates and the red ink is caused by having to pay substantial prepayment penalties for the new loans.
The problem is far deeper than refinancing debt. BASIS Schools in Arizona, Texas, and Washington D.C. have lost money 5 of the last six years to the tune of -$17 million, but the majority of the red ink came from simply spending more than their revenue, not refinancing costs.
BASIS Schools in Arizona overspent their revenue by $7.8 million in 2018. BASIS Ahwatukee and BASIS Prescott lost over $ 1 million each last year. Imagine a single school of less than 700 students overspending their budget by $1 million.
Oddly, the three BASIS schools in Texas and the school in Washington D.C. made money last year and have $4.8 million in total positive assets, while leaving the BASIS Arizona schools with the $5,015,013 in prepayment penalties to get the $177 million in new bonds:
Imagine where BASIS would be if they didn’t aggressively seek parent donations and charge additional fees for countless items. BASIS raised over $18,000,000 in parent fees and donations - $1,541/pupil in 2018. The BASIS plea for donations might be: “We can’t operate our schools efficiently – please give us $1,500 so we can at least get our $16 million management fee.”
It is amazing that bond speculators were still willing to lend BASIS $117 million last year with BASIS losing an average of $10 million a year over the last three years. The Arizona State Board for Charter Schools sees no problem either. Even though BASIS fails to meet board financial expectations in two categories, the Charter Board will not look into BASIS finances or require any response from them regarding their financial position as long as they don’t seek to expand enrollment caps or add new schools – in Arizona.
Here’s what your financial advisor would tell you if your personal finances were like those at BASIS:
“You can’t borrow your way out of debt, you’ll only dig yourself deeper. Make a budget and stick to it. Cut out non-essentials until the debt is reduced to manageable levels.” BASIS must believe they have a sounder business model.
BASIS Charter Schools lose huge amounts of money every year, even after soaking parents for $18 million in additional funds. On a positive note, BASIS founder Michael Brock still collected $16.7 million in management fees in 2018. The New York City condo HOA fees must be killing him…
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When Charter Schools Look More Like Organized Crime Than Public Education:
Collusion between American Leadership Academy and their auditor leaves millions unaccounted for
(Full report with exhibits and sources)
Let’s say a secretive businessman owns a legitimate company but runs several other businesses “off the books” to avoid public scrutiny. His legitimate business also makes payments to various vendors that are actually shell companies he has formed. He has a bookkeeper that keeps two sets of books and is paid to disclose as little as possible about the legitimate company while hiding revenue made by his shell companies and off the books enterprises.
Is our secretive businessman a mob boss, perhaps? Unfortunately no. Glenn Way, the founder of American Leadership Academy has been doing all of the above since 2012, with the assistance of his auditor Joel D. Huber. While every penny of public money is scrutinized in public school districts, charter schools are free to run businesses that look more like organized crime than public education.
Arizonans for Charter School Accountability believes that the American Leadership Academy (ALA), with the assistance of their long time auditor Joel D. Huber, have systematically and secretly utilized tax funds, student activity fees, bus fees, food service revenue, athletic program revenue, and public donations for the benefit of the charter owner rather than the schools, in violation of ARS. 13-1818.
Auditor Joel D. Huber has also failed to disclose any related party transactions made by ALA 2012-2017 on both annual audits and IRS 990 submissions, transactions that totaled over $30 million in 2017.
Simply stated, ALA has collected millions from parents 2012-2017 in the form of bus fees, lunch payments, student activity fees, and athletic program income that has not been reported in audits or on IRS non-profit 990 submissions by their auditor, Joel Huber. ALA has never listed expenditures for food service, extra-curricular activities, or athletics 2012-2017. They are also not forthcoming about many expenditures, claiming to spend nothing on student support (even though they have nurse’s aides and counselors that are supposed to be paid out of student support), instructional support or any supplies other than instructional supplies. The Charter Board has allowed these omissions since 2012.
New information made available on two 2017 ALA IRS 990 submissions indicate that 80% of ALA’s expenditures actually went to companies owned by Glenn Way, when their auditor had claimed there were no related party transactions of any kind on the ALA 2017 audit and 990. Way has received payments for personnel and management since 2011 - $23 million in 2017. His real estate companies collected $8.7 million in rent payments, and he sold a piece of land to ALA for $3.6 million in 2017. Joel Huber only disclosed the management payment in this revised 2017 990 form, hiding the rental payments and land purchase by Glenn Way. Huber finally revealed that three ALA board members, including Way, received six figure salaries from the related party management company. Huber listed none of these payments or salaries on the 2017 ALA audit .
Joel Huber worked with Glenn Way to hide $30 million in related party transactions made to companies owned by Way. It appears that Joel Huber also colluded with the management of ALA to hide millions in revenue and expenses for transportation fees, food service, extra-curricular activities and athletic programs by failing to report this income on both annual audits and IRS 990 submissions 2012-2017. ALA has, in essence, been running these programs “off the books” without disclosure of revenue or expenses, possibly for the financial benefit of the owners and facilitated by the lack of disclosure provided by their auditor.
Millions in unaccounted public funds at ALA cannot be explained or recovered unless a complete and accurate audit of their financial records is performed by an unbiased state auditor. To prevent future abuse, the Charter Board should conduct state audits of random charter schools to put audit firms on notice that their work might be actually be scrutinized.
The Arizona State Board of Accountancy has been contacted regarding the actions of Joel Huber. The Attorney General has an obligation to investigate charter holders that are misappropriating public funds under ARS 13-1818. Misuse of over $25,000 is a class 4 felony under this law. ALA has potentially misappropriated millions. A complete financial audit is called for.
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School Board Meetings Are A Joke At Charter Schools
19 Great Hearts Schools held one board meeting this school year - most lasted less than five minutes
(Full report)
Charter school boards only are required by state law to make policy decisions. Many charters, like Great Hearts Academies, do not allow school boards to even make informed policy decisions. 19 Great Hearts Schools had the only governing board meeting of the school year on December 4, 2018. All had the same agenda and were individually held telephonically at the Great Hearts Lead Office at 4801 E. Washington St., Suite 250 in Phoenix. The 19 board meetings were completed between 9:04 AM and 11:31 AM with 8 taking three minutes or less to complete.
If all the schools had the same board members, it would be conceivable that these meetings could be run back to back like this. But the schools, for the most part, have completely different school board members. There were 52 different board members on the phone and somehow 7 meetings were started at the same time the last meeting ended (two started before the prior meeting ended). If you have ever been a part of a telephonic meeting with 5-7 people on the phone, you have surely experienced the cumbersome task of getting everyone’s feedback in this way. Great Hearts ran the entire Archway Scottsdale board meeting with six participants on the phone in just 3 minutes. It would take us that long to call the roll.
The 19 schools boards all unanimously approved the same items:
- The minutes of the last meeting on July 10, 2018
- A change in the mailing address for the school
- Approval of the 2019-20 school calendar
- Approval of Great Hearts Gift Acceptance and Fundraising Policy
- Approval of each school’s Special Education Policies and Procedures
Great Hearts, and other large charter chains, purposely make board meetings into a race to adjourn, avoiding proper consideration of policies and rubber-stamping the will of the corporate board. Local needs and concerns of individual schools are not addressed at charter school board meetings – only the lock-step approval of corporate policies. All real decisions – expenditures, hiring and firing, student discipline, and even curriculum are made in secret by the corporate board. The process is cynical and arrogant.
The Legislature needs to step up and address the secrecy of governance in charter schools. SB 1394, that is making its way through the legislative process, requires school board members to not all be family members and mandates training on procurement and discipline – activities charter schools boards take no part in. It is smoke and mirrors written by the Charter Association to allow charter corporate boards to continue to make all decisions in secret. Charter school boards should either be given authority to make operational decisions for the schools or be eliminated… saving Great Hearts a couple of hours a year in pretend school board meetings.
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Millions Are Wasted When Charter Owners Don’t Follow Procurement Laws
(Full Report)
The problem with charter schools not following procurement rules is far more pervasive than one-time sell offs that enrich owners, like the $12 million payday Republican Eddie Farnsworth had last year selling his schools’ buildings. When charter owners don’t have to gets bids for purchases or have their expenditures approved by school boards in public meetings, it opens the door to “self-dealing” - in essence buying goods and services from yourself at an unknown markup. The accounting term is “related party transactions”.
The following are charter schools that exemplify the self-dealing that is costing taxpayers millions every year and enriching charter owners.
Imagine Inc. are the masters of self-dealing. The national chain Imagine Inc. provides all operations, employees, and facilities to the 20 Imagine schools. Imagine Inc. charges their schools (themselves) “loss mitigation” insurance for 1% of revenue to help pay for their mismanagement if the schools run a deficit. They provide the schools “start-up loans” – Imagine Avondale Elementary’s $200,000 start-up loan from Imagine Inc. (themselves) is for 20 years at 10.5% interest. That works out to $30,000/year and $600,000 over the twenty years of the loan. Family members of Imagine Inc. executives are paid thousands to provide “services” to the schools - $11,200 for grant writing at Imagine Avondale for example.
Southgate Academy - Self-dealing is commonplace in small Arizona charter schools as well. Southgate Academy (enrollment 469 students) made a questionable $ 4 million real estate deal with a company owned by one of the school’s board members that ended with the board member getting $650,000 in interest payments and taking back ownership of the property free and clear.
Management companies – 186 charters have related party management companies. Owners of dozens of small charters form management companies and pay themselves to “manage” the school. Many charters also lease their facilities from companies owned by the charter holder – all for an unknown markup.
Other self-dealing schemes:
- GAR LLC purchased a vehicle from the son of a member for $16,500
- American Basic Schools owners formed SafeTrans LLC to maintain their buses but their auditor found they overpaid themselves $157,740 for services they didn’t receive in 2016. Paying yourself $157,000 for non-existent services sure looks like a red flag that should trigger a full audit by the state, but the Charter Board did nothing. In fact, no charter has ever been audited by a state agency since 1996.
Thank goodness the charter’s auditors report all of this self-dealing – or do they?
One of the biggest charter paydays came this year when Glenn Way, owner of American Leadership Academies (ALA), sold the schools owned by his real estate company to the charter school for an $18 million profit. Unfortunately, ALA’s auditor, Joel D. Huber, never revealed that Way’s real estate company, Schoolhouse Development LLC, was renting the schools to ALA for $8 million/year. We have filed formal complaints against Joel D. Huber with the Arizona State Board of Accountancy and they are investigating the charges. If this auditor can ignore $8 million in related party transactions, how many other self-dealing schemes are out there we know nothing about?
Charter owners should not be able to use tax funds as a personal checkbook. The Legislature must require charter owners to follow procurement laws and the Arizona State Board for Charter Schools must be given the authority to audit charters making inappropriate expenditures of tax funds.
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Why We Must Demand Charter Accountability: Part 2
Alternative Charters are a Path to Riches
Seventy percent of charters spending more on both management and real estate than classroom instruction are Alternative Schools (Full report)
Educators, politicians, and parents would all agree that tax funds for education should be spent primarily in the classroom on teachers, teacher aides, and classroom supplies. Twenty charter holders in the state, however, put almost no money in the classroom – they spend most of their revenue on management and real estate. Fourteen of these pathetic charter schools are alternative schools. Six are managed by one of the largest charter holders in the state, the Leona Group.
Alternative schools serve the most at-risk students in Arizona – students with histories of disruption, returning dropouts, students more than a year behind in credits, primary care givers, adjudicated, and foster kids. Alternative schools primarily serve minority students – 91% of alternative charter schools have a higher minority population than the average charter school. Alternative charters are only in session 144 days per school year instead of the standard 180 days, yet receive the same funding as other charter schools. There are no A-F grades for alternative charter schools, so they have no academic accountability. The Arizona State Board for Charter Schools cannot close alternative schools for academic deficiencies.
Students in alternative schools need an incredible amount of support to be successful – counselors, social workers, tutors, small class sizes, and an engaging curriculum. You would think it would be more expensive to educate students that couldn’t make it in regular schools but instead, most alternative charter schools have limited facilities with fewer teachers and support staff than regular schools. As a result, alternative charter schools are making millions for their owners instead of educating students. The Charter Board does not monitor charter spending, so they don’t know there is a problem.
Summary:
Of 75 alternative charter schools in Arizona:
- 20 lost money in 2018
- Half of these spent more for administration or facilities per pupil than the average charter school.
- 9 of the overspending charters spent more on BOTH administration and facilities than the state average.
- 30 spent less than 90% of their revenue, collectively banking $15 million (the state average is 96% spent).
- 17 spent more on administration than state averages.
- 14 spent more on facilities than state averages.
- 10 spent more on both administration and buildings than state averages.
- 22 of the30 spent less on classroom instruction than the state average …while they left $15million unspent to add to their assets.
- 49 spent more on administration per pupil than the state charter average
- 41 spent more on facilities per pupil than the state average
- 22 spent more on administration per pupil than on classroom instruction
- 29 spent more per pupil on facilities than on classroom instruction
- 14 spent more on BOTH administration and facilities per pupil than on classroom instruction
The reason alternative charter schools can spend so little on classroom instruction is simple – they are worlds apart from traditional district high schools yet receive $1,770-$2,000 more per pupil from the state than a district school. The storefront charter schools you see in strip malls are likely alternative online charter high schools. They receive more funds per pupil than a district high school with 40 acres of buildings and fields. Brick and mortar, non-online alternative charter schools also have limited programs and few teachers. Alternative charter schools typically have 50% fewer teachers than district high schools of comparable size, offer far fewer electives, and have limited support staffs.
The question is: Do at-risk students that have failed in other academic settings benefit from a school with a stripped down curriculum, fewer teachers, and support staff? Or do owners benefit from not having to pay for better classroom instruction and student support, since the state government is clearly not providing meaningful oversight how well alternative students are being educated? In Arizona the owners win. Big time.
Recommendations:
- The Department of Education needs to finalize A-F grades for alternative schools that measure how effectively they are educating students.
- The Charter Board needs to close alternative charters with low academic achievement.
- The Charter Board should investigate the alternative charters that spend less than 80% of their revenue.
- The Charter Board should investigate the alternative charters that spend more on both administration and facilities than on classroom instruction
- The Legislature needs to:
- Mandate the Charter Board monitor charter spending and publish charter per pupil expenditures for administration, instruction, student support, facilities, and special education compared to state averages.
- Require a complete study of alternative and online schools to determine if they should receive the same charter additional assistance as charters that offer comprehensive programs and have appropriate school facilities.
- Give the Charter Board, the Auditor General, and the Attorney General authority to audit the books of any charter owner suspected of misappropriating state funds.
Why We Must Demand Charter Accountability: Part 1
10 Charter Holders Spent less than 85% of their revenue and netted over $25 million Last Year (Full report)
Ten charter owners netted over $25 million in 2018 by simply not spending their tax revenue. Four of the ten are alternative schools that serve the most at-risk students in the state. Two are D-F schools. But instead of hiring counselors or additional teachers to improve academic performance, the owners added millions to their bottom lines.
What does the Arizona State Board for Charter Schools say? They all meet the Board’s Financial Framework expectations - they are making money and are successful businesses. We think each school should be thoroughly investigated and audited.
There is nothing wrong with having a little cushion – charters average having 4% of revenue left over at the end of the year and public districts are allowed to have and annual 4% carry over. The ten schools in question put $25 million in the bank.
The worst are:
- Alternative online schools run by for- profit Pinnacle Education MGRM, a wholly owned subsidiary of the multi-national software corporation WGRM based in India. Pinnacle spent less than half of their state revenue last year and netted $4,348,615 in profits that were sent back to the parent company in India. (Full report)
- Alternative schools owned by Steve Durand. Mr. Durand spent 53% of his state revenue and netted $3,619,572 in 2018. Durand’s schools are non-profit but are buying expensive real estate – his newest “school” is at 6710 W. Calle Lejos, a 5500 square foot mansion with a six-car garage purchased for $1,350,000. (Full report)
- “F” rated Star Charter School chartered by Painted Desert Demonstration Projects, Inc. and owned by Mark Sorenson. Star School serves Native American students outside of Flagstaff and receives an additional $750,000/year in Federal Impact Aid. The non-profit had over $2 million in assets in 2017 and added another $1,156,546 last year, spending 65% of revenue - while providing an “F” rate education
- Alternative Southgate Academy owned by Sherry Matjasik. Southgate spent 78% of revenue and added $1,232,875 to the non-profit’s bottom line of over $2 million. The charter invests its money in real estate. Southgate bought a piece of desert land outside of Tucson for $4 million from a company owned by a member of the Southgate board. After making mortgage payments to the board member for several years, they still owed $2,481,706 in 2017. They then decided that they didn’t need the land after all and gave it back to the board member. This is a classic example of how a related party can benefit from the assets of their non-profit.
- Alternative for –profit online GAR, LLC. The online charter spent 83% of their revenue and made $1,250,736 in profit for its owners Patrick Meehan and Scott Lopez. The owners have collected over $11 million in profit and management fees since 2012. (Full report)
- Three charters owned by Reana James netted $4,383,304 while expending 84% of their revenue. Ms. James had one “D” and one “F” school and made the news recently when they refused to pay teachers promised Prop 301 funds and face multiple allegations of sexual misconduct by one of their principals, who is a board member.
The four other charters spending less than 85% of their revenue that netted over $1millon in 2018 are:
- Mohave Accelerated Learning Center chartered by Vickie Christensen netted $1,503,138, spending only 75% of revenue
- Vista College Preparatory Inc. chartered by Julia Meyerson netted $998,624, spending 78% of revenue
- Kingman Academy of Learning chartered by Betsy Rowe netted $2,238,282, spending 81% of revenue
- The Paideia Academies Inc chartered by Robert Winsor netted $1,058,558, spending 83% of revenue
The Legislature needs to rein in related party transactions, require the Charter Board to monitor charter spending, and give the Board the power to audit charter owner’s finances when they suspect fraud. Maybe charter schools are over funded – some seem to have a hard time spending tax funds in the classroom.
When a charter school looks more like organized crime than public education:
For-profit GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012 (Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities on their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High School. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took an AZ Merit English test – only 16 passed. Eighty-four took an AZ Merit math test –only 5 passed. That’s 2% of students passing state testing. But instead of hiring more teachers, counselors, or social workers to help increase student achievement, Meehan and Lopez pocketed millions.
The school’s auditor, Henry J. Fortino, didn’t see any problem with using state education funds this way. We complained to the Department of Education about the irregularities in AZ Merit testing – they told us to complain to the Charter Board. The Arizona State Board for Charter Schools did not question how GAR Inc. was spending tax funds.
If this happened at Scottsdale Unified, people would go to jail for years. For an Arizona charter school, this is just smart business. - the Charter Board gave GAR Inc. 100% passing ratings on their 2018 Financial Framework.
The Legislature must investigate the over funding of online schools that allows owners to pocket millions – Damian Creamer at Primavera Online made $5 million in 2018. Specific legislation is needed to require the Charter Board to monitor charter spending and mandate them to audit the books of schools like Student Choice – a money-making racket disguised as a public school.
Republican Bill Could Steal Millions From Teacher Salaries.
Sen Brophy-Mcgee’s SB 1345 would allow charter schools to pocket all Classroom Site Funds earmarked for teacher salaries.
Revenue raised by Prop 301 has been earmarked as Classroom Site Funds designed to help increase teacher salaries since it was passed in 2000. Twenty percent must go to increase teacher base pay, 40% to provide performance based compensation to teachers, and 40% to be used flexibly – most districts use this 40% to increase teacher salaries as well.
SB 1345, introduced by Republican Senator Kate Murphy-McGee and the identical HB 2563 introduced by Republican Rep. Michelle Udall, would allow districts and charters to spend all of the Classroom Site Funds in new ways – character education, tutoring, or to pay for ”the increased cost of additional school days that were enacted in 2000” (the school year was increased from 175 to 180 days in 2000 adding expenses in school operations). Schools can now plug Prop 301 funds anywhere in the budget to compensate for the money it has cost since 2000 to operate schools five days longer every year. Not a nickel has to go to teacher salaries.
Brophy-McGee’s legislation still mandates that school districts have a performance based teacher compensation system and it is likely that districts will continue to use Prop 301 money to bolster lagging teacher salaries.
But charter schools are not required to have the same performance based compensation system and many charter owners have simply not given Classroom Site Funds to their teachers. They have been unable to spend the unspent money every year on purposes other than teacher compensation and have had to carry over the funds, by law.
Now charter owners will be free to spend Classroom Site Funds to replace funds they would have spent to run the schools, increasing their bottom line. Worse, charters will be able to spend the money they refused to give to teachers over the years…to benefit themselves rather than the teaching staff.
The following eleven charter owners are sitting on over $16,600,000 in unspent Classroom Site Funds - money they will now be able to spend to increase profits if the Republican bill is passed (the * indicates online schools that have few teachers and use little available funds for salary increases).
- * Damian Creamer Primavera Online - $3,433,370
- Imagine Inc. - $2,728,021
- * Scott Durand Educational Options - $2,728,021
- Linda Proctor Arizona Agribusiness - $814,241
- Legacy Traditional - $1,320,986
- * Ombudsman - $674,130
- * E-Institute - $817,482
- Eugene Kinghorn Rose Academies -$551,142
- * Pinnacle Education - $914,953
- Rhonda Owens Skyline Schools - $1,326,695
- * PPEP Arizona Virtual Academy K-12 - $2,976,140
(Spreadsheet with CSF breakdown for the eleven charters found here)
This is what Republicans are offering as transparency and accountability in Arizona charter schools – a free hand to pocket money that should be going into teacher salaries.
When a charter school looks more like organized crime than public education:
GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012
Arizonans for Charter School Accountability
(Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities in their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High Schol. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took%
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 signed up for courses and did not complete them.
Primavera Online is the most profitable charter school in Arizona. They made $10 million in profit in a single year (2016) and had a net gain of $59 million between 2009-2018. The owner, Damian Creamer, diverted an additional $147 million to his software company from 2009-2018 in the guise of licensing fees and management costs. As a comparison, the new Boeing 737 Max sells for $99.7 million.
Creamer began Primavera as a non-profit. Between 2009 and 2015 the non-profit accumulated assets of $45 million - the most of any charter in the state. In 2016 Creamer simply turned the business over to his for-profit company, the American Virtual Academy (which is owned by Creamer’s software company Flipswitch Inc.) and began collecting distributions of profit every year. Creamer has collected $10,775,158 in personal profits the last three years, and untold millions in compensation from FlipSwitch. The non-profit Primavera Technical Academy still has $46 million in tax funds sitting in the bank drawing interest ($3.2 million in 2017) - money Creamer uses to start new school ventures.
Achievement at Primavera is dismal. In 2018 only 393 students took an AzMerit high school English test and only 222 took a high school AzMerit math test. Out of 26,000 students that signed up for a Primavera class, 138 students passed the AzMerit high school English tests and 64 students passed high school math. Their 43% drop out rate is among the worst of any school in Arizona. Primavera is an alternative school so they have not received an A-F grade the last two years…they can’t be shut down because of achievement, but they pass every financial benchmark set by the charter board with flying colors - they are definitely in no danger of going out of business.
There is no regulation of online schools in Arizona, even though ARS 15-808 states: “The state board of education and state-approved charter authorizers shall develop annual reporting mechanisms for schools that participate in Arizona online instruction.”
The State Board of Education and the Charter Board have simply ignored the law and allow online charters owners, like Damian Creamer, to become multi-millionaires that provide “virtually” no education for Arizona students.
The Charter Board and the Auditor General will require charters to accurately report revenue and expenses - for the first time since 1994.
September 16, 2019
Charter owners have been allowed since 1994 to report revenue and expenses on their required budgets and Annual Financial Reports in any manner they saw fit:
- The American Leadership Academy (ALA) didn’t report millions in athletic revenue and expenses and ran food service and bus fee programs off the books for years – with impunity.
- Great Hearts has never reported any expenses for Student Support since they opened in 2003 – costs for nurses, health aides, counselors, attendance clerks, etc. even though they have these positions in their schools. They simply code these expenses in other places – possibly padding classroom instruction spending to make it look like more money is going to the classroom than actually is.
- BASIS arbitrarily shifted $12 million from administrative spending in 2018 to Instructional Support (curriculum development and staff training for instructional staff, library/media services, instruction-related technology, and academic student assessment). BASIS Scottsdale spent $273,000 for these services in 2017. In 2018 BASIS Scottsdale claims they spent $1,029,000 for Instructional Support - while administrative spending plummeted. Nonsense.
For years the Charter Board has claimed they have no jurisdiction over charter reporting on financial reports. Dozens of complaints against charters misreporting expenditures have been closed by the Charter Board with this statement:
“Issues with the amounts disclosed on the Annual Financial Report are issues that must be raised with ADE which oversees the AFR. The matters at hand do not raise an issue of violation of law or the charter contract; therefore, the complaint is now closed”.
It is pointless to gather financial information if all schools, district and charter, are not uniformly reporting revenue and expenditures. Recent complaints by Arizonans for Charter School Accountability pointed out that all charter contracts require charter owners to report revenue and expenditures on financial reports based on the standard budget line codes used by all schools in Arizona prescribed by the Unified System for Financial Reporting (USFR). Charter contracts require charters to make “crosswalks” between their accounting systems and the object codes required by the USFR when completing financial reports. What ALA, Great Hearts, and BASIS are doing is in violation of their contracts and they should be sanctioned.
The Charter Board finally acknowledged that charter holders are required to report spending based on USFR codes in their August 2019 Newsletter stating charters must:
1. Utilize a chart of accounts that has been developed to align with the chart of accounts found in the USFRCS for the purposes of complying with budgeting and annual financial reporting (i.e., the Budget and AFR)
2. To be responsible for any “cross-walks” necessary to complete reporting requirements. This means if the charter holder uses a chart of accounts other than the one prescribed in the USFRCS, then the charter holder must “cross-walk” its account codes to those used in the USFRCS when completing the annual Budget and AFR submitted to the Arizona Department of Education.
The Office of the Auditor General (OAG) included similar guidelines for the completion of the upcoming 2019 Annual Financial Report:
Charters that are exempted from all or part of the Uniform System of Financial Records for Arizona Charter Schools (USFRCS) in accordance with A.R.S. §15-183(E)(6) must use an accounting system that provides for the proper recording and reporting of financial data using USFRCS revenue and expense object codes.
We have been requesting the inclusion of these statements by the OAG and Charter Board for years- without effect.
So what happened to ALA, Great Hearts and BASIS for systematically failing to follow the law all these years? Nothing. In fact there is no record that they were notified by the Charter Board that a complaint was even filed against them. The Charter Board seems to have a policy that dismisses wrongdoing if charters just change their ways. Try this with a policeman, IRS, or your spouse and see what happens…
The Attorney General, through the Ombudsman Office, needs to investigate the Arizona State Board for Charter Schools for failing to hold large, powerful charter companies responsible for following state law.
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Unfunded Mandate? Do What The Arizona Department of Education Does: Just Ignore It!
(Full report)
(Complaint submitted to the Ombudsman Office)
Schools are plagued with unfunded mandates – for example, they are required to serve all special education students but are underfunded by over $100 million a year to do so. The list goes on and on.
The Arizona Department of Education (ADE), on the other hand, has simply ignored the requirements for school report cards prescribed in ARS 15-746 for the last twenty years on the pretext that the state has not supplied funds to implement it.
Arizona School Report Cards have historically been where you find AzMerit test results and A-F Grades for schools. In December 2018 ADE announced a new School Report Card that includes information about enrollment, teacher experience, graduation rates, and student discipline in addition to state test results to meet the requirements of the federal Every Student Succeeds Act (ESSA) – required in order to continue to receive federal funds.
Here’s what Superintendent Diane Douglas said about the new School Report Card at the December 10, 2018 meeting of the Arizona State Board for Charter Schools:
“There are federal mandates and state report card mandates. The report we will be releasing is the Federal version because, as of yet, there has not been funding from the State to fulfill the requirements for the state report card mandate.”
The state mandate requiring school report cards is ARS 15-746 that was passed in the late 1990’s. The statue provides a comprehensive list of important information about every school to be sent home with students and posted by ADE, including education programs offered, three years of test results, class sizes, pupil teacher ratios, social services offered, expenditures for classroom instruction, supplies, and administration, transportation services, etc. None of this data is provided in the new School Report Card.
State agencies do not have the authority to ignore state laws because they are unfunded mandates. The 2018 Agency Handbook prepared by Arizona Attorney General Mark Brnovich notes that “ Public officials may not violate the plain terms of a statute because in their opinion better results will be attained by doing so. They have but one duty, and that is to enforce the law as it is written, and, if the effect of their action is disastrous, the responsibility is upon the Legislature and not upon them.
The Arizona Department of Education, under the direction of the Superintendent of Public Instruction, has blatantly refused to provide parents with critical data required in making informed school choices by failing to fulfill the mandate of ARS 15-746 since 1999. Arizonans for Charter School Accountability has requested that the Arizona Ombudsman Office investigates ADE and require the new Superintendent of Public Instruction to follow state law.
If this does not occur – every state agency (including school districts) should be given the license to only comply with the statutes that meet officials’ political agendas or that they believe are properly funded - like the Department of Education has done for the last twenty years with School Report Cards.
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More Education Funding is Needed NOW:
District schools go unrepaired and teachers underpaid…
To finance charter real estate empires
(Full report)
Since 2008, public districts have struggled to keep buildings safe for kids while new, elegant charter buildings have sprung up everywhere in Metro Phoenix suburbs- allowing charter owners, like Republican Senator Eddie Farnsworth, to become multi-millionaires. New data, from the recently released 2018 Annual Report of the Superintendent of Public Instruction, explains how this happened: charter schools are getting $916/pupil more in state funds since 2008 while districts are receiving $213/pupil LESS in 2018 than they received from the state in 2008.
Public district schools have had billions of dollars cut from their budgets since 2008 when the legislature drastically reduced district capital funding – money used to repair buildings and purchase textbooks and computers.
Charter schools received a 14% boost in state funding since 2008 and the money went straight into new land and buildings, not in South Phoenix or Maryvale, but in Scottsdale, Gilbert, and Chandler. Charter holders have added $1,400,000,000 in new land, buildings and equipment since 2008, almost all of it in suburban Metro Phoenix and Tucson.
Some charter owners have used increasing state funds to build schools and then sell them to non-profits they create for a huge profit – while still keeping control of the schools. The worst examples include Leona Group owner Bill Coats - $24 million, ALA founder Glenn Way $37 million, and Republican Senator Eddie Farnsworth $13.7 million profit – all still running the schools through their management companies.
School choice, in the form of charter schools, is very expensive. Every student that moved from a district school to a charter school in 2018 cost the state an additional $3,337/pupil in state education funds because districts receive an average of 44% of their revenue from local property taxes while charters receive all revenue from the state. A student that moves from Scottsdale Unified ($1,788/pupil in state funds) to a charter school ($7,309/pupil) costs the state an additional $5,521/pupil.
Public district schools have far more at-risk and poor students than charter schools. District class size has increased dramatically since 2008. Poor teacher pay has eroded the number of qualified teachers in district classrooms and buildings are in disrepair.
Well -funded charter schools have small class sizes, new buildings, and far fewer of “those” students. Does anyone think this is a Republican “accident”?
Charter schools are here to stay in Arizona, no question. But other states limit the growth of charter schools by having strict rules on where and how many charters can be opened every year. Arizona Republicans feel just the opposite - more charter schools provide greater school choice to their constituents in affluent suburbs while the public districts that educate all students are left struggling to educate at-risk kids, fix leaky roofs and are forced to watch hundreds of teachers leave the classroom for jobs that pay a living wage.
Arizona’s teachers are among the lowest paid in the U.S. partly because Republicans have shifted state public education funds to charter schools since 2008. Red4Ed - don’t give up the fight to adequately fund public districts.
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Why Is BASIS Losing Money?
BASIS Administrative Costs and Debt Skyrocket 2016-2018
While Parents Pay 41% of Teacher Salaries (Full Report)
We reported last week that BASIS Schools lost a $12 million in 2018 and are now $43 million in the red - but still borrowed $117 million and are expanding to Baton Rouge, LA. (See report that follows)
Where is the money going?
Not into the classroom. Total instructional expenses went up just 5% between 2016 and 2018 ($3,621/pupil to $3,803/pupil) while administrative costs went up 18% and plant maintenance and debt went up 68% over the same time period.
Shockingly, BASIS spending for instructional support (money spent on curriculum directors, staff training, and student testing) increased 220% to over $1000/pupil in 2018. BASIS Phoenix South Primary spent $2,645/pupil on instructional support in 2018. The average charter school in Arizona only spends $183/pupil on instructional support.
BASIS Scottsdale spent over $1 million on instructional support in 2018 - $587,000 just on salaries. Thing is…BASIS Scottsdale had no instructional support salaries in 2017. Did BASIS hire ten new staff at over $50,000/year at one school to oversee curriculum and testing?? Overall, BASIS claims to have spent $11 million on instructional support in 2018…enough to hire 200 people at $50,000/year.
We believe BASIS reported administrative costs as instructional support in 2018 to make it appear that management expenditures were going down. We have asked to Charter Board to look into the possibility that BASIS submitted fraudulent spending numbers on their 2018 Annual Financial Reports to hide management spending.
Classroom spending went up just $183/pupil between 2016 and 2017 while spending for instructional support, administration and facilities increased by over $1,700/pupil. It is safe to say that massive debt and increasing administration costs charged by Michael Block’s management company, BASIS.ed Inc., are burying BASIS Schools in crushing debt, unfortunately, on the backs of BASIS parents.
The total salaries of all BASIS teachers in 2018, including base salaries, overtime, and additional compensation, such as Prop 301 Classroom Site Funds and stipends for extra-curricular activities was $44,859,325. Parents paid $18,400,064 in fees and donations in 2018, providing BASIS with 41% of the total cost of teacher salaries.
Parents subsidized the cost of teacher salaries allowing BASIS to shift $58,101,419 to administrative costs and facilities, 48% of total expenditures, while only spending 37% of all funds on teacher salaries.
A note to BASIS parents – the money you give BASIS Schools in fees and donations enables them to build a multi-state real estate empire and pay exorbitant salaries to BASIS owners and executives.
We could be in error. Maybe Michael Brock would like to share the corporate finances of BASIS.ed Inc. to prove us wrong….
BASIS Sinks Further Into The Abyss
Arizona BASIS Schools Lost $12 million in 2018 and are $43 million in the red:
So they borrowed $117 million to stay afloat…and collected $18 million from parents
(Full report)
BASIS Schools lost $12 million in 2018 to create a $43 million total deficit - more than any charter chain in Arizona… by far. They still have $17 million cash to keep the schools open – largely as the result on borrowing $117 million to refinance old loans. And yes, BASIS kept expanding - $16 million in new debt went to build a school in Baton Rouge LA with Arizona schools and income as collateral.
BASIS executives like to argue that they are simply refinancing debt to get lower interest rates and the red ink is caused by having to pay substantial prepayment penalties for the new loans.
The problem is far deeper than refinancing debt. BASIS Schools in Arizona, Texas, and Washington D.C. have lost money 5 of the last six years to the tune of -$17 million, but the majority of the red ink came from simply spending more than their revenue, not refinancing costs.
BASIS Schools in Arizona overspent their revenue by $7.8 million in 2018. BASIS Ahwatukee and BASIS Prescott lost over $ 1 million each last year. Imagine a single school of less than 700 students overspending their budget by $1 million.
Oddly, the three BASIS schools in Texas and the school in Washington D.C. made money last year and have $4.8 million in total positive assets, while leaving the BASIS Arizona schools with the $5,015,013 in prepayment penalties to get the $177 million in new bonds:
Imagine where BASIS would be if they didn’t aggressively seek parent donations and charge additional fees for countless items. BASIS raised over $18,000,000 in parent fees and donations - $1,541/pupil in 2018. The BASIS plea for donations might be: “We can’t operate our schools efficiently – please give us $1,500 so we can at least get our $16 million management fee.”
It is amazing that bond speculators were still willing to lend BASIS $117 million last year with BASIS losing an average of $10 million a year over the last three years. The Arizona State Board for Charter Schools sees no problem either. Even though BASIS fails to meet board financial expectations in two categories, the Charter Board will not look into BASIS finances or require any response from them regarding their financial position as long as they don’t seek to expand enrollment caps or add new schools – in Arizona.
Here’s what your financial advisor would tell you if your personal finances were like those at BASIS:
“You can’t borrow your way out of debt, you’ll only dig yourself deeper. Make a budget and stick to it. Cut out non-essentials until the debt is reduced to manageable levels.” BASIS must believe they have a sounder business model.
BASIS Charter Schools lose huge amounts of money every year, even after soaking parents for $18 million in additional funds. On a positive note, BASIS founder Michael Brock still collected $16.7 million in management fees in 2018. The New York City condo HOA fees must be killing him…
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When Charter Schools Look More Like Organized Crime Than Public Education:
Collusion between American Leadership Academy and their auditor leaves millions unaccounted for
(Full report with exhibits and sources)
Let’s say a secretive businessman owns a legitimate company but runs several other businesses “off the books” to avoid public scrutiny. His legitimate business also makes payments to various vendors that are actually shell companies he has formed. He has a bookkeeper that keeps two sets of books and is paid to disclose as little as possible about the legitimate company while hiding revenue made by his shell companies and off the books enterprises.
Is our secretive businessman a mob boss, perhaps? Unfortunately no. Glenn Way, the founder of American Leadership Academy has been doing all of the above since 2012, with the assistance of his auditor Joel D. Huber. While every penny of public money is scrutinized in public school districts, charter schools are free to run businesses that look more like organized crime than public education.
Arizonans for Charter School Accountability believes that the American Leadership Academy (ALA), with the assistance of their long time auditor Joel D. Huber, have systematically and secretly utilized tax funds, student activity fees, bus fees, food service revenue, athletic program revenue, and public donations for the benefit of the charter owner rather than the schools, in violation of ARS. 13-1818.
Auditor Joel D. Huber has also failed to disclose any related party transactions made by ALA 2012-2017 on both annual audits and IRS 990 submissions, transactions that totaled over $30 million in 2017.
Simply stated, ALA has collected millions from parents 2012-2017 in the form of bus fees, lunch payments, student activity fees, and athletic program income that has not been reported in audits or on IRS non-profit 990 submissions by their auditor, Joel Huber. ALA has never listed expenditures for food service, extra-curricular activities, or athletics 2012-2017. They are also not forthcoming about many expenditures, claiming to spend nothing on student support (even though they have nurse’s aides and counselors that are supposed to be paid out of student support), instructional support or any supplies other than instructional supplies. The Charter Board has allowed these omissions since 2012.
New information made available on two 2017 ALA IRS 990 submissions indicate that 80% of ALA’s expenditures actually went to companies owned by Glenn Way, when their auditor had claimed there were no related party transactions of any kind on the ALA 2017 audit and 990. Way has received payments for personnel and management since 2011 - $23 million in 2017. His real estate companies collected $8.7 million in rent payments, and he sold a piece of land to ALA for $3.6 million in 2017. Joel Huber only disclosed the management payment in this revised 2017 990 form, hiding the rental payments and land purchase by Glenn Way. Huber finally revealed that three ALA board members, including Way, received six figure salaries from the related party management company. Huber listed none of these payments or salaries on the 2017 ALA audit .
Joel Huber worked with Glenn Way to hide $30 million in related party transactions made to companies owned by Way. It appears that Joel Huber also colluded with the management of ALA to hide millions in revenue and expenses for transportation fees, food service, extra-curricular activities and athletic programs by failing to report this income on both annual audits and IRS 990 submissions 2012-2017. ALA has, in essence, been running these programs “off the books” without disclosure of revenue or expenses, possibly for the financial benefit of the owners and facilitated by the lack of disclosure provided by their auditor.
Millions in unaccounted public funds at ALA cannot be explained or recovered unless a complete and accurate audit of their financial records is performed by an unbiased state auditor. To prevent future abuse, the Charter Board should conduct state audits of random charter schools to put audit firms on notice that their work might be actually be scrutinized.
The Arizona State Board of Accountancy has been contacted regarding the actions of Joel Huber. The Attorney General has an obligation to investigate charter holders that are misappropriating public funds under ARS 13-1818. Misuse of over $25,000 is a class 4 felony under this law. ALA has potentially misappropriated millions. A complete financial audit is called for.
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School Board Meetings Are A Joke At Charter Schools
19 Great Hearts Schools held one board meeting this school year - most lasted less than five minutes
(Full report)
Charter school boards only are required by state law to make policy decisions. Many charters, like Great Hearts Academies, do not allow school boards to even make informed policy decisions. 19 Great Hearts Schools had the only governing board meeting of the school year on December 4, 2018. All had the same agenda and were individually held telephonically at the Great Hearts Lead Office at 4801 E. Washington St., Suite 250 in Phoenix. The 19 board meetings were completed between 9:04 AM and 11:31 AM with 8 taking three minutes or less to complete.
If all the schools had the same board members, it would be conceivable that these meetings could be run back to back like this. But the schools, for the most part, have completely different school board members. There were 52 different board members on the phone and somehow 7 meetings were started at the same time the last meeting ended (two started before the prior meeting ended). If you have ever been a part of a telephonic meeting with 5-7 people on the phone, you have surely experienced the cumbersome task of getting everyone’s feedback in this way. Great Hearts ran the entire Archway Scottsdale board meeting with six participants on the phone in just 3 minutes. It would take us that long to call the roll.
The 19 schools boards all unanimously approved the same items:
- The minutes of the last meeting on July 10, 2018
- A change in the mailing address for the school
- Approval of the 2019-20 school calendar
- Approval of Great Hearts Gift Acceptance and Fundraising Policy
- Approval of each school’s Special Education Policies and Procedures
Great Hearts, and other large charter chains, purposely make board meetings into a race to adjourn, avoiding proper consideration of policies and rubber-stamping the will of the corporate board. Local needs and concerns of individual schools are not addressed at charter school board meetings – only the lock-step approval of corporate policies. All real decisions – expenditures, hiring and firing, student discipline, and even curriculum are made in secret by the corporate board. The process is cynical and arrogant.
The Legislature needs to step up and address the secrecy of governance in charter schools. SB 1394, that is making its way through the legislative process, requires school board members to not all be family members and mandates training on procurement and discipline – activities charter schools boards take no part in. It is smoke and mirrors written by the Charter Association to allow charter corporate boards to continue to make all decisions in secret. Charter school boards should either be given authority to make operational decisions for the schools or be eliminated… saving Great Hearts a couple of hours a year in pretend school board meetings.
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Millions Are Wasted When Charter Owners Don’t Follow Procurement Laws
(Full Report)
The problem with charter schools not following procurement rules is far more pervasive than one-time sell offs that enrich owners, like the $12 million payday Republican Eddie Farnsworth had last year selling his schools’ buildings. When charter owners don’t have to gets bids for purchases or have their expenditures approved by school boards in public meetings, it opens the door to “self-dealing” - in essence buying goods and services from yourself at an unknown markup. The accounting term is “related party transactions”.
The following are charter schools that exemplify the self-dealing that is costing taxpayers millions every year and enriching charter owners.
Imagine Inc. are the masters of self-dealing. The national chain Imagine Inc. provides all operations, employees, and facilities to the 20 Imagine schools. Imagine Inc. charges their schools (themselves) “loss mitigation” insurance for 1% of revenue to help pay for their mismanagement if the schools run a deficit. They provide the schools “start-up loans” – Imagine Avondale Elementary’s $200,000 start-up loan from Imagine Inc. (themselves) is for 20 years at 10.5% interest. That works out to $30,000/year and $600,000 over the twenty years of the loan. Family members of Imagine Inc. executives are paid thousands to provide “services” to the schools - $11,200 for grant writing at Imagine Avondale for example.
Southgate Academy - Self-dealing is commonplace in small Arizona charter schools as well. Southgate Academy (enrollment 469 students) made a questionable $ 4 million real estate deal with a company owned by one of the school’s board members that ended with the board member getting $650,000 in interest payments and taking back ownership of the property free and clear.
Management companies – 186 charters have related party management companies. Owners of dozens of small charters form management companies and pay themselves to “manage” the school. Many charters also lease their facilities from companies owned by the charter holder – all for an unknown markup.
Other self-dealing schemes:
- GAR LLC purchased a vehicle from the son of a member for $16,500
- American Basic Schools owners formed SafeTrans LLC to maintain their buses but their auditor found they overpaid themselves $157,740 for services they didn’t receive in 2016. Paying yourself $157,000 for non-existent services sure looks like a red flag that should trigger a full audit by the state, but the Charter Board did nothing. In fact, no charter has ever been audited by a state agency since 1996.
Thank goodness the charter’s auditors report all of this self-dealing – or do they?
One of the biggest charter paydays came this year when Glenn Way, owner of American Leadership Academies (ALA), sold the schools owned by his real estate company to the charter school for an $18 million profit. Unfortunately, ALA’s auditor, Joel D. Huber, never revealed that Way’s real estate company, Schoolhouse Development LLC, was renting the schools to ALA for $8 million/year. We have filed formal complaints against Joel D. Huber with the Arizona State Board of Accountancy and they are investigating the charges. If this auditor can ignore $8 million in related party transactions, how many other self-dealing schemes are out there we know nothing about?
Charter owners should not be able to use tax funds as a personal checkbook. The Legislature must require charter owners to follow procurement laws and the Arizona State Board for Charter Schools must be given the authority to audit charters making inappropriate expenditures of tax funds.
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Why We Must Demand Charter Accountability: Part 2
Alternative Charters are a Path to Riches
Seventy percent of charters spending more on both management and real estate than classroom instruction are Alternative Schools (Full report)
Educators, politicians, and parents would all agree that tax funds for education should be spent primarily in the classroom on teachers, teacher aides, and classroom supplies. Twenty charter holders in the state, however, put almost no money in the classroom – they spend most of their revenue on management and real estate. Fourteen of these pathetic charter schools are alternative schools. Six are managed by one of the largest charter holders in the state, the Leona Group.
Alternative schools serve the most at-risk students in Arizona – students with histories of disruption, returning dropouts, students more than a year behind in credits, primary care givers, adjudicated, and foster kids. Alternative schools primarily serve minority students – 91% of alternative charter schools have a higher minority population than the average charter school. Alternative charters are only in session 144 days per school year instead of the standard 180 days, yet receive the same funding as other charter schools. There are no A-F grades for alternative charter schools, so they have no academic accountability. The Arizona State Board for Charter Schools cannot close alternative schools for academic deficiencies.
Students in alternative schools need an incredible amount of support to be successful – counselors, social workers, tutors, small class sizes, and an engaging curriculum. You would think it would be more expensive to educate students that couldn’t make it in regular schools but instead, most alternative charter schools have limited facilities with fewer teachers and support staff than regular schools. As a result, alternative charter schools are making millions for their owners instead of educating students. The Charter Board does not monitor charter spending, so they don’t know there is a problem.
Summary:
Of 75 alternative charter schools in Arizona:
- 20 lost money in 2018
- Half of these spent more for administration or facilities per pupil than the average charter school.
- 9 of the overspending charters spent more on BOTH administration and facilities than the state average.
- 30 spent less than 90% of their revenue, collectively banking $15 million (the state average is 96% spent).
- 17 spent more on administration than state averages.
- 14 spent more on facilities than state averages.
- 10 spent more on both administration and buildings than state averages.
- 22 of the30 spent less on classroom instruction than the state average …while they left $15million unspent to add to their assets.
- 49 spent more on administration per pupil than the state charter average
- 41 spent more on facilities per pupil than the state average
- 22 spent more on administration per pupil than on classroom instruction
- 29 spent more per pupil on facilities than on classroom instruction
- 14 spent more on BOTH administration and facilities per pupil than on classroom instruction
The reason alternative charter schools can spend so little on classroom instruction is simple – they are worlds apart from traditional district high schools yet receive $1,770-$2,000 more per pupil from the state than a district school. The storefront charter schools you see in strip malls are likely alternative online charter high schools. They receive more funds per pupil than a district high school with 40 acres of buildings and fields. Brick and mortar, non-online alternative charter schools also have limited programs and few teachers. Alternative charter schools typically have 50% fewer teachers than district high schools of comparable size, offer far fewer electives, and have limited support staffs.
The question is: Do at-risk students that have failed in other academic settings benefit from a school with a stripped down curriculum, fewer teachers, and support staff? Or do owners benefit from not having to pay for better classroom instruction and student support, since the state government is clearly not providing meaningful oversight how well alternative students are being educated? In Arizona the owners win. Big time.
Recommendations:
- The Department of Education needs to finalize A-F grades for alternative schools that measure how effectively they are educating students.
- The Charter Board needs to close alternative charters with low academic achievement.
- The Charter Board should investigate the alternative charters that spend less than 80% of their revenue.
- The Charter Board should investigate the alternative charters that spend more on both administration and facilities than on classroom instruction
- The Legislature needs to:
- Mandate the Charter Board monitor charter spending and publish charter per pupil expenditures for administration, instruction, student support, facilities, and special education compared to state averages.
- Require a complete study of alternative and online schools to determine if they should receive the same charter additional assistance as charters that offer comprehensive programs and have appropriate school facilities.
- Give the Charter Board, the Auditor General, and the Attorney General authority to audit the books of any charter owner suspected of misappropriating state funds.
Why We Must Demand Charter Accountability: Part 1
10 Charter Holders Spent less than 85% of their revenue and netted over $25 million Last Year (Full report)
Ten charter owners netted over $25 million in 2018 by simply not spending their tax revenue. Four of the ten are alternative schools that serve the most at-risk students in the state. Two are D-F schools. But instead of hiring counselors or additional teachers to improve academic performance, the owners added millions to their bottom lines.
What does the Arizona State Board for Charter Schools say? They all meet the Board’s Financial Framework expectations - they are making money and are successful businesses. We think each school should be thoroughly investigated and audited.
There is nothing wrong with having a little cushion – charters average having 4% of revenue left over at the end of the year and public districts are allowed to have and annual 4% carry over. The ten schools in question put $25 million in the bank.
The worst are:
- Alternative online schools run by for- profit Pinnacle Education MGRM, a wholly owned subsidiary of the multi-national software corporation WGRM based in India. Pinnacle spent less than half of their state revenue last year and netted $4,348,615 in profits that were sent back to the parent company in India. (Full report)
- Alternative schools owned by Steve Durand. Mr. Durand spent 53% of his state revenue and netted $3,619,572 in 2018. Durand’s schools are non-profit but are buying expensive real estate – his newest “school” is at 6710 W. Calle Lejos, a 5500 square foot mansion with a six-car garage purchased for $1,350,000. (Full report)
- “F” rated Star Charter School chartered by Painted Desert Demonstration Projects, Inc. and owned by Mark Sorenson. Star School serves Native American students outside of Flagstaff and receives an additional $750,000/year in Federal Impact Aid. The non-profit had over $2 million in assets in 2017 and added another $1,156,546 last year, spending 65% of revenue - while providing an “F” rate education
- Alternative Southgate Academy owned by Sherry Matjasik. Southgate spent 78% of revenue and added $1,232,875 to the non-profit’s bottom line of over $2 million. The charter invests its money in real estate. Southgate bought a piece of desert land outside of Tucson for $4 million from a company owned by a member of the Southgate board. After making mortgage payments to the board member for several years, they still owed $2,481,706 in 2017. They then decided that they didn’t need the land after all and gave it back to the board member. This is a classic example of how a related party can benefit from the assets of their non-profit.
- Alternative for –profit online GAR, LLC. The online charter spent 83% of their revenue and made $1,250,736 in profit for its owners Patrick Meehan and Scott Lopez. The owners have collected over $11 million in profit and management fees since 2012. (Full report)
- Three charters owned by Reana James netted $4,383,304 while expending 84% of their revenue. Ms. James had one “D” and one “F” school and made the news recently when they refused to pay teachers promised Prop 301 funds and face multiple allegations of sexual misconduct by one of their principals, who is a board member.
The four other charters spending less than 85% of their revenue that netted over $1millon in 2018 are:
- Mohave Accelerated Learning Center chartered by Vickie Christensen netted $1,503,138, spending only 75% of revenue
- Vista College Preparatory Inc. chartered by Julia Meyerson netted $998,624, spending 78% of revenue
- Kingman Academy of Learning chartered by Betsy Rowe netted $2,238,282, spending 81% of revenue
- The Paideia Academies Inc chartered by Robert Winsor netted $1,058,558, spending 83% of revenue
The Legislature needs to rein in related party transactions, require the Charter Board to monitor charter spending, and give the Board the power to audit charter owner’s finances when they suspect fraud. Maybe charter schools are over funded – some seem to have a hard time spending tax funds in the classroom.
When a charter school looks more like organized crime than public education:
For-profit GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012 (Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities on their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High School. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took an AZ Merit English test – only 16 passed. Eighty-four took an AZ Merit math test –only 5 passed. That’s 2% of students passing state testing. But instead of hiring more teachers, counselors, or social workers to help increase student achievement, Meehan and Lopez pocketed millions.
The school’s auditor, Henry J. Fortino, didn’t see any problem with using state education funds this way. We complained to the Department of Education about the irregularities in AZ Merit testing – they told us to complain to the Charter Board. The Arizona State Board for Charter Schools did not question how GAR Inc. was spending tax funds.
If this happened at Scottsdale Unified, people would go to jail for years. For an Arizona charter school, this is just smart business. - the Charter Board gave GAR Inc. 100% passing ratings on their 2018 Financial Framework.
The Legislature must investigate the over funding of online schools that allows owners to pocket millions – Damian Creamer at Primavera Online made $5 million in 2018. Specific legislation is needed to require the Charter Board to monitor charter spending and mandate them to audit the books of schools like Student Choice – a money-making racket disguised as a public school.
Republican Bill Could Steal Millions From Teacher Salaries.
Sen Brophy-Mcgee’s SB 1345 would allow charter schools to pocket all Classroom Site Funds earmarked for teacher salaries.
Revenue raised by Prop 301 has been earmarked as Classroom Site Funds designed to help increase teacher salaries since it was passed in 2000. Twenty percent must go to increase teacher base pay, 40% to provide performance based compensation to teachers, and 40% to be used flexibly – most districts use this 40% to increase teacher salaries as well.
SB 1345, introduced by Republican Senator Kate Murphy-McGee and the identical HB 2563 introduced by Republican Rep. Michelle Udall, would allow districts and charters to spend all of the Classroom Site Funds in new ways – character education, tutoring, or to pay for ”the increased cost of additional school days that were enacted in 2000” (the school year was increased from 175 to 180 days in 2000 adding expenses in school operations). Schools can now plug Prop 301 funds anywhere in the budget to compensate for the money it has cost since 2000 to operate schools five days longer every year. Not a nickel has to go to teacher salaries.
Brophy-McGee’s legislation still mandates that school districts have a performance based teacher compensation system and it is likely that districts will continue to use Prop 301 money to bolster lagging teacher salaries.
But charter schools are not required to have the same performance based compensation system and many charter owners have simply not given Classroom Site Funds to their teachers. They have been unable to spend the unspent money every year on purposes other than teacher compensation and have had to carry over the funds, by law.
Now charter owners will be free to spend Classroom Site Funds to replace funds they would have spent to run the schools, increasing their bottom line. Worse, charters will be able to spend the money they refused to give to teachers over the years…to benefit themselves rather than the teaching staff.
The following eleven charter owners are sitting on over $16,600,000 in unspent Classroom Site Funds - money they will now be able to spend to increase profits if the Republican bill is passed (the * indicates online schools that have few teachers and use little available funds for salary increases).
- * Damian Creamer Primavera Online - $3,433,370
- Imagine Inc. - $2,728,021
- * Scott Durand Educational Options - $2,728,021
- Linda Proctor Arizona Agribusiness - $814,241
- Legacy Traditional - $1,320,986
- * Ombudsman - $674,130
- * E-Institute - $817,482
- Eugene Kinghorn Rose Academies -$551,142
- * Pinnacle Education - $914,953
- Rhonda Owens Skyline Schools - $1,326,695
- * PPEP Arizona Virtual Academy K-12 - $2,976,140
(Spreadsheet with CSF breakdown for the eleven charters found here)
This is what Republicans are offering as transparency and accountability in Arizona charter schools – a free hand to pocket money that should be going into teacher salaries.
When a charter school looks more like organized crime than public education:
GAR Inc. has sucked $11,000,000 out of Student Choice High School since 2012
Arizonans for Charter School Accountability
(Full report)
Student Choice High School (chartered by GAR Inc.) has two storefront locations in strip malls and is owned by Patrick Meehan and Scott Lopez. We saw red flags when they reported spending only 9% of their revenue on classroom salaries and only 5% of revenue on facilities in their 2018 annual financial report. Where did the money go?
Half of all state revenue ($11,000,000) has gone either to profits or management fess to Meehan and Lopez since the for-profit charter opened in 2012, 2018 was a record year: the owners made $1,189,804 in clear profit and $3,699,807 in management and accounting fees, while spending just $657,446 on classroom salaries. To top it off, they bought a car from one of their sons for $16,500 using school funds, not the millions they made off the school.
The management fees came out of nowhere. In 2017 they spent $3,328,710 less on management for instruction, instructional support, and administration. They suddenly decided to start a management company and charged themselves $3,400/pupil, netting a cool $3 million in 2018.
How can they get away spending less than 9% of their state revenue on classroom salaries for teachers and teacher aides?
Student Choice High School is an alternative high school for at-risk students that are behind in credits or were failing in other schools. The school uses online instruction as well as traditional classrooms. There are no A-F grades for alternative schools, so there is no accountability for academic achievement at Student Choice.
The 2018 AZ Merit results give a real indication about achievement at Student Choice High Schol. Out of 1046 students in 2018 (most of which were behind in required credits like English and math), 150 students took%