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Own A School? Or Lease? For Charters, It’s Complex

June 29, 2016 - Author: Bradley - Comments are closed

Pennsylvania’s charter law makes no arrangement for the repayment of construction and remodelling costs, leaving the schools to come up with other methods to spend for buildings.

School districts, on the other hand, are repaid by the state for a part of their costs for educational buildings. Payments are made over the life of the structure. The annual statewide payment is about $300 million.

Charters do get state repayments for leasing costs: $160 per pupil for primary schools and $220 per pupil for secondary schools, multiplied by their help ratio, suggesting that those in wealthier districts get less than charters in poorer ones. More than 90 charters appliedmade an application for lease reimbursement, totaling about $9.5 million, in 2014-15.

When schools lease, nevertheless, the property manager maintains ownership and payments can be increased or leases ended. To prevent such unforeseen interruptions, many charters buy their structures. According to a 2015 report, by the end of 2014, charters or associated groups statewide had drifted 31 public bond problems worth about $578 million to buy homes. More structures were bought through personal financing.

Numerous charters have developed an ingenious approach of controlling their buildings while still gathering lease subsidies. They form associated not-for-profit “buddies” companies, whose objective is the support of the charter. The “friends” group then buys the buildings that the charters inhabited and rent them back to the charter. Many charters do this and continue to collect state lease reimbursement payments.

Charter schools safeguard the practice, saying that it provides them required funds since they are not compensated for building expenses. Purchasing the building through the “relatives” group, they say, develops stability and decreases costs in the long run.

But critics say this arrangement develops the capacity for disputes of interest in between the charter and associated nonprofits.

One concern arises when charter structures are owned by a moms and dad company that could prefer the interest of that company over the charter by charging rent that might be considered expensive. In a recent audit of ASPIRA and Universal Business, City Controller Alan Butkovitz questioned this practice.

In other cases, the charter-associated “buddies” groups might set a rental fee that is lower than the reasonable market rate for the home could demand since its function is to help the charter. Nevertheless, nonprofit board members are required by law to avoid “self-dealing” – doing something about it that are not in the finestthe very best interest of their organization.

Some authorities, including State Auditor General Eugene DePasquale, compete that this practice disqualifies charters from gathering lease repayments because the “pals'” group is so closely associated to the charter. He concluded that the charter, in essence, owns the structure.

A 2013 state audit report on Delaware County’s Chester Neighborhood Charter School, the state’s biggest brick-and-mortar charter, reported that the school’s structures had actually been owned till 2010 by Vahan Gureghian, the CEO of the for-profit charter management company that ran the school. In 2010, a freshly formed nonprofit group, “Buddies of Chester Neighborhood Charter School,” purchased the buildings from Gureghian for $50.7 million, utilizing county industrial development authority bonds. The buddies group then signed a lease with the charter school, which continued to collect state lease reimbursements.

In Philadelphia, a minimum of a dozen charters have actually bought school buildings through public bond issues or are leasing structures owned by nonprofits that they are associated with and yet continue to get state lease compensations.

DePasquale has examined numerous charters with these “circular lease arrangements” and gotten in touch with them to return the reimbursements. He has gotten in touch with the Pennsylvania Department of Education to disallow these compensations.

In an emailed reaction to questions about the Education Department’s lease compensation policy for structures owned by associated groups and rented to charters, Deputy Communications Director Casey Smith said just that the department “gets documents from charter schools recognizing the owner of the property and a signed confirmation that the charter school does not own the property and that it is used for educational functions.”

String Theory Charter School’s enforcing eight-story building at 16th and Vine Streets, which houses its Philadelphia Performing Arts school, was bought in 2013 for $55.5 million by a not-for-profit related to the charter.

Because the nonprofit owns the structure and leases it to String Theory, according to a 2015 Philly.com article, the charter continues to gather $188,000 a year through the state’s Charter School Lease Compensation Program.

The Philly.com post stated that String Theory spends almost one-third– $5.5 million– of its $16 million annual charter budget on the new structure and on 2 smaller sized structures for its older school in South Philadelphia. That figure, the post said, is more than String Theory investsinvests in teachers’ incomes– $5.3 million. String Theory announced scholastic and transportation lowerings at its schools in February 2015, the post stated.

Other charters get personal financing. KIPP Philadelphia Charter Schools financed restoration and building and construction work at its Elementary Academy campus in North Philadelphia with financing from the for-profit Turner-Agassi Charter School Facilities Fund, bankrolled in part by tennis terrific Andre Agassi, according to a current Inquirer short article. The short article said that the fund made an almost $1 million revenue, or a 9.1 percent return on its financial investment.

Jonathan Cetel, who leads the school-choice advocacy group PennCAN, which works for high-quality education alternatives in Pennsylvania, said that many charter building and construction controversies stem from insufficient state funding for the schools. He stated he would like to see charters get construction financing on the exact same basis as public schools, including state support for construction bonds. The lack of building reimbursements, he said, means that “a great deal of charters are in trailers or unusual industrial areas that aren’t conducive to education. That’s not excellent for any person.”

However Donna Cooper, executive director of Public Citizens for Kid amp; Youth, stated that “the financial mismanagement in the charter sector has made [state backing for charter bonds] a high-risk proposition for the state. … The last thing I would want to see is the commonwealth putting its full faith and credit behind a short-term institution.”

One 2005 Philadelphia charter school bond of $10.7 million is now in default. The Walter D. Palmer Leadership Learning Partners Charter School, beleaguered by academic and financial issues, closed its doors in 2014. The building, near Northern Liberties, was sold in January for $6 million, the Inquirer reported.

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