In Renaissance Academy for Math and Science vs. Imagine Schools, the court ruled there was hidden self dealing. The judge fined Imagine Schools one million dollars. This was just one school in trouble in St. Louis, Missouri at the time. Thirty-five hundred children had to be relocated when all Imagine charters were forced to close in St. Louis.
We all need to know how this can happen. It is not unusual.
The nature of the problem is not reserved for St. Louis or even Imagine Schools charter management company. The basic organizational structure of for-profit charter management companies is similar. In Florida, Imagine, CSUSA, and Academica all have created non-profit boards to contract with local school districts to run charter schools. The law requires that only non-profit boards can contract for charter schools.
The charter management companies, however, select board members who promptly turn over the operation of the schools to the management company. The management company turns to its real estate subsidiary for school facilities which are then leased to the charter school boards. Therein lies the rub.
Let’s use the Missouri case as an example of how things can go very wrong. The charter management company, called Imagine Schools, established a legal non-profit entity called Renaissance Academy for Math and Science. Imagine recruited the board to govern the charter school. The Renaissance Board signed a contract with Imagine to run the school and turned over all of the available funding.
Imagine Schools also created a real estate company called SchoolHouse Finance. It had purchased and renovated two buildings which it leased to Imagine, and Imagine leased to the Renaissance charter board for a ten percent return on investment. Then, Imagine decided to get its money out of SchoolHouse Finance, so the buildings were sold to a real estate trust called EPR Properties. EPR leased the buildings back to Imagine at a 10% rate, but Imagine charged Renaissance 12%, thus making an additional profit from the school funds.
The judge was not impressed with the self dealing. If fined Imagine one million dollars. The ruling indicated:
- Breach of Fiduciary Duty. Good faith, fidelity, and loyalty requirements were violated by self dealing and overcharging Renaissance above market rates for leases.
- The Board was subservient to Imagine Schools. It was weak and confused.
- Payment for the school lease came out of instructional costs. National rates for instructional costs were 65.82% of a school’s budget, but Renaissance spent only 27.9%.
- Duty of care involves proper management, payment of bills, and accurate accountability of funds. Imagine was in violation of these requirements. Board members did not have access to Imagine’s financial records for how the school’s funds were expended.
Progress Ohio’s Sandy Theis made some recommendations for reform:
- Place a reasonable cap on the percentage of state money for rent/lease payments.
- Require the State Board of Education to sign off on leases.
- Require transparency by making leases readily available to the public.
- Render leases null and void if company fails to disclose specific financial ties between Imagine SchoolHouse Finance or any future entity receiving rent for schools.
- Require charter school boards to have an independent attorney and financial officer.
- Any capital outlay funds for buildings must be accompanied by reforms on transparency and accountability and allocated using a formula similar to the ones for traditional public schools.
It is too expensive to sue one school at a time. Over one third of the charter schools in Florida are run by for-profit companies. The legislature must heed Senator Gaetz’s call for an end to the self enrichment schemes in the charter industry. Florida’s citizens must help improve the legislature’s ability to listen.