A North Side charter school expects to spend more of the tax dollars it receives this school year on rent than on teachers and staff.
Imagine Columbus Primary Academy projects building-lease payments of $700,000, making rent the school’s top expense, eating up more than half its annual state revenue, according to a school financial report. The school expects to pay $614,000 on salaries and benefits this year.
Similar arrangements are in place for the other five Imagine Schools in Franklin County.
Who is charging the charter schools such high rent? A company called SchoolHouse Finance — which is a subsidiary of Imagine.
It gets even more complicated: SchoolHouse buys the buildings, resells them typically for two or three times the purchase price, and then leases the facility from the new owner so it can rent the space back to Imagine.
Five of the schools in Franklin County received a combined $20.2 million in the 2012-13 school year, according to their most recent state audits. A quarter of that money — more than $5.1 million — was spent on rent, all under long-term leases with SchoolHouse Finance.
A sixth school, Imagine Integrity Academy, spent 81 percent of its $440,009 in state aid on rent, according to an audit for the 2011-12 school year, the most recent available.
And on top of the leases, Imagine is being paid hundreds of thousands of dollars for “indirect costs” as operator of the schools, records show.
Diverted tax dollars
The upshot is that the complex deals are diverting hundreds of thousands of public dollars to one of the nation’s largest charter-school operators, Imagine Schools Inc., and its affiliates. Imagine operates 67 charter schools in 11 states and the District of Columbia. At least three states and Washington, D.C., are investigating Imagine for real-estate maneuvers like those in Ohio, and a fourth state, Missouri, already has shut down several Imagine schools.
Both supporters and opponents of tax-funded, privately operated schools say such deals defy common sense.
“It’s legal, but that doesn’t mean it should be,” said Greg Harris, Ohio director of StudentsFirst, an advocacy group that supports charter schools and other education alternatives. “ We don’t want charter-school operators profiting as landlords.”
The expensive leases, Harris and others say, take money away from educating students.
“That’s too high. And it’s a lease; they aren’t even buying it,” said Chad Aldis, vice president of Ohio programs and policy for the Thomas B. Fordham Institute. Fordham sponsors nearly a dozen Ohio charter schools and has pushed for more accountability on results and transparency of school activities.
“Generally, you want to see 11 to 18 percent (of revenue going toward facility costs). If you have much more, it starts eating into classroom instruction,” Aldis said.
Push for accountability
A key Republican leader in the Ohio Senate has begun work on comprehensive legislation to strengthen charter-school accountability laws to ensure low-performing schools are closed and unqualified sponsors are prevented from opening schools.
“We have many charters doing worse and no better than the public schools they were supposed to be a choice to,” said Senate Education Chairwoman Peggy Lehner, R-Kettering.
When Ohio passed legislation allowing charter schools nearly two decades ago, the idea was they would be given freedom from many regulations so they could be more innovative and share their successes throughout the educational system.
“But at some point we have to say that the experiment has failed and they need to close,” Lehner said. “We want to help high-quality charters expand and make sure low-quality schools don’t stay open.”
She has assembled an informal working group, including state officials and outside education experts, to work on a bill she hopes to introduce by spring. She’s heard concerns about lease deals like Imagine’s that have led to schools being shut down in other states, but her panel has not yet discussed the issue.
Rhonda Cagle, a spokeswoman for Imagine Schools, said rent costs for the company’s Ohio schools this year are on average 18 percent of the schools’ operating budgets.
The schools rely on per-pupil state funding and do not receive money for facilities, she said. As enrollment grows — particularly at new schools like Columbus Primary Academy — “the percentage will continue to decline in terms of the overall percentage allocation of the schools’ budgets.”
Cagle also noted that the schools are located in older buildings originally built for other purposes and required updates and renovation to use as schools.
“The current lease payments reflect both the original cost of the building as well as those significant refurbishments,” she said.
Imagine school real-estate deals have faced scrutiny in Washington, D.C., Nevada, Florida, Pennsylvania and Indiana. After an investigation by the St. Louis Post-Dispatch highlighting such deals and poor academic performance, the Missouri Board of Education shut down six Imagine charter schools in 2012.
Citing low academic performance, sponsor Ball State University dissolved three Imagine charter schools in 2013. A month later, the two Fort Wayne schools reopened as private schools, Horizon Christian Academy, and Imagine continued to operate them.
The Fort Wayne Journal Gazette reported that by changing to a private school, Imagine was
not required to repay $3.6 million in loans from the state of Indiana for startup costs.
Imagine isn’t alone in working real-estate deals with its schools. Summit Academy and White Hat are among those with real-estate arms. The Akron Beacon Journal reported recently that 40 percent of Ohio charter schools pay rent to for-profit or out-of-state landlords.
The real-estate situation for Columbus Primary Academy mirrors those at other Imagine schools inside and outside Ohio. Schoolhouse Finance purchased the Heaton Road building in 2005 for $1.5 million and made $2.6 million worth of improvements, according to a permit on the county auditor’s website.
SchoolHouse sold the building in 2006 for $5.2 million to a real-estate investment trust, then leased the building back from the trust to charge rent to the school.
Policy Matters Ohio, a liberal research group, noted in 2010 that such deals allow “ opportunities for profit both at resale and as it collects rent.”
“There are a lot of Ohio charter schools that are taking public money and misusing it, failing to educate children and funneling profits to private operators,” said Amy Hanauer, executive director of Policy Matters. “This does nothing to help kids.”
The scenario plays out repeatedly in Franklin County. In 2013, Schoolhouse Finance sold a Harrisburg Pike building for $6.4 million that it bought for $2.2 million five years earlier; it sold a building on South Hamilton Road in 2007 for $3.75 million that was purchased a year earlier for $1.85 million.
The process of developing comprehensive charter-school legislation should put financial arrangements like those with Imagine “under a microscope,” said Rep. Teresa Fedor, D-Toledo, a leading Democratic voice who has tried for years to call attention to problems with Ohio’s charter-school system.
“Republicans have raised the flag on good government and efficiency. Why would they allow that in the education world when those tax dollars are precious?” Fedor said. “If it were allowed in the traditional public school, those school board members would be hung by their toenails.”
Rep. Andrew Brenner, R-Powell, the vice chairman of the House Education Committee and a former county recorder who spent 11 years in the mortgage industry, said the public should learn more about what is happening with Imagine, but he doesn’t necessarily see a problem.
“Starting up a school isn’t cheap. If they’re fronting money to utilize buildings and rehab them, there is a cost factor in there,” he said. “My guess it’s just an ability to write off the costs that are being fronted to purchase and rehab these buildings.”
The board of the Imagine Columbus Primary Academy is trying to negotiate a lower lease than the one it inherited when the school opened its doors last year. Members will meet this week with officials from Imagine and SchoolHouse Finance to discuss the issue.
Instead of spending more than half its revenue on the lease, the board is suggesting 15 percent, a recommended national benchmark, or about $188,000 a year, which would allow more money to be dedicated to the 150 students attending the school.
When the issue came up at the board’s Sept. 10 meeting, an Imagine representative urged the board to focus on increasing enrollment to bring in more per-pupil state aid.
“Until we start to get our enrollment up the lease is going to be a substantial cost. So we have to figure out, how do we increase enrollment?” said Jennifer Keller, regional director for Imagine.
But some board members said it was their job to address cost issues.
“We can’t have this elephant in the room just sitting there and ignore it,” said board member Sean Grant.
School Principal Tim Pingle told the board he feels “enormous” pressure to get more kids enrolled while working to improve student test scores.
The lease deal was made by another Imagine School that occupied the same building until it was closed after the 2012-13 school year for dismal academic performance.
Poor-performing charter schools aren’t supposed to remain open if they don’t improve, but the rules are easy to get around. The management company can just find a new sponsor.
Just weeks after Imagine Academy of Columbus was closed by its board, another Imagine school, Columbus Primary Academy, opened in the same building. The school has a new sponsor, a new board, new principal and half the staff was replaced, but the high-priced lease remains.
Dave Hansen, who now heads the office of school choice and community schools for the Ohio Department of Education, was on Imagine Academy’s board at the time it shut down. He pushed to have it closed. The husband of Gov. John Kasich’s chief of staff, Hansen is among those working with Lehner on legislation. He declined to comment for this story.
Serious changes to charter-school law won’t just breeze through the Republican-controlled legislature, where leaders strongly believe in school choice and some charter operators wield major influence.
The state’s two largest for-profit charter operators, David Brennan of White Hat Management and William Lager of the Electronic Schools of Tomorrow (ECOT), have combined to give $2.25 million since 2009 to state political parties, lawmakers and statewide officeholders, mostly Republicans.
That includes a combined $320,000 to the House GOP caucus and Speaker William G. Batchelder, R-Medina; $223,000 to Senate President Keith Faber, R-Celina, and his caucus; and $71,000 to Kasich. The likely top two leaders of the House starting next year got a combined $104,000 since 2009.
Lehner, who has butted heads with for-profit charter operators in the past, has received nothing from the two since 2009.