Friday, August 4, 2017

Charter Real Estate

This week Pennsylvania Auditor General Eugene DePasquale raised questions about more than $2.5 million dollars in lease reimbursements to nine different PA charter schools ( the Propel Charter School System in Allegheny County, the Chester Community Charter School in Delaware County and School Lane Charter School in Bucks County).

What we found in some of our audits is that the same people who own and operate charter schools, they themselves create separate legal entities to own the buildings and lease them to charter schools.

Folks advocating for public education often miss this aspect of the charter industry because it's not really education related. It is, however, big money related. It's why some critics of charters characterize them as more of a real estate scheme than an educational one. In Pennsylvania, what DePasquale found works like this-- Pat McGotbux starts a PM Charter School, a non-profit entity ( so you know it's not one of those evil for profits that everyone condemns). Pat then gets a building and forms PM Realty to lease the building from himself and ka-ching-- a whole lot of taxpayer money goes to make Pat rich with his "non-profit" school.

In Pennsylvania, part of the problem with these self-profiting arrangements is the same problem with all the other charter misbehavior in the state. DePasquale explains:

The problem is that we find zero evidence that the Pennsylvania Department of Education makes any effort to verify ownership of the buildings or look for conflicts of interest between the school and related parties. They simply write a check for whatever amount the charter school submits.

That's how we roll in PA. When charter operators get in trouble, it's likely to be because the feds caught him, not because the state was paying any attention.

The real estate side of charters is one of several loopholes that make non-profit charters highly profitable. A couple of years ago, the Wall Street Journal noted that the real estate side was attracting many players for a highly profitable bit of business. And states are helping:

Some states are beginning to make financing tools available to charter schools that had been limited to traditional public schools. For example, the states of Texas, Colorado and Utah now backstop tax exempt bond issues for some charter schools, reducing their capital costs when acquiring facilities, according to Scott Rolfs, managing director of B.C. Ziegler & Co., a niche investment-banking firm that has underwritten more than $600 million in charter school bonds.

But the growing role of for-profit real-estate developers has added a new dimension to the debate over charters, which are taxpayer funded and independently operated schools that are largely free of union rules. Critics say charter schools are in danger of cutting costly deals with developers who are more concerned with investment return than educating children. The result can lead to failed schools.

Carl Paladino, the notorious bad boy of the Buffalo school board, has made a mint in charter-related real estate deals. Not only does Paladino build the charters and lease them, but he builds the new apartment buildings near the shiny new school-- a one-man gentrification operation. And he sits on the public school board, where he can vote to approve and support the growth of charters.

That's not even the most astonishing sort of charter real estate scam. A 2015 report from the National Education Policy Center outlined what might be the worst. Take a public school building, built and paid for with public tax dollars. That building is purchased by a charter school, which is using public tax dollars. At the end of this, you've got a building that the public has paid for twice-- but does not now own.

In February of this year, researchers Preston Green, Bruce Baker and Joseph Oluwole dropped the provocative notion that charter schools may be the new Enron. It's a lot to take in, but Steven Rosenfeld pulled out five takeaways for Alternet, if you'd like a quicker look. But just some little factoids give you a taste. For instance, Imagine Schools take 40% of the money they collect from taxpayers and put that right back into lease agreements. In Los Angeles, owners of a private school leased room on their campus for a charter school that they were also involved in running-- then jacked that rent up astronomically.

Certainly not every charter school is involved in some sort of real estate scam. But the examples of such scams aren't all that rare either. A charter in Arizona built nine buildings and then sold them to itself; in the end, only 37% of the charters revenue was spent on students. In Chicago, public schools have been closed and then essentially given away to developers. The charter that Betsy DeVos visited in Florida was part of a cozy lease-to-itself deal. Deion Sanders' ill-fated charter almost ran afoul of real estate self-dealing. And the infamous Gulen chain allegedly uses real estate dealings to help keep the money flowing to its leader.

In too many cases, a charter school is really just an education-flavored business, a means of driving some real estate profits for the owners of the building, and what goes on inside the building is unimportant and immaterial to the major players in the transaction. In other words, while we may sometimes get preoccupied with the education implications of a charter school, Auditor General Pasquale is right to remind us that sometimes it's not about the education at all.


  1. Peter,

    Remember four years ago when Chicago Mayor Rahm Emanuel closed 53 schools in one day?

    Well, here's a story about what's happening to some of those schools.

    For over a century, low income and minority students attended Stewart Grammar school, which was closed in that massive closing in 2013.

    Check out this article, (everything that's wrong with Rahm's Chicago and his ed. policy summed up in one photo):

    The conversion of the former Graeme Stewart School into upscale condominiums marketed as "best in the class" has been controversial. ("class", of course, a pun on its former incarnation as a schools. This was also enabled by Arne Duncan, who years ago laid the groundwork for this outrage to come to fruition):
    x x x x x x x x x x x x x x x x x

    "A shuttered Chicago public school promoted as ‘best in the class’ upscale apartments is a big fail"

    By Ben Joravsky

    Ben Joravsky of the CHIGACO READER:

    "Not everyone sees it that way, especially Wozniak, who lives in Uptown. 'To me, this is Rahm Emanuel's Chicago,' she says. 'We're closing schools and turning them into private projects and disinvesting in neighborhood kids.'

    "What really galled her was that damn sign.

    " 'I find that insulting to all the kids who went to Stewart and all the people who worked there,' Wozniak says.

    "More maddening still is that Emanuel earmarked $16.1 million in TIF dollars to subsidize the development of a high-rise apartment complex at Clarendon and Montrose—not far from Stewart.

    "So once again there's no money for our dead-broke schools, but millions for upscale housing."

  2. "Makers" and "Makers-spaces"

    There are a lot of such stories about the fate of closed schools --- closed as part of a gentrification movement --- being re-purposed for that neighborhood's new upscale residents.

    Peter, here's one from your state of Pennysylvania.

    There's something really creepy about this story... as it's about the intersecting clash of class and race and school reform and gentrification and... well... capitalism.

    Two years ago, Philly School leaders executed a massive closing of schools, including Bok Technical School, an Art Deco school built by the Works Progress Administration in the 1930's for working class Philadelphians. For 80 years, Bok Tech helped generations move into the middle class, and had one of the highest achievement and graduation rates for its working class demographic.

    For eight decades, the now-closed school's rooftop gave its low-income students a beautiful view of Philadelphia, so some developers bought up the closed school, then turned
    rooftop into ...

    "Le Bok Fin" ....

    ... an ultra-trendy bar / cafe for newcomers to this gentrifing neighborhood. These upper class and upper middle class hipster yuppies can now eat and drink and mingle there. Mind you, patrons have to walk through the abandoned school hallways to get to the hip place.

    Anyone care to go slumming?

    Protestors have been handing out fliers to people as they enter:

    "You're eating and drinking at a beloved school that was closed against the community's wishes."

    Here's a positive portrayal of the transformation:

    "The Hottest Bar in Philly Is on Top of a Shuttered Public School"

    Look at the pictures. Upscale white hipsters wining and
    dining at the tragically hip site of a school that, until
    two years ago, served Philly's black underclass.

    Stuff like this is not for me...

    (Ooops, the above link is dead, so you'll have to use your imagination.)

    Here's a piece that is critical: (young urban professionals are not called yuppies, but "makers", and gentrified spaces like this renovated high school are called "makerspaces." Who comes up with this jargon, by the way?)

    "Why 'Le Bok Fin' Is Misguided and Wrong for the Neighborhood

    "Ever since I saw that a Scannapieco, this time the offspring, had bought and was set to develop the former Bok Technical School into a 'makerspace.'

    "Le Bok Fin” will feature a French menu, and put the kitchen that used to train teenagers to use. I wonder how many of the neighbors will be able to afford a meal there. Even its name is a reference that most of the neighborhood won’t get–to possibly the most bourgeoisie restaurant ever in Philadelphia. I wonder how many nearby residents will even have the time, as time poverty is an issue that often gets overlooked.

    "This under-served neighborhood needs affordable healthcare and childcare, ESL classes, business and finance classes in multiple languages, better jobs, living wages, technology classes, immigration services, and the such. It doesn’t need dog parks, a bus shelter for an alternate-route bus and a 'living room.'



    TEACHER-PHILADELPHIA: (continues criticism of "Le Bok Fin")

    "And so (developer Lindsay) Scannapieco clearly hopes to usher in gentrification with her 'makerspace.' It’s a pretty easy conclusion when other Philly makerspaces are in Graduate Hospital and Kensington, both battlefronts in the gentrification war Philadelphia is currently waging again long-term residents.

    "Furthermore, who are these 'makers?'

    "They’re young, white people–the sort who build start-ups and attend expensive, pointless pop-ups and don’t worry about the community that was already there.

    "Will they invite in kids for free workshops (with meals provided)?

    "Will they hire the community and train them for meaningful jobs, not just as janitors?

    "Will they pay a living wage if they do?

    "What will they do for parents and adults who are too busy to be 'makers'?

    "Is this a space for everyone, or a space for those privileged few who can afford myriad luxuries–the first of which might be the ability to be a “maker” in the first place?

    "Scannapieco aims to build a community, but the community already exists. Taking a building that educated their children into the middle class and instead using it to showcase the very worst of the middle- and upper-middle classes in Philadelphia isn't just tone deaf.

    "It’s insulting, and it’s wrong."

    Finally, here's a Fox News-type that ridicules any such misgivings that working class residents have about cannibalizing a beloved 80-year-old school, and turning it into a trendy upscale 'makerspace' bar & cafe---ignoring the pre-existing community and school's history in the process:
    x x x x x x x x x x x x x x
    "Dear Le Bok Fin Haters: Quit Your Whining"

    "Did you hear about the latest scourge of Philadelphia? No, it’s not the violence in the streets or the corruption and incompetence in public office or even the PPA parking nazis.

    "It is [cue sinister music] 'Le Bok Fin.'

    "This 'controversy' is one of the stupidest things I have heard all year. And I hear a lot of stupid.

    "The 'activists' are upset that all this activity is happening atop a shuttered school, even though Le Bok Fin had absolutely nothing to do with the school closing. They are griping that the neighborhood doesn't need French food or a dog park (another disastrously progressive aspect of the development at that location). And they are horrified that a bunch of privileged white millennials are coming there to drink and stretch.

    "In short, they have summed up developer Lindsey Scannapieco as an evil gentrifier, invading their neighborhood with her big, fancy ideas.

    "If anybody wants to invade my neighborhood with a bunch of millennials and their rooftop yoga and rooftop French food, I will personally roll out the red carpet. In fact, Will Smith's alma mater Overbrook High School is just around the corner from me. And since it sits on the top of a hill along Lancaster Avenue — you can see the skyline quite nicely just from the front seat of the car — it will have a killer view."

  4. If you wish more detail on the "Le Bok Fin" debacle, watch this video that was made of a protest outside:

    Also, here's another editorial opposing "Le Bok Fin":

    "Boycott Le Bok Fin, period

    "No conscious Philadelphian should find enjoyment in socializing atop a shuttered school."

    " ... I care about Philly education and don’t take pride in seeing schools shut down, only to have them turned into more bars and crap we don’t need.

    "What disgusts me the most about 'Le Bec Fin' is that it mocks the very nature of the school in which it feels fit to now colonial-ize.

    "Sad fact: their namesake comes from one of the culinary programs formerly housed the now-closed school, and what it used to call itself.

    "How can anyone who cares about education reform and improving the city stand atop that roof and party knowing that the failure of a school produced this? It almost feels as though one is celebrating Columbus Day and forgetting that the holiday partially commemorates the genocide of thousands of native tribes.

    "And for that reason, I’m asking Philadelphians to have no part in this insensitive developmental site. What next? Tea parties and macaroons where the MOVE bombing took place?

    "The message this new venture is telling Philadelphia is that schools aren’t meant to save but replace for social hubs that can reminisce their glory days. If that isn’t rubbing it in the face of those former teachers, mentors, and alumni – then I can’t possibly imagine what else does.

    "And let’s not act like it’s a community effort. The people attending are predominately white yuppies looking for another place to naively encroach their sentiments of innovation and cultural appropriation.

    "What a neighborhood that housed a closing school needs are not yoga sessions, but smarter resource pools to prevent it from happening again.

    "The city should start a better campaign to encourage developers and/or community organizers to find actual proactive ways to utilize such property outside of booze-infused recreation.

    "We are starting to become a Brooklyn waiting to happen and if that’s the case, I won’t be here long enough to see it unfold."

  5. Last bit on "Le Bok Fin" (there's much more on this situation ... just use Google)

    (I included all of this because, as the twin processes of gentrification and school closings continue, scenarios like this will become more common ... and it won't be pretty.)


    "When I really think about what Le Bok Fin represents, I realize there is something wrong here.

    "Millennials are dancing on the grave of a public school.

    "This pop-up and what it represents is ill-advised. This is the first thing to take place at the building since it closed, and it's a missed opportunity for the building developer, Scout Ltd., to do something important.

    "What we have instead is some really bad PR. But that's hard to avoid when gentrification is such a dirty, dirty word.

    " 'To close a school and then a couple years later turn it into a bar, it's a total slap in the face,' Octavios Mitchell, a former student told the Philadelphia Inquirer. 'Not only to the students, but to the community.' "

    x x x x x x x x x x x x x x x
    The above piece also includes an interview with the daughter of the developer, conducted by the article's author, Alexander Kacala. Kacala seems skeptical of the developer's claim that they are respecting and "paying homage" to the building's history:

    "Confusion was evident in Scannepieco’s voice when she spoke about the future of the building — which, it seems, is still anyone's guess. And I’m not sure if she is really listening to critics. There seems to be a lot of deflecting and not enough absorbing (on Scannepieco's part, JACK)."

  6. Excellent post, thank you, Peter. Just re-shared on Charter Schools & "Choice": A Closer Look:

  7. I'm in Utah. I just got my first property tax statement with charter school levies on it. So much for charter schools being, "cheaper than public schools."