New York Times
... there really is no way an entity should end up on both sides of business transactions,” said Marc Dean Millot, publisher of the report K-12 Leads and a ...
Here is the text of an email I sent to colleagues Paul Hill and Robin Lake at the Center on Reinventing Public Education in Seattle. CRPE is doing an evaluation of CMOs financed by New School and I am urging them to incorporate into their review the real estate finance model developed by Imagine:
Subject: The troublesome side charter school facilities finance
I really hope you make an effort to understand Imagine Schools business model. Smart business model, bad public policy.
The key is facilities finance. Imagine captures a local charter board and effectively controls the school. Imagine or a related entity purchases real estate for the school. It secures a construction loan for a new building on the basis of a long term lease signed by the school. Because it controls the school, it negotiates with itself, resulting in a lease payment very favorable to the lessor. Once the building is completed, Imagine sells the building. Because of the favorable long term lease, Imagine gets a great price for the building and pulls out a lot of money. It pays off the construction loan and pockets the difference.
What is wrong with this picture? Two things:
• When Imagine sells the building it is essentially recovering from the taxpayer the present value of future lease earnings while ending responsibility to the taxpayer for future school performance. It breaks the charter idea's "basic bargain" of autonomy for accountability. Imagine has figured out how to separate financial and academic success. No matter what happens to the charter school after the sale -- academically or otherwise, Imagine walks away with profits made by selling future lease revenues.
• Because Imagine controls the board, but does not actually hold the charter, the charter school (stakeholder community) does not capture the value of the building (the whole point of sales-leaseback finance). It retains sole responsibility for performance, but loses resources that might help it perform.
There's no reason any E/CMO couldn't try this.
There are fixes - enforcing existing charter and nonprofit law might be a good start, and maybe special oversight of sale-leaseback financing terms, , but I haven't seen anyone discuss them - or this. Eduwonks need to get smart here.