Monday, April 26, 2010

Marc Millot Comments on NY Times Page 1 on Imagine Schools CMO

I hope you will alert your readers to Stephanie Strom's page one article in Saturday's Times

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 ...

OK, I did get quoted and I did help her out - so I have a interest here - but what's important here is that a national paper picked up a concern we all share about the potential for CMO's to abuse charter school law.

I have also urged Stephanie to consider a magazine-length article. She's collected so much more than is in the story. She's made a great many contacts across the nation. There's something here for Mother Jones, the Atlantic, The New Yorker, etc. She's done most of the basic research. All she really needs to do is find some Imagine/CMO supporters who are willing to talk on record. I'm sure Chris Whittle and Steven Wilson would talk. I think I could get a few E/CMOs CEOs to talk - Mike Ronan, maybe others. I don't know about most of the new philanthropy's investees.

One way of convincing the national print media to devote more attention to this is to generate "buzz" suggesting reader interest. One measure of buzz is the number of independent bloggers who pick stories up, link their readers to the source, get them to comment on the paper's blog, provide their own comments on their own blogs and generate reactions from their readers there. You guys can do this.

Please take a few minutes to tell your readers about the story, and give them your two cents on its meaning.

I have talked with reporters for thirty years. My most important objective is helping them understand the context. issues, politics and personalities, and I recognize that quotes represent reporters respect for helpful contributions. In my Strangelovian days working nuclear war, I was always off the record, so I must admit I appreciate the quotes in domestic stories. Not to seem ungrateful, but I'm never completely satisfied with these quotes. I'm just not great at devising sound bites reporters see as such, and I always feel the quote leaves me Ivulnerable to critiques without a means of immediate, direct reply. (Maybe I should start a blog.)

If you are interested in the basis of my quoted declaration in the Times:

I do not believe that what Imagine has done with charter school real estate is legal:

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.

Also see USED IG report on charter abuse - not directly relevant, but worth reviewing:


And just so it's clear I am not philosophically opposed to charters or E/CMOs and using the legal argument as a means to ending them, from another email:

My bottom line - no legal structure can eliminate corruption or incompetence. Killing charters or CMOs will hardly end either in public education. The traditional system of public education has its share of both. These are conditions to be managed rather than problems to be solved.

I am impressed by the fact that after some 20 years of operation, by any objective measure, charter school performance is roughly the same as the centralized government run model. Experts for and against end up arguing over the details of evaluation methodology. Knowledgeable observers must conclude that the jury is still out, and begin to consider whether there might be value to charters even if they only perform at the same level at the same cost. But if after two decades they perform on average as well as traditional public schools, that strikes me as an argument to keep going and see what happens.

It is not an argument maintaining poor oversight. Brigands are not market stakeholders, they are market threats. Markets can work, but without basic regulation to identify, punish and deter gross abuse of the public trust, the result is only legalized anarchy.

I know you guys have different takes on the meaning of all this. Great! Let's get it out for public debate!

One last point. I served as President of the National Charter Schools Alliance, which I'd call a national umbrella for state-level associations of grassroots charters for roughly three months when it was killed off by the new philanthropy. It was a real learning experience, and I expect to get criticized by my own adversaries for the implication that such a short tenure is a basis for credibility. It is hardly is the sole basis of my expertise. I must have had some prior experience that led the NCSA board to elect me, and I've done a great deal of writing on CMOs since. Still, I expect grief.


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