Imagine School finances: the numbers don’t add up

by David Safier

NOTE: This is the seventh in a series of recent posts examining Imagine Schools. (Here are 1, 2, 3, 4, 5 and 6.) If you have ideas or information to add, please leave comments at the end of the post or email me at safier@schooltales.net. I keep all email correspondence confidential.

Most of my posts about Imagine Schools have focused on Imagine Prep at Superstition because that's the school that made the news for losing 11 of its 14 teachers at the end of this school year, either because they were fired or because they quit. Today, though, I'm going to look at Imagine Middle at Surprise as an example of the convoluted and unsustainable financial arrangements that are typical of many Imagine schools. [Both Imagine Prep at Superstition and Imagine Prep at Surprise were for-profit schools until recently, so I don't have access to their tax returns which non profits are required to make public. Imagine Middle at Surprise was always a nonprofit, so I have 5 years worth of 990 tax returns to look at, which makes for a more complete analysis.]

Here's the short story about the financial situation at Imagine Middle at Surprise. Its building costs are higher than the total state allotment that goes to the school, meaning it's in hock before it hires its first teacher or buys its first ream of paper. Imagine Schools loans the school enough to cover the rest of its expenses, then "forgives" part of the debt each year, while piling up more debt for the current year. It's hard to see how the school will ever dig itself out of this cycle of loans and "debt forgiveness."

Let's look at the finances for the 2010-2011 school year. The school had about 165 students and received about $1,150,000 from the state. That's about $7,000 per student, a typical state allotment for Arizona's charter schools. Yet it spent $1,302,000 on "Operation and Maintenance of Plant," meaning it spent 113% of its state funding just paying for building rent and maintenance.

Obviously there had to be some outside funding. It came in the form of $1,340,000 in what the school labels "Supplemental, Contracted Labor." Basically, it's a loan to the school from Imagine Schools, something that happens at their schools around the country when they can't make expenses, which is often the case.

Totaling the state funds and loan money, Imagine Middle at Surprise spent $2,490,000 for the 2010-2011 school year. That comes to more than $15,000 per student. Supporters who claim charter schools are more efficient and therefore cost less than traditional public schools should be howling in outrage at the thought of Arizona's Imagine schools spending twice as much per student as our district schools.

On its 990 tax form for the 2010-2011 school year, Imagine Middle at Surprise lists as revenue $612,900 in "Debt Forgiveness." Later on the tax form, under "Other Liabilities," it lists $300,000 in debt divided between Imagine Schools and Schoolhouse Finance, the corporation's real estate arm.

Based on my back-of-the-envelope calculations, the school, even if it were operating at full capacity, would never be able to balance its budget using state funds. Its state-mandated student capacity is 319 students. At $7,000 per student from the state, that comes to $2,233,000, which is $257,000 less than it spent in 2010-2011 with 165 students. But if the school added 154 more students to bring the total to 319, it would need many more teachers as well as more texts and other supplies, which would add a considerable amount to the school budget, putting it even further out of balance.

CEO Dennis Bakke is supposed to be a savvy businessman, yet he's constructed a charter school empire which looks like it's incapable of paying its bills. However, it may be Bakke isn't so savvy. After all, he made his fortune by creating an energy empire built on long term loans, and the empire crumbled when the loans were called in. Expansion and debt may be all he knows.

[Note: Imagine Middle at Surprise shares its building with a high school, Imagine Prep at Surprise. Their shared space and expenses complicate the financial picture considerably, but trying to describe how their finances intertwine would add more length than light. Suffice it to say, if both schools operated at full capacity, they might be able to live — barely — on state funds, but trying to balance their combined budgets with the ridiculously high rent charged by Imagine Schools would continue to create a precarious financial balancing act.]