Is Imagine Schools, Inc., the Bain Capital of charter school organizations?

June 23, 2012

by David Safier

NOTE: Since Imagine School at Superstition made news by firing 11 of its 14 teachers, I've been writing about it, reading up on Imagine Schools and talking to people who know more than I do. This is the fifth in a series of posts trying to make sense of the nation's largest charter school corporation which has drawn more controversy for its practices and low student achievement scores than any other (Here are the first, second, third and fourth posts). What I write may be incomplete or incorrect in places. If you have information to add, please leave comments or email me at safier@schooltales.net. I keep all email correspondence confidential.

I've been trying to wrap my mind around the way money moves through the Imagine Schools organization, from schools to the for profit Imagine Schools corporation and from schools to Imagine's real estate arm, Schoolhouse Finance. It's a complex, convoluted money shuffle whose machinations are far beyond my minimal business and financial knowledge. But one thing I'm certain of: something about the money shuffle doesn't smell right.

This morning I read an article in the NY Times about how Bain Capital worked during Romney's years with the corporation, and a light went off in my head. The cycle of acquisition, indebtedness and failure built into the Bain model is similar to what Dennis Bakke, Imagine's founder, created at his energy corporation AES (Applied Energy Services), and he's carried the same model over to the way he runs Imagine Schools.

The short version of the Bain story is, when Bain acquired a company, it loaded it up with loans and used the money to make more acquisitions. Meanwhile, Bain also charged the company management fees, which meant money kept rolling into Bain's coffers regardless of the fortunes of the company. If the company collapsed under the weight of its debt, which happened frequently, Bain shrugged, walked away with its winnings and moved on. If the company thrived despite the debt, so much the better. That meant even more money.

When Bakke ran his energy company AES, he created mountains of long term debt which he used to expand at breakneck speed, acquiring power plants around the world — using, in a sense, the same model for his own company Bain used for the companies it acquired. AES nearly went bust under the weight of its loan obligations, but Bakke walked away with a fortune, bought a failing charter school company and started Imagine Schools.

In four years, Imagine grew from its original 25 schools to 73 schools, almost tripling in size and making it the largest charter school organization in the country. That kind of rapid school expansion isn't smart educationally, and for most companies it would be impossible financially, especially the way Imagine did it. When Imagine started a new charter school, it acquired a piece of property and either built a school on it or remodeled an existing structure to make it work as a school. That takes an estimated $5-10 million real estate investment per school.

Where did all that money come from to build the new schools? That's where things start to get interesting, and complicated.

Old news (yawn . . .)

June 23, 2012

by David Safier Breaking Not-so-breaking news: AZ near bottom in per-pupil spending. Of course, the amount of money spent on education doesn't matter, Republicans say. I say, cut 30% from the amount the money-doesn't-matter crowd spends on food for their families, then ask them if it matters. Hell, just cut 30% from their salaries and … Read more