Education

by David Safier

NOTE: This is the sixth in a series of recent posts examining Imagine Schools. (Here are 1, 2, 3, 4, and 5.) 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.

Let's leave aside Imagine Schools' problems in Arizona for a moment and look at the overall financial picture of Imagine's 73 schools across the country. We may be looking at a charter empire in the early stages of financial decay.

The Missouri Board of Education just closed 6 Imagine Schools in St. Louis. That means Imagine Schools has 6 unoccupied buildings on its hands which aren't generating revenue. When they were filled with students, the schools were paying a total of about $6.7 million a year in rent. Unless Imagine can figure out how to rent those school buildings to someone else, that's about $560,000 a month in lost revenue. That's a hell of a lot of money.

But there could be hope Imagine Schools won't take a hit for all those empty buildings, because 5 of the 6 schools are actually owned by another company, Entertainment Properties Trust (EPT), which bought them from SchoolHouse Finance, the real estate arm of Imagine Schools. In most situations, that would mean EPT paid Imagine for the schools, owns them outright and is now left holding the bag for the missing rent. Except it looks like that's not how it works in this case.

Ken Libby has been following the Imagine Schools situation on his blog in a more financially wonky way than I have. He posted about EPT's first quarter report for 2012. Lots of the report dealt with the closed St. Louis Schools. I'm going to try and translate what I read from high-finance-speak into a version of English human beings can understand. I believe I've got it substantially correct.

True, EPT owns those 5 closed St. Louis Imagine School buildings, as well as four Imagine Schools in other cities that are closed or will be closing soon, making a total of 9 empty, non-producing properties. But EPT's risk is minimal, because through some contractual maneuver ("the cross-default nature of the master lease"), Imagine Schools is still responsible for the rent whether the schools are operational or empty. Either Imagine has to keep making monthly payments on the properties to EPT, or it has to exchange the unoccupied schools for occupied schools. Either way, EPT assures its investors, revenue will keep on flowing into its coffers.

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.

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

by David Safier

I love the take-all-comers aspect of community colleges which, unfortunately is coming to an end. It's a manifestation of one of the best — and most troublesome — aspects of our education system: the idea that American education gives people unlimited second chances. Like democracy, it's messy and inefficient. Also like democracy, it beats hell out of the other alternatives. But if you're starving education, limiting enrollment is inevitable. If you ask me, that's a damn shame, but if you ask a conservative, it's not a bug, it's a feature.

PCC has created hurdles to admissions which don't belong at the community college level. Worse, the main hurdle is a single test which wasn't designed to be used in that way. The National Center for Fair and Open Testing wrote a letter to the PCC Board of Governors condemning the practice.

It has recently come to our attention that Pima Community College is using the COMPASS exam, designed explicitly for course placement, as a de facto admissions test. Based on our review of the evidence, the COMPASS currently functions as the sole criterion to determine eligibility for credit-bearing courses, degree and certificate programs, and financial aid.

We are gravely concerned that Pima Community College's current policy appears to be a violation of the standards of the assessment profession, the test-makers' guidelines for proper use of exam results, and principles of good practice broadly supported by the college admissions community.

Even the company that makes the COMPASS exam doesn't condone its use as the sole criterion for admissions.

We counsel clients not to rely on assessment data as the sole criterion for making selection decisions, but to consider all available information that addresses additional relevant skills and abilities. We encourage our clients to consider other measures of knowledge, skills, and abilities (e.g., high school grades, supervisors' ratings) and various noncognitive factors (e.g., previous experience, interests, special skills)."

You can read the whole letter below the fold.