Imagine School in Indiana: High lease costs hurt students

by David Safier
This is one of a series of posts, Peeking into Charter Schools. If you have information you wish to contribute, you can post comments or email me: safier@schooltales.net.

Here's a perfect illustration of how Imagine Schools (there are 72 nationwide, 14 in Arizona) pulls its quick school building shuffle, taking money from students' educations and putting it . . . well, that's the question. Where does it go? Wherever it goes, Imagine Schools has no apologies. It's proud of what it does.

Imagine MASTer Academy Charter School in Fort Wayne, Indiana, began operations in 2006. In July, 2006, the building for the school, an old YMCA campus, was purchased by North Wells Schoolhouse LLC for $2.9 million.

Who owns North Wells Schoolhouse? It's a for profit company created by Imagine Schools.

Now, keep your eye on the bouncing ball.

North Wells Schoolhouse transferred the building to Schoolhouse Finance LLC, the for profit real estate company run by Imagine Schools (left hand, meet right hand). Schoolhouse Finance sold it to EPT (Entertainment Properties Trust) Schoolhouse for $5.5 million, a $2.6 million price bump.

EPT Schoolhouse leases the property to MASTer Academy for $740,000 a year, which happens to be 20% of the money the school gets from the state to educate its students. That amounts to 1/4 of what Imagine School's real estate company paid for the property in the first place.

The Fort Wayne Journal Gazette, which is all over this story (it's about much more than building leases), asked in the article I'm getting my facts from, what if the original $2.9 million price tag were financed with a 20 year, 5% loan? The yearly cost would be $230,000 a year, less than a third of what the school is currently paying to rent the place.

Oh, one more thing about the lease. It's what's known as a triple net lease. That means the school has to pay costs like utilities, taxes, insurance and property upkeep. So tack on tens of thousands of dollars more to the building costs.

Obviously, every dollar that goes toward the building is a dollar that doesn't go toward educating the students.

How does Imagine Schools defend this questionable financial arrangement? It says, Yeah, it's fine, we do it all the time. See, by selling the property at a huge profit to a company that rents it back to the school at an inflated rate, Imagine gets the capital it needs to start more schools.

Let me translate Imagine's business model into English. Imagine Schools spends fewer state dollars on the students at MASTer Academy than it should so it can start more schools, where it will also spend fewer state dollars on students than it should, so it can start more schools where it will . . . repeat indefinitely, or until states catch on and stop chartering new Imagine Schools (and refuse to renew existing charters), and the education-for-profit empire collapses under its own weight.