Imagine Schools: When is a non profit not a non profit?

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.

When is a non profit charter not a non profit charter? One answer could be, when it's one of Arizona's string of Imagine Schools.

Imagine Schools has about 18 charters in Arizona. Of those 12 are non profits and 6 for profit. The non profit as well as for profit charters are run by Imagine Schools, a for profit corporation based in Virginia. In most cases, the corporation leases the buildings to the schools (directly or indirectly) and hires all the teachers and administrators. What it comes down to is, the state furnishes the non profit charters with a set amount of money per student. The charter sends most of that money to Imagine Schools, which basically runs the schools.

So tell me, are you a non profit charter in more than name if you funnel your funds to a for profit corporation which decides how much it wants to spend on education and keeps what's left?

The information in the rest of this post is from the 990 tax forms the non profit charters file with the IRS, just like all other non profit, 501(C)3 organizations. You can find them online at the National Center for Charitable Statistics website. (If anyone wants links to the individual 990s and can't find them on your own, let me know and I'll furnish the links.)

A word about my analysis: I'm doing my best to glean accurate information from the tax forms, but I'm an amateur at this, and I may be getting some of it wrong. If anyone knows more and can correct any of my statements or assumptions, please do so. I will post any legitimate corrections.

Let me take one of the Imagine Schools as an example: West Gilbert Charter Elementary.

In 2007, the school's total revenue was about $3.4 million (I'm rounding the numbers), almost all of it from the state. According to its 990, the school paid no money directly for salaries. The money for salaries is listed as "Contract Labor" — about $2 million. Though it isn't specified, my assumption is that the $2 million goes to Imagine Schools, which does the hiring and firing. A number of news reports in other states indicate that's the way it works, and I have no reason to think things are different here in Arizona.

"Management Fees" are listed at  $300,000. This is an area where, if I am correct, someone is playing fast and loose with the charter funds and purposely trying to hide what's going on.

Five of the non profit schools, including West Gilbert Elementary, have the same 4 people listed as their Officers and Directors: Leonora Farrah, Herman Orcutt, Megan Zimmerman and Debra Dusseau. Farrah is on the Officers and Directors list of all but one of the other 8 schools as well.

Now here's where it looks like there's some purposeful deception going on. On the forms, it says these 4 people devote zero hours per week to their positions and receive zero compensation. But then there's a question on the 990 that asks, "Do any of the officers, directors, trustees or key employees . . . receive compensation from any other organizations . . . that are related to the organization?" On West Gilbert Elementary and every other Imagine School's 990, the answer is always "Yes." The details about the compensation are listed on a Statement at the end of the tax form.

The Statement at the end lists 9 or 10 schools — basically the same 9 or 10 schools on every form — which it says are under "Common Management." For each of the schools, a "Management Fee" is listed. The total fees for all the schools comes to about $2.6 million.

In other words, these 4 "uncompensated" Officers and Directors take a bite from that $2.6 million apple. That sounds like compensation to me.

How much are they being compensated? I don't know. If Leonora Farrah is getting, say, 20% of that money — she's listed as Chair of most of the 12 schools' boards, so I'm guessing she would get more than the others — that would come to $520,000. I have no idea if she gets nearly that much. She may get a smaller cut of the money after it goes back to Imagine Schools. But she and the others are getting some kind of compensation.

But how can they be listed as uncompensated on West Gilbert Elementary's 990 if they receive Management Fees from all the schools, West Gilbert Elementary included? The answer is, each 990 contains the same lie. Each one of them leaves the Management Fee for that particular school off the list.

So, the Statement listing schools charging Management Fees on the West Gilbert Elementary 990 form lists every school except West Gilbert Elementary. The 990 for Imagine Elementary at Desert West lists Management Fees for every school except Imagine Elementary at Desert West. And so on. Every 990 does the same thing. It's a purposeful omission which, it seems to me, is done to camouflage the fact that members of the Boards of Directors get paid for their services.

This "Management Fee" arrangement, and the deception on the 990s designed to hide the board members' compensation, is a huge red flag for me. Something is happening that shouldn't be happening. It's an indication that the Charter School Board, the state Attorney General's office or the IRS should be looking into exactly what's going on.

The legislature has just begun peering into the seamy world of tuition tax credits and School Tuition Organizations (STOs). It might also be time for the state to peer into the way the taxpayer funded charters are spending our money as well. Both situations look eerily similar.