Charter operator owed its schools millions, but no one's checking its books

Please note: This article is published as an archive copy from Philadelphia City Paper. My City Paper is not affiliated with Philadelphia City Paper. Philadelphia City Paper was an alternative weekly newspaper in Philadelphia, Pennsylvania. The last edition was published on October 8, 2015.

EXTRA CREDIT: Aspira Inc. of Pennsylvania, headquartered on North Fifth Street, owed its publicly funded charter schools $3.3 million, according to an independent audit.
jessica kourkounis

The Philadelphia School District will spend a projected $729 million on charter schools in the coming fiscal year. But, if the past year at one charter operator is any indication, not all of those funds will actually go toward serving students. 

Aspira Inc. of Pennsylvania owed large sums of money to four Philadelphia charter schools it runs, according to an independent audit of the organization’s finances as of June 30, 2012, that was obtained by City Paper. According to the report, which was produced for Aspira and completed in April, the nonprofit was running a deficit of $722,949 as of last June and owed the publicly financed schools $3.3 million. That’s in addition to millions of dollars in lease payments and administrative fees filtered to Aspira and entities it controls with no oversight. 

“That money is being given to fulfill the purposes of the charter, which is to run the school,” says Michael Masch, a former chief financial officer at the District and budget secretary under Gov. Ed Rendell. “It’s taxpayer money, and it’s limited as to its use.”

The questions over Aspira’s finances highlight the School District’s weak oversight of charter schools at a time when the District is struggling to close a budget gap that initially stood at $304 million, prompting the layoff of nearly 4,000 teachers, counselors and other staff. 

Aspira Inc. of Pennsylvania, once a small nonprofit providing services to the Puerto Rican community, has in a few years’ time mushroomed into one of the city’s largest charter-school operators. Its balance sheet has undergone a similarly prodigious expansion, thanks to taxpayer funding of Eugenio Maria de Hostos Charter School, John B. Stetson Charter School, Olney Charter High School, Antonia Pantoja Charter School and Aspira Bilingual Cyber Charter School. 

For reasons that aren’t clear, millions of dollars have moved between the network of charter schools, their parent nonprofit and two property-management entities. The School District is charged with overseeing city charters, but “does not have the power or access to the financial records of the parent organization,” according to District spokesperson Fernando Gallard. “We cannot conduct even limited financial audits of the parent organization.” That’s despite the fact that charters account for 30 percent of the District’s 2013-’14 budget. Aspira declined to comment.

The $3.3 million that the four brick-and-mortar charters apparently have loaned to Aspira are in addition to $1.5 million in lease payments to Aspira and Aspira-controlled property-management entities ACE and ACE/Dougherty, and $6.3 million in administrative fees paid to Aspira in 2012. 

A 2010 report by City Controller Alan Butkovitz found the District’s Charter School Office “is only providing minimal oversight of charter schools except during the time leading up to the charter renewal,” which happens every five years. Law-enforcement investigations involving financial malfeasance, however, are frequent. At least 18 area charters have been subjects of federal investigations since 2008, according to the Inquirer. Most recently, the chief executive of Harambee Institute of Science and Technology Charter School pleaded guilty to wire fraud and stealing school funds.

One area of concern identified by the controller is a lack of “monitoring [of] charter-school facility leases,” which are often made “through related parties, all of which appear to be designed to obtain additional state funding.” That’s because the state pays for some lease reimbursements — but buildings owned by a charter are not eligible for the payments. 

Further, the controller notes, “Properties that are being paid for with taxpayer funds are being either transferred [to] or controlled by nonprofits with no accountability to the school district or taxpayers.” State lease reimbursements are not supposed to be used to support the acquisition of property.

Real-estate acquisitions have played a large part in Aspira’s growth. ACE/Dougherty purchased Cardinal Dougherty High School for $8.5 million in 2011, and the network’s combined real-estate holdings increased from $13.34 million in 2011 to $23.15 million in 2012, according to the audit.

“What happens if the charter ends?” asks Masch. “Then, Aspira still owns the building even though it was 100 percent paid for with taxpayer money.”

In 2012, Aspira owed $16.8 million on its properties, according to the audit. One mortgage note payable to PNC Bank for $4.91 million is guaranteed by Hostos Charter and carries security agreements with Olney, Stetson, Pantoja and Hostos. In the event of a default on that loan, the security agreement could put separate, publicly funded assets  (though not real estate) at risk. 

Gallard says the District is aware of issues related to Aspira mortgages, and the matter “is still under review by our audit office and our Charter School Office.”

There are other indications that Aspira has failed to properly manage its expansion. On March 27, 2013, participants in an Olney Charter trustees meeting stated that staff had used debit cards without providing receipts. Aspira chief executive Alfredo Calderon and chief financial officer Murray Rosenman, according to the minutes, said that “the debit-expense issue has improved but not [been] resolved.” A source says that the organization identified $169,000 in unaccounted debit card expenses. The District tells CP that it is now looking into the issue.

In comments to the state-controlled School Reform Commission earlier this month, Super-intendent William Hite Jr. said that “unmanaged, self-directed, charter-school growth could force the District into a perpetual deficit.” At the same meeting where the SRC made a controversial decision to suspend teachers’ union seniority rules, it also gave the District temporary powers to control charter-school growth.

Parents continue to enroll students in charters: Nearly a third of the District’s 195,000 students will attend 84 charter schools this year. It’s estimated that each student who attends a charter costs the District an extra $7,000 per year. Charters’ rapid growth has put increasing pressure on School District finances, given the fixed costs (such as buildings and staff) that must be paid regardless of the exact size of the student body.

The Pennsylvania Department of Education, which directly oversees cyber charters, has likewise failed to provide oversight. 

Philadelphia state Rep. Jim Roebuck, the ranking Democrat on the House Education Com-mittee, has proposed a charter-funding-reform bill that he estimates would save school districts $365 million per year.

This is not the first time Aspira has been criticized for questionable spending of taxpayer dollars. In August, the Daily News reported that Olney High School had paid $17,094 to the law firm Eckert Seamans to deal with a teacher unionization effort. Earlier this month, the National Labor Relations Board found merit in charges that staff were “threatened” and “interrogated” by school administrators for supporting attempts to unionize.

The state Auditor General, which has seen its staff reduced by 24 percent in recent years, doesn’t have the capacity to audit all the new charter schools that have opened in the past five years. Only three Philadelphia charter schools have been audited since 2008. Aspira’s five charters are not among them.

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