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What is the cost of Georgia's state charter schools and other budget issues?

The Georgia charter amendment will be voted on, but what about issues of Georgia's school budget and other issues, like overleveraging on charter school bonds, scandals, austertity cuts etc.

With the upcoming Georgia charter school amendment, both sides for and against have not mentioned other issues related to the state-approved public special charter schools. How much will these schools cost Georgia? What other issues related to the budget like: foreign investors, visas, scandals, the IRS tax exemptions, and the Fitch Ratings downgrade of charter school bonds; affects the costs?

Since most Americans still do not understand how public charter schools
work, which is an advantage by pro-charter advocates, by using terms like “Public,” “Local Control” or “Choice” to mislead some Americans to automatically support charters.

Let us first look, at how much Georgia spends on education. The Georgia Department of Education (GADOE) reports that for 2011, the local and state revenues per Full-Time Equivalent (FTE), which calculates the cost per-student for each school program for Georgia cities and counties; ranged from $6,086 to
$13,161, or an average of $7,976 per-student.

When it comes to funding for FY 2011, Georgia received $1.7B from federal funds, $7.04B from state funds, and $6.05B from local funds; for a total of $14.8B for both public charters and traditional public schools.  For FY 2012, GADOE showed
Georgia receiving only 14.6% from federal tax funds, 37.8% from state tax funds and 47.6% from local tax funds for both schools.

Other than funding, there is another concern on how much state charter schools cost. The charter amendment that voters are voting on, is about allowing the state to create state-approved public special charter schools. If you compare the charts in this article, you will find differences on what these schools cost, which is not a bipartisan issue.

David Werner, which is Governor Nathan Deal's, Deputy Chief of Staff for Legislative and External Affairs; gave the following chart in the AJC comparing the cost of traditional public schools (K-12 Districts) versus state-approved public special charter schools.  Werner's chart shows that traditional public schools cost $8,993 per-student, but state charters cost $5,546; so a $3,447 difference.

Another chart by the GADOE, shows different set of numbers. For 2012, the subtotal of state funding based on the QBE Formula, which calculates funding for each student per school, based on their city and county. With the allowance for
local revenues and equalization grants included, FTE totals showed that traditional public schools cost $4,252 per-student, but state charters cost $8,474. This means that these state-approved public special charter schools, get 99% more funding than traditional public schools, with a $4,222 difference.

The two charts has completely different numbers, with Governor Deal's office showing state charters costing $5,546 per-student, and GADOE showing $8,474.  So who has the right numbers?

Currently the cost of state charter schools are small, but if voters approve the amendment, they will cost more. For 2013, the GADOE reports that the 15 state-approved public special charter schools, currently cost a total of $40.7M. If the charter amendment is approved, then GADOE projects from the 2012-18 chart in this article; a total of 50 state-approved public special charter schools will cost $433.1M to operate. So in five years, 50 state charter schools will cost $433.1M; a dramatic increase that will take away funding from traditional public schools.

From 2011-12, the total number of the 3 types of charter schools in Georgia are 217 (Conversions, Start-ups that are locally-approved or state-approved special charters, and Charter System Schools, with some career academies as charters); out of the total of 2,289 public charters and traditional public schools,
combined.

Other than the cost of state charters, what about the issue of austerity cuts?  From 2003-13, GADOE reports a total of $5.7B in austerity cuts for 10 years, with the chart in this article. With the highest of the austerity cuts in FY 2012, of $1.15B, while FY 2013 had $1.14B in cuts; each year from 2003-11; has been a slow increase of cuts, ranging from $135M to 956M. 

For 2011, GADOE reports that 40% of all Georgia districts or 72 school districts; operated on a deficit from a lack of funding. Since 2008, there has been a 15% reduction in statewide local tax digest revenue, because of the Global Recession.

Georgia is not the only state lacking funds for charters. The New Hampshire BOE placed an indefinite moratorium with their 15 new approved charter schools, until they can find $5M to fund them; out of their $10.3B state budget.

Outside of funding for both public charters and traditional public schools, there is the issue of furlough days and shorter calenders; which takes away teaching for
students. GADOE found that 121 out of 180 school districts, have less than 180 school days in the year. The 2011-12 Instructional Day Summaries showed school days ranging from 144 to 179 days for the school year; which means a shorter school year, with less teaching and less spending.

With lesser days to save school budgets, many school districts have to either lay off teachers or increase furlough days to save even more money for each school; which means even lesser days for teachers to teach.

Other than shorter school years; there has been 3 Georgia public charter school scandals, which has made the news. One is the Fulton Science Academy Middle School's (FSAMS) recent audit done by IAG Forensics. The audit found issues in areas like: Inappropriate vendor relations, conflicts of interest, lack of safety for students on field trips to Turkey, poor security on background criminal checks on staff, federal immigration issues on staff, poor record and bookkeeping, lack of cooperation on the audit, etc.

Fulton's school chief Robert Avossa, said FSAMS was an example of the worst “egregious” problem he had seen, stating “I am not the lawyer, but when you look at this, look at the facts, it is wrong. We don't do self dealing. We don't take kids on field trips without proper vetting.”

Two examples of “self dealing” started in 2008, with the first agreement between FSAMS and Grace Institute for Educational Research & Resources, Inc.; which had Selim Ozdemir that signed the agreement, as a board member of Grace, at the same time was also an executive director for both FSAMS and Fulton Science Academy High School. Ayhan Korucu, a board member, was also the Governing Board President of FSAMS; and there were others, holding multiple job positions, which oversees this for-profit public charter school.

The second issue with FSAMS, was their $19M loan agreement with a shared campus, built by revenue bonds from the Alpharetta Development Authority; without getting state site approval. The campus is shared by FSAMS two sister schools: Fulton Sunshine Academy and Fulton Science Academy High School.

The third issue, was FSAMS hiring employees from HR to teachers from Turkey, under H-1B visas; which means FSAMS could not find highly skilled American workers to fill those American jobs. Avossa said, “This was during one of Georgia’s worst recessions,... (where) hundreds of teachers have been laid off in the Atlanta region, there were probably folks eligible for those jobs.” These Turkish teacher visas were also paid by tax dollars, and many teachers left; after their first year, back to Turkey. 

FSAMS operates as part of a larger Turkish global faith-based business, which started in Brooklyn and N.J. with private schools, but expanded into charters, called Harmony Schools; with 130 charters in 26 states and D.C., also over 1,000
schools globally from Taiwan to Georgia. Some are managed by different groups; like the Cosmos Foundation in Texas, the Concept Schools in Illinois, Indiana and Ohio; and the Magnolia Schools in California.

Harmony charters are directed under Fethullah Gulen: A poet, author, and Turkish Muslim Imam; which has been compared to Gandhi and Martin Luther King Jr., for promoting interfaith dialog, tolerance, and belief in schools. Gulen believes that Muslims should build schools and teach science, because “Studying physics, mathematics, and chemistry is worshiping God.”

Other than science, Gulen also believes, “If you don't seek ways to be wealthy...that is a sin in the eyes of God;” a Muslim version of the American Christian Prosperity Gospel.

Some doubt how Harmony Schools operate like in Texas, where some Turkish teachers came to the U.S. on visas to “teach English.”

Mary Addi, a laid-off teacher from a Gulen school in Cleveland, Ohio, told CBS that she married a Turkish teacher; and found 40% of his paycheck going back to the Gulen school, because “it's a great money-making operation.”

CBS's Lesley Stahl stated that “Gulen's followers can make money thru contracts to build and maintain the schools.”  Federal authorities are investigating, if Gulen schools has committed immigration fraud and misused education dollars in some states.

If Turkish charters are a money-making operation by contracts to build schools, then Reuters article entitled “The new U.S. visa rush: Build charter school, get a green card;” focuses on EB-5 visas, which Gulen may have used to invest or build
charter schools, like FSAMS in Georgia. Wealthy foreign investors from Australia, Russia, China etc have been investing in small U.S. businesses, like: building schools, basketball courts, dairy farms, vineyards, hotels, and also investing into charter schools; in many U.S states.

EB-5 visas modeled after the Australian/Canadian program was created by President G.H.W. Bush's Immigration Act of 1990. Foreign investors can invest $500K to $1M, to either maintaining or creating 10 U.S. jobs for 2 years per investor, and after 5 years the investor and their family are eligible for U.S. citizenship.

Since Georgia's educational austerity cuts has increased every year, along
with other state projects; why not bring over foreign money to fund Georgia charters and other jobs. The EB-5 program allow states to create third party government-authorized investment groups for private or public companies, called Regional Centers (RCs); to collect funds by investors and distribute those funds to U.S. businesses and nonprofit organizations.

Currently, there are 218 RCs in the U.S., and Georgia has 6 RCs that serves 28
Georgia counties, since 2011. This is another way for local and state governments to fund local U.S. projects, without raising taxes.

These RCs hire promoters, which are mainly U.S. Immigration attorneys, to
give sales pitches to foreign investors using EB-5 visas, as an incentive. The problem is, some promoters guarantee profits to investors and many them never become U.S. citizens. These U.S. immigration attorneys, are paid high commissions by U.S. businesses, which help steer the investors through the EB-5 visa process and to these RCs; but the problem is, some promoters are small, unregistered unregulated companies.

USCIS claims that out the total 13,719 investors, since 1990 that applied
for EB-5 visas; only 3,127 have been given U.S. citizenship.

Both the USCIS and SEC oversees the EB-5 program. The USCIS does not
monitor the success of investments with U.S. business; but instead only looks at the jobs they promise to create. Recently, the USCIS created an annual reporting system, which tracks how much foreign money comes in, but does not disclose how they market or pay attorneys. The SEC does not monitor the marketplace or the RCs, but some promoters may be violating SEC laws, since they are not
registered brokers.

Over the years, both Atlanta Democratic Mayor Kasim Reed and Georgia
Republican Governor Nathan Deal, have went on trips to Turkey, the U.K. and China; to drum up foreign companies to do business in Georgia. Maybe both were involved with Georgia RCs and promoters to plan those trips, and drum up investors.

Other than plugging up school budgets with foreign money; there is the second Georgia charter school scandal dealing with their own local budget problems, with Wesley International Academy (WIA). WIA was the third Georgia charter since
2010, to sever ties with the Arlington, Virginia for-profit Educational Management Organization (EMO) called, Imagine Schools Inc.. WIA was overcharged rent by Imagine of $1.1M for one year. Another issue was that Imagine, could hire teachers and principals; without WIA board's approval or local control.

Lori Waters, a spokesperson for Imagine, said since 2008 the leasing rent “rates were driven by the economic costs before," the Global Recession. The rent was negotiated between WIA and Imagine, after GADOE had to rewrite regulations to help reduce the lease to $540K a year.

The issue with WIA and Imagine was, “to give (local) boards more autonomy and to untangle the financial agreements between charter schools and management companies,” said Louis J. Erste, director of the Charter Schools Division for the
GADOE. Before the rewritten law Erste said, “management companies locked charter schools into long-term, high-cost leases, well above market value, and tied continued use of the school building to renewal of the management agreement...Such arrangements are no longer tolerated.”

The new regulation laws, enable WIA to renegotiate their leasing agreement with Imagine, “which still owns the property it spent $12 million to renovate in 2007.”  WIA was even given a 5 year renewal charter by APS, after they dropped Imagine.

A 2011 audit, found that WIA got $6.2M a year from state funds, $150K in federal funds and $400K in revenue from areas like:  food service fees, fundraisers, summer camp, etc.  The $6.2M in tax dollars first went through Imagine, and charged WIA a 12% management fee to operate the school.  WIA and two charters in Kennesaw and Smyrna, also dropped Imagine.

Waters with Imagine, said the two charters in Marietta and Mableton were victims of politics, by their local school boards.  Yet Alison Barlett, a Cobb County school board member, denied Imagine's claim that Mableton's charter was turned down for politics.  Since the board approved the Smyma charter; after breaking off ties with Imagine, because the school had a “fully intact governing board,” and
Mableton did not.

The third Georgia charter school scandal concerning budgets, was with the Cherokee Charter Academy (CCA), which reported a $1.5M deficit in its first budget year.  The , which advanced the needed funds to cover the deficit.  CSUSA, a EMO
covered $975K of the deficit, based on the conditions of their approved charter application; which pledged to cover any deficits, if any incurred.

Erste said, “Covering any deficit wouldn't be a loan, that's just a gift (or) a grant.”
Most charters in America, do not make a profit or break even in their first year of operation, Erste said; which is why “To receive charter in Georgia (schools) have to have (a) balanced budget which is why the management company must pledge to fill any deficit.”  Erste believes, “Typically, the management company will subsidize the school in its first couple years, then the enrollment rate rises.”

CCA's deficit, was a miscalculation from state funds and unexpected total revenues.  CCA only enrolled 817, while budgeting for 995 and received $1M less from state funds.  Since funding is determined per student; CCA lost $637 per student from state funds.  CCA anticipated only a $325K for their charter grant, but were given a full two-year grant of $625K; and spent $620K of that state grant, within their 2 year operation.

CCA also spent $45K of Title I funds for free-reduced lunches, which was not accounted in their budget.  The deficit also come from items like; $155K in food service revenues and $57K from their enrollment shortfall.

CCA spent $161K of their $101K budget for their contract vendor on special education, Fundspeech. 

CSUSA charged a management fee of $15K per month or $185K per year, to CCA and taxpayers; but the report had “no actuals” in that line item.  CCA also spent $34K in advertising and marketing, which was less than the $73K that was budgeted.  Another expense that CCA paid for was vendor services, of $5K in bank charges and loan fees, which was more than their $4K budget.

CSUSA also reported $11K of expenses on “travel, automobiles, meals, lodging and airfare,” but CCA only had $9K budgeted on such expenses.

CCA's major expense was the $240K in building repairs and maintenance, out of the $125K that was budgeted; since the higher costs was needed for “several code violations.”  The CCA building, was leased by a for-profit Delaware company called, Manufacturers and Trading Trust and Company.

In both cases of WIA and CCA high cost budget, brings about the question if a for-profit EMO, which operates the entire charter school; is either saving or wasting taxpayer dollars.

A 2012 report by Eric V. Hall, H.W. Mahaffey and Christopher D. Freemen of the law firm Rothgerber Johnson & Lyons LLP (RJ&L); questions how charters operate
under EMOs.
  The law firm asks, how can most charter schools with a 501(c)(3)
public charity tax exemption status with the IRS, receiving federal taxes, state income taxes, property and/or sales taxes; be operated by a for-profit EMO?

EMOs like CSUSA and Imagine Schools, control all school operations from hiring, administration and services; but also controls the public funding and charge taxpayers a management fee, like Imagine Schools 12%, on those tax dollars to operate that tax exempt public school.  Is it right that a for-profit company to benefit, from a tax exempt charter school, which are funded by public taxes for a public school?

In Georgia, there were 11 management firms that served charters from 2010-12:  10 were for-profit EMOs and 1 non-profit Charter Management Organizatio (CMO), which both EMO/CMOs operate the entire school.  KIPP is the only CMO in Georgia. 

The GADOE shows that EMO/CMOs operated 22 charter schools, like:

  1. Charter Schools USA (CSUSA) 2 charters,

  2. Edison Learning, Inc. 4 charters,

  3. Imagine Schools, Inc. (use to operate 3 charters),

  4. Kaplan Virtual Education (surrender their charter for lack of state funds),

  5. Connections Academy, Inc. 1 charter,

  6. K12 Inc. Virtual Schools 1 charter,

  7. Mosaica Education, Inc. 2 charters (also a 3rd charter that never opened),

  8. Academica, Inc. 1 charter (which the school terminated their EMO in 2012),

  9. SABIS Education Systems 1 charter,

  10. National Heritage Academies 1 charter.

  11. KIPP (CMO) 4 charters.

Here is an example of how CSUSA, serves many different functions as a EMO
for a charter school, to justify charging taxpayers a management fee for doing:  Charter applications, classroom management tools, peer reviews, employee hiring, budget oversight, fund-raising, risk management, focus group interviews, email hosting, lottery management, management of contracted transportation, food services, uniforms, etc.  So EMOs do it all, but with little oversight though laws, which does not allow local parents or local administrator, to have local
control. 


If a EMO/CMO has full control over school finances and operations, then RJ&L questions how they “may operate to reduce costs and maximize revenue rather than to maximize the delivery of educational services;” to benefit the management company over the interests of parents and the local charter school board, which is what happened with WIA and Imagine Schools EMO.

With three disgraced Georgia charters, two of which had issues with for-profit EMOs; should make voters reconsider new forms of accountability to oversee or get rid of all charter school management companies, before voters approve the state to create more state charter schools.  Since conflicts of interest arise, between the charter school board of directors and the management company, like
with WIA, CCA and FSAMS.  Only an IRS audit, conducted by an independent counsel, like with CCA and FSAMS; finds conflicts of interest with individuals with multiple positions later after the charter is operating, instead of beforehand, which the board is suppose to be the charter school's check and balance. 

The IRS issued a Charter School Guide Sheet, to point out red flags with EMO/CMOs stating that “charter school's governing body is likely to be independent of a management company where (1) the board members are unaffiliated with the management company and consist of members of the community or persons who are otherwise qualified to serve on a school board;
(2) the board members have authority over and are actively involved in major school policies, including the budget, curriculum, and hiring and firing; and (3) the board members negotiated with the management company
before signing the management agreement.”

What interests me in the debate for better education, is that students, teachers and school staff has to be accountable by test scores or merit programs; but the for-profit companies operating charter schools, want no accountability and demands complete autonomy by laws for themselves, which creates fraud, waste and abuse of taxpayers and parents:  A double standard.

For-profit EMOs and non-profit CMOs, recruit from the local community for their
charter school board members.  Yet many EMO/CMOs want those board of directors to have limited authority on designing the charter school programs; which gets rid of local control automatically.  This creates a hierarchical top down out-of-state control organization, to dictate to those charter board members, like WIA.  With no local bottom up grassroots contributions on how the charter operates, as pro-charter advocates promise; the parents and the local boards still
have no local control, even with for-profit or non-profit groups. 

Massachusetts and Pennsylvania, both have strict laws that “require charter school administrators and board members to file financial disclosure forms.”  These financial disclosures, limit conflicts of interest and a public scandal, like FSAMS, WIA and CCA.

In Massachusetts, Michigan and NY, the authorizers that approve the charters, also approves the charter school board members.  In some states the board member, is a parent of a student in that charter, while other states require a charter school teacher, as a board member.

Some states have further controls over their charter school's business and finance models, like Arizona, which require charters to have competitive bidding for their vendor's goods and services to reduce costs.  Delaware requires that charters use “the state's purchasing system,” to cut costs.  New Mexico, N.Y.  and Tennessee, simply bans all for-profit EMOs to operate charters in their states. 

Other than arguments of local control, another issue of budgets that may affect Georgia is the over leveraging of charter school bonds.  Fitch Ratings downgraded, all issued charter school bonds with a negative ratings watch, because of their Charter School Rating Criteria for 2012.

Some events showed charter schools lack any “audited financial performance history,” to support a high investment grade rating on bonds.  The external groups or entities of any investment like:  Financial advisors, investors,
industry associations, underwriters etc; all need feedback on their bond investment.  Fitch re-evaluate, “its assessment of the financial and operational downside risks facing these entities. Fundamentally, Fitch views charter schools as inherently non-investment grade because of their typically high leverage and lack of operational and financial flexibility.

Fitch “believes the operating model for charter schools exposes these entities to
substantial external risks that are often outside the direct control of management.  These include political risk, regulatory risk, and competitive risk;”

so Fitch updated their criteria report. 

Charter schools will be capped at 'BBB' rating category; which means it will be more expensive to take out loans or bonds for those charter schools; costing even more for these types of schools, and will increase Georgia's educational budget.

In this debate on many issues of the budget from:  Furlough days, austerity cuts, charter school scandals, for-profit EMOs operating tax-exempt charters, and Fitch downgrading highly leveraged charter school bonds; makes it hard to decide if charters are worth it.  Georgia voters should weigh the total cost of state charter schools, and what this amendment will do to Georgia's educational budget.

Georgia voters need to consider all of the issues, both pro and con, on how
to fund this 1990s educational experiment, called for-profit public
charter schools.

Yes, parents want better schools for their children, but at what cost and
what type of school, since there 8 different types of public and private schools?   Are parents that work two jobs or is a single parent, willing to pay more in taxes or school fees, to get those better schools; and collectively agree on what type of schools to fund more, than other schools?

So cast your vote accordingly, and look at the many issues behind the total costs of the state-approved public special charter schools versus the issues of a better education for all.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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