Federal Judge Orders Imagine Schools to Pay $1 Million for “Self-Dealing” Case Spotlights Need for Sweeping Charter School Reform
COLUMBUS – A federal judge in Missouri blistered Imagine Schools, saying the lease it forced on a local school it managed constituted “self-dealing.” The judge ordered Imagine to pay the school more than $1 million.
School board members at the now-closed Missouri school sued Imagine, insisting that it acted in its own best interest, not the best interest of the school.
The facts of the case mirror arrangements in Ohio and other states where Imagine schools pay exorbitant rent to an Imagine subsidiary, SchoolHouse Finance. The high lease payments leave little money for classroom instruction and help explain the poor academic records of Imagine schools in both states.
“This self-dealing is out of control and has to end,’’ said ProgressOhio Executive Director Sandy Theis. “Legislators who are working on charter school reforms should make prevention of these types of abuses a top priority.’’
Theis announced a package of Imagine-specific reforms. They include:
- Place a reasonable cap on the percentage of state money that can be used for rent.
- Improve accountability by requiring the State Board of Education to sign off on the leases.
- Improve transparency by requiring schools to make leases readily available to the public.
- Render leases null and void if Imagine fails to disclose specific financial ties between Imagine, SchoolHouse Finance or any future entity receiving rent for school buildings.
- Require charter school boards to have an independent attorney and financial officer.
- Any capital money for buildings must be accompanied by reforms on transparency and accountability, and must be allocated using a formula similar to the one used for traditional public schools.
Gary Miron, a professor from Western Michigan University and an expert witness in the Missouri case, said, “This ruling will hopefully empower charter school boards to take back control and responsibility for their school from their for-profit education management organizations (EMOs). There are a lot of charter schools operated by Imagine and other for profit EMOs that are having public revenues intended for students siphoned off into corporate coffers. I hope the Missouri ruling will be a signal to these organizations to halt such practices. “
Last year alone, Imagine and SchoolHouse Finance, collected at least $14.4 million in public money for their Ohio schools, according to records from the schools and state auditor. More than half — $8.9 million – covered rent for long-term leases to SchoolHouse Finance. The $5.5 million balance went to pay “indirect costs’’ to Imagine to provide certain management services.
Imagine officials have long insisted that SchoolHouse Finance is a separate entity. The Missouri judge didn’t buy it.
Evidence presented “shows that Imagine Schools was the sole owner of SchoolHouse Finance during the relevant time period,’’ U.S. District Court Judge Nanette K. Laughrey said in her Dec. 18 ruling.
“Although there is evidence that Imagine Schools and SchoolHouse Finance filed legal documents subject to the rules of perjury that show a different ownership pattern, the Court concludes those filings were a product of gross negligence and shocking disregard for the law,” according to her opinion.
In both Missouri and Ohio, Imagine brass pressured newly appointed school boards to quickly sign the leases but did not tell them of the ties to SchoolHouse Finance.
The Missouri board filed the lawsuit, and continued to pursue it after the school was closed. In Ohio, a feisty board serving the Imagine Columbus Primary Academy (ICPA) has asked Imagine to re-negotiate its $700,000 annual lease and said in a memo that it “believes that this payment is too high to sustain an academically successful school.’’ The Columbus board also hired its own lawyer, rather than continue to rely on the Imagine legal team.
The recommended national benchmark for rent payments is 15 percent of the annual budget, not the 38 percent projected for the current school year, according to the memo. “Based on the 2014-15 projections, this would amount to: $188,620.50,’’ a move that would slice the annual rent by about $511,380.
Although Imagine’s top leaders told Columbus media they would work with the school to lower the lease payments, Imagine officials later told the board in a public meeting that they would not.