Accountability Arizona Charter Schools Education Industry Fraud Funding

Arizona Charters Hit Jackpot with Federal Paycheck Protection Program

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The federal CARES Act included the Paycheck Protection Program to help struggling small businesses and nonprofits survive the pandemic. Lobbyists for the charter industry slipped in a provision enabling charter schools to apply for PPP funding, even though they experienced no financial losses. Charter schools got a share of the $13.2 billion allotted to the nation’s early 100,000 public schools. The average public school received about $135,000 to meet the expenses of the pandemic. On the advice of their lobbyists, some 1200 charters also sought and won PPP funding. Thus charters drew funding from two sources; public schools were not eligible for PPP funding. Charters that applied for PPP funding won six times as much federal money as public schools.

The Arizona Republic reported that the Primavera online charter school in Arizona won a sizable “loan” (1% interest, forgivable), at the same time that its owner took a $10 million bonus.

Primavera online charter school, like many businesses this spring, sought help from the federal Paycheck Protection Program to weather the economic disruption of the COVID-19 pandemic.

The Chandler-based school received a PPP loan of nearly $2.2 million, the largest forgivable loan among the 132 Arizona charter schools that obtained them.

But Primavera’s loan appears to have been more of a bonus than a lifeline. 

The school, which like all Arizona public schools didn’t lose state funding because of the pandemic, ended its fiscal year on June 30 with $8.8 million in the bank — almost double the annual payroll costs for its 85 teachers, records show.

The school also shipped $10 million to its lone shareholder: StrongMind, an affiliated company owned by Primavera’s founder and former CEO Damian Creamer.

The school’s annual audit indicates Creamer controls both Primavera and StrongMind, noting he has “the ability to influence the school’s operations for the benefit of StrongMind.” Primavera paid StrongMind nearly $23 million this past fiscal year for software and curriculum services, records show.

Creamer declined to comment.

An Arizona Republic review of more than 100 charter school financial records, audits and federal Small Business Administration documents found the overwhelming majority of the Arizona charter schools that obtained PPP loans didn’t need the money.

John Todd, a longtime auditor of Arizona charter schools, said there are numerous problems with fully funded charter schools getting PPP loans intended to help struggling businesses.

“The PPP loans are taxpayer dollars intended to help the needy, not the greedy,” Todd said.

A few charters, including Legacy Traditional Schools, repaid several million dollars worth of PPP loans after The Republic reported in August that Legacy and other operators had millions of dollars in the bank when they received loans.

Most charters that got loans didn’t need them

The Republic found that most of the charter schools getting PPP funds padded their cash balances (savings accounts), and a few for-profit charter operations, like Primavera, gave money away to shareholders that matched or exceeded their PPP loan amounts.

Meanwhile, tens of thousands of small businesses have permanently closed because of COVID-19.

Further, The Republic found that PPP loans didn’t significantly enhance teacher pay at schools that received them. The 132 Arizona charter school loan recipients, on average, paid their teachers several thousands dollars less than the statewide average.The 132 charter schools receiving PPP loans increased teacher pay by an average of 5% — an amount similar to all 555 charter operations and 263 school districts.

Arizona public schools saw no major job losses or layoffs this year because the state Legislature fully funded schools and gave them additional money to raise teacher pay.

A 2018 Republic investigation found the state’s charter school industry, which gets more than $1 billion annually from the state general fund, has produced several multi-millionaires through self-dealing and lax oversight.

Creamer is among the prominent figures who’ve made millions of dollars operating Arizona charter schools. His online alternative school boasts more than 20,000 full- and part-time students. Primavera paid Creamer $10.1 million in 2017 and 2018. 

A spokesman for StrongMind declined to say how much the company paid Creamer. 

Ian Kidd, superintendent of Pima Prevention Partnership, said financially strong charter schools that took PPP loans open themselves to criticism and scrutiny. 

“I don’t subscribe to making money off of students. It’s not appropriate,” Kidd said.

Kidd said he obtained PPP loans for his three charter schools, but the money was used to cover social and behavioral services for low-income, at-risk kids. His three charters had a combined negative $7,031 in cash balances, even after getting PPP loans.

The SBA, under pressure from news outlets, recently released specific figures for all PPP loan recipients. Previously, it released only the names of the borrowers and loan ranges above $150,000.

The earlier SBA records had indicated about 100 Arizona charter schools had received up to $100 million in PPP loans. The new data shows about 30 more charter schools got loans.

Several watchdog groups, including Accountable.Us, have panned the loan program for enriching companies that didn’t need the money while shutting out many minority- and women-owned businesses.

Kyle Herrig, president of Accountable.Us, which compiled a database of all PPP recipients, said there has been widespread fraud and abuse of the program, including celebrities and wealthy companies getting loans. 

“The Trump administration’s faulty design and mismanagement of the Paycheck Protection Program let thousands of mom-and-pop businesses slip through the cracks without adequate aid while charter schools cashed in,” Herrig said…

Arizona Schools Superintendent Kathy Hoffman, who also is a member of the Charter Board, said she was astonished by The Republic’s findings.

“It saddens me those dollars are not going to students,” she said. “It’s very excessive. These dollars should be going where they are needed most, and that’s the students and instructional needs.”

Hoffman, a Democrat, said Republican Gov. Doug Ducey and the GOP-controlled Legislature should consider reducing state funding for full-time virtual charter schools like Primavera, which receives nearly the same per-student funding as brick-and-mortar schools that have more costs.

Ducey, at a news conference Wednesday, declined to answer questions regarding Hoffman’s proposal. He also declined to answer whether charter schools that received the PPP loans should return the money or have their state funding reduced by an amount equal to the loans.

Primavera's founder and former CEO Damian Creamer has been a major political donor to Gov. Doug Ducey, records show.

Ducey said the PPP loans were a federal issue, but added: “I want to make sure all public schools have available funding.”

Creamer has been a major political donor to Ducey, records show. 

Creamer spent at least $137,650 during the past two elections to mostly help conservative Republicans retain control of the Legislature. Among his political giving was $50,000 in December 2019 to the Republican Legislative Victory Fund, state campaign finance records show.

There has been no significant effort by Republicans in the Legislature to change the funding formula for online charter schools. A few of those lawmakers have financial interests in charter schools…

Paying shareholders, boosting reserves

In addition to Primavera, at least three other charter school operators that received PPP loans paid distributions to shareholders. Most of the rest put large sums in savings. 

The Republic found:

• The average Arizona charter school PPP loan was $393,055. Nationally, at least 5.2 million loans for small businesses were approved totaling $525 billion, with the average loan being $100,729, according to the SBA.

• The year-end cash balance for the 132 Arizona charter schools that received $51.8 million in PPP loans in April and May, increased by $62.6 million. Individually, cash balances increased for 87% of the loan recipients.

• Twenty-one charter schools that received PPP loans increased their cash reserves by at least $1 million, with Primavera seeing a $3.3 million increase.

Educational Options Foundation of Peoria, which got a $278,292 loan, saw its cash balance increase by $2 million to $13.7 million. The school has enough money to operate for four years without additional money. The state Charter Board only requires  schools to have one month of cash liquidity. A call to the school was not returned.

• For-profit charters Humanities and Sciences Academy in Tempe and Accelerated Learning Center in Phoenix made shareholder distributions of $388,770 and $230,000 this past fiscal year, respectively. Both amounts exceed the charters’ PPP loans.

The Montessori Schoolhouse of Tucson gave a shareholder distribution of $92,372, equal to about 72% of its PPP loan.

Calls to the three schools were not returned.

Jim Hall, a former public school administrator who runs Arizonans for Charter School Accountability, compiled financial records from charter schools that received PPP loans and said he concluded that they didn’t need the money. 

Hall said those loans should have gone to small businesses that have struggled to make payroll or mortgage payments. He said several of the charter operators engaged in “unmitigated greed.”

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