Education Reform

Leonie Haimson: NYC Squandered Millions on Charter Rentals

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Leonie Haimson, executive director of Class Size Matter, closely watches the spending of the New York City Department of Education. Unlike any other city, NYC is required by state law to provide either free space for charter schools or to pay their rent for private facilities. This law was passed by the Legislature at the urging of Governor Cuomo, who called himself “a champion for charter schools.”

Haimson found that the city has been overpaying for charter rents and leases. In the most bizarre example, she points out that the city pays the rent for two Success Academy charter schools that are located in a building owned by the Success Academy corporation. The rent initially was $793,000 but the building’s owner (Success Academy) raised the rent to $3.4 million! The full report is included in a PDF file.

Haimson writes:

Report finds DOE overspent by many millions on rental subsidies for charter schools and owed millions to co-located public schools for facility upgrades

Analysis by Class Size Matters reveals that in FY 2020, over $11.6 million was spent on lease subsidies for charter schools owned by their Charter Management Organization or affiliated organization, and $9.6 million in state reimbursements for lease subsidies were sacrificed

New York, NY (March 25, 2021) – Today, Class Size Matters released a new report, posted here, showing that the DOE has overspent on rental subsidies to charter schools by many millions, and underspent by many millions on the legally required matching funds for public schools co-located with charters.  

The new report, DOE Overspending on Charter School Facility Costs and Underspending on Matching Funds to Public Schools, includes updated information provided by the DOE in response to a letter sent by the New York City Comptroller’s Office about the findings of an earlier report produced by the nonprofit organization.  

“We were surprised to find that the DOE confirmed many of the findings of our earlier report to the Comptroller, either directly or indirectly, and did not dispute any part of the report’s analysis, which showed that the DOE overspent by many millions on charter leases and underspent by many millions on matching funds to public schools,” said Leonie Haimson, the Executive Director of Class Size Matters.

The new report finds that in FY 2020, the DOE paid approximately $108 million for charter school rental subsidies with the state reimbursing about $65 million, amounts that are likely to increase rapidly each year, as enrollment and rental costs increase. Despite this, Governor Cuomo has proposed eliminating all state reimbursements for charter school rental assistance in his Executive budget, which is estimated to cost the city $100 million in FY 2022 and significantly increase in cost over future years. 

“As this report makes clear, New York City is the only district in the state and the nation obligated to help pay for charter school rent and the costs are rising sharply every year,” said New York City Council Finance Chair Daniel Dromm. “Now Governor Cuomo is threatening to eliminate any state reimbursement for this spending, which would cost New York City an additional $100 million in lease aid for FY22 and even more thereafter. We cannot allow this to happen, especially in light of the fact that the state still owes New York City $2 billion in Campaign for Fiscal Equity funding.  We cannot allow the Governor to shortchange the city’s most needy students.” 

The report also finds that in FY 2019, the DOE appeared to overspend on lease payments for 39 charter schools through overpayments totaling $21 million over the schools’ base rents, and that by holding leases totaling $13.4 million directly for eight buildings that house charter schools, the city made itself ineligible to receive an estimated $9.6 million in state reimbursements in FY 2020.

In addition, the DOE paid $11.6 million in rental subsidies for eight charter schools whose Charter Management Organization (CMO) or affiliated organization owned the space in FY 2020.  In many cases, the base rents of these charter schools and the DOE payments increased sharply from FY 2019 to FY 2020, raising questions about whether the rents were fairly assessed and whether there is evidence of self-dealing by the charter schools.  

In one example, the rent for the two Success Academy charter schools housed at Hudson Yards increased from approximately $793,000 to over $3.4 million – more than quadrupling – despite the fact that the space is owned by the Success Charter Management Organization. This increase in rent allowed Success Academy to charge the DOE $3.02 million in rental subsidies in FY 2020, an increase of 38 percent from the previous year.

The report also analyzed new data sent by the DOE to the City Comptroller’s Office that revealed millions of dollars in matching funds were owed to public schools for facility enhancements and repairs, compared to the cost of the renovation of their co-located charter schools.  These matching funds have been legally required since 2010.

According to the new DOE data, only four public schools out of 812 cases received matching funds equal to the amount spent by their co-located charter schools in the same year, and not a single public school received the same cumulative amount as its co-located charter school spent over the six-year period from FY 2014 to FY 2019.  Over this period, 127 co-located public schools were owed a total of $15.5 million.  A searchable database is posted here.

Four public schools with the highest amount in missing matching funds were identified, for a total of $4.1 million in missing funds: P.S. 368 in Brooklyn, Mosaic Preparatory Academy and The Mickey Mantle School in East Harlem, and The Urban Assembly School for the Performing Arts in Harlem.  Two of these schools are also D75 schools serving seriously disabled students.

The branch of the D75 Mickey Mantle School in East Harlem was lacking over $1.5 million in matching funds.  Allister Johnson, the UFT chapter leader and a teacher at the school, reported that these funds are greatly needed, as their classroom air conditioners break down with regular frequency.  “We cannot use the classrooms for summer school. We have fragile kids with breathing problems. It would be dangerous for them to be in classrooms where all the air conditioners are not working properly,” he said.  He also stated that there are leaks that flood the floors in the staff bathroom and the student bathroom lacks hot water on a regular basis. 

Mosaic Preparatory Academy, an elementary school, lacked over $929,000 over this period. As Shaheem Lewis, the former PTA President and the father of two children in the school said, “I was shocked to learn that we have been shorted by nearly a million dollars by the DOE in matching funds.  For years, we have asked the School Construction Authority to upgrade our auditorium because the seats are falling apart, and to repair the floors of the stage and the gym which are so worn they are dangerous.  Most of our classrooms also lack air-conditioning, while the co-located Success Academy Harlem 3 has installed air conditioners in its classrooms. This is not fair to our kids, and it’s past time that the DOE provided the funding so these sub-standard conditions can be improved.”

In the new spreadsheets, the DOE claimed several reasons for not matching these funds, including that the co-located charter schools expenditures were for air conditioners and repainting and/or reflooring projects, but these exclusions are inconsistent with the State law and Chancellor’s Regulation.  Even if the DOE reasons for these exclusions were correct, public schools still received the amount of matching funds they were due in any one year less than five percent of the time.  

Kaliris Salas-Ramirez, President of Community Education Council in District 4, home of the two schools lacking the most in matching funds, said: “Our East Harlem public schools have been historically disenfranchised. The worst kind of inequity is that co-located charter schools with corporate funding have access to resources absent from our public schools. The state amended the charter law in 2010 to make sure that there wouldn’t continue to be separate and unequal facilities within the same building. To add insult to injury, neither the principals nor the parents at our public schools are informed when they qualify for matching funds, which widens the inequities. It is time for transparency and for the city to support our public schools with the funds that they are entitled!” 

The report makes a number of proposals to address these deficiencies, including that the DOE should provide the matching funds owed to public schools from FY 2014 to FY 2019, and, if the DOE does not agree to do so, the State or City Comptroller should audit these expenditures.  The DOE should also report regularly and post online all of the amounts spent by charter schools on facility upgrades and send these reports to the principals and School Leadership Teams at the co-located public schools, specifying any expenditures that they will not match. For every charter school facilities spending not matched, the reasons for this should be clearly described, along with the sections in the law or regulations that allow for this exemption.

The Chancellor should require that charter schools rent their own buildings rather than have the DOE lease space for them, because under current law, the DOE is losing millions in State reimbursement. The DOE should also never pay charter schools more in lease subsidies than their base rent, which appeared to have occurred at a loss of $21 million in FY 2019.  If these charter schools were overpaid, the DOE should demand they reimburse these funds in future years or subtract the amounts from future DOE payments. If DOE does not agree to do so, the City Comptroller should audit these payments. 

The City Comptroller should also analyze closely whether the rents charged to charter schools by their CMOs or allied organizations are fairly assessed on an annual basis so that the city is not forced to expend excessive amounts on rent subsidies. 

Finally, the New York State Legislature should eliminate the DOE’s obligation to pay for any charter facilities where CMOs or related organizations own their spaces. The Legislature should also reject the Governor’s proposal to eliminate state reimbursement for the DOE’s lease subsidies, and instead amend the law to remove any obligation on the part of the city to cover the cost of private facilities for charter schools going forward.

As City Comptroller Scott Stringer concluded: “When public dollars support improvements in co-located school buildings, we must leverage these investments to make sure all students benefit and ensure schools have the resources owed to them to provide better student learning environments. Students, teachers, principals, and parents deserve far greater transparency and communication.”

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