Are nonprofit charter schools a myth? Big tax breaks, revenue shifting fuel growing charter school industry

Friday, April 11, 2014, Vol. 38, No. 15
By Lisa Fingeroot

Even though a plan to allow for-profit charter school management companies in Tennessee is dead for the current legislative session, the “Educational Industrial Complex” is still cranking out profits, says the professor who coined the phrase.

“There’s not much difference in profit and nonprofits,” says Gary Miron, an education professor at Western Michigan University and a member of the National Education Policy Center in Colorado who studies and monitors charter schools.

“At the end of the year they can clear profits by putting it into salaries and bonuses for executives,’’ he explains.

Funds also can be moved or paid into a web of for-profit sister companies that have contracts with the nonprofit charter school.

“It’s really a scam,” Miron says of the many different scenarios that can be used. “To really follow the money, you would have to really understand the facilities companies.”

The new Rocketship charter school under construction on Dickerson Road is being funded via hedge fund owned by former tennis star Andre Agassi. Metro will then pay for the building through facility fees.

-- Lyle Graves | Nashville Ledger

Miron is particularly wary of the real estate deals like those currently being seen in Nashville and Memphis.

In Nashville, the new Rocketship Education school building on Dickerson Pike is being built by a hedge fund company owned by tennis star Andre Agassi. Investors in the company provide financing for construction, and the company acts as a mortgage holder.

Each Rocketship school pays between 12 and 20 percent of its budget to the main Rocketship company for a facilities fee. The money is then used for the mortgage payment, says Kristoffer Haines, senior vice president of growth and development.

For the company’s California schools, the fee is about 18 percent. He anticipates a facilities fee in the high teens for the new Nashville school.

Adam Nadeau, a Nashville native and Hume-Fogg graduate, will be the principal of Rocketship Nashville when it opens this fall on Dickerson Road. He is now director of schools and instruction for Rocketship.

-- Submitted | Courtesy Of Rocketship Education

In the end, Rocketship will own the building and “the taxpayer’s interest is not protected,” Miron says. If the charter school closes, the building is still owned by the company, even though it was paid for with tax dollars via facilities fees.

“We’re seeing more and more of this,” Miron adds.

Nationally, the charter school failure rate is estimated to be about 15 percent.

For investing in a school project, investors are given tax credits as high as 39 percent, which allows them to double their money within seven years, says Metro Nashville school board member Amy Frogge, an active opponent of for-profit charter schools.

A rendering of the Nashville campus of Rocketship on Dickerson Pike.

It’s an attractive enticement for hedge fund managers, who have begun flocking to Memphis charter schools to get their share, she adds.

But “there is no profit hiding behind us,” Haines insists.

Even the company’s real estate arm, which many charter school companies use as their for-profit structure, is listed with the Internal Revenue Service as a nonprofit organization.

Rocketship has recently taken a public relations beating over an abandoned business plan that showed the company taking the facilities fee, a management fee of 15 percent of a school budget, and an additional $200,000 from each of its schools to fund growth.

The plan also projected 2017 revenues of nearly $60 million, which would come predominately from those same fees paid by an anticipated 61 schools.

“When I saw that memo, I thought ‘there are some people at the top getting rich there,’” Miron says of the plan.

In response, Haines points out that Miron has been “clearly oppositional” to Rocketship for several years.

According to the company’s 2011 nonprofit 990 tax forms, the most recent available, its seven California schools generated nearly $4 million in management fees.