Sorry, NJ Charter Schools -- You Can't Have It Both Ways

Some news on the NJ charter school front this week*:

The state Supreme Court yesterday agreed to hear a lawsuit that had challenged the expansion of charter schools in Newark, arguably the state’s nexus for the alternative schools with more than a third of its students enrolled in them.

By apparent coincidence, a group of charter school parents and the sector’s association on the same day filed to become “friends of the court” in a separate case before the high court regarding the state’s epic Abbott v. Burke school equity rulings. 

In that case, the charter schools are trying to get in on a challenge seeking what would surely be billions of dollars in new school construction aid for 31 needy districts statewide. 

The confluence before the court of the two cases comes at a time when charter schools face increasing fire from traditional school districts, largely over the public money that charter schools draw from the other districts. But while those battles have been fierce in several communities, including in Newark, they have largely stayed out of the courts in recent years.

This was a long time coming: the Christie administration happily encouraged the expansion of charter schools without seriously thinking about appropriate oversight, regulation, and funding of the sector. Now the state has to contend with a system that imposes fiscal burdens on school districts that host charter schools, even as those districts have no meaningful say on charter school proliferation.

The fact – which I have validated empirically – is that charter school expansion is not a revenue-neutral policy. As school districts lose students to charters, they are unable to adjust immediately to enrollment declines, because districts have fixed costs like buildings and personnel that can’t be quickly scaled back. 

But charter operators appear to be unconcerned with this reality; repeatedly, they have demanded they get everything they think they are owed, even when school districts are facing serious financial pressures. During Christie’s time, this meant charter budgets weren’t touched, even as host districts’ were slashed.

It’s also meant that charter advocates have continually complained that they should be receiving additional funding for their facilities:

Separately, the Abbott v. Burke case is arguably a bigger one for the state, given the money that would be spread across nearly three-dozen districts if the court agreed with the argument that the state is obligated to spend significantly on new school construction in needy districts.

And now the charters want to get in on that case, saying that one in five students in Abbott communities go to a charter or hybrid “renaissance” school.

“It is really important that the court look to funding all the public schools, not just district schools,” said Harold Lee, executive director of the New Jersey Charter School Association. “Just because a family decided on a charter or renaissance school, it doesn’t mean that their safety and security go away.”

School building needs have long been the bane of charters in New Jersey, as they are not permitted under law to use public funds toward the costs of facilities. “It’s the biggest challenge to operating a charter,” Lee said, explaining it can represent 10% to 15% of their costs.

I can’t tell you how many times I have heard New Jersey charter school operators and advocates make this point: we should get facilities funding just like any other “public” school.

Unfortunately, they always seem to leave out a critical point: In New Jersey, charter school buildings – paid for with public funds -- are almost always NOT owned by the public.

As Bruce Baker and Gary Miron pointed out years ago, charter school regulations like New Jersey’s lead to an absurd situation: the public pays for school buildings that many times used to be owned by a school district – in other words, the public – but wind up in private hands. Sometimes those hands are nonprofits aligned with the charter school; sometimes they are for-profit companies, paying off their mortgages with funds the charters receive in per pupil payments from hosting school districts.

In either case, the public is paying for a building that the public will never own. And in most cases, these are buildings that are paid for, at least in part, with local funds, even though the state is the entity that gets to decide whether charters will be granted or renewed.

This lunacy is at the heart of the serious conflicts of interest, lack of transparency, and just generally bad policymaking that surrounds New Jersey's charter school facilities. If you haven’t yet read northjersey.com’s outstanding series on these problems, you really should. That series has led to, among other things, a grand jury investigation of the Marion P. Thomas Charter School in Newark for financial shenanigans involving charter school facilities:

Amid scrutiny by a federal grand jury, the state is holding up critical financing for the non-profit support group of one of Newark’s oldest and largest charter schools — cash needed to pay off $21 million in loans coming due on its high school. 

Officials at the New Jersey Economic Development Authority have so far refused to issue bonds to cover that debt on the Marion P. Thomas Charter School’s Sussex Avenue location. 

In addition, the EDA recently confirmed that two “prior bond financings" it issued to the school "are under review.” 

One involves the purchase of two former Newark public school buildings that were flipped at a markup of close to $10 million. That transaction has been the focus of a federal grand jury, which issued subpoenas first to the 1,500-student Marion P. Thomas Charter School in July and then to the Newark Housing Authority in October. 

The other bond issue, from 2014, is related to the construction of the high school. It, too, features an unusual land deal: The private, non-profit Friends of Marion P. Thomas Charter School sold property it purchased to one of its subsidiaries at a $1.8 million markup. 

In both cases, the price hikes are being covered by taxpayers.

Even if the grand jury finds no criminal activity, transactions like these are just bad policy. Why should real estate markups for charter schools be covered by the taxpayers? What possible justification is there for these policies?

And then there’s this, from the same story:

The IRS had been looking into discounts on similar bonds issued on behalf of TEAM Academy in Newark, according to financial records. In one case, a TEAM support group received a notice of proposed issue from the IRS, indicating that tax rules may have been broken. 

TEAM Academy officials denied a public records request by NorthJersey.com for documents related to the IRS review last year, saying they are part of an “investigation in progress by a government agency” and that “disclosure of such records would be detrimental to the public interest.”

Steve Small, the chief financial officer of KIPP New Jersey, which runs TEAM Academy, said Wednesday night in an email that he could not "provide any specifics related to the review in progress."

Again, how does this make any sense? How can it possibly be “detrimental to the public interest” for the public not to know how its money is being spent?

The legal status of charter schools has always been open to debate, but it’s clear at this point that they are not government actors. As such, they can claim immunity from oversight regulations that other governmental entities, such as school boards, must abide by. Why, then, should the taxpayers simply turn over revenues for charter facilities when they won’t even know who, if anyone, is profiting off of this system?

There are a lot of aspects of charter school policy we can debate, but this one if clear: If the public pays for a school building -- including a charter school building -- the public should own the building. If New Jersey’s charter schools want more funding for their facilities, the price to be paid is that those facilities stay in public hands, with public oversight and complete transparency.

If you think I’m wrong, I’d love to hear your argument. But it seems clear to me that New Jersey's charter schools can't have it both ways: if you want public funding, you can't have privately owned buildings.


ADDING: If we're going to get into NJ charter schools and their misconduct around real estate, let's take a moment to remember Bob Braun's excellent reporting from 2018:

The New Jersey state education department has refused to release public documents that might  shed light on former Gov. Chris Christie’s loan of $10 million in state funds to a failing Newark charter school and its partner, a private, for-profit real estate developer that was receiving more than $800,000 in public funds as annual rent from the school.

The state’s  action, in response to a demand filed under the Open Public Records Act (OPRA), contributes to a stifling veil of silence covering up the details of the unusual $10 million loan—a loan granted by the New Jersey Economic Development Authority (NJEDA) despite the lack of any collateral that could be used to repay the loan if the school defaulted.

The school, Lady Liberty Academy Charter School, did close and no longer receives the state aid it needs  to pay its rent to the developer, BWP School Partners, LLC.  Under the unusual terms of the loan agreement between the NJEDA and BWP,  the state has limited its ability to recoup the loan from the developer  to finding a new charter school to take the place of Lady Liberty. The school is now boarded up and so, this year at least, that won’t happen.

The existence of the unusual $10 million loan was first disclosed by this site last month but the continued refusal by the NJEDA, the state education department, the Newark school district and private sources to discuss details has added to the mystery of why the state would loan $10 million to a charter school that faced problems since 2003, when it was opened as part of Newark’s New Community Corporation’s social outreach efforts. Lady Liberty was placed on probation by the state three times and finally closed this year after  Christie left office

* All emphases in this post are mine.