What does one call a two-days-at-school/three-days-homeschool charter program?

The finances of this deal are straight-forward so this is not a financial exposure story (at this stage) but the disclosure of other details were intriguing.

Although I haven’t looked all that hard, I’ve long suspected that the profit seekers and homeschool parents could make certain internal compromises and design a charter school program to fit their particular needs.  So now I’ve stumbled on such a program because the State of California Charter School Finance Authority in its wisdom approved tax-exempt bonds to let one such school buy/build a part-time school facility to be called Coastal Academy.  The present Coastal Academy in 2011 had about 927 students in K-8 in a unique setting.

Coastal Academy is one school inside a three school chain going by the name “Classical Academies” even though there is no legal entity serving as the charter management organization.  “Classical Academies” are so active in promoting charters in the state that the Walton Family Foundation’s California Charter School Association gave its founder Cameron Curry (a former Escondido, CA city planning official) an award in 2011.

The bond’s Official Statement [link here opens large PDF] laid out the schools program and even hinted at some of the more spiritually-minded aspects of the program too.

First, the “Classical Academies” educational program (p. A-1)

"The borrower offers two award winning and state recognized educational models of independent study.  Although both of these two distinct models combine elements of classroom-based and nonclassroom-based instruction, for purposes of ADA calculations (due to the regulatory definition of nonclassroom-based ADA) as explained more fully below both models are considered to be nonclassroom-based programs.

Track A and Track B. The first option for students is  mix of in-seat time combined with an at-home component.  In this option, students attend class on campus two days per week in a traditional classroom setting.  Within this option there are two tracks of students.  Students on Track A attend classes called “workshops” on Tuesday and Thursday and students on Track B attend “workshops” on Wednesday and Friday. This program doubles the enrollment possible in a facility by having two sets of students using classrooms on alternative days. [dwelker note: also potentially doubling revenue, brilliant!]

Workshops are led by a State credentialed teacher in a traditional classroom setting with a class ratio of 20 students to 1 teacher.  Workshop days cover core academics: reading, writing, mathematics, history and science and offering enrichment in computer literacy and music.  This is done to maximize group projects, discussions and activities.

Track C. The second option, known as Track C, allows even more flexibility with a student’s choice of curriculum, enrichment labs and personalized learning.  Students on Track C complete the majority of their education in an independent study environment off campus under the supervision of the parent.  Each family has their own credentialed student, who we refer to in the program as an “Educational Specialist.” Educational Specialists become advocates and personal guides in assisting students and families in curriculum, course selection and lesson planning.

The Educational Specialist, working in partnership with the parent, assigns academic work to be completed by the students.  The Educational Specialist monitors and evaluates what the student has completed, where they are excelling, and where they are struggling to ensure that assigned work is modified to meet the specific academic needs of the student in his or her care.

Students on Track C also have the opportunity to participate in weekly on-campus “C’Lectives” classes and labs as well as optional field trips and specially selected programming for these students.

For both Track A/Track B and Track C programs, parents or guardians are the primary educators on non-workshop days and work collaboratively in partnership with the classroom teacher to ensure that individual student needs are addressed.  This relationship of student, parent, and teacher creates a winning formula directly tied to the student’s academic success.

Sure, what could possibly go wrong.

Within this “Track” program, overall school enrollment has grown dramatically.  In 2007-08, there were 360 students combined in Track A/B and 207 students in Track C; by 2012-13, there were 440 students combined in Track A/B and 487 students in Track C.  The school projects enrollment in its newly constructed facility to be 720 combined in Track A/B and 399 in Track C.  [dwelker note: this suggests a low-ball figure perhaps so as to not freak out the authorizer, the Oceanside Unified School District.]

As for the other “enrichment” opportunities, this is where the questions arise for possible other motivations of the school’s operators.

Leadership. Leadership courses are designed for middle school students and teach the value of becoming self-motivated leaders with integrity and purpose.  The core curriculum has been adapted from the Situational Self Leadership program by The Ken Blanchard Companies, and through employees of the Blanchard Companies who are parents in our program.  There are three years of leadership training available, beginning in 6th Grade.  Leadership is an optional class that meets weekly and has a homework and community service requirement.  Students are encouraged to initiate opportunities to serve their family, school and community through the school year. (p. A-6)

Ken Blanchard is a prolific writer of management self-help books including one big seller titled Lead Like Jesus.  This web site states its beliefs clearly: “We believe that the Bible is God’s verbally inspired, complete written revelation to mankind.”  Blanchard is the “Chief Spiritual Officer” at The Ken Blanchard Companies.  There is a Ken Blanchard College of Business at Grand Canyon University, a publicly listed [NASDAQ:LOPE] “private, accredited, Christian university located in Phoenix, AZ.”  ProPublica’s Sharona Coutts focused on GCU in its series on for-profit universities in 2009 - 2011.

Character Education.  Coastal Academy incorporates character education into daily lessons, emphasizing the 8 Keys of Excellence through specialized lessons, assemblies, workshops, speakers, community service and field trips.  The 8 Keys of Excellence were developed by the Quantum Learning Network. (p. A-6)

I hesitate to re-post anything I found - either pro or con - on Quantum Learning Network, its program called SuperCamp or its founder Bobbi DePorter.  At a minimum, positive reviews on SuperCamp are easily found on the California Homeschooling Today web site.  The reader will have to draw her own conclusions.

In the end, the promotional details in this bond’s Official Statement seem to re-state what appears to be an open secret in San Diego County.  The Voice of San Diego in 2008 did a story on the homeschool/charter school issue and even had a quote from a parent at the Classical Academy, sister-school of Coastal Academy:

"My concern was, am I qualified to give my kids a quality education?" asked Lyn Burnes, whose two sons attend the Classical Academy, an Escondido charter school for homeschooled children. Burnes decided to quit the public school system because her son, a fast learner, felt lost in a large classroom. A self-described Christian, Burnes was also unnerved by the public schools’ take on U.S. history and evolution.  “I wanted the oversight of an established institution,” Burnes said, “and I wanted to reinforce that with my own values, at home.”

The Voice of San Diego is presently running a series on the insider dealings of public school systems and the bond industry players who donate to bond campaigns.  The old adage Follow the Money is keeping a lot of people busy.  In the case of Coastal Academy, the money leads to a school model that raises what I’d classify as church and state issues. 

But from a profiteers perspective, one can see the perverse logic in an investment in a facility that doubles its revenue generating business (if it fulfills the ADA definitions etc) by alternating days it services its full paying “customers.”

Gates Employee Touts Gates Study Promoting Gates Schools as Worthwhile Investments

Alternative title: Don Shalvey Promotes LISC Study Promoting Charter Schools as Worthwhile Investments.

I am not going to be able to do justice in a single post to the absurdity of Shalvey’s claim that “Wall Street doesn’t fully understand charters” from his post on the Gates blog.  The whole point of this blog is to demonstrate through analysis of the charter financial dealmaking that these are risky investments for institutions and individuals and bad investments as education policy.  Wall Street ratings agencies price many many charter school bonds as just-above-junk status based on the individual schools’ financial or operational track record after evaluating each school deal.  (I can’t believe I am defending any ratings agency practices at all ever.)

What Shalvey attempts to do is what others like Bruce Baker have repeatedly nailed the charter industry proponents for when they cite specific, “anointed” charter school chains and then generalize and extrapolate across all charter operators.  Shalvey, like every other charter industry salesman, knows that for each single KIPP school or ASPIRE school there are a dozen or two dozen middling/wasteful or failing/corrupt school slipped through the process and into the “education portfolio” across the country.

Look at how Shalvey accomplishes this slight of hand (bold is mine):

• "…Even though charters, particularly those that have consistently raised student achievement, have long-since proven themselves both as educational institutions and as borrowers”

• "Investors assume stormy political threats. Both extrapolate from isolated school failures.  They put all of that together and assume charters are on shaky financial ground despite a default rate by the highest performers of less than one half of one percent.”

• "Charter school bond issuers, as a whole, beat market expectations.”

• "If charter bonds received a triple AAA rating – similar to what traditional school districts receive – they would have an additional $120 million per year to invest in academics."

Furthermore, as for putting charter schools on same footing with school districts, there is a fundamental difference at the origin of the revenue for charters or districts.  In most instances, districts issue debt that is backed by the ability to raise further revenue (Read: money derived from increased taxes) to pay off previous investors. So districts may have material weaknesses but the chance of default is almost nil.

In comparison, the charter schools have no taxing authority and most schools have the state transfer of per-student funds as their sole revenue (big chains do get substantial philanthropic support but most charter don’t have this teet to rely on).  Additionally in many charter school bonds, the ONLY WAY the deal is completed is if there is an intercept of state funds - essentially, an intercept is where the state deposits its funds into a bank account which pays out the bond investors first and the balance can actually, you know, be used to educate the kids. [More on intercepts later.]

But there is a some investing wisdom in Shalvey’s post.  He admits he doesn’t understand the the limitations of charter bonds from the perspective of the investor. And if that is the case, why would anyone take investment advice from a Gates Foundation employee that charter school bonds as an asset class are a good place to park your money?

FISH AROUND: Steps to Issuing Charter School Bonds

Again it is really helpful to download the “how to” produced by Orrick, a leading bond counsel law firm.  Go here.

The following are the steps from Orrick’s primer to getting a charter bond deal completed.  Upcoming discussions will look at many of the specific steps with an eye towards where additional public disclosure or public input fits in the timeline.

• Consult Bond Counsel [dwelker comment: remember Orrick bills by the syllable to this naturally comes first in their list]

• Engage the Underwriter [the bank that will promote and sell the bond]

• Adopt Reimbursement Resolution [an act by the Charter School governing board]

• Determine with Bond Counsel and Underwriter what public entity will serve as Issuer of the Bonds [the issuing authority is the public office serving as a conduit for the schools to the markets]

• Bond Counsel prepares and circulates the initial draft of the Indenture and Loan Agreements [billable hours!]

• Charter Schools works with Underwriter or Disclosure Counsel to describe financial/operational information about Charter School [billable hours!]

• Underwriter’s counsel prepares and circulates initial draft of Bond Purchase Agreement [billable hours!]

• Conference calls to discuss document drafts [billable hours!]

• Draft documents are submitted to ratings agencies if applicable

• Another round of document review [billable hours!]

• Meeting of governing board of charter school to approve bond issue [first potential public notice through open meetings laws]

• Hearing on and approval of the Bonds by the Issuer [very important public hearing at Issuer]

• Meeting of the governing board of the Issuer to adopt bond resolution [potentially important decision point by Issuer; see an example here]

• Underwriter mails Preliminary Official Statement to potential purchasers of the Bonds [first broad public release of preliminary disclosure documents]

• Pricing of the Bonds

• Sale of the Bonds between the Issuer and Underwriter

• Preparation of final Official Statement

• Closing of the deal [purchasers of the bond register their holding with the Trustee bank]

Fish Around: Why Use Tax Exempt Bonds?

So the first thing everyone who wants to look into this bond rabbit hole needs to do is download the “how to” produced by Orrick, a leading bond counsel law firm.  Go here.

“Why Use Tax Exempt Bonds” is the title of Chapter two of the Orrick primer.  Orrick is trying to sell its services through this marketing document.  I’ve learned a lot by reading this paper sort of like how Kremlimologists used to read Pravda.  As much for what is left unsaid as is for what is said.  The whole document is full of unintentional insights like the following in a section titled “Unrated Bonds”:

"The evolving investor community analyzing charter school bonds is largely comprised of sophisticated institutions accustomed to conducting rigorous due diligence review of credit risk prior to making an investment decision (and may be motivated in part to advance the purposes of the charter school movement through such capital investments.)"

 I can only hope to build a community of sophisticated individuals conducting due diligence and protecting public funds from the wrong people.

Note how this works here in this one sentence.  Lots of multi-syllable words (Orrick is paid by the hour or perhaps the syllable) saying essentially that some investors are IDEOLOGICALLY INLCINED to buy charter bonds regardless of the schools inability to obtain even the (often flawed) imprimatur of a ratings agency like Moody’s or Standard and Poors.   Many charter schools get low ratings [see the UNO “just above junk” bond from 2011 per Pure’s statement.] and thus have to pay higher interest rates (which inversely results in more profits for the private entities buying their bonds) but some schools can’t even get an investment grade rating.  An important aspect of our work here will be to suss out the deals going directly to private placement (as poor as films going directly to DVD) and not intended for public float. 

REMEMBER: The investors in such tax-exempt bonds are NOT paying federal income tax and often NOT paying state income tax while getting higher returns for a ‘riskier’ investment.  Why make a philanthropic donation to build a charter facility when you can make money offering loans (buying bonds) at higher than market rates and avoid paying taxes on the capital returns?

I want to get to the bottom of these questions: Why are the sell-side finance institutions like Orrick working so hard to push more deals onto the public investor?  Is it because if there is only such demand for charter school bonds among the IDEOLOGUES (say the Walton’s family office investment advisors or US-domiciled investment vehicles for Gulenists) then such financing will be seen as transitory and experimental much like the charter schools once were viewed?   And then somehow the window for charter school tax-exempt bond deals will be closed down?

Let the loose trainings begin.

I love what you are doing and hope we can find a way to work together. Please check out our website, Going Public.org, where you’ll find our teaser and read our thesis. We’ve also mounted an Indiegogo campaign and feel that the time is right to tell the story. Let me know how we can talk more about this important work.

thank you

You are doing important work.  I hope you will expand to all of the so-called reformers and their connections.  I would love to get your blogs delivered to my mailbox.

Also, your blog page is very snappy :)

If you are not interested in writeanessayforme , then you have already missed a lot.

Thanks for taking on an important job.

In L.A. the Voldemort clones on the school board and their superintendent, John Deasy have taken a monstrously wicked tack in their plan to replace experienced teachers with TFA and Teach Plus lackeys.  They take any false accusation and ride roughshod over teachers’ due process rights in dismissing us.  They presently have 300 teachers in teacher jail and are adding daily to this number. This costs the district about $2.2 million per month in wages for teachers and substitutes on top of the $500,000 that it costs to remove each teacher.  As you can imagine, the majority of jailed teachers are guilty of being disliked by their principals, nearing retirement, and some are disabled.

To add insult to this ongoing injury,  Michael Bloomberg just donated $1 million to fund the campaigns of Monica Garcia, Kate Anderson and Antonio Sanchez all corporate reformers and champions of charter schools.  Your work is essential to expose the web of money and lies that these people use to high jack our public education.

Why this Topic & What I Intend to Do

First a little bit of my qualifications: I was trained at FAST/AFL-CIO in the 1995 to do deep corporate research of all kinds to dissect the financial and operational disclosures of employers in many industries including many leading edu-profiteers like Edison.  I had a hand in the Ohio Federation of Teachers exposure work on David Brennan and White Hat Management.  I had a hand in the years of exposure work on the Walton family.  Most recently I was an under-utilized campaigner at the American Federation of Teachers and had a hand in many unpublicized or quiet projects.  Now I am out from under AFT publicity restrictions.  I can do and say what I want to whomever I please, thus I am doing this as my hobby.  In most part because it needs to be done and the teacher unions won’t do it right.  Also I want to stay connected on the side of the angels defending public education as a fundamental right for all kids in America.

While I plan to do the leg work on charter school financial dealings and comment regularly here and out on the other notable education blogs, I want to periodically try to show where these financial disclosures are available to the public and teach people to fish around themselves.  These loose trainings will be titled “Fish Around and Start Things” for each posting.  First will be a post on EMMA, the primary online resource for municipal bonds which include nearly every charter school bond filing.  There will be other trainings on how to insert public scrutiny earlier and earlier in the bond issuance process so defenders of public education can learn how to intervene and possibly block funding for any clearly disastrous charter schools.

My inspirations:

• The workers everywhere who risk their economic security to create new unions despite the legal obstacles intentionally built by the U.S. government

• Neil Young and Van Morrison: Because I don’t have a musical cell in my body, I had to apply my creativity to taking on employers

• Diane Ravitch: Because she show such intellectual honesty every single second and committed herself to winning the constant debates as a public intellectual

• Local Initiative Support Corporation: Because this group tries to do so much good but has become an unashamed salesman for the banks profiting from charter school financial engineering

My windmills:

• Fethullah Gulen and his trusted field general Hasan Ali Yurtsever: Because it takes great organizational skills to deploy tens thousands of followers around the globe and get the U.S. government to pay $400 million a year to “employ” thousands of barely employable adherents in this country.  Only in America! There will be a series on the bonds issued by Gulen schools starting with Chicago Mathematics and Science Academy where Yurtsever briefly served as a board member in 2010 before being chased off.

• Eric Mahmoud: Because he was honest in telling his investors about his felony investigation and his BMW license plate reads “PIOUS.”  He remains the only convicted felon in the National Alliance of Public Charter Schools Hall of Fame

• Juan Rangel: Because he may yet become the next fallen NAPCS savior but not before UNO hangs its bond debt on its investors