Archives for category: For-Profit

Will Bunch, regular opinion writer for the Philadelphia Inquirer, excoriates McKinsey in this column. 

He writes:

In the last few years, McKinsey & Co.’s image as a go-to high-paying job option for the Ivy League’s best and brightest has morphed into something uniquely dark and sinister, as outstanding journalism from the New York Times and others has shed a light on arguably the world’s most secretive company, which never reveals its client list.

Nonetheless, the various scandals swirling around McKinsey have largely registered under the radar screen before last week, when journalists from ProPublica, publishing in the Times, exposed McKinsey’s work on behalf of U.S. Immigration and Customs Enforcement, or ICE. Two important things to note: a) it was the administration of Barack Obama that hired McKinsey for this task in 2015 and b) ICE officials under the Trump administration, justifiably pilloried for their cruel treatment of migrants, actually thought some of McKinsey’s ideas were inhumane.

 

When I worked in the first Bush Administration In 1991-92, McKinsey consultants were everywhere. Gaggles of very young, well-dressed people marched in and out of the White House with briefcases and plans. McKinsey has advised school districts, given them business plans to fix their problems. Does anyone ever check up on how their proposals turned out? Do they ever admit failure? I never figured out what they were doing or why they were there. Like Pearson, McKinsey is always there, although there is no evidence that they are education experts. What seems to mark the McKinsey brand is a sense of certainty that they know everything and know how to fix everything. To learn more about the corporate consultants who advise on how to do everything, I recommend this book, The Lords of Strategy. Education has been warped for the past 30 years by the inappropriate application of corporate strategy to schools and classrooms and children.

Their biggest disaster was their role in South Africa, where they received a huge payment to fix the state-owned power company. They didn’t but collected a huge fee for their failure.

In late 2015, over objections from at least three influential McKinsey partners, the firm decided the risk was worth taking and signed on to what would become its biggest contract ever in Africa, with a potential value of $700 million.

And a bitter irony: While McKinsey’s pay was supposed to be based entirely on its results, it is far from clear that the flailing power company is much better off than it was before.

The Eskom affair is now part of an expansive investigation by South African authorities into how the Guptas used their friendships with Jacob Zuma, then the country’s president, and his son to manipulate and control state-owned enterprises for personal gain. International corruption watchdogs call it a case of “state capture.” Lawmakers here call it a silent coup. It has already led to Mr. Zuma’s ouster and a moment of reckoning for post-apartheid South Africa.

Yet despite extensive coverage of the scandal by the local news media, one question has remained largely unanswered: How did McKinsey, with its vast influence, impeccable research credentials and record of advising companies and governments on best practices, become entangled in such an untoward affair?

McKinsey admits errors in judgment while denying any illegality. Two senior partners, the firm says, bear most of the blame for what went wrong. But an investigation by The New York Times, including interviews with 16 current and former partners, found that the roots of the problem go deeper — to a changing corporate culture that opened the way for an aggressive push into more government consulting, as well as new methods of compensation. While the changes helped McKinsey nearly double in size over the last decade, they introduced more reputational risk.

It was also the biggest mistake in McKinsey’s nine-decade history.

The contract turned out to be illegal, a violation of South African contracting law, with some of the payments channeled to an associate of an Indian-born family, the Guptas, at the center of a swirling corruption scandal. Then there was the lavish size of that payout. It did not take a Harvard Business School graduate to explain why South Africans might get angry seeing a wealthy American firm cart away so much public money in a country with the worst income inequality in the world and a youth unemployment rate over 50 percent.

Why did they do it? Greed? Arrogance?

Is Chester-Upland School District the frog in the boiling pot of water that is a warning to every other school district in the state of Pennsylvania?

The Chester Community Charter School is a subject of endless fascination. It has absorbed 70% of the elementary school students in the impoverished district of Chester-Upland in Pennsylvania. Its scores are low, lower even than the district schools. It is owned by an extremely wealthy suburban lawyer, who is a major campaign contributor to Republicans in the state. He receives a healthy profit every year from the charter school in Chester-Upland, despite the fact that the school is low-performing. Meanwhile, the school district has been in receivership since 2012, while the charter school is thriving. The district has been bankrupted by payments to the charter school and to cyber charters. That is the way the state law was written by charter-friendly Republicans in the Legislature.

The Chester-Upland School District is a majority-minority district: It is 18% white; 67% African American; 11% Hispanic; the remainder, other groups.

Peter Greene writes here about this district.

The school district is Chester Uplands, and they’ve been in the charter-related news before. Specifically, they were the poster child for how a careful gaming of the charter system in Pennsylvania could result in huge charter profits. As I wrote at the time:

The key is that while all CUSD students with special needs come with a hefty $40K for a charter school, they are not all created equal. Students on the autism spectrum are expensive to teach; they make up 8.4% of CUSD special ed student population, but only 2.1% at Chester Community Charter School, and a whopping 0% at Widener and Chester Community School of the Arts. Emotionally disturbed students are also costly; they make up 13.6 % of special ed at CUSD, 5.3% at Chester Community, and zero at the other two. Intellectual disabilities make up 11.6% for CUSD, 2.8% for CCCS, and zero for the others. 

Speech and language impaired, however, are pretty inexpensive to educate. CUSD carries 2.4% of the special ed population in this category, but the three charters carry 27.4%, 20.3% and 29.8%.

Back in 2015, this helped put CUSD in the astonishing position of giving more money to charter schools than it received from the state.

In 2015, the district made a deal to cut its payments to cyber charters (which are among the lowest performing schools in the state).

Greene writes:

In 2015 the district made a deal for charters to accept less money for students with special needs, but the cyber charters went to court to be exempted– and the court eventually agreed, giving CUSD a huge retroactive bill to pay cyber charters.

The district has long been attractive to worst of charter vultures. Not just the cybers, but for-profit management companies like CSMI, founded by the infamous Vahan Gureghian, charter school multimillionaire and generous GOP donor.

Currently, charters enroll about half of the 7,000 student district population. CSMI would like to have a larger piece of the pie and run all of the elementary education in Chester Uplands, and it has asked the court to hand them over (because the district itself has no say in this). CSMI runs some charters elsewhere, including a school in New Jersey that is the subject of a whistleblower lawsuit. The suit was filed by a former principal who says she was fired for making a fuss over CSMI’s policy of cutting corners to make a buck. Cutting corners didn’t just mean cutting services; it also meant falsifying records and misappropriating funds. Great company.

Open the post to see beautiful pictures of the charter owner’s gorgeous estate in Pennsylvania and his recently sold mansion in Palm Beach.

The lesson, says Greene, is that there is no real difference between for-profit and nonprofit charters. The Chester Community Charter School is “nonprofit.”

It is unclear how much money CSMI would make on the Chester Uplands deal because, as a private business, it doesn’t have to account for its financial activities– even though they are funded by trhe taxpayers. Do you see why, when someone like Cory Booker or Pete Buttigieg starts talking about how only for-profit charters are bad, they are just selling thinly sliced baloney. Chester Community Charter School is a non-profit school–that generates profits for the CSMI management company that runs it, and runs it like a business and not like a school.

The Inquirer quoted the CUSD school board president–his primary concern isn’t the charter takeover of the elementary schools as much as it is the inadequate funding from the state. “Ask them what they have done for 25 years in Chester Upland.” He has sort of a point, but the fact is that this non-weathy non-white district is in danger of losing all local control and voice.

This is what chartering as a tool of privatization looks like. Gut the public schools. Chase the students into profitable charters. Strip every last asset from the public school and strip all the power from the voters and taxpayers. Operate charters like businesses; every dollar you spend on students is a dollar you don’t get to keep. Make some guy a multimillionaire while stripping public education and democratic voice from the members of a poor community.

This chart comparing the charter school to the district’s four elementary and middle-schools was prepared by the Keystone State Education Coalition.

This chart summarizes the PA Dept. of Education’s Future Ready Index reports for the Chester Community Charter School (CCCS) and the four Chester Upland School District elementary/middle schools.

 

Indicator Name CCCS Main Street Stetser Sch of Arts Toby Farms
Percent Proficient or Advanced on ELA/Literature (All Student) 16.3 31 52.3 18.2 12.5
Percent Proficient or Advanced on Mathematics/Algebra 1 (All Student) 6.4 7.6 13.8 10.2 2.3
Percent Proficient or Advanced on Science/Biology (All Student) 22.8 36.7 59.5 59.6 13.7
Meeting Annual Academic Growth Expectations (PVAAS) ELA/Literature (All Student) 63 78 94 76 50
Meeting Annual Academic Growth Expectations (PVAAS) Mathematics/Algebra 1 (All Student) 78 100 77 81 54
Meeting Annual Academic Growth Expectations (PVAAS) Science/Biology (All Student) 50 69 70 97 50
Percent Advanced on ELA/Literature (All Student) 1.2 1.9 15.6 1.2 0.6
Percent Advanced on Mathematics/Algebra 1 (All Student) 1 0 1.8 3 0.6
Percent Advanced on Science/Biology (All Student) 2.8 8.3 16.2 7.7 0.9
Percent  English Language Growth and Attainment (All Student) 22.9 IS IS IS IS
Percent of Students with Regular Attendance (All Student) 48.7 59.2 59.8 53.4 42.1
Percent Grade 3 Reading (All Student) 14.5 24.4 37 20.7  DNA
Percent Grade 7 Mathematics (All Student) 6  DNA  DNA  DNA 1.7
Percent Grade 5, Grade 8, and/or Grade 11 Career Standards Benchmark (All Student) 98 98 98 98 98

Lawrence A. Feinberg of the Keystone State Education Coalition writes:

Flooding from Katrina precipitated the charterization of NOLA schools. Will a historical flood of campaign contributions do the same for Chester Upland SD? PA Department of Education Future Ready Index reports show that 3 of the 4 Chester Upland school district’s elementary/middle schools are outperforming the Chester Community Charter School. Why would the charter school operator want to charterize all the elementary schools in the district? There is no Right-to-Know requirement for private charter management companies like Vahan Gureghian’s CSMI, but the 990 for Chester Community Charter School for last year alone lists $18 million in management fees.

 

 

Politico reports that Betsy DeVos thanked her ideological bedfellow, ALEC, for its help in framing proposals to defund public schools (aka vouchers, opportunity scholarships, tax credits, education savings accounts, a rose by any other name, etc.).

ALEC is the far-right extremist libertarian organization that hates public schools, gun control, unions, environmental regulations, and anything else that infringes on the right of corporations to pursue profits without regard to consequences. ALEC is also a strong supporter of charter schools.

 

DEVOS IS SCHEDULED TO THANK ALEC FOR EDUCATION FREEDOM SCHOLARSHIP SUPPORT in a speech to the council’s conference in Arizona today, the Education Department said. The proposal, which has found little traction in Congress, would create a new $5 billion federal tax credit for donations to scholarship-granting organizations to pay for students to attend private schools or expand their public education options.

DeVos is a longtime friend to ALEC’s group of conservative state legislators. The secretary’s addressed the group’s conferences before, and drawn protests with a push for local control of education issues.

Arizona unionists have planned extended protests at ALEC’s conference, and have been aware that DeVos would be visiting.

This article about charter real estate dealings was written by Professors Preston Green III, Bruce Baker, and Derek W. Black.

They argue that lax state laws allow charter operators to reap profits while maintaining an ostensibly “nonprofit” status.

While critics charge that charter schools are siphoning money away from public schools, a more fundamental issue frequently flies under the radar: the questionable business practices that allow people who own and run charter schools to make large profits.

Charter school supporters are reluctant to acknowledge, much less stop, these practices.

Given that charter schools are growing rapidly – from 1 million students in 2006 to more than 3.1 million students attending approximately 7,000 charter schoolsnow – shining a light on these practices can’t come too soon. The first challenge, however, is simply understanding the complex space in which charters operate – somewhere between public and private.

Unregulated competition

Charters were founded on the theory that market forces and competition would benefit public education. But policy reports and local government studiesincreasingly reveal that the charter school industry is engaging in the type of business practices that have led to the downfall of other huge industries and companies.

Charter schools regularly sign contracts with little oversight, shuffle money between subsidiaries and cut corners that would never fly in the real world of business or traditional public schools – at least not if the business wanted to stay out of bankruptcy and school officials out of jail. The problem has gotten so bad that a nationwide assessment by the U.S. Department of Education warned in a 2016 audit report that the charter school operations pose a serious “risk of waste, fraud and abuse” and lack “accountability.”

Self-dealing

The biggest problem in charter school operations involves facility leases and land purchases. Like any other business, charters need to pay for space. But unlike other businesses, charters too often pay unreasonably high rates – rates that no one else in the community would pay.

One of the latest examples can be found in a January 2019 report from the Ohio auditor-general, which revealed that in 2016 a Cincinnati charter school paid $867,000 to lease its facilities. This was far more than the going rate for comparable facilities in the area. The year before, a Cleveland charter was paying half a million above market rate, according to the same report.

Why would a charter school do this? Most states require charter schools to be nonprofit. To make money, some of them have simply entered into contracts with separate for-profit companies that they also own. These companies do make money off students.

In other words, some “nonprofit” charter schools take public money and pay their owners with it. When this happens, it creates an enormous incentive to overpay for facilities and supplies and underpay for things like teachers and student services.

Many millions of dollars of public funds that were intended to educate children are squandered, they say.

It is called “legal graft.”

 

Chris Whittle is the Uber entrepreneur of for-profit education. Back in the 1990s, he launched the Edison Project, assuming that George H.W. Bush would be re-elected and would get a voucher plan through Congress. That didn’t happen, so Edison sought contracts to run low-performing schools. Lots of push back from districts and parents. The share price plummeted. To learn th3 story of Edison, read Samuel Abrams’ excellent book, Education and the Commercial Mindset.

After the failure of the Edison Project, Whittle raised many millions to start a for-profit private school called avenues that was to have locations around the world. He hired educators with long experience in elite private schools and had splashy openings in Manhattan and in China. tuition was over $50,000 a year. In 2015, he and the board had differences, and he moved on.

Now Whittle is opening a new international for-profit chain, and openings are planned in multiple locations, including the District of Columbia, Brooklyn, and international locations. As the roll out of the new chain proceeds, with glitz and glamour, the board of Avenues is suing Whittle for $5.8 million that he allegedly owes them.

 

Leslie Brody of the Wall Street Journal wrote:

As he wooed hundreds of guests with cocktails, mini lobster rolls and goat cheese bonbons at a reception in Brooklyn, entrepreneur Chris Whittle made an audacious claim: There are no world-class K-12 schools, anywhere.

And he intends to change that.

“Our mission is to actually create the first modern school,” Mr. Whittle told a crowd last week at the launch of a downtown site of Whittle School & Studios. His new for-profit enterprise aims to create one school with 36 campuses world-wide in a decade, with a shared curriculum and “a collective intelligence,” according to its stylish 118-page brochure.

At 72 years old, Mr. Whittle is known for marketing prowess, bold visions and major setbacks in his quest to build educational empires. He says he has raised more than $1 billion for Whittle School, including funds from investors and real-estate expenses borne by firms that construct and own its campuses. Its first sites started operating this fall in Washington, D.C., and Shenzhen, China. The Brooklyn venue, to open next fall, will be the third.

“It’s an ambitious, risky venture,” said Thomas Toch, director of FutureEd, a think tank at Georgetown University. “It’s classic Chris Whittle, to throw a long pass and attempt to run under it for a touchdown.”

Mr. Whittle, a former publisher of Esquire magazine, co-founded Edison Schools, a company that aimed to bring private-sector efficiencies to managing taxpayer-funded schools in the 1990s. The company helped usher in the charter school movement, but ran into financial problems.

In 2002, Edison Schools was investigated by the Securities and Exchange Commission, which said it inaccurately described aspects of its business in SEC filings. The company settled, saying it would add an internal audit function, without admitting or denying the SEC findings. It was taken private and renamed, and Mr. Whittle left.

Mr. Whittle’s first attempt at launching a global school in New York fizzled in the 2008 financial crisis. Then he co-founded Avenues: The World School, a for-profit institution in Manhattan, in 2012 with a pitch of 15 campuses world-wide by 2021. But he left Avenues in 2015. So far, the school has only three sites, including São Paulo and Shenzhen, China, plus a new online program with 20 students…

Whittle School plans capacity for 90,000 students in 15 countries, with much of its leadership from China, India and the U.S. “We were building from scratch an organization that was very intentionally bi- and tri-cultural,” Mr. Whittle said. “It’s been very challenging.”

His team includes such high-profile educators as Benno Schmidt, the former Yale president who worked with him at Edison Schools and Avenues; Nicholas Dirks, former chancellor of the University of California, Berkeley; and Jim Hawkins, former head of the elite Harrow School in London. Designing the schools is Renzo Piano, architect of the Whitney Museum.

Such big-ticket staff and glossy marketing are expensive, said Jonathan Knee, a Columbia Business School professor who called Whittle the “Wizard of Ed” in his book “Class Clowns: How the Smartest Investors Lost Billions in Education.” Mr. Knee questioned whether the school will be sustainable, given Mr. Whittle’s lavish spending.

“This is a startup that is going to be losing money for a long time,” Mr. Knee said. “It’s sort of breathtaking, given the track record, that he could get away with using his name as the brand.”

Mr. Whittle says his investors take the long view: “This is what I would call patient and long-term capital.”

Thomas Franco, an early investor, said he was drawn by Mr. Whittle’s expertise and deep networks in education. “Chris is a catalyst for constructive change in an industry that is very ripe for disruption,” he said. “The obvious challenges are the execution risks but so far the team has demonstrated an ability to manage these.”

Mr. Whittle puts the price of launching the Brooklyn site at more than $300 million, including the developers’ costs. It involves renovating 10 floors of the old Macy’sbuilding on Livingston Street, with a roof terrace, theater, boarding facilities and 16-foot ceilings to inspire creativity.

It advertises hands-on, personalized learning and Mandarin lessons from age 3 to help children compete in a fast-changing global economy. In an echo of Avenues, it promises students will be able to hop among campuses to study abroad. New York already has several established for-profit schools with sister sites in other countries.

With its first open house for parents on Thursday, Whittle School is soliciting applications for preschool and kindergarten next fall. Tuition and fees cost $49,500. Mr. Whittle says the bill for older grades, to start in fall 2021, will reflect the city’s other independent schools, which can top $56,000 yearly.

Some parents are leery of the model. Samuel Abrams, director of the National Center for the Study of Privatization in Education at Teachers College, Columbia University, cautions that seeking profit from tuition doesn’t fit with an educational mission, or putting as much money as possible into instruction.

“There is a lot of opacity” in the business operations, Mr. Abrams said. “You have to trust, in the case of a complex service, that the provider is going to do what was promised.”

Mr. Whittle says parents care about innovation far more than nonprofit status. “There is no way we could assemble these resources philanthropically,” he said.

The new head of the Brooklyn site, Larry Weiss, has led two nonprofit private schools, Brooklyn Friends and Saint Ann’s. He says Whittle School’s resources will liberate him from the onerous job of raising donations. “It’s an enormous relief for parents, who end up besieged by fundraising” at nonprofits, Mr. Weiss said. “People get angry with each other. People get disappointed.”

Joyce Szuflita, admissions consultant at NYC School Help, says she will watch how the school fares before recommending it. Parents “occasionally grumble that a for-profit school will be less choosy because they have to fill seats,” she said. “Any new school, for profit or not-for-profit, will have this problem.”

Another consultant, Victoria Goldman, says she is happy a new school is coming to Brooklyn, which lacks enough options. “This may not be for everybody,” she said, “but it will be on everybody’s list” to check out.

Some parents are curious. Ari Goldstein, a real-estate executive with a baby and a 3-year-old in Brooklyn Heights, wants to explore public schools nearby as well as Whittle School. He says he likes that it has “the capacity to step back and think about what is the best educational environment, and create something from scratch.”

 

In a follow up article, Brody of the Wall Street Journal described the legal battle between Whittle’s previous venture, Avenues, and Whittle. The board is prepared to force Whittle to sell his lavish East Hampton estate on Long Island, valued at more than $100 million, to settle his debt.

https://www.wsj.com/articles/schools-entrepreneur-chris-whittle-still-owes-5-8-million-to-avenues-11574289768?mod=searchresults&page=1&pos=1

Chris Whittle, the education entrepreneur who is launching a new for-profit global school in New York City, has been mired in a legal battle over his multimillion-dollar personal debt to his previous local startup, Avenues.

Legal filings by the school’s company, Avenues Global Holdings, say it lent its co-founder, Mr. Whittle, a sum in 2013 that grew to more than $13 million in 2017. He didn’t repay it on time, and the dispute landed in state Supreme Court in Manhattan in 2018.

Officials at Avenues and Mr. Whittle agreed this month that he still owed it roughly $5.8 million, records show. Avenues is one of the city’s biggest independent schools, with annual tuition topping $56,000.

Avenues officials said Wednesday that Mr. Whittle still hadn’t paid the debt and that they are seeking to force a sale of his estate in Long Island’s East Hampton, which they say was appraised at more than $100 million. It sits near the Atlantic Ocean with a view of Georgica Pond.

“Chris has failed to meet his commitments to Avenues,” said Jeff Clark, president of Avenues: The World School, by email. “Despite giving him many chances and time to cure this, we are now pursuing other remedies because of his track record of unkept promises.”

A representative for Mr. Whittle said Wednesday that “Chris anticipates paying the final $5.8 million due over the next couple of weeks.”

Mr. Whittle is known for his bold visions and major setbacks in a series of educational projects. His new business is Whittle School & Studios, which he says will become a single private school with 36 campuses world-wide in a decade. One site is scheduled to open in Brooklyn next autumn.

In a 2017 arbitration filing, Avenues Global Holdings said it lent him about $10.8 million in 2013 “to ameliorate his dire personal financial situation so he could focus on his work for Avenues.” The filing was included as an exhibit in Avenues’ 2018 legal action against Mr. Whittle. He resigned in 2015 because of disagreements with the company’s leadership, and his outstanding loan grew to more than $13 million in 2017, the arbitration filing said.

In his separation agreement, he promised he wouldn’t engage in school operations in New York City and other major cities until November 2018, according to the arbitration filing. Avenues accused him of violating that noncompete clause and his confidentiality agreement by working on the Whittle School before the clause allowed. Some Chinese officials mistook Whittle School representatives for those of Avenues, the arbitration filing said.

Whittle School’s business plan reflects Mr. Whittle’s “effort to copy wholesale the Avenues model in direct violation of his covenants,” the arbitration filing said.

Mr. Whittle vehemently denied violating the noncompete and confidentiality clauses, his representative said Wednesday, noting that the settlement agreement required that he pay only the loan amount due, and no additional damages. The representative said the allegation that Chinese officials mistook anyone from Whittle School as being part of Avenues was never substantiated.

Mr. Whittle has said he has raised more than $1 billion for Whittle School, including funds from investors and real-estate expenses borne by firms that construct and own its campuses.

Mr. Whittle is a former publisher of Esquire magazine and co-founded Edison Schools, a company that helped usher in the charter-school movement in the 1990s but ran into financial problems.

He went on to help start Avenues, which opened in the city’s Chelsea neighborhood in 2012.

Benson Lu, a Whittle School board member, said he was aware of Mr. Whittle’s dispute with his former company. “I don’t think this will be important to parents,” Mr. Lu said. “Parents care more about the quality of education and faculty members.”

 

Indiana legislators have rewritten state laws to favor privatization of public assets. If a public school is considered unutilized, a charter operator can claim it for only $1. When the West Lafayette school district sued to challenge the law, a judge sided with the legislators. Give the public school away to a private operator, even though it belongs to the public who paid for it!

Karen Francisco, the brilliant editor of the Fort Wayne Journal Gazette, writes here that the state’s political leadership is conspiring against the public interest by giving away public property to entrepreneurs. More than once, the  public has been fleeced by shady charter operators in search of profit.

The “real estate racket” that the legislature endorsed on behalf of charter entrepreneurs is draining millions of dollars away from taxpayers in Indiana and other states.

It would take an accountant to disentangle the tangled web of real estate deals that allow charter operators to rip off the public.

Francisco tries to explain it here:

A decade ago, The Journal Gazette reported a local charter school, Imagine MASTer Academy, was using state tax dollars to pay a for-profit landowner nearly triple in rent what it could have paid to own its building outright.

No one – not the governor, attorney general or any lawmaker – stepped up to protect taxpayers from that poor deal. None showed interest in the growing number of national headlines about charter school real estate scams. In announcing last week it was getting out of the charter school business, the former property owner of Imagine MASTer Academy illustrated why West Lafayette and other public school districts must challenge Indiana law.

Admittedly, the complex shell game is tough to follow, but no one should doubt who is prospering when an out-of-state real estate investment company boasts of 10.5% returns on a charter school portfolio that just sold for $454 million. Is it any wonder Indiana teacher salaries weren’t growing?

EPR Properties of Kansas City, Missouri, bought Imagine’s North Wells Street campus in 2008 from Schoolhouse Finance, the real estate arm of Imagine Schools Inc., a management group hired by businessman Don Willis and other area residents to operate the local charter school. The sales price was $5.5 million. Two years earlier, Schoolhouse had bought the campus from the YWCA. EPR, a real estate investment trust, sold it back to Schoolhouse eight years later for nearly $7.4 million. Just two years later, it was sold to Wallen Baptist Church for $3.25 million.

In the interim, Indiana taxpayers made rent payments of nearly $2 million in a three-year period alone. Under a triple net lease, the public was also on the hook for the for-profit company’s property taxes, insurance and maintenance. When the charter school faced closure because of poor academic performance in 2013, Imagine was converted to Horizon Christian School. State officials, under another charter-friendly law, forgave $3.6 million in loans to Imagine.

We don’t know how much Horizon Christian School paid in rent during its six years at the Wells Street site.Although the school, now at3301 E. Coliseum Blvd., is supported almost entirely by taxpayer-funded vouchers, its financial affairs are not subject to public access laws.

The entrepreneurs are betting that the public won’t be able to follow the trail of bread crumbs that transfers millions of dollars from taxpayers to the bank accounts of private corporations.

The New York Times reported on a huge merger of newspapers.

In August, Gannett, the parent company of USA Today and more than 100 other dailies, and New Media Investment Group, the owner of the newspaper chain GateHouse Media, announced their intention to join forces. Over the next two months, the plan breezed through the regulatory process, winning approvals from the Justice Department and the European Union. Last week, shareholders at the two companies voted yea. And now one in five daily papers in the United States has the same owner, under the Gannett name, according to figures provided by researchers at the University of North Carolina.

The combined company will have its headquarters in Gannett’s home base, McLean, Va., and will be led by Michael E. Reed, the New Media chief executive since 2006. The job puts him in charge of more than 260 dailies — from small papers like The Tuscaloosa News in Alabama to big ones like The Detroit Free Press.

GateHouse’s acquisition of Gannett, a cash-and-stock transaction valued at roughly $1.2 billion, was intended to give the combined companies an annual savings of some $300 million. Mr. Reed said the bulk of the savings “is not going to come from editorial,” meaning newsrooms would be largely spared.

Pressed to say more, Mr. Reed added: “I can’t give you an exact number, but almost nothing. I mean, just for context, there’s 24,000 employees in the two companies, and a significant portion of the cost reductions are going to come from things other than people. But, obviously, people’s a part of this as well. Out of 24,000 people in the company, there’s about 2,500 that are actually writing stories every day. So it’s a small number, relative to 24,000. So there’s so much opportunity beyond the newsroom for us to go get these efficiencies.”

Paul Bascobert, the chief executive of the former Gannett who will hold that same title for the new Gannett’s operating company, seconded that statement, saying the company’s mission “is to connect, protect and celebrate local communities.”

“And the core of that is great local journalism,” he added. “That’s the engine that has gotten us to the place we are today, and that’s the engine that’s going to carry us forward.”

Newspaper executives have sung this tune before, only to end up making aggressive cuts in an industry that has struggled since the one-two punch of the recession more than 10 years ago and the rise of digital media. Twenty-five percent of newsroom employees were laid off between 2008 and 2018, according to the Pew Research Center.

GateHouse and Gannett have both cut newsroom employees in recent years. GateHouse consolidated some business functions at a center in Austin, Texas, resulting in layoffs elsewhere, and laid off more than 100 newsroom employees in the spring. Gannett has let go dozens of journalists, including prominent sportswriters and a Pulitzer Prize-winning cartoonist.

Mr. Reed and Mr. Bascobert, who spoke with The New York Times at the USA Today office in Midtown Manhattan, said the savings they had in mind amounted to 8 percent of annual costs. “So it’s not an overwhelming number — very achievable,” Mr. Reed said.

The News Guild, which represents journalists at many of the company’s newspapers, has been critical of the merger. The union “intends to hold managers of the new Gannett to the promises they have made,” the News Guild president, Bernie Lunzer, said in a statement. “We will continue to demand that they fund high-quality journalism.”

Mr. Reed said he would make newsroom decisions with the help of data that tracked reader interest and the output of journalists. “The ability to measure production at the reporter level allows us to get stronger and healthier and do more quality local journalism with the same amount of resources, potentially,” he said.

He seemed aware that his stats-based approach to newsroom management was not likely to sit well with the union. “The Guild would fight me on that, and say, ‘We should do business like it’s 1950,’” Mr. Reed said, adding, “I frankly think the Guild’s a big problem, and until we can get them to sit at a table and have a real discussion about where the world is today, there’s going to be inefficiencies….”

The merger raises another question: What does it mean that the beleaguered newspaper industry, considered essential to democracy, is controlled by ever fewer corporations, many of them with a focus on finance rather than covering the news?

The supersize version of Gannett has a byzantine corporate structure. It will be managed, under an agreement that lasts two more years, by Fortress Investment Group, a private equity firm in Manhattan. Fortress was the entity that controlled New Media Investment Group, the parent of GateHouse Media.

Fortress, in turn, is owned by SoftBank, the Tokyo conglomerate founded by Masayoshi Son, a brash executive who had a friendly meeting with Donald J. Trump in December 2016, when Mr. Trump was the president-elect. (Mr. Son was also a driving force behind the all-but-final megamerger of Sprint, a SoftBank-controlled company, and T-Mobile; that deal won regulatory approval after a lobbying campaign that included company executives staying at the Trump International Hotel in Washington.)

Iris Chyi, a professor at the University of Texas School of Journalism, expressed concern that the newspaper business was in fewer corporate hands. “From a media economics perspective, more competition is always better,” Ms. Chyi said. “We don’t want a company to have way too much power.”

Another large newspaper chain, MediaNews Group, is owned by a hedge fund, Alden Global Capital. Gannett resisted MediaNews Group’s bid to buy it earlier this year. On Tuesday, Tribune Company, a publicly owned major chain, announced that Alden had purchased a 25 percent stake in it. McClatchy, another major chain, said last week that it risked insolvency.

Mr. Reed grew up in Elmira, N.Y., and was once a delivery boy for The Star-Gazette there — the descendant of The Elmira Gazette bought by Frank E. Gannett in 1906. It was the first publication in what would become a newspaper empire.

Now a part-time resident of the Rochester, N.Y., area, Mr. Reed noted that the new incarnation of Gannett would have two publications in that part of the world: The Daily Messenger, in Canandaigua, formerly a GateHouse publication, and The Democrat and Chronicle, a longtime Gannett daily in Rochester.

“I think both products get stronger,” he said, “because now we’re going to be able to share those resources.”

When he spoke of how Gannett would manage the neighboring papers, he mentioned the newsroom. “Do we need two people covering the Rochester Red Wings?” he asked, referring to the minor-league baseball franchise. “So that’s where we potentially redeploy assets.”

 

A message about this merger from the publisher of ProPublica, which publishes investigative journalism:

 

Not Shutting Up

BY RICHARD TOFEL

Welcome to Not Shutting Up, a newsletter from ProPublica’s president, Dick Tofel. You’re receiving this because you’ve supported ProPublica’s journalism; we’re grateful for that, and we hope to give you some context on how our newsroom works. If this email was forwarded to you, you can sign up to receive it here.

Dear ProPublicans,I know I’ve written to you before about the business crisis in local news, but it has accelerated significantly in the last couple of weeks, and I think you need to understand how and what it means.Here’s what’s happened in just the last 10 days:

    • Two local newspaper chains, GateHouse and Gannett, completed their merger, and the surviving company controls one-fifth of all the daily newspapers in the United States, including the Arizona Republic, Providence Journal and Austin American-Statesman. These newspapers have already been cut back so far that their average news staff — across 260 papers — is fewer than 20 people, and fewer than 10 reporters per city. In the aftermath of the merger, the company plans $300 million in cuts, with at least one leading observer estimating that the cuts will eventually come to $400 million.
    • Hedge funds, which seek high returns in a short amount of time and measure those returns solely in dollars, now effectively control all of the nation’s largest newspaper chains, either through stock or debt holdings. The second largest company, Digital First Media, is controlled by Alden Global Capital. Alden this week bought 25% of the stock of Tribune Publishing, publisher of the Chicago Tribune, Baltimore Sun and New York Daily News among others, becoming its largest shareholder as well. Alden is best known in newspapers for having gutted the Denver Post and San Jose Mercury News.
    • McClatchy, whose properties include the Miami Herald and Charlotte Observer, announced that it owes a pension contribution next year of about $125 million, but it will only have about $20 million in cash to make that payment. The company has shrunk to the point that it has 2,800 employees whose work must generate enough to fund 24,000 pensions. That’s not possible.
  • Meanwhile, important new research from the Knight Foundation (disclosure: a ProPublica funder) and Gallup finds that most people erroneously believe that local news organizations are doing well financially. One bright spot: When told this is incorrect, a majority expressed willingness to support a local news nonprofit.

What, you may ask — you should ask, we certainly do — is ProPublica doing about this? Here, I think, the recent very bad news is somewhat leavened by some hopeful signs.

This week, our own first local newsroom, ProPublica Illinois, published an extraordinary story about the horrifying use of isolation rooms for children as young as 5 years old in schools across the state. This story was the fruit of a collaboration between two ProPublica Illinois reporters and one from the Chicago Tribune, and it was published by both organizations. Yesterday, the state took emergency action to ban the practice. If you have not already read the story, I urge you to do so, as well as this month’s moving and insightful ProPublica Illinois story about the racial legacy of the town of Anna.

Also this week, we published the latest installments in continuing series from our Local Reporting Network partners concerning the concentration of political power in New Jerseyand a major environmental threat in Louisiana.

And we’re in the early stages of our forthcoming initiative in partnership with The Texas Tribune; we posted many of the jobs for it this week.

So that’s what we’re doing. We’re working on possible plans to do more.

What, I hope you might ask, can you do to support local journalism? Beyond continuing your engagement with us, for which we are always deeply grateful, if you still have a local news outlet you think provides you with important facts and perspective on your community, don’t just assume its immortality. Subscribe if you can; donate what you can if that’s possible.

These are tough times for local reporting in this country, and, with hedge funds calling the tune, tougher times lie ahead. You should expect us to do our part to make this a high priority. I hope some of you can do the same.

Regards, Dick

 

 

The Wall Street Journal published an expose of the College Board’s practice of selling student data, which is illegal in some states. The colleges buy the names and addresses of students, encourage them to apply, then reject them so they can claim they are “exclusive.” It looks good on the US News phony ratings when colleges have a low acceptance rate.

For 47 cents, the College Board will sell an individual’s information, feeding admissions frenzy

Jori Johnson took the practice SAT test as a high-school student outside Chicago. Brochures later arrived from Vanderbilt, Stanford, Northwestern and the University of Chicago.

The universities’ solicitations piqued her interest, and she eventually applied. A few months later, she was rejected by those and three other schools that had sought her application, she said. The high-school valedictorian’s test scores, while strong by most standards, were well below those of most students admitted to the several schools that had contacted her.

“A lot of the rejections came on the same day,” said Ms. Johnson, a 21-year-old senior film major at New York University, one of three schools that accepted her out of 10 applications. “I just stared at my computer and cried.”

The recruitment pitches didn’t help Ms. Johnson, but they did benefit the universities that sent them. Colleges rise in national rankings and reputation when they show data suggesting they are more selective. They can do that by rejecting more applicants, whether or not those candidates ever stood a chance. Some applicants, in effect, become unknowing pawns.

Feeding this dynamic is the College Board, the New York nonprofit that owns the SAT, a test designed to level the college-admissions playing field.

The board is using the SAT as the foundation for another business: selling test-takers’ names and personal information to universities.

That has helped schools inflate their applicant pools and rejection rates. Those rejection rates have amplified the perception of exclusivity that colleges are eager to reinforce, pushing students to invest more time and money in preparing for and retaking exams College Board sells. Colleges say the data helps them reach a diverse pool of students they might have otherwise missed.

The top 10% of universities don’t need to do this. They are buying some students’ names who don’t have a great chance of getting in,” said Terry Cowdrey, an enrollment consultant for universities and Vanderbilt University’s acting dean of undergraduate admission in 1996 and 1997. “Then the kids say, ‘well why did you recruit me if you weren’t going to let me in?’ They do it to increase the number of applications; you’ve got to keep getting your denominator up for your admit rate.

Carol Burris writes about the latest news from the charter industry. This is the same company that Valerie Strauss wrote about, called “Entertainment Properties Trust.” It’s CEO, Dennis Brain, told an interviewer that charter schools were a sound investment, had long waiting lists, and were guaranteed government revenues.

But that rosy picture has dimmed. The long waiting lists are fictional. Charters are likely to close down suddenly. In some states, charter enrollment is declining. The REIT lost confidence in the future of charter schools and liquidated its charter school holdings.

Burris writes:

EPR Properties (NYSE:EPR) is a  triple net lease real estate investment trust (REIT). What that means is that it buys properties and then rents them with the tenant picking up costs like insurance, improvements, and all utilities. Therefore, every dollar EPR makes off the lease is profit. 

EPR used to love the charter sector. It would buy buildings and then rent them to charter schools. In 2017 it had 66 charter schools in its portfolio. By 2018, that number dropped to 60. 
 
EPR had a special relationship with Imagine Charter Schools. School House Finance, Imagine’s related organization, would buy the property. It would sell it to EPR. EPR would lease it back to School House, which would then lease it to one of Imagine’s charter schools at very high rates. 
 
EPR also had a special relationship with the for-profit charter management firm CSMI. It would buy their charter school’s buildings and then lease them to the schools. 

One of the CSMI schools wasCamden Community Charter School.  CSMI paid $300,000 to buy the land from the Camden Redevelopment Agency—the agency responsible for redevelopment efforts in the city. On April 9, 2013 CSMI sold the property to Education Capital Solutions LLC for $500,000, netting CSMI a two-week $200,000 profit.

Education Capital Solutions is the wholly owned subsidiary of Entertainment Properties Trust (EPR).  

In 2016 the school’s “operating lease” was $1,711,368. The next year it jumped to $1,871,506, which represents 17 percent of all school revenues. 

The school folded. But another charter came into the building for which the company could collect rent. 

Now EPR is getting out of the charter school business. It realized it was just too unstable. They have sold off their buildings to Rosemawr Management, LLC.

“Management cited competitive financing alternatives, which induced increasing earnings volatility of the charter school portfolio as the primary reason to sell it.  Additionally, the sell-off will improve overall rent coverage from 1.89x to 1.94x. ” 
Where is EPR going? It is going to start buying up casinos instead.