This is a world-class scandal. And it is all legal!
Arizona’s State Representative Eddie Farnsworth sold his for-profit charter chain to a non-profit for about $30 Million and will reap millions in profits, then get a management fee to continue to operate them.
“Yet another millionaire is made, thanks to the latest in charter school scheming.
“This time, it’s state Rep. Eddie Farnsworth, who has figured out a way to sell his charter school business – the one built with taxpayer funds – and make millions on the deal and then likely get himself hired to continue running the operation.
“Which now converts to a non-profit and thus will no longer have to pay property or income taxes.
“Sweet plan. Sickeningly so, when you consider that Farnsworth is making his millions off of tax money intended to be used to educate Arizona children.
“Other charter schools are getting rich
“Farnsworth is just the latest operator to use charter schools as his own personal ATM – one that shoots out public funds.
“The Republic’s Craig Harris has spent all year reporting on operators who are getting rich – or at least, making a tidy pile of cash – off publicly funded charter schools, aided by laughable state laws that require hardly any oversight or accountability.
“There’s the Arizona Charter Schools Association’s No. 2 guy, using his position to throw business to a company he co-owns with his wife by giving her the names of students looking for a charter school. She scores a bounty for every student (and the tax dollars that go with that student) she delivers to certain charter schools.
“There’s BASIS Charters Schools founders Michael and Olga Block, who scored $10 million in fees to manage the charter chain of schools last year.
“There’s American Leadership Academy’s founder Glenn Way, who scored at least $18.4 million profit by getting no-bid contracts to build charter schools thanks largely paid for with public money.
“Then there’s Primavera online school, where most of the public funding has gone not to educate students but to elevate the company’s investment portfolio. Damian Creamer, the school’s founder and CEO, last year scored an $8.8 million “shareholder distribution” from the for-profit company that now runs Primavera, according an audit filed with the Arizona State Board for Charter Schools.
“Taxpayers pay twice for the same schools
“Now comes Farnsworth with his Benjamin Franklin Charter School scheme, approved Monday by the Arizona State Board for Charter Schools.
“Under the arrangement, Farnsworth is selling his for-profit four-school operation to a non-profit run by a trio of handpicked pals who will now select someone to run the schools. Farnsworth has applied for the job.
“According to state records, Farnsworth will score at least $11.8 million in profit from the deal. He’ll also keep nearly $3.8 million in “shareholder equity” accumulated over the years since starting the suburban charter school chain in 1995. But Farnsworth declined to disclose the total profit he will make on the deal.
“I make no apologies for being successful,” he told the Arizona State Board for Charter Schools.
“And you wonder why Farnsworth has fought efforts to require better oversight and reform of Arizona’s charter schools?
“The Republic’s Harris reports that when the sale closes, taxpayers will have paid twice for the same schools – once to essentially pay the mortgage on the Farnsworth-owned buildings and now to assume more debt in order to buy the buildings.
“And – by the way – it’s all legal
“The most outrageous part of this outrageous story is that what Farnsworth is doing is apparently legal.”
Craig Harris of the Arizona Republic reported on Farnsworth’s meeting with the state charter board (which includes other charter operators):
“[Farnsworth] told them he was requesting the change in organization to strengthen the finances of the roughly 3,000-student school chain. Farnsworth said the new structure will allow Benjamin Franklin to avoid property taxes and to qualify for federal education funds.
“The Legislature gives charter operators up to $2,000 more per student in state education funding than traditional district schools. That’s because charters cannot access local property taxes for building debt.
“Farnsworth acknowledged he would make a profit on the deal.
“Board member Erik Twist, who runs the Great Hearts charter schools, tried to press Farnsworth on how much he stands to gain. But Chairwoman Kathy Senseman interrupted him and changed the direction of the discussion.
“Farnsworth told the board that if he had wanted to make money, he merely could have sold the schools and cashed out.
“I make no apologies for being successful,” Farnsworth said.
“The transfer plan calls for the new non-profit operator to hire a contractor to manage the schools, an arrangement similar to other charter chains like Basis and American Leadership Academy.
“Records submitted to the Charter Board appeared to show Farnsworth had already been hired to manage the schools, but he said the document was a “draft” intended to give board members an understanding of the management contract.
“That’s what happens at Basis schools, many of which rank atop U.S. News & World Report’s “best schools” lists. A private contracting arrangement has paid about $10 million in “management fees” to a private firm run by Basis founders Olga and Michael Block.
“Farnsworth told the board, however, that he had submitted an application for the contract to the company’s new three-member board, all of whom he recruited and are his friends.
“Rebecca McHood, a Gilbert resident who attended the meeting, called the board vote “crazy.”
“They just gave a charter to a non-profit, but they didn’t vet them,” said McHood, a charter school critic whose relatives attended Farnsworth’s schools. “Here we are paying for his private property with our tax dollars, and then he can sell them.”
“State to pay twice for campuses
“Farnsworth built his school chain over more than two decades ago and became its sole owner in 2017, when he used $2.2 million of Benjamin Franklin funds to buy out his partners, Sharon Clark and Roy L. Perkins Jr., records show.
“That deal also made him sole owner of LBE Investments, a Gilbert company that owns the four campuses and leases them to Benjamin Franklin. Both companies are headquartered at 690 E. Warner Road in Gilbert.
“Once the planned sale to the new non-profit business closes later this year, taxpayers will have paid for the same schools twice. That’s because Benjamin Franklin, for years, has used education funding from the Legislature to make lease payments to LBE Investments, records show.
“(A 2017 audit showed Benjamin Franklin paid $4.9 million a year in lease payments, and that the remaining lease balance for three elementary schools and one high school was $53.9 million.)
“Farnsworth told the Charter Board that an appraisal of the schools is underway, and they will be sold at fair-market value.
“Documents submitted to the Charter Board indicate the plan is to borrow $65.7 million through the Arizona Industrial Development to purchase the schools. A sale for the projected loan amount would result in an $11.8 million profit for Farnsworth by retiring the outstanding lease balance.”
Why do Arizona taxpayers acquiesce to this blatant Profiteering with money intended to educate children?
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