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Pennsylvania: How Charter Schools Make Handsome Profits in States Where For-Profits Are Not Allowed

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Remember that scene in the Dustin Hoffman movie “The Graduate” where a sharp guy whispers to the young Hoffman that the business of the future is “plastics!”

In the charter industry, the profits are not in tuition money. They are in real estate.

Pennsylvania theoretically does not permit for-profit charters. But that doesn’t mean that charters don’t make a handsome profit. It is all about real estate, or leasing the property you own to yourself for a fine fee.

The five-story brick and concrete building overlooking Brighton Road in Perry South features a Propel schools banner over its front door, with signs for the charter network at every approach.

The 99,155-square-foot Propel Northside is owned, though, by School Facilities Development Inc., a nonprofit corporation with a very narrow role: Leasing property to Propel.

SFD’s ownership allows Propel to collect around $322,000 in annual lease reimbursements from the state — money it wouldn’t get if it owned its school buildings. It’s an arrangement that had drawn criticism from the state’s top auditor and is threatened by proposed legislation.

“You’ve created this nonprofit and sort of in a sense, you control it,” said Auditor General Eugene DePasquale, a critic of the state’s charter school law. “You’re getting a lease reimbursement for renting to yourself.”

Since 2004, SFD has spent $32.6 million buying a portfolio of seven schools, comprising most of Propel’s 11 locations. With no employees and just a few volunteers and part-time consultants, the nonprofit receives $3 million in annual lease payments from Propel schools, and after debt payments runs annual six-figure surpluses.

From 1965 to 2006, the Pittsburgh Public Schools owned the Brighton Road building, maintained it and used it as Columbus Middle School. That simple arrangement isn’t mirrored in the charter school world, where specialized nonprofits take on various roles and receive millions of dollars in public money.

“Real estate is held in a separate company,” said Propel Executive Director Jeremy Resnick, recounting the advice he’s gotten from attorneys and financiers during Propel’s 15-year history. “This is how it’s being done.”

Jeremy Resnick–founder of the Propel Charter Chain–is the son of the esteemed education researcher Dr. Lauren Resnick of the LRDC at the University of Pittsburgh.

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