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Pennsylvania: State Auditor Targets Charter Real Estate Frauds

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The State Auditor in Pennsylvania decided to take a look at the ties between charter schools and the buildings they rent or lease. He found several that are renting space from the charter school’s owner, which is forbidden in state law. This is actually one of the most lucrative and overlooked aspect of the charter scam: The charter owner buys a building, opens a school, and charges high rent, which he pays to one of his shell corporations.

Pennsylvania’s fiscal watchdog on Wednesday questioned millions of public dollars paid to charter school landlords and called for the state to more closely monitor such lease payments.

At a news conference, Auditor General Eugene DePasquale highlighted more than $2.5 million in lease reimbursements to nine charter schools, including the Propel Charter School System in Allegheny County, the Chester Community Charter School in Delaware County and School Lane Charter School in Bucks County.

Without offering details, Mr. DePasquale said his office found ties between the schools and their property owners that could contradict state guidelines that deem buildings owned by a charter school ineligible for lease reimbursement.

“What we found in some of our audits is that the same people who own and operate charter schools, they themselves create separate legal entities to own the buildings and lease them to charter schools,” Mr. DePasquale said.

Pennsylvania enjoys the dubious distinction of having the most permissive charter laws in the nation, one that enables profiteers to score big without regulation or oversight. Pennsylvania is home of about 16 cyber-charters, which are known for their woeful performance. CREDO reported in 2011 that the virtual charters were the worst-performing of all types of schools in the state. In addition, two virtual charter operators were charged with fraud, including the founder of Pennsylvania’s first cyber-charter school, which had annual revenues of $100 million.

Under former Republican Governor Tom Corbett, the charter industry was given free rein to expand and exploit the taxpayers of the state. At one point, the Secretary of Education was a former executive of Michael Milken’s K12 Inc., the online virtual charter that has received numerous negative reviews by researchers.

The current Auditor General wants to get to the bottom of the real estate scam:

He said the education department in about 2010 asked the Auditor General’s Office to review such connections, and that the auditor’s staff has done so.

“We keep finding it and supplying the information to the department, and they do nothing with it,” he said.

Mr. DePasquale made a similar call for scrutiny in March 2013, when he said that audits of six charter schools found they had improperly received more than $550,000 in lease reimbursements from the state for properties related to or owned by the schools. It was not clear if that money was ever repaid.

Pittsburgh’s counsel agreed that oversight is nearly non-existent:

Ira Weiss, solicitor for Pittsburgh Public Schools, said the district agrees with the auditor general’s concerns about lease reimbursements.

“These schools are paid millions in tax dollars with little or no oversight by PDE,” Mr. Weiss said. “It is more evidence that the charter school law, one of the most permissive in the nation, needs a complete overhaul.”

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