Michigan Gambled on Charter Schools. Its Children Lost. – New York Times

At Michigan’s current funding level, roughly $7,600 per pupil, 100 extra students would translate to $763,000. An authorizer’s 3 percent cut of its schools’ per-pupil state funding can add up to millions of dollars, if it approves large schools, and enough of them. Keeping the schools open, even if they’re low-performing, can become a temptation, Miron told me. He found authorizers rarely closed schools in Michigan — typically, only if the school had “been shamed by the media.”

At the B.M.C.C. board meeting, two other struggling downstate charters were unanimously reauthorized. The first, the Academy of Warren, sits on a grim stretch of 8 Mile Road, in a largely abandoned strip mall. The school occupies a row of run-down, contiguous storefronts. Little effort has been made to brighten up the exterior of the buildings or landscape the oceanic, mostly empty parking lot. I found it difficult to picture an environment more aesthetically at odds, at least externally, with its supposed goal of nurturing children.

And yet for years now, Detroit parents have been fleeing across 8 Mile to suburbs like Warren, in order to get their children out of the free-falling Detroit public-schools district. Michigan already had an open enrollment program that allowed schools with empty seats to accept students from other districts. It’s no small oddity that formerly lily-white suburbs built on racist housing policies — as recently as the 1990 census, Warren was 96 percent white — now had schools openly courting black children from Detroit, because, like all school districts, they desperately needed those per-pupil dollars. (Much national focus has been placed on Detroit’s declining population, but the state’s overall population drop has also been reflected in suburbs like Warren, hence the pupil shortage.)

The Academy of Warren was operated by a large, for-profit E.M.O. called CS Partners. Of the Academy’s 646 students, 99 percent qualified for free or reduced breakfast and lunch; it had fallen into the bottom fifth percentile in 2014-15, but notched back up to the bottom sixth percentile last year. Parish, whose face had a resting look of concern, as if he’d just received bad news via whisper, acknowledged the school “has had a few difficulties.” Still, he recommended that the board renew the charter for another four years. The charter-office staff “thought four years would give us a chance to review them in the near future and make sure they move forward,” Parish explained. Reading from the charter office’s report, he noted the school “had an end-of-year balance of over a million dollars, so from a financial standpoint, very stable. They own their facility.”

The next charter, a K-7 called the Mildred C. Wells Academy, was located in Benton Harbor, a poor, predominantly African-American city in the southwestern corner of the state, about a seven-hour drive from Bay Mills. Parish offered a blunter assessment this time. The school’s facilities, a pair of modular buildings, were “very poor,” and the same went for student test scores, though Parish stressed the context: “The level of learning is comparable to that of the local public-school system, which is dismal. So ours is dismal.” B.M.C.C.’s curriculum specialist, Kathy Tassier, pointed to selective testing gains, and suggested that the students had been motivated to “really take ownership for that growth” after learning of another local charter’s slated closure. Tassier meant the remark as a compliment. But inadvertently or not, she’d applied the language of market capitalism, of increasing productivity via brutal Darwinist competition, to a group of K-7 students. They could have been assembly-line workers being warned that the factory would close if the Chinese kept eating their lunch. The board voted to renew the charter for another four years — again, unanimously, and with minimal debate.

After the meeting, when I spoke with Parish alone, he acknowledged that the 3 percent fee, beyond covering charter-office expenses, “does provide a little bit of extra money to help our college activities.” But he said that he had no interest in expanding the charter office to maximize profit and that he thought there were too many charter schools in Detroit.

When I later spoke to Newland, pointing out the cultural and geographical chasm between B.M.C.C. and the downstate, urban neighborhoods so many of their charters served, he shot back that Indians knew poverty as well anyone. “It’s a different stage for the same play,” he told me. “I think we understand it very well.” Were he “designing an education system from scratch,” Newland continued, he’d make funding levels the same for every district and pay teachers “like the white-collar professionals that they are.” But he wasn’t, so he supported charter schools. Unlike Parish, Newland was willing to discuss DeVos. “I learned at a relatively young age not to ascribe malice to people as a motivation,” he said. “I think when she says, ‘I care about having our kids learn,’ I believe that.” But, Newland went on: “She didn’t go to public school. Her kids didn’t go. My guess is she doesn’t hang out with a lot of people who know what it’s like going to a school with 50 percent people of color. And I haven’t seen evidence that she’s taken the time to learn.”

When Brown took over at Carver Academy, one of the many problems she inherited was enormous real estate debt. The problem is not uncommon: Michigan does not mandate that its charter schools buy or lease property at fair-market prices, resulting — predictably — in wildly inflated real estate spending. In Carver’s case, the situation was especially frustrating because the debt was a legacy from yet another for-profit entity. Though the school was founded in 1999 by Birdlene Esselman, a beloved local educator (she was Brown’s elementary-school principal), it contracted with a for-profit E.M.O. called Mosaica Education. After only a year of operation, Carver, still run by Mosaica, signed a mortgage agreement to buy and upgrade the school property for $7.1 million — the loan Brown found herself facing down 17 years later.

When she began talks with Scott VanderWerp, who runs the public-finance group at Oak Ridge Financial, Brown mainly hoped to lower the school’s annual interest payments. But VanderWerp told her to write up a wish list of capital improvements. After he performed a refinancing analysis on Carver’s outstanding debt, he told her he could deliver nearly $900,000 in savings over the remaining 13 years of the 30-year loan. A team of educators and financial auditors contracted by Oak Ridge made a two-day visit to the school and, in Brown’s words, “attacked the building,” observing classrooms and interviewing everyone: teachers, administrators, security guards. Three weeks later they returned and did it again, analyzing strengths and weaknesses to determine, Brown said, “if we are an investment that is going to make it or not.”

Before joining Oak Ridge in 2015, VanderWerp spent nearly three decades in the bond market, often trading riskier, high-yield credits, and became an expert in municipal debt. “Our basic function is to find funding solutions for public and charter schools, private schools, small community hospitals, not-for-profit senior living facilities,” VanderWerp told me. In the 2015-16 fiscal year, he said, Oak Ridge was the No. 1 issuer, by total schools, of charter-school debt in Michigan.

Carver’s debt made no sense to VanderWerp: $6.5 million of debt on a building that’s surrounded by public-housing complexes, in a place where 49 percent of people live under the poverty rate. “The crime rates are high, there are vacant buildings everywhere,” VanderWerp said. “I think you’d readily agree that that building and land isn’t worth $5- or $6 million. Quite candidly, it’s probably worth $500,000 or $600,000.” He said charters often entered bad deals because authorizers and school boards, which must approve loans, lacked a basic understanding of bond finance. “The vast majority of Michigan authorizers don’t have anybody in-house who understands bond financing or researches it, even to the point of becoming a novice,” he said. “And in my experience, they rarely say no.” (Carver’s authorizer was Central Michigan University at the time of the building purchase.)

At the same time, banks and hedge funds, Miron told me, profit greatly from the charter sector, thanks to large tax breaks dating back to the Clinton presidency that benefit investors in schools located in struggling “renewal communities.” And with so many eager lenders and bond underwriters lined up, E.M.O.s realized they, in turn, could make money from one of the largest expenses charter schools face. “A bunch of them thought, Wow, I can start a real estate division!” VanderWerp said. “We’ve run into this all over the place”: E.M.O.s buy buildings “for a couple hundred thousand bucks, lease them to the school for a couple of years and then sell them” to the school “for a few million.” In Michigan, 80 percent of charters are currently operated by for-profit E.M.O.s. The state’s largest E.M.O., the Grand Rapids-based National Heritage Academies, operates 84 charters in nine states and has been criticized for charging wildly above-market annual rents to its schools: A Detroit Free Press investigation found that 14 National Heritage schools in Michigan pay the company $1 million or more.

VanderWerp is pro-charter school: “I love to see people compete to teach kids and shake up the norm,” he says. But he finds the Michigan model deeply flawed. In Minnesota, he points out, a school must wait five years before purchasing a building, in order to demonstrate a proven track record. Michigan has no such rule, which was why Carver was able to purchase its building after a single year of operation. According to a 2015 study, Michigan was the state leader in charter-school bond defaults, responsible for more than a third of the nationwide total. In his own practice, VanderWerp makes sure the buildings being financed have intrinsic value, so they can be converted into offices or apartments if the charter school fails. “It’s a real estate investment,” he says, not “an investment in a business that has to stay afloat to pay a real estate loan.”

For years, the ultimate proof-of-concept for charter-school advocates in Michigan has been Detroit. Sprawling, billions of dollars in debt, four emergency managers in eight years, some of the worst academic markers in the country: The sheer scale of the school district’s problems has made Detroit an irresistible lure for reformers and profiteers alike. Last year, before her Department of Education nomination, Betsy Devos wrote an op-ed in The Detroit News calling for the wholesale dissolution of Detroit’s public-school district in order to “liberate all students.” But more than half of Detroit students already attend charter schools, and studies have found these schools, on average, to be either as poorly performing or only marginally better than the public schools long called a national disgrace. The Detroit charter Hamilton Academy is one school cited in a class-action lawsuit claiming a “persistent, systemic and deliberate failure” by the state of Michigan to provide Detroit schoolchildren “their constitutionally guaranteed fundamental right of access to literacy.” According to the lawsuit, when a math teacher at Hamilton abruptly quit, the highest-performing eighth-grade math student taught seventh- and eighth-grade math for a month; the lawsuit also asserts that during the first week of the 2016-17 school year “temperatures of over 100 degrees caused students and teachers to vomit and pass out.” (A spokesman at Hamilton Academy denied both allegations and said the school had never been contacted by anyone associated with the lawsuit.)

For many students in Detroit, this unruly new education sector has made the vaunted ideal of “choice” a question of least-bad options. One afternoon, I had coffee with Aleka Simmons, a senior at the Jalen Rose Leadership Academy, a Detroit charter school, and her mother, Caprice. Aleka had attended another charter, the University Yes Academy, since middle school. Her freshman year, she told me, U.Y.A. expanded to include kindergarten through sixth grade, but the building wasn’t big enough to house all of the students. The school buses became so crowded, six kids would squeeze onto a seat. (Aleka posted photos online, and it became a local news story.) For part of her junior year, all 11th-grade classes were held off-campus, in the basement of Detroit’s African-American history museum, “one big room with wall dividers,” she said. The school explained the move as a “multicultural experience,” Caprice said, but she was convinced “it was really just a space issue.” And then the academy’s high school abruptly closed in August 2016, less than a month before the start of Aleka’s senior year. She and her classmates all had to scramble to find new schools. Aleka had made a couple of friends at Jalen Rose, but at U.Y.A., she said, “I had three best friends — we all had 4.0 G.P.A.s, and we were always together — and we all wound up at different schools. We thought we’d be going to prom together, but now we have a hard time even seeing each other.”

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