San Francisco Chronicle - (Sunday)
Quandary for charter schools that took loans
WASHINGTON — Charter schools in the Bay Area received tens of millions of dollars from a federal coronavirus relief program intended for small businesses, money they say is necessary to stay afloat amid the pandemic.
The schools are alternatives to traditional public schools and are exempt from many state regulations related to class size, curriculum and teacher tenure, yet still receive state funding. Some of the Bay Area charters that got federal bailout money are also backed by Silicon Valley billionaires, and the board chairman of one school conceded that taking the aid could be an “optics issue.”
It’s the latest instance of the federal Paycheck Protection Program coming under scrutiny for giving money to businesses that fit the letter of the law, but which don’t fit the traditional notion of a small business. Among aid recipi
ents were Shake Shack, the owner of Ruth’s Chris Steak House and the Los Angeles Lakers basketball team, all of which gave back the money after it was reported that they were beneficiaries.
But some Bay Area charters say they are well within the spirit of the program. Many teach students from lowincome or lesserserved communities, and they say they will accept any resource that keeps their teachers paid and schools open amid uncertainty about state education budgets.
The federal aid is in the form of lowinterest loans that recipients don’t have to repay if they meet certain requirements, including keeping all their employees on the payroll. During the initial window for loan applications in May, Bay Area charter schools received funds from the program in amounts ranging from a few hundred thousand to several million dollars.
Fourteen charter schools or chains in Oakland combined to receive roughly $20 million from the program. They included Education for Change, which runs six schools in the city and received $5.25 million, and Lighthouse Community Public Schools, which has two campuses and got $2.3 million.
Eight charter schools or chains in Santa Clara County combined to receive roughly $20 million. All but one received at least $1.5 million. Summit Public Schools, which has three schools in the county and a total of eight in the Bay Area, received $6.8 million.
At least two schools in San Francisco received loans. San Francisco Creative Arts Charter School got nearly $600,000. Envision Education’s City Arts and Tech High School also received a loan, but says the money will go to its consulting business — not the school that is supported by public funds. It did not divulge the amount it received.
And the St. Hope charter schools in Sacramento, whose board is chaired by school choice advocate Michelle Rhee and which was founded by her husband, former Sacramento Mayor Kevin Johnson, received more than $1.5 million.
Some of the loans were first publicized by Parents United for Public Schools and In the Public Interest, which oppose charter schools and the privatization of education. The Chronicle independently verified their research and conducted its own.
Traditional public schools are not eligible for the Paycheck Protection Program, and statefunded charter schools’ access to the loans raises questions among their critics about fairness.
“Because charter schools are currently receiving full funding as public schools intended to maintain employees, while at the same time receiving funding as private entities that are also intended to maintain employees, taxpayers are left covering what appears to be the same bill twice,” the groups said in a report questioning whether Oakland schools were “double dipping” on funds.
Some of the charter schools say they need the money to maintain their programs. While none has had state funding cut yet, they argue the uncertainty over falling tax revenue and increased demands on schools amid the pandemic creates a murky enough fiscal future that they need the lowinterest loans.
St. Hope’s chief of schools, Kari Wehrly, said the schools are expecting a coronavirus-related budget crunch. She also said the schools serve mainly lowincome children and students of color.
“We felt it was critically important to access available funding to help us keep teachers employed and avoid layoffs due to upcoming budget cuts,” Wehrly said in a statement. “It would be irresponsible for us to leave any resources on the table as we work to close the achievement gap and provide the best learning environment possible.”
That sentiment was echoed by Education for Change CEO HaeSin Thomas, who said the schools serve a “very vulnerable community” where many families have lost their jobs.
“They cannot afford instability in the form of fewer services and unstable cash flow,” Thomas said. “This community deserves so much more, not less. I don’t feel I can walk away from any resources that I can secure for my community.”
Charter schools have long been controversial. Supporters say they can help spur innovation in education, keep traditional schools competitive, and offer parents choices about how to teach their children. Critics argue they siphon resources from public schools that serve neighborhoods better, and say Republicans have pushed school choice as a way to undermine public financing of education in lowerincome areas.
Rhee has been a central figure in the debate for years. Supporters have heralded her as a vanguard reformer of teaching. Others, including teachers unions, say she vil
ifies public schools and senior educators. Rhee is a Democrat, but met with President Trump when he was first elected and was briefly considered as a candidate for education secretary, before taking herself out of the running.
Charter schools in California are funded through the same formula as traditional public schools. The state budget deal approved by the Legislature on Friday holds funding for traditional public schools steady, though it defers nearly $13 billion to future years, meaning districts could borrow against it or dip into reserves and await state repayment.
Some charters, however, also have wealthy benefactors and fundraising not available to traditional schools.
A 2018 tax document for Summit Public Schools, for example, showed it received $48.5 million in nongovernment funds, and had nearly $35 million in net assets at the end of the year. Its Summit Learning teaching platform has the backing of the ChanZuckerberg Initiative, led by Facebook founder Mark Zuckerberg and his wife, Priscilla Chan. Its yearend summary from last year showed donors also included the Bill and Melinda Gates Foundation, Bloomberg Philanthropies and the Silicon Valley Schools Fund.
Board meetings of the charters posted online reveal an internal debate even within some of the schools over
whether to take the federal bailout money. During a May 6 meeting of Summit Public Schools, CEO Diane Tavenner presented the decision as fraught.
“I know it’s not a completely ... a nobrainer, but I do think it’s the right decision,” Tavenner said. “I think the benefits far outweigh the risks at this point, and I’m confident that we will use this money in the way that it’s intended, and that our use will stand up to any future program or public scrutiny.”
But board member Blake Warner, an investment banker and merger and acquisition specialist, noted the risk “is boiling up to be one really big PR battle.”
“I can’t really opine on the charter school versus not charter school war being waged in California ... but I do think that since PR is 90% of the issue, that is a pretty significant consideration,” Warner said. “It’s the court of public opinion that
seems to continue to prevail in this environment, and so we need to be extraordinarily cautious.”
Ultimately, the board voted to take the loan, with Tavenner saying that under the “worstcase scenario,” it would be paid back. The school declined to comment further.
In a May 13 meeting of Education for Change’s board, Mike Barr, a financial consultant, noted that “we are all facing massive economic uncertainty going into next year.” Barr and board Chairman Nick Driver advocated taking the federal money as a “cheap form of cashflow financing,” as Driver put it. Driver conceded, however, that “the optics issue” was deterring some charter schools from applying for the money.
“I freaking welcome that conversation,” Barr said, adding that charter schools have not gotten as much as school districts over the decades and usually face higher interest
rates when borrowing money.
The amounts received by many charter schools were accessible to The Chronicle because of a 2019 California law requiring that minutes of their board meetings be open to the public. But there is not yet a public national database of businesses that have received Paycheck Protection Program funds — something congressional Democrats led by House Speaker Nancy Pelosi of San Francisco have urged the Treasury Department to publish.
Sen. Kamala Harris, DCalif., introduced legislation Thursday that would require a public database. The Treasury Department recently pledged to create one, but has no estimate of when it will be available.
Pelosi previously called on large companies, including major San Francisco landlord Veritas, to return their federal smallbusiness loans, but she declined to comment on the funding for charter schools. Harris also declined to comment.
Gov. Gavin Newsom’s office declined to comment, beyond noting that it was up to the federal government to decide who gets the money and that keeping Californians employed was important.
Scott Roark, spokesman for the California Department of Education, said the agency was “reviewing the eligible expenditures of the loan funds and
how they interact with what the schools are receiving in state aid,” but referred all further questions to the federal government.
The Alameda County superintendent of schools said her office was reviewing the situation as well.
“We requested information on the PPP funds that have been dispersed to authorized charters,” Superintendent L. Karen Monroe said in a statement. “That information will be incorporated into upcoming financial reviews.”
UC Berkeley sociologist Bruce Fuller, who has studied charter schools for decades, said the issue speaks to a “longterm irony” of the system.
Charter schools “declare themselves as beacons of innovation, as showing how market competition can improve public schools, but then the instances arise where they basically benefit from being politically connected or politically powerful,” Fuller said. “It just is startling that charters that are supposed to be these beacons of market players actually benefit from federal largess in ways that regular public schools cannot.”