Primavera charter CEO gets $8.8M despite having Arizona's third-highest dropout rate

Craig Harris | The Republic | azcentral.com

Show Caption Hide Caption Primavera online charter school spends big on ads, CEO pay Primavera online charter school has a student-teacher ratio of 215-to-1, its test scores lag state averages, and about half of its students drop out.

The online school's student body has doubled, to more than 20,000, over the past decade.

As it has grown, the school has diverted large shares of its education funding to investments.

Primavera last fiscal year gave its CEO an $8.8 million "shareholder distribution."

Corrections & Clarifications: This story has been updated to provide additional information about Primavera's student-teacher ratio.

By most academic measures, Primavera online charter school is a failure.

Its student-to-teacher ratio far exceeds that of traditional public schools, according to state records.

On recently released state standardized tests, less than a quarter of its students passed math and about a third passed English, both below the state average.

And 49 percent of Primavera students end up dropping out, 10 times the state average.

But by another measure, Primavera is an unmitigated success: making money.

Beginning in 2012, the school began shifting large shares of its annual $30 million-plus allotment of state funding away from instruction and into stocks, bonds, mortgage-backed securities and real estate.

That year, 70 percent, or $22.4 million, of its state funding went into its growing investment portfolio — instead of efforts to raise test scores, reduce class sizes, or address an exploding dropout rate that is now the state's third-highest.

By 2015, the Primavera investment fund had reached $36 million. Then, the business went private.

Damian Creamer, the school's 48-year-old founder and chief executive, later got an $8.8 million "shareholder distribution" from the for-profit company that now runs Primavera, an audit filed with the Arizona State Board for Charter Schools shows.

The payment exceeded by $4 million the combined compensation of the school's 94 teachers.

With the payout, Creamer's compensation was 39 times the salary of the superintendent of Mesa Public Schools, the state's largest public district. Primavera's student body of 20,210 is less than one-third the size of Mesa's.

It also would have made Creamer the ninth-highest-paid CEO among Arizona's publicly held companies in 2017.

Creamer and Primavera's executive director, Andrew F. Szczepaniak, both declined to be interviewed.

Arizona Gov. Doug Ducey deflected when asked about Creamer's pay. The focus, he said, should be on whether charter schools serve families and meet or exceed educational standards.

"I’m not concerned about the CEO," said Ducey, a former Cold Stone Creamery CEO who received $8,000 in campaign contributions from Creamer and his wife. "That is of very little interest. I'm concerned about the child and the parent and what the child is equipped to do after 12 years of education."

Curt Cardine, a former charter school executive who has become a watchdog with Phoenix-based Grand Canyon Institute, said he believes Primavera's transactions are allowed under Arizona's charter school laws. But, he added, they're "not ethical."

"I think the public would think it's wrong," he said. "The whole philosophy behind this is that greed is good."

Gary Miron, a professor in Western Michigan University's Department of Educational Leadership, Research and Technology, said Primavera is typical of online schools, which have become known for spending little on instruction while turning large profits for charter operators.

"They save money because they don't have facilities, hot-lunch programs, student-support services and extracurricular activities," said Miron, who co-published a national study of online public schools in May.

"They should be putting their money into reducing student-to-teacher ratios, so it's like 10-to-1. But they go the other direction."

Brick-and-mortar to online, non-profit to for-profit

Creamer founded Primavera in 2001 as a brick-and-mortar charter school operated by a non-profit corporation called Primavera Technical Learning Center. Two years later, the school moved online.

Primavera serves students from sixth to 12th grade on a rotating block schedule, which lets students start new courses every six weeks, according to its website. It's designated as an alternative school.

Most students are part time, state records show. The school targets those at risk of not graduating for a number of reasons — they have behavioral issues, they are pregnant or have children, they are struggling academically in traditional public schools or have already dropped out. Primavera also offers curriculum for students with special needs, and those who want a flexible schedule so they can commit to long hours of athletic training.

The school offers students non-online activities: clubs, proms, graduation ceremonies.

It has proven to be a popular formula. Over the past decade, the student count has doubled, to more than 20,000.

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As it has grown, the school has diverted large shares of its education funding to investments.

By June 30, 2015, the investments had grown to $36 million.

The following day, Primavera transferred its charter to a private company.

The company, Flipswitch, paid more than $2 million to acquire the Primavera name, and it took on the school's assets and liabilities. Then, it began operating the online school as a privately held, for-profit subsidiary, American Virtual Academy Inc.

Corporation Commission records show Flipswitch (which in May changed its name to Strongmind) has one shareholder: Damian Creamer.

From the for-profit company, Creamer collected a $670,000 shareholder distribution in 2016 and an $8.8 million distribution the following year. Those payments would have been impossible under its previous non-profit status.

Federal tax forms filed for Primavera Technical, the non-profit, indicate it kept the $36 million in investments after handing the school charter over to the for-profit company. The value of that portfolio declined to $31 million by 2017.

The for-profit school continues to rent office space from the non-profit, which Creamer continues to run, according to the audit.

In 2017, Primavera spent $278,083 to rent offices from Primavera Technical. More than $500,000 was earmarked for rent through this fiscal year, audit records show.

"Just look at the numbers," Miron said. "You have to think of the consequences not only for the children, but for taxpayers when so much money is being siphoned off."

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Friendly board, lucrative deal

In May 2017, as the school year drew to a close, Primavera's three-member board met at the school's Chandler headquarters. Several executives were also on hand, including Mori Creamer, Damian's sister and the superintendent and chief operating officer of the now for-profit charter.

The first item of business was a proposal to renew an educational license agreement between Primavera and Flipswitch, which is next door to Primavera's headquarters.

Since at least 2008, Primavera had purchased software and materials from companies owned by Creamer.

The deal being considered at the May 2017 meeting would have Primavera continue to pay Flipswitch $150 per class for each middle school student it enrolled and $125 for each high school student, records show.

Primavera would also pay Flipswitch a share of its gross revenue from the state — 7 percent as technology fee, and 15 percent as an administrative fee.

The school's total state education allotment is about $44 million.

The fiscal 2017 contract resulted in Primavera paying Flipswitch nearly $25 million for curriculum, technical support, accounting and marketing — almost double what it had the year before.

Of the three board members tasked with scrutinizing the terms — Brian Johnson, Joe Jobe and Michael Steck — two had been recommended for their board seats by Creamer, board meeting minutes show.

Arizona charter schools are not required by law to have elected boards like district public schools.

RELATED: Mesa's online program educates students at 1/8th the cost of Primavera

The board was reminded that Creamer owned Flipswitch. But it was noted, according to board minutes, that the contract was "consistent with similar agreements in the marketplace."

The board members posed questions. But minutes of the meeting offer no detail of the discussion, and any questions were apparently answered quickly. Johnson, Jobe and Steck unanimously approved the no-bid contract and other business and adjourned in less than a half hour.

Efforts to reach board members were unsuccessful.

The board, which Creamer joined in 2017, met again this year to approve a budget. That meeting lasted six minutes.

'No way we could do that'

While Creamer's businesses runs on Arizona tax money, he owns a $2.3 million home in Scottsdale, a $1.6 million condominium in Summit, Utah, and a $2.9 million condominium in La Jolla, California, property records show.

Ashley Berg, the Arizona Charter Board's executive director, noted the Primavera deals and payments are legal under state law. The Legislature has exempted charter schools from the procurement or conflict-of-interest laws that apply to traditional public school officials.

For-profit entities like Primavera's parent company can make financial distributions like Creamer's $8.8 million payday.

"If there is money left over after services and instruction have been provided to the students, then the entity, within legal parameters, is able to do with the funds as they see appropriate," Berg said.

Joe Thomas, president of the Arizona Education Association teachers union, said Creamer's use of education funds to enrich himself is something teachers "would dream up in our darkest hours."

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Traditional school districts make short-term investments on certificates of deposit with virtually no risk and small financial returns, he said. But they don't play in the stock market because of the risks, and losing funds could lead to teacher layoffs.

Primavera has had years in which its investments lost money. In 2015, it lost $859,528, and in 2013, it lost $389,917.

Regardless, traditional school don't have cash lying around to invest, Thomas said.

"There is no way we could do that when we already are underfunded," Thomas said.

Spending little on instruction

Arizona funds online charter schools at between 85 percent and 95 percent of the standard per-pupil funding formula.

Primavera, like other online schools, gets paid based on the number of full-time students it has, which was 6,378 in fiscal 2017. Four class credits equal a full-time student — even if it's four students who each take one course.

There is no minimum amount of state funding that charter schools must spend on instruction. Once the state cuts the check, charter officials can spend the money as they choose.

Only 11 percent of Primavera's state funding goes toward instruction. Traditional public schools, meanwhile, spend nearly 54 percent of their budgets on classroom instruction, according to the state Auditor General.

And Primavera spends almost as much on marketing, buying ubiquitous Phoenix-area billboard ads, as it does on instruction. Its marketing budget consumes 9 percent, or $4.1 million, of its funding, records show.

However, Primavera's teacher pay is above average. With a 10 percent pay increase this school year, salaries will average $53,443, budget records show. Arizona teacher pay averages $52,725.

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But Primavera has not spent money to address the significant academic challenges of its students, records show, even as the school's dropout rate has exploded, reaching 49 percent.

The state's other online charter schools, which also attract at-risk students, had an average dropout rate of 11 percent, records show. The average dropout rate statewide is 4.84 percent.

"These schools ... get people in the door but they are not keeping the students," Miron said. "But they are profitable because they are funded on head count. If they get them in the door, they are funded."

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Some Arizona online charters take steps to ensure students, even when they leave, aren't falling through the cracks.

Arizona Virtual Academy, the state's second-largest online school with 5,767 students, and Insight Academy of Arizona, with 2,002 students, are both part of K12 Inc., a national publicly traded online school in more than 30 states.

When a student leaves either of the schools, officials follow up to determine where the child will be enrolled to make sure the students continue their education, said Kelly Van Sande, head of the two schools.

Primavera also has not invested in reducing its student-teacher ratio, which varies depending on what enrollment figures are used.

Charles Tack, state schools associate superintendent, said the most common way to calculate student-teacher ratios is to take the total number of students and divide by the total number of teachers.

By that measure, Primavera in 2017 had a student-to-teacher ratio of 215 to 1. (Total enrollment of 20,210 and 94 full-time equivalent teachers.)

The online charter school also reported "average daily membership" — defined as average enrolled throughout the school year — of 6,378 that year, which would yield a ratio of 68 to 1.

It's worth noting that Primavera's students may take only one class at a time, complicating comparisons with traditional brick-and-mortar schools where students typically are in class all day.

(After this story was originally published online Aug. 22, Primavera sent its first statements to The Republic, after having declined multiple earlier requests for comment. Primavera Principal Donald Mitchell said Primavera has a 35-to-1 student-teacher ratio. Spokesman Jason Rose said that is because the school hires additional adjunct faculty to keep the ratio low. The school provided no documentation to support this claim. To see more about Primavera's response, click here.)

Traditional Arizona public schools, which can count all certified teachers in a building even if they are not teaching classes, have 18.5 students per teacher.

Based on state records, Primavera's class sizes stand out among online schools, said Miron, the Western Michigan professor. His research found virtual schools nationwide have average classes of 45 students.

Arizona Virtual Academy and Insight Academy of Arizona had a teacher-student ratio of 32-to-1 during the 2017-18 school year, Van Sande said.

The number of Primavera students passing the state's AzMerit standardized test in English, math and science was below the state average, but was in the middle of the pack compared with other virtual Arizona schools, records compiled by The Republic show.

'Large profits,' little 'public oversight'

Chuck Essigs, government relations director of the Arizona School Association of Business Officials, called it "disgusting" that scarce education funds have enriched Creamer instead of improving the education and futures of its students.

Outside of charter schools, he said he knows of no other situation in Arizona "where public dollars are allowed to be used to make large profits for an individual without public oversight."

"Every time traditional public school districts try to get some legislation to make the playing field more fair, they trot out their highly paid lobbyists and the legislation gets stopped in its tracks," Essigs said.

But Eileen Sigmund, chief executive of the Arizona Charter Schools Association, said focusing on charters' finances misses the point.

"These operational dynamics are a distraction from what matters most: academic rigor and quality," she said. "As the brand-new AzMerit scores attest, Arizona charter students of every ethnic group are outperforming their statewide peers."

Sigmund, like Gov. Ducey, declined to answer whether Creamer's $8.8 million payout, or diverting education funds to numerous investments, is a proper use of state education funds.

She did say it appears the school "actually saved money" through related-party transactions, though she did not elaborate.

Without open bidding and disclosure of the terms of its contracts, it's impossible to determine whether Primavera saved money by doing business only with Creamer's companies.

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State Schools Superintendent Diane Douglas, who lost her re-election bid, said Primavera's deals merit more scrutiny. Oversight of such transactions should be "legislated effectively and appropriately," she said.

Douglas sits on the 11-member Arizona State Board for Charter Schools, with most of the board appointed by Ducey. In 2016, it renewed Primavera's contract to operate for another 20 years.

ABOUT THIS REPORT: Throughout 2018, investigative reporter Craig Harris examines the finances of some of Arizona’s most prominent charter schools to reveal how they spend the tax dollars they receive, who profits off the operations, and what those deals mean for the future of education.

Reach the reporter at craig.harris@arizonarepublic.com or 602-444-8478 or on Twitter @charrisazrep.

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