For-profit management companies are receiving rents from the Ohio charter schools they operate that are significantly higher than rents of comparable buildings in the same area, according to a report released by former state auditor Dave Yost.

Cincinnati charter school Orion Academy paid $867,000 more to lease its facilities in 2016 than what was paid for comparable buildings in the area, according to a recent state auditor’s report.

In 2015, Cleveland-based Harvard Avenue Performance Academy paid about $516,000 above market value for its facilities.

That taxpayer money went to subsidiaries of the schools’ for-profit management companies, National Heritage Academies and Imagine Schools. Imagine became non-profit in mid-2015, and the numbers account for only one year of multiyear leases.

The payments were highlighted by former state Auditor Dave Yost who, in one of his last acts before switching offices to become Ohio attorney general, issued a 30-page, public-interest report examining problems with the way charter schools obtain and pay for their facilities.

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Shortcomings in Ohio law and a lack of oversight and support for charter schools “have allowed private companies to enter into questionable lease agreements with (charter) schools to their advantage at the expense of those schools and the Ohio taxpayers,” the report said. “A combination of those factors … have afforded private parties an avenue to exploit (charter) schools, diverting public dollars away from students.”

The report, sent to lawmakers and the Ohio Ethics Commission, also noted that Ohio charter schools face unique challenges in their ability to obtain facilities, some resulting from a lack of state funding.

In 2015, 77 percent of charter schools leased their buildings.

Yost looked at lease agreements with eight schools managed by National Heritage, 13 by Imagine Schools and 17 by Concept Schools. His office found that the average rent paid per pupil ranged from $1,472 at Concept to $2,325 at Imagine, considerably higher than the $848 paid by a random sampling of six other Ohio charter schools not under a management agreement.

As a result, Yost’s report says, schools under those three management companies are spending more than twice as much of their state revenue on facilities as the sample of other charter schools — and for Imagine, it was triple the amount.

“This is public money spent on rent rather than student education,” the report said.

For National Heritage and Imagine, the payments are going to their affiliate companies.

The report noted that when Harvard Avenue Performance Academy in Cleveland dropped Imagine as its management company at the end of 2015, it entered into a new lease, without Imagine-affiliated Schoolhouse Finance as a middleman. The rent payment was 26 percent lower, saving the school nearly $240,000 per year.

When the company started operating schools in Ohio, Imagine worked to “secure high-quality facilities that would enhance the educational experience of the students served,” spokeswoman Rhonda Cagle said.

Schoolhouse Finance, she said, funded all upfront costs and assumed the long-term risk.

“We did so at market costs at that time, primarily in the 2006-2008 time frame, and entered into commercially reasonable lease arrangements that reflected the size and quality of each special-purpose school facility, the credit quality of the school tenant and the market conditions at the time each lease was entered into,” Cagle said.

The $200 per pupil the state gives charter schools for facilities only covers about a quarter of the actual cost, said Chad Aldis, vice president for policy and advocacy for the Thomas B. Fordham Institute, which sponsors a dozen charter schools. That, he said, allows deep-pocketed entities affiliated with for-profit management companies to do leases “that end up not being friendly to the charter school. It’s extraordinarily harmful.”

Charter schools that are already operating with less money than traditional schools should be looking for the best facilities deals possible, Aldis said.

“Unfortunately, because of the funding situation, going through an operator can be the only feasible method for a charter school to secure the money necessary for a facility,” he said.

Of Fordham’s schools, eight own their own facilities while four lease.

Yost also noted that charter schools in Ohio can be risky tenants because so many close. Of the 601 charter schools that opened since 1997, 260 shut down, a 43 percent closure rate.

William Phillis, executive director of the Ohio Coalition for Equity & Adequacy of School Funding and a longtime charter school critic, said management companies are turning a profit while kids lose.

“The auditor’s report findings are not surprising. These schemes have been reported widely without much, if any, response from state officials,” Phillis said.

A wide-ranging charter school law upgrade that passed in late 2015 included a provision that prohibits an operator from leasing property to its school until an independent real estate professional verifies the lease is “commercially reasonable.”

But Yost’s report said a number of problems still need to be addressed by lawmakers:

The bidding process. Traditional schools are required to follow bidding procedures, but the law does not apply to charter schools when they are seeking facilities to lease or purchase.

Lack of facilities funding. Charter schools cannot access many of the funding options available to traditional districts to make large purchases.

Conflicts of interest. National Heritage and Imagine have direct financial interest in the companies used to lease facilities to their schools. The company leasing buildings to Concept-managed schools have employees that also serve on the schools’ boards.

School districts cooperation. Traditional schools often view charters as competition, with the state funding system acting as a disincentive for districts to lease or sell buildings to them. Ohio law does not encourage cooperation.

Leasing term loophole. Debt terms for charter schools are capped at 15 years, but there are no restrictions on lease terms, and some are signed for 30 years.

Weak school boards. Clauses in for-profit management contracts of National Heritage and Imagine delegated to them various power in regards to choosing a facility. This can “blind the board” to conflicts of interest. The similar lease terms across National Heritage schools, the report noted, “offer evidence that minimal negotiations were performed by the school’s boards … ”

Yost's report also said the state doesn't require enough transparency from charter operators, allowing them to “develop shady practices which skirt community school compliance regulations.”

Sen. Peggy Lehner, R-Kettering, a leading legislative voice on education, said she had not yet seen Yost’s report but has been aware of the leasing issue.

“It’s kind of a two-edged sword, because when they have to come up with their own (building agreements), and schools have a particular type of configuration they need and it’s somewhat limited, I’m sure the suitable market is somewhat restrained,” she said. “They aren’t going to get the best deal at all times.”

But, Lehner said, if the management companies are signing lease agreements that weigh heavily in their favor, at the expense of their schools, that is concerning.

“It’s probably one of those things that ought to be looked at," she said. "I’m not going to say for sure that it will, because there are so many things we need to focus on.”

jsiegel@dispatch.com

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