Arizona charter school founder makes millions building his own schools

When Glenn Way moved to the East Valley at the end of the Great Recession, he might have been looking for a fresh start.

The charter school operator was deep in debt to the IRS, had sought bankruptcy protection, and recently resigned from the Utah Legislature after his wife filed a protective order against him, public records show.

Arizona offered other opportunities for someone in his line of work: A more lightly regulated charter school industry that's well-funded.

At his American Leadership Academy, which he launched in June 2009, he promised students would find "the best educational experience ... in a moral and wholesome environment."

Thanks partly to Arizona's favorable charter school laws and lucrative no-bid contracts with ALA, Way would find new wealth.

The schools, which have made patriotism central to their brand, including red, white or blue student apparel, have been a hit in the conservative East Valley. American Leadership — which bears the same name as a charter school Way and his wife, Shelina, operated in Spanish Fork, Utah — has over nine years grown to a dozen campuses with 8,354 students in Florence, Gilbert, Mesa, Queen Creek and San Tan Valley.

Way's own development and finance companies bought the land and then built most of the school buildings. Then, they sold or leased them to American Leadership Academy, where Way, until last year, was board chairman.

An Arizona Republic review of property records shows that during ALA's nine-year expansion, businesses owned by or tied to Way made about $37 million on real estate deals associated with the schools — funded largely by the Arizona tax dollars allocated to his charter schools.

Way disputes the profit figure, saying undisclosed capital costs tied to the campuses, such as street improvements, trimmed profits to $18.4 million. He did not provide documents to show a lower profit.

But building and selling the schools weren't the only ways he has profited. Another one of Way's firms is paid at least $6 million a year to operate them under a contract with American Leadership, records show.

An Arizona charter schools watchdog said regardless of the precise size of the multimillion-dollar profit, it's clear that Way has profited handsomely — like other charter operators — using Arizona's loose charter school laws.

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Meanwhile, the Arizona State Board for Charter Schools is investigating allegations of financial mismanagement at ALA.

Way said there has been no wrongdoing.

"Charter schools were not designed for people to make a profit," said Chuck Essigs, government relations director of the Arizona School Association of Business Officials.

Way disagrees.

"The (charter school) law is silent on the question of profit, and for good reason. Arizona families will only benefit if more operators of quality charter schools are enticed to expand their offerings in our state," said Way, who is building a home in Queen Creek valued at nearly $1 million.

It's a debate that comes during a period of rapid expansion for charter schools, aided by increased per-student funding from Arizona lawmakers, even as they've cut dollars to traditional public schools since the recession. Tension over education funding has become a hot-button issue, prompting tens of thousands of public school teachers to stage a six-day walkout this spring.

Build and flip

Until it undertook plans for a gleaming campus in Gilbert in 2016, American Leadership's expansion had generated little controversy.

The location, on 42 acres near Loop 202 and Higley Road, was coveted by both the Higley and Gilbert school districts.

Higley district officials told the Gilbert Town Council that it should have first dibs on the land, which is within district boundaries. Gilbert Public School officials complained that a new kindergarten through 12th-grade charter school would poach their students — and money from their budget.

The council rebuffed the traditional public districts and annexed the land, which was owned by an investment company, allowing Way's firm to build the campus.

Property records show Schoolhouse Higley, an entity under Way's Schoolhouse Development company, paid $11.25 million for the land in November 2016, and secured a $36.1 million construction loan in March 2017. The school opened months later, in time for the 2017-18 school year.

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Way's big payday came in November 2017, when American Leadership bought the campus from Schoolhouse Higley for $62.5 million — a roughly $15 million profit or about a 32 percent markup.

Way said the actual profit was closer to $8.5 million, after other expenses were paid. Gilbert reimbursed the developer $829,000 for street improvements.

"Considering the multimillion-dollar financial risk taken by myself and other investors, a 14 percent gross profit is reasonable and comparable with other projects this size," he said.

Way had used the build-and-flip approach at ALA's other campuses, starting in 2012 in Queen Creek.

American Leadership last year borrowed $192 million to buy several of its campuses from Way's firms. That's on top of nearly $25 million it borrowed in 2015 to buy schools, loan records show.

American Leadership is repaying those loans largely with state tax dollars it gets based on the number of students who enroll in its charter schools. If ALA's enrollment declines, it may not have the money to repay the debt, which runs through 2052, or other obligations like teachers' salaries. But Way's construction company has already been paid.

Way said he has had no problem recruiting kids to attend ALA.

"Our families view American Leadership Academy as an extension of their own homes because they know we provide a safe, structured environment where their traditional values are reinforced rather than undermined," Way said. "ALA students receive the rigorous, individualized education of a premier charter school, but we couple that with the full range of performing arts, athletic and extracurricular activities typically only found in large school districts.

What the law allows

Arizona imposes fewer restrictions on and demands less oversight of charter schools than almost any other state.

Charter schools receive up to $2,000 more per student than traditional public schools to help defray building costs because charters can't ask local voters for construction funding.

And the law exempts charter schools from procurement rules, allowing operators to maximize their personal profits. This means charter operators can hire themselves, family members or related businesses to build schools and manage them, including hiring teachers, and furnishing other services.

American Leadership, with Way as its chairman and president, has awarded multiple no-bid, lease-to-purchase contracts to Schoolhouse Development, Way's charter-school development business.

American Leadership also purchased five schools from Schoolhouse Development business, another from a joint venture involving Way, and yet another from Portfolio Charter Fund, a finance company in which Way has a minority interest.

The final sales price for each school was marked up at least 14 percent, according to records and Way.

Way also received a payout from American Leadership for "sweat equity" when ALA bought three schools from developer Education Capital Solutions. The amount of the payment was not disclosed.

Another Way business, Schoolhouse Gilbert South, leases a Gilbert elementary school to American Leadership for $1.12 million a year, records show.

And American Leadership gave no-bid contracts to Way's management and hiring companies, which oversee and hire teachers to staff American Leadership classrooms.

Charter One, which Way formed last year with two other former ALA executives and their attorney, receives at least $750 per student to provide American Leadership Academy with development, operational, academic and financial services. The company receives a $250 bonus for every student who passes the AZMerit statewide achievement test.

The contract, worth at least $6 million a year, is similar to the no-bid management deal that Basis Charter Schools Inc. gave a company owned by that chain's founders.

Way stepped down as American Leadership's chairman on June 30, 2017.

American Leadership's no-bid deals with Way would be prohibited if they had occurred at a traditional public school.

"Do you think it's appropriate to develop charter schools and make money? Absolutely," Way said. "It's no different than building a Walmart, CVS or Walgreens."

But Essigs, the public school business executive, said there are time-tested reasons why traditional public school officials must adhere to Arizona's 112-page state procurement manual, which requires bidding for construction projects and other contracts: They protect taxpayers from being overcharged.

"It's public money, and you have a fiduciary responsibility to make sure you are getting value," he said.

Charter Board investigation

While Way stands behind his business dealings, the state Charter Board is investigating allegations of financial mismanagement at American Leadership.

Jim Hall, a former public school administrator who leads Arizonans for Charter School Accountability, triggered the inquiry after making written allegations to the Charter Board last year.

Hall analyzed financial records American Leadership submits to the Charter Board and the Internal Revenue Service, and claimed the charter had "significant errors and omissions that could be hiding millions of dollars in waste and possible fraud."

Ashley Berg, the Charter Board's executive director, confirmed an investigation is in progress.

She said if the claims are substantiated, the board could note on its website that American Leadership is out of compliance. Depending on its findings, the Charter Board also could take away 10 percent (about $4 million) of American Leadership's state funding or revoke its charter, effectively putting American Leadership out of business, she said.

Way said American Leadership has filed a response to the allegations. Way did not respond to repeated requests to provide a copy of ALA's response.

Way said Hall has a vendetta against his school and other charters, and has engaged in a multiyear effort to mislead the public about charter schools.

"He is not a credible source on our organization or charter schools generally," Way said.

'Related-party transactions'

Way did not vote on the deals that benefited his companies, and he disclosed his conflicts of interest, according to American Leadership's board records.

Four former board members — Jeremy Christensen, David Erickson, Richard Moss and Paul Sinclair — on April 26 signed affidavits "to clarify and further define related-party transactions" involving Way. The affidavits were signed after Hall filed his complaint, triggering the state Charter Board investigation.

The affidavits stated that Way, since early 2011, had disclosed conflicts of interest to the board and avoided voting on issues that benefited his companies.

Three of the board members who submitted affidavits have financial ties to Way. Christensen is an American Leadership executive. Moss works for Way and is building his home. And Sinclair, who is Way's brother in law, received an interest-free $6,500 loan from American Leadership on May 17, 2016, so he could submit a charter-school license application to the state.

Of the loan to Sinclair, Essigs, of the Arizona School Association of Business Officials, noted that state law prohibits a traditional public school district from loaning money to employees.

Berg, the Charter Board executive director, said charter schools can lend money to individuals or other entities, though it's uncommon. The Charter Board initially raised concerns about the loan because American Leadership in its annual audit did not disclose who had received the money.

The matter was resolved after American Leadership provided the Charter Board with the loan documents.

Low teacher pay

American Leadership's expansion has saddled the charter chain with $508 million in debt, which it's scheduled to repay through 2052.

Servicing that debt will cost roughly $15.5 million in 2018-19 — more than one-third of the $40 million in state funds ALA received in 2016-17, the most recent figures available.

After covering debt, overhead and operational costs, classroom spending — including teacher salaries — totaled $12.2 million, or 31 percent of ALA's budget, records show.

In contrast with ALA's most recent filings with the state, Way said ALA spends about $17 million on teacher salaries and benefits, which represents approximately 43 percent of all revenue.

Both figures are less than what traditional public schools spend in the classroom.

According to the state Auditor General, traditional public schools spend nearly 54 percent of their budgets on classroom instruction.

ALA's teachers earned, on average, $37,389 in 2016-17, according to state records. That's about $10,000 less than the average for traditional public schools.

American Leadership did not support the #RedForEd protests, in which tens of thousands of public school teachers staged a six-day walkout this spring to get better wages, even though it will receive additional state funding as a result.

The charter chain did not close during the walkout. ALA teachers who participated were required to take vacation time.

IRS, state tax debt

Way's transactions with American Leadership in recent years coincided with him writing large checks to pay tax debts.

In July 2014, he and his wife were released from their federal income tax debt after paying $226,160 to the Internal Revenue Service. Close to half of the debt was from 2006, when the Ways lived in Utah.

The Ways in April were released from an Arizona income tax lien after they paid $50,487 related to a 2012 debt, records show.

Way said his taxes are in order and there is no outstanding liability.

Since July 2016, when he still owed Arizona unpaid taxes, Way made $18,900 in political contributions, Federal Election Commission records show.

The recipients, all Republicans, included then-presidential candidate Donald Trump; U.S. Sen. Jeff Flake, R-Ariz.; Andy Biggs' and Debbie Lesko's successful campaigns for U.S. House of Representatives. Biggs and Lesko were major charter school supporters while serving in the Arizona Legislature.

An interest in charter laws

Before moving to Arizona, Way was a proponent of expanding charter schools in Utah.

As a lawmaker, he helped craft legislation governing Utah's charter school system and became a member of the American Legislative Exchange Council, a corporate-funded organization that develops model legislation and has been influential in Arizona school-choice policy.

Way's political career was cut short when his wife, Shelina, obtained a court-approved protective order against him on Sept. 4, 2002. Way was “restrained from attempting, committing or threatening to commit domestic violence or abuse” against his wife and their five children.

Way resigned from the Utah Legislature shortly after. The protective order was canceled a few weeks later, records show.

The couple reconciled.

“I have been married to my wonderful wife for 29 years. That relationship and partnership with her has yielded a family I treasure and a lifetime of personal and professional accomplishments,” Way said. "I am not interested in dredging-up a years-old personal situation that has no bearing on ALA schools in 2018."

In Utah, Way and his wife helped run a charter school, also named American Leadership Academy, about 45 miles south of Salt Lake City.

Rich Morley, executive director of Utah's American Leadership, said the Ways left Utah because Glenn Way wanted to expand his charter development company.

"They found an opportunity in Arizona," Morley said. "Utah, at the time, was a little more restrictive on charter school laws. …There was a cap, and they (state) were being a little more reluctant to approve charter schools."

Arizona imposes no limit on the number of charter schools a person or entity can operate. The Charter Board must approve all expansions, but it has done little to limit the industry's growth.

Way said he and his business partners have constructed 52 charter schools in Arizona, Nevada, Idaho, Utah and Colorado.

He said they took the risks to build many of the American Leadership campuses with no guarantee he would get paid. Until last year he ran the schools and American Leadership previously agreed to lease the facilities from him.

American Leadership got "a better deal than any other charter school we have developed," said Way, noting all of the sales were "at or below the property's independent appraisal" value.

"We are pretty comfortable with what we have done," Way said.

Bus failures, AIA probation

Way says American Leadership has no plans for further expansion in Arizona, where it promotes a curriculum focused on its core values of respect, accountability, integrity, service and excellence.

ALA has sought to appeal to the East Valley's Mormon community by playing up its ties to church-owned Brigham Young University. It uses BYU's independent-study curriculum for online classes, and touts that several of its administration members have graduated from the Utah school.

Amid its expansion, ALA has faced growing pains.

American Leadership is among the few charter organizations that provides students with transportation. But it had one of the highest bus-inspection failure rates in 2015 in Maricopa County and the state for public schools.

It failed 22 of 25 inspections that year — a fail rate of 88 percent — far above the state's overall bus inspection failure rate of 29 percent in 2015. (Some small schools or districts with a few buses failed 100 percent of their inspections.)

Meanwhile, the Arizona Interscholastic Association, the governing body for high school sports, has ruled that American Leadership's Gilbert high school is ineligible to compete in the playoffs for two years. The school was accused of recruiting athletes, a violation of AIA rules.

David Hines, AIA executive director, said the second year of the penalty can be removed if American Leadership upholds AIA bylaws.

Arizona: No. 1 charter state

Arizona gets high marks from charter school advocates because it provides operators with autonomy and encourages them to innovate, said Jeanne Allen, chief executive of the Center for Education Reform.

"When educators have the ability to be flexible and tailor work to students, and schools don't have to pay all their time and money on noneducation requirements, they tend to be more effective," she said. "When parents have more options to meet their needs, you have a recipe for success."

The organization, which gave Arizona an "A" rating in its recent national rankings, cited the lack of a cap on the number of charter schools and "a blanket waiver from all non-health and safety regulations that apply to traditional public schools."

Way sees Arizona's charter laws as offering a high risk-high reward opportunity that forces the schools to prove their worth. Otherwise, they can go out of business.

"Arizona law intentionally gives charter schools greater operational leeway, but couples this with a regulatory hammer faced by no district schools: Failing charters close down," Way said. "Charter schools don't benefit from an assigned attendance area. We must prove our worth every day and compete for each student."

Were American Leadership to be hit by such a "regulatory hammer" and close its doors, Way still would have made tens of millions of dollars building and selling the schools to the charter chain he founded.

Ricardo Cano contributed to this report.

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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