The More Things Change, The More They Stay the Same: Lease Agreements or Redlining?
Predatory Lease Arrangements Currently Allowed By Louisiana Charter School Law and Their Implications for Majority African American Communities
In the best of all possible worlds, our laws would be written to ensure that the greatest beneficiary of public funds would be the public as a whole. Unfortunately, laws are often written in such a manner to allow private entities to profit at the expense of the public. Since such arrangements are technically allowed by law, they may be considered legal. However, anyone slightly familiar with history knows legal does not always equate to just. That is the situation we have in Louisiana particularly in regards to the state charter school law. This law has allowed private companies, primarily from out-of-state, to establish what amounts to predatory lease arrangements which enable the private companies to profit at taxpayer expense with no discernible long-term benefit to the public. The current Louisiana charter school law appears to have abandoned a central tenet of previous law: that any asset purchased with public funds constitutes public property. This is still true for traditional public school systems, but not for most charter schools. Instead, according to Revised Statute 17: 3991, Section H:
Any assets acquired by a Type 1, 2, 3, 3B, or 5 charter school are the property of that charter school for the duration of that school's charter agreement. Any assets acquired by a Type 4 charter school are the property of the local school board. If the charter agreement of any Type 1, 2, 3, 3B, or 5 charter school is revoked or the school otherwise ceases to operate, all assets purchased with any public funds become the property of the chartering authority. Charter schools are to maintain records of any assets acquired with any private funds which remain the property of the nonprofit group operating the charter school. [Emphasis added.]
Please note only Type 4 charter schools—a type rarely authorized—stipulate that assets acquired by the charter school are the property of the local school board. For all other types of charter schools, assets purchased with any public funds become the property of the chartering authority. It’s important to recognize that “chartering authorities” are not limited to public bodies.
The language of this section appears to offer the public some degree of protection; however, it fails to actually do so. Lease arrangements allow private real estate companies to retain ownership of assets effectively purchased with public funds. In East Baton Rouge Parish, the effects of these lease arrangements have been profound. It is easier to illustrate how such arrangements work and the cost to the taxpayer by focusing on a couple of examples rather than speaking in generalities. Please understand these examples are not the exception to the rule. They illustrate standard practice for many charter schools.
CASE STUDY 1: South Baton Rouge Charter Academy
South Baton Rouge Charter Academy was authorized by the East Baton Rouge Parish School Board as a Type 1 charter. The school is overseen by the South Louisiana Charter School Foundation (SLCF). Its charter management organization is Charter Schools USA (CSUSA), a for-profit company which operates schools across the country. Charter Schools USA has a for-profit real estate affiliate, Red Apple Development LLC.
According to articles which appeared in the Baton Rouge Business Report in fall of 2014, Ryan Construction, a frequent partner of Red Apple Development, purchased the land for South Baton Rouge Charter Academy for $1.1 million and constructed the facility. Red Apple exercised its purchase options to buy the completed facility from Ryan Construction for $13.2 million. The school opened its doors for the 2014-2015 school year. SLCF’s 2015 Financial Statement indicates that the school entered into a 20-year lease agreement for the property. The same 2015 Financial Statement indicates that South Baton Rouge Charter had a capital lease payable in the amount of $13,954,059 with a total long term liability of $14,192,265. The accrued interest payable—$238,206—is for 2015 only. Interest would accrue each year over the 20-year term of the lease, dramatically increasing the final cost to the school.
The lease payments are made by the school, whose revenue is derived primarily from Minimum Foundation Program funds, a per pupil allocation consisting of federal, state, and local tax dollars. Clearly public funds are being used to pay for the construction of the facility plus interest. However, at the end of the lease term, neither the school nor the chartering authority—in this case, the East Baton Rouge Parish School Board—will obtain ownership of the facility. Red Apple Development retains ownership as the facility is being leased not purchased.
The benefit to Red Apple is exponential. It recoups the cost of the facility. It earns interest. And it adds an appreciable asset to its portfolio. Since no asset was “purchased by the charter school,” no asset is owed to the chartering authority, in this case the local school board. At the end of the lease agreement, Red Apple can continue to generate revenue by renewing the lease with the charter school or by leasing to another entity which offers more attractive terms, or it may sell the facility at the market rate. Red Apple has acquired an appreciable asset.
The cost to the community is profound. The community has been denied the ability to invest its tax dollars in infrastructure that could serve future generations. It instead has been conscripted into a financial arrangement that provides no long-term benefit to the community. As long as South Baton Rouge Charter Academy is in operation, its charter school board will be required to authorize the use of taxpayer dollars intended for educational purposes to pay rent to Red Apple Development. That rental payment will more than likely continually rise as it adjusts for inflation. This expense will far exceed the cost of the original investment in the building. The community has not only been denied an appreciable asset. It has incurred a recurring expense.
CASE STUDY 2: The Now Defunct Baton Rouge Academy at Mid-City, Red Apple Development, & GEO Prep
Baton Rouge Academy at Mid-City was authorized as a Type 2 charter by the Louisiana Board of Elementary and Secondary Education in 2013. Like South Baton Rouge Charter, the Academy at Mid-City was also overseen by South Louisiana Charter Foundation. Its charter management organization was also Charter Schools USA. Its facility was owned by Red Apple. It, too, had a lease agreement with a “CSUSA affiliate.” But in 2016, BESE voted to close the school on June 30, 2017 due to poor performance. Louisiana charter school law implies that BESE would have some claim to the building. However, current documents indicate that Red Apple continues to own and profit from the facility.
For the Mid-City school, Red Apple did not construct a new facility but purchased and renovated an existing facility. Red Apple refers to such projects as “conversions.” According to information on South Louisiana Charter Foundation’s 2014 Financial Statements, this conversion appears to have been valued at approximately $9.5 million. Nonetheless, Baton Rouge Academy at Mid-City entered into a 20-year lease agreement for the facility with annual payments exceeding $1 million and a long term projected cost of approximately $22 million. This lease agreement would ensure that Red Apple would recoup its costs, earn more than an additional $10 million in net revenue, and retain ownership of the facility, enabling it to continue to profit by charging the school exorbitant rent.
Charter school proponents often argue that market incentives such as this one will drive for-profit companies to improve educational offerings and outcomes so they may protect their investment and future profits. Many critics have pointed out that the profit-motive often compels the opposite. That in order to profit, many charter schools make decisions that are harmful to students, teachers, and the community. Some counsel out students with disabilities to avoid providing costly services; some hire uncertified teachers in order to keep salary costs low; most do not participate in the Teachers Retirement System, destabilizing a system dependent upon economies of scale and undermining the financial security of retired teachers across the state.
But this example involving Baton Rouge Academy at Mid-City illustrates an even more significant problem with the charter school model. Charter school affiliates will profit regardless of the quality of the education provided. The Louisiana state board elected to close Baton Rouge Academy at Mid-City at the end of the 2017 school year because of the school’s abysmal performance. However, that closure had no ill-effect on Red Apple, the CSUSA affiliate and leaseholder of the building. BESE quickly approved a new charter school, GEO Prep at Mid-City, and according to documents obtained through a public records request, GEO Prep entered into a lease agreement with Red Apple at Baton Rouge LLC on April 21, 2017 with the lease term beginning on July 1, 2017. Months before Baton Rouge Academy at Mid-City would make its final payment, Red Apple was assured the new GEO Prep at Mid-City would continue payments at the same exorbitant rate of more than $1 million annually.
There is no merit to the argument in support of the charter school model that market incentives will improve the quality of education. Market incentives will not improve education offerings and outcomes because the success or failure of individual charter schools has no bearing on the market. The investors profit regardless of whether a school succeeds or fails.
When understood in conjunction with other provisions of Louisiana’s charter school law and its school accountability system, these real estate arrangements are even more insidious.
Louisiana charter school law unequivocally declares that charter schools are intended to serve students who are economically disadvantaged. “Economically disadvantaged” is presumably race-neutral. However, because of Louisiana’s history of racial discrimination, a disproportionate percentage of African Americans live in poverty. Consequently, communities in Louisiana with a high percentage of students who are “economically disadvantaged” are often majority African American. The Louisiana charter school law, therefore, effectively targets majority African American communities for the privatization of their public schools through the proliferation of charter schools.
This is exacerbated by Louisiana’s school accountability system, which relies almost exclusively on standardized test scores. Standardized tests have a long history of being racially and culturally discriminatory, and student scores generally correspond with parents' education background and family income level. The district performance scores in Louisiana reveal a clear correlation between the concentration of poverty in individual districts and the scores assigned to each district. School districts with a high percentage of students living in poverty typically garner low district performance scores. Again, because of Louisiana’s history of racial discrimination, a disproportionate percentage of African Americans live in poverty, so most of these high poverty districts deemed failing are also majority African American.
In spite of this correlation, state law currently allows the state Board of Elementary and Secondary Education (BESE) to seize and charter public schools deemed failing by the inherently discriminatory school and district performance scores.
Hence, the Louisiana charter school law and its school accountability system effectively targets majority African American communities for what can be described as a modern-day version of redlining, subjecting these communities to predatory financial arrangements which siphon their tax dollars away from investments in publicly-owned infrastructure.
This system doesn’t just adversely affect investment in public infrastructure. It also adversely affects voting rights. It is important to note that when a school is chartered, its stakeholders—parents of students, teachers, and members of the surrounding community—are effectively deprived of their ability to elect meaningful representation to their school’s governing body since charter school boards are not elected. The majority African American communities targeted for school privatization are effectively deprived of their voting rights.
Though not as obvious as Jim Crow Laws which existed prior to the passage of the Voting Rights Act and Civil Rights Act, Louisiana’s current charter school law uses other designations and means to bring about the same end. The language in the charter school statute obfuscates its intent to target majority African American communities, but it effectively does. In conjunction with Louisiana’s Board of Elementary and Secondary Education charter school policies, these communities are then deprived of their voting rights as well as equitable investment in publicly-owned infrastructure.
WHAT CAN WE DO?
Louisiana charter school law should be amended to stipulate that assets purchased with public funds by charter schools and/or their affiliated organizations constitutes public property and ownership must be transferred to the local school district not an amorphous "chartering authority." (It may be that all lease agreements can include a clause that upon the conclusion of the lease term the ownership of the facility must automatically transfer to the local school board, but other protections may be needed to prevent the real estate affiliate from constantly refinancing the lease in order to retain ownership of the facility. Clearly, legal and financial expertise is needed to design meaningful language.)
The law must be amended to require that members of charter school boards, if not elected by voters, somehow must be subjected to meaningful electoral oversight. One possible solution would be to empower each member of the duly elected school board to appoint a member to each charter school board. Or maybe all charter schools could be converted to Type 4.
Request the U. S. Justice Department to look into these questionable practices which is happening across the country. This request could join with that already made by several members of Congress.
Request an audit from the Louisiana Legislative Auditor of the Property Lease Agreements.
 Jacobs, David. “Education Inc: Inside the high-stakes financial model to keep Capital Region charter schools viable.” Baton Rouge Business Report, 30 Oct 2014. Connelly, Kelly. “Charter school property sells for $13.2M.” Baton Rouge Business Report, 16 Dec 2014.  South Louisiana Charter Foundation, Inc. Financial Statements, June 30, 2015.  South Louisiana Charter Foundation, Inc. Financial Statements, June 30, 2014.  Lussier, Charles. “Large Baton Rouge Charter School ordered to close in May.” The Baton Rouge Advocate, 11 Dec 2016.  South Louisiana Charter Foundation, Inc. Financial Statement, June 30, 2014.  Jewson, Marta. “Five years after settlement in citywide special education suit, some New Orleans families still struggle for services.” The Lens, 10 Dec 2019.  Marra, Andrew. “Underpaid, undertrained, unlicensed: In PBC’s largest charter school chain, 1 in 5 teachers weren’t certified to teach.” The Palm Beach Post, 30 May 2019.  Bond, Tyler. “A School's Choice: Retirement Security for Charter School Teachers.” National Public Pension Coalition, Oct 2017.  Lease Agreement by and between Red Apple at Baton Rouge, LLC as Landlord and GEO Prep Mid City, INC as tenant. 20 April 2017.  Deshotel, Michael. “The Effect of Poverty on State Test Performance.” Louisiana Educator, 19 July 2018. ------ . “Poverty vs. District School Performance.” Louisiana Educator, 14 Nov 2019.