An F-rated St. Petersburg charter school stands on the verge of collapse, mired in debt and losing enrollment. And most of those debts — around $1 million in public tax dollars — are owed to the same private company that founded it.
Pinellas County district officials say they're battling with Virginia-based Imagine Schools, the nation's largest commercial charter operator, over the future of the Central Avenue school.
The school was $963,572 in deficit last spring, according to auditors. It's paying $881,179 to lease a half-empty building from Imagine's real estate affiliate, plus thousands more for equipment, administration and fees, on income of just $2 million a year.
"It's a death spiral," said district charter supervisor Dot Clark.
Pinellas officials are now joining districts across Florida — including Hillsborough and Pasco — in raising doubts about whether the company is running its schools as nonprofits, as required by state law.
Those districts are lining up to oppose new state rules being discussed this week in Tallahassee. They fear the rules would expand the definition of nonprofit, solidifying Imagine's position and potentially opening the floodgates to abuses by for-profit charter school companies.
"It clearly allows the opportunity to make money," said Tom Gonzalez, an attorney for the Hillsborough County School Board, which rejected an Imagine application in December. "They put this incredible burden on schools, and use tax money to pay it back."
Imagine officials disagree with such views. They say they're already running 17 Florida charter schools as nonprofits, even as they seek clear authority from the state and federal governments to continue doing so.
"What Imagine brings is financial security," said development director Karl Huber, describing the company's intent to possibly forgive some debts in St. Petersburg.
"That school has a lot of potential," he added. "If it doesn't make it financially, it will close. One way or another, we'll fix this problem. It won't be a bleeding wound for the taxpayer."
By all accounts, the St. Petersburg charter school got off to a rough start in the fall of 2008.
Its first principal had a heart attack, and teachers struggled to meet the needs of low-performing students. More than 60 percent of its students qualified for a free or reduced-price lunch. Then came the F grade, which Imagine said unfairly penalized the new school.
This year, enrollment has slipped from 376 to 320 in grades K-5 — a far cry from the 514 students Imagine was planning and budgeting for. And fewer students means less state money to pay contractual expenses.
Imagine and district officials have failed to agree on a plan to turn the situation around, and have asked the state to mediate. The district says the school needs 590 students next fall to remain viable; the company says 518 would be sufficient.
"They owe a tremendous amount of money to their management company, and it looks to us hopeless that they'll ever pay it," said Pinellas School Board attorney James Robinson. "And they don't have enough students to generate the state funding they need."
Some parents said they were unaware of financial or governance problems at the school.
Richard Drayton said his two grandchildren in second and sixth grades have thrived in their first year at the school. "I see great development."
Parent Scott Benjamin saw and heard more in his role as chairman of the parent-teacher organization. He pulled his fourth-grade son out of the school last spring, after several experienced teachers were fired.
"The teachers told me about the budget cuts and the stress they were under to work after school, for what they described as no additional payments," he said.
Clark, the Pinellas charter supervisor, said the school board would have found it difficult to reject Imagine's application under Florida law in 2008. "As long as they can balance their budget based on the numbers, we don't have much we can say."
But based on the federal nonprofit standards that Imagine says it follows, the district might have sufficient grounds to object.
According to the Internal Revenue Service, charters must be run by independent boards and negotiate contracts that benefit the school — not a management company or vendor.
"A board must show that it is not a front for a management company," the agency said in published guidelines.
But the Pinellas charter's board is chaired by Justin Matthews, who works for the company as a school principal in North Port.
"Who's he going to support, Imagine or the school?" Clark said.
Huber, the Imagine spokesman, said the company was seeking a replacement.
"Just because Imagine appoints the board member doesn't mean Imagine doesn't have an arm's-length relationship," he said.
Still, Imagine has yet to receive the nonprofit status it has sought from the IRS since 2005, and school officials in Texas, Georgia, Nevada and Indiana — as well as Alachua, Indian River and Palm Beach counties in Florida — have challenged the company's applications.
Who's in charge?
Pasco County may be next, raising similar questions about the company's Land O'Lakes school.
Unless Imagine provides clear evidence of its legal status soon, superintendent Heather Fiorentino told Imagine in a letter, the district "will have no choice but to consider this a breach of the charter contract and take appropriate action."
In Hillsborough, officials wondered whether the proposed charter's local board would have the power to fire Imagine, or just serve as a front for the company.
In a meeting, charter supervisor Jenna Hodgens asked the question.
"Karl Huber yelled out, 'Of course they cannot fire us. They are Imagine Schools,' " she recalled.
Faced with challenges from several districts, Imagine sought a ruling from the state on its nonprofit status. On Jan. 5, the Department of Education told the company it would develop new rules on the issue and invite public comment.
Imagine officials say they're pleased with the result.
"The proposal is pretty much what we've always argued defines a nonprofit," Huber said.
The draft rules, due to be reviewed Wednesday at a public meeting, would allow schools to qualify for nonprofit status by demonstrating that they were operated for public purposes and "not organized primarily for profit." They also specify that individuals or shareholders can't benefit from net earnings.
That creates the potential for abuse, said Henry Levin, a professor of economics and education at Columbia University Teachers College.
"The problem is it doesn't prevent self-dealing," he said. "As long as you allow them to set any salaries they want, to put anyone on the payroll that they want, to pay for services where there is some association with them or a relative, there's just no protection in this."
Greg Richmond, president and chief executive of the National Association of Charter School Authorizers, said it was up to school districts to scrutinize contracts and make sure charter schools handle their affairs properly.
"Conflicts of interest, nepotism, and self-dealing can be present on a nonprofit board or a for-profit board," he said.
But Gary Miron, an education professor at Western Michigan University, said more safeguards are needed. Around 80 percent of charter schools in Michigan are run by for-profit companies.
"We have these management companies that should be supporting schools as a vendor, and they're running them like private franchises," he said.
Times researcher John Martin and staff writer Rebecca Catalanello contributed to this report. Tom Marshall can be reached at firstname.lastname@example.org or (813) 226-3400.