Why 2020 Dems Should Target the Nonprofit Charter School Industry

Charter schools are funded through public education dollars, just like traditional public schools. Can they then function as if they were private real estate holders, with the freedom to knock down or otherwise alter buildings as they see fit? (Photo: Fibonacci Blue/flickr/cc)

Why 2020 Dems Should Target the Nonprofit Charter School Industry

A battle over a beloved church building in the Twin Cities reveals how money can be made from charter school real estate deals.

Charter schools, once the darling of politicians on the right and left, have become a hot potato in the Democratic Party 2020 presidential primary with nearly every candidate voicing some level of disapproval of the industry. A common refrain among the candidates is to express opposition to "for-profit charter schools." Charter school proponents counter these pronouncements by pointing to industry data indicating only 12 percent of charter schools are run by overtly profit-minded entities, and that most charter schools are overseen by outfits that have a nonprofit, tax-exempt status.

But the singling out of for-profit charter schools is somewhat beside the point as residents of a St. Paul, Minnesota, neighborhood learned this summer when a treasured local landmark was threatened by an expanding charter school. The charter was decidedly nonprofit, but as families and preservation advocates would learn from their tenacious, but ultimately unsuccessful, battle to save a beloved, historic church, charter schools, regardless of their tax status, have become powerful players in a lucrative real estate market in urban areas where land values are high and empty lots or school-ready buildings are hard to find.

Tearing Down a Church to Make Way for a Charter

In the tiny Warrendale neighborhood of St. Paul, St. Andrew's Catholic Church has stood as a community centerpiece for nearly 100 years. In 1927, St. Andrew's was designed in the Romanesque revival style by Charles Hauser, the son of German immigrants who became the first city architect of St. Paul at the age of 25.

Today, it's gone. In 2013, the St. Andrew's site, which included the church building, a rectory and a small, two-story school, was sold to Kathleen Padian, a charter school real estate developer based in New Orleans. At the time, Padian purchased the site for over $2 million through a nonprofit organization, Educational Properties, Inc., which then leased the buildings to the Twin Cities German Immersion School (TCGIS), a charter school with a focus on German language and culture. (In Minnesota, charter schools cannot own their own property--at least not directly.)

TCGIS also took on over $6 million in renovation debt upon purchasing the St. Andrew's site and proceeded to tear down the rectory and build an addition linking the old school building to the church. By the end of 2013, the school was on the hook for over $8 million in real estate and construction costs. Part of that debt included payments to an out-of-state real estate development group, TenSquare, for helping facilitate the purchase and remodel of the St. Andrew's site.

Although Mass had not been held at the church since 2011, when the shrinking parish was combined with another one nearby, it had been in continuous use as a school and church site for various groups, including a French Immersion school run by the St. Paul Public Schools that moved when it outgrew the space. It had not been sitting idle, in other words, and many neighbors reported feeling pleased in 2013 when they learned that another school--the German Immersion charter--was moving into the neighborhood.

In 2018, however, shock waves reverberated through the tightly woven community when residents discovered, through a local newsletter, that the TCGIS was planning to tear down St. Andrew's church, with its sturdy brown brick, striking bell tower and colorful mosaic tile details, and replace it with a more utilitarian structure.

The school said it simply had no choice but to tear down the church--deemed in very good condition by a local historic preservation board--in order to accommodate an unexpected uptick in student enrollment. What followed was a contentious 18-month battle between the school and many of its neighbors, who signed petitions, held protests and launched numerous court and civic battles arguing that the church should be preserved and repurposed rather than simply destroyed.

Ultimately, the community's last-ditch efforts at a court order to block TCGIS's demolition plans failed, and on August 12, crews began dismantling St. Andrew's church. All along, TCGIS has been receiving extensive guidance from the decidedly for-profit group, TenSquare.

A National Enterprise Profits off Local Schools

TenSquare is a Washington, D.C., based outfit that bills itself as a "charter school support" organization. In 2018, reporter Rachel Cohen wrote about TenSquare for the Washington City Paper, describing it as "one of the city's most connected, lucrative, and controversial charter consulting companies." TenSquare makes millions, Cohen noted, by promising to "turn around" struggling charter schools in Washington, D.C., through its consulting and management services.

Cohen's article described the difficulty she and others have had in finding out just what TenSquare does and how and where it makes money, citing a lack of transparency and accountability. Many of the teachers and charter school leaders profiled in Cohen's piece argued that TenSquare consultants, under the leadership of founder Josh Kern, have pushed skimpy remake plans based only on boosting test scores or other business-centric ideas.

That hasn't stopped TenSquare from expanding beyond Washington, D.C., as it has now set up shop in nine states across the country, including Minnesota. Through fee-based services that are paid for by the public education dollars that fund charter schools, TenSquare promises to provide a whole range of structural support and expansion help for charters, as advertised on the group's website.

Need a "high-performing" staff? Tap TenSquare's network. Want to "achieve dramatic results" in the classroom? TenSquare can draw up a plan for that. Scrambling for a spot to grow your charter school? Fortunately, TenSquare offers "comprehensive real estate development services," from location scouting to "assessing and arranging financing."

The whole TenSquare approach struck Cohen as evidence of a "circular" business model, where the group can essentially "hire itself." By exalting its expertise in all areas of charter school operations--including finagling real estate deals--TenSquare is positioning itself to corner all aspects of this perhaps politically nettlesome, yet still growing, industry. Meanwhile, it stands to rake in a sizable, publicly funded profit from each contract it signs.

Papers filed with the Minnesota Department of Education, which must sign off on any charter school expansion plans, describe the financing behind the Twin Cities German Immersion charter school. The $6.4 million bill TCGIS has agreed to pay, over time, includes a $100,000 "development consultant fee" for TenSquare. That is on top of a contract worth thousands of dollars per month TCGIS has paid to TenSquare since 2013.

TenSquare has helped facilitate numerous other charter school expansion projects in Minnesota and a handful of other states, sometimes serving as the owner and landlord of various charter school properties.

Charter Schools Are Good Business

Investment appeal for charter schools is strong. In 2015, Wall Street Journal reporter Peter Grant wrote about the increasing opportunity charter schools present for real estate investors, "as the demand grows for classroom seats and some state and local governments become more willing to help finance charter-school projects."

While some may raise eyebrows at publicly funded charter schools "cutting costly deals with developers who are more concerned with investment return than educating children," Grant noted, many investors believe they can "do well by doing good."

Further, Grant stated, developers need not be put off by the nonprofit status of most charter schools because "these groups often rent and buy their buildings from private real-estate developers, and that is creating a new niche asset for some investors." In Minnesota, TenSquare has been tapping this niche market for several years, and, in 2018, it brought on local charter school administrator Sean Elder to serve as the group's full-time director of real estate development.

Before Elder came on board in 2018, TenSquare employees Karl Jentoft and Kathleen Padian worked on behalf of the Twin Cities German Immersion charter school to help it find and finance a new site so that it could continue to expand. Jentoft and Padian are both experienced in the proliferation of charter schools, in Washington, D.C., as well as Minnesota and a handful of other markets, including New Orleans, where no traditional public schools remain.

Jentoft's background in particular will look familiar to many who track the intersection of profit, privatization and school choice in the United States. After a stint at global consulting firm McKinsey & Company, which has been a leader in the push for using test score data to rank public schools, Jentoft went into banking and finance, where he oversaw subprime credit card accounts for Capital One.

From there, Jentoft veered into real estate and eventually landed at Charter School Development Corporation--a nonprofit that rakes in millions of publicly funded, tax-exempt dollars per year, as its tax returns indicate, all under the guise of "fostering the common good and general welfare of the American public by engaging in activities designed to promote opportunity, choice and parent initiative in K-12 American education."

Jentoft then moved to TenSquare, where he and Padian continue to partner on charter school real estate development deals. A 2018 letter of intent from TenSquare to Claire Heckerman, founder of a charter school in Harvey, Louisiana, provides insight into how Padian and Jentoft work in tandem.

Padian, the letter notes, acts first to help schools find and purchase real estate, as she did with TCGIS. Jentoft then comes in to act as project lead, once the site is secured. TenSquare asks for $3,000 per month in fees, in addition to a development fee worth 2.5 percent of the total cost for any subsequent construction projects. It seems it would pay for TenSquare to facilitate the expansion plans of charter schools in as many markets as possible.

A recent story by local freelance reporter Joey Peters argues that TCGIS school board members, acting under the direction of TenSquare, sought to rapidly foist their demolition plans upon St. Andrew's church in hopes of avoiding historic preservation status for the building. Board members such as Nic Ludwig, Peters writes, hoped to stave off a rising tide of neighborhood opposition to the school's expansion efforts.

Citing emails obtained through a public data request, Peters documents the concern of Ted Anderson, executive director of TCGIS, who apparently laments just how Jentoft managed to lead the school down such a controversy-ridden path.

Who Owns Charter School Buildings?

On July 28, the Twin Cities German Immersion charter school held a farewell open house for St. Andrew's church. After surviving numerous legal challenges, the school's demolition permit had finally been secured, and it invited neighbors and supporters to say a final good-bye to the church before the wrecking balls arrived.

While the curious mingled inside, politely eating the German cookies and pastries being offered or taking in the St. Andrew's sanctuary one last time, heated exchanges between upset neighbors and staunch supporters of TCGIS were erupting outside.

St. Andrew's defender Roy Neal stood under a gloomy late July sky, hoisting a homemade orange sign that read, "Shame On Amy." It was a pointed reference to St. Paul City Council Member Amy Brendmoen, who lives in the shadow of St. Andrew's and once spoke of the church as a centerpiece of the neighborhood. Ultimately, she sided with TCGIS and its demolition plans, drawing the ire of the grassroots Save Historic St. Andrew's group that attempted to save the church.

Standing across from Neal, hands perched on her hips, was Kirsten Partenheimer, parent of four TCGIS students. After declaring that she wished TCGIS could move, "just to get away from you," in reference to the circle of dogged protesters that had gathered, Partenheimer struck a reverberating blow.

"We own the building," she told Neal pointedly. "You have to remember that!"

Immediately, a small circle of protesters shouted back at Partenheimer, telling her, "You don't own the building; the public does! You have an obligation to the community."

"Seriously," Partenheimer shot back, "when it gets down to it, we own the building."

A thorny dispute about land rights and whether or not they are absolute then took place, sending the less committed off, perhaps in search of a cookie or a moment of respite inside the church. But the exchange was telling. Charter schools are funded through public education dollars, just like traditional public schools. Can they then function as if they were private real estate holders, with the freedom to knock down or otherwise alter buildings as they see fit?

Tax Dollars for Education Yield Profits for Investors

The dispute over ownership rights to St. Andrew's also took place on the editorial pages of the Minneapolis Star Tribune. In a May 24 opinion piece, the paper's editorial board argued that the church should be torn down to make way for TCGIS's growing student body.

Sidestepping any question of whether or not a publicly funded, highly segregated German immersion school (its population is nearly 90 percent white, according to state records) should exist--especially in a city like St. Paul, where the public school district must continually make cuts to adjust for students lost to school choice schemes--Star Tribune editors wrote, "The property owners shouldn't be forced to spend millions now and in the future on repairing and maintaining the old structure. Those funds would be better spent on a new facility and on educating students."

In a counterpoint published in the Star Tribune, supporters of the church argued, "TCGIS is, in fact, a public charter school," because the public not only financed its initial "$8.2 million acquisition and renovation of the former St. Andrew's Church and school in 2013," but will also be on the hook for the millions in demolition and construction costs needed to tear the church down and put up something new.

All of TCGIS's real estate dealings have been "funded through low-interest conduit bonds issued by the city of St. Paul, bonds that are repaid with lease aid from the state of Minnesota that currently sits at $1,314 per student," St. Andrew's supporters noted. This financial support will continue because of an action taken by the St. Paul City Council recently to authorize another round of "conduit lease revenue bonds" to TCGIS worth $9 million, even though the school still owes over $8 million from its 2013 purchase and renovation of the St. Andrew's site.

Those low-interest bonds have been underwritten by a Minneapolis-based investment bank, Piper Jaffray, that has worked to make itself indispensable in the charter school real estate sector. "Piper Jaffray is one of the nation's top specialists in structuring tax-exempt bond issues to meet the needs of charter schools," the bank's website announces, under a cheerful heading that reads, "How can we help your school?"

Tad Piper's family started Piper Jaffray over 100 years ago, and the company has reported annual revenue of more than $800 million in recent years. As a philanthropist, Piper has also become a high-profile advocate of school choice schemes in the Twin Cities by helping to foment political and popular support for the expansion of charter schools and other education reform initiatives.

Meanwhile, the bank his family started, where Piper still sits on the board of directors, facilitates the spread of charter schools through a range of debt financing options.

The zero down payment plan advertised by Piper Jaffray could certainly entice a charter school, under the guidance of a real estate development group like TenSquare, to take the plunge and finance a new school or renovate an existing one. In return, Piper Jaffray can sell that debt package to investors on the bond market.

Those investors, in turn, stand to make a fat return on their investment.

One way they can do this is through New Market Tax Credits. In a 2013 presentation, TenSquare's Jentoft lists this option as one of three ways charter school real estate can be financed, along with asset-based and business cash flow loans. The New Market Tax Credits, however, are government-backed, and offer investors--including private equity firms--the chance to "receive a 39% federal tax credit over seven years," according to a 2010 expose by journalist Juan Gonzalez.

That is in addition to any interest the investor makes along the way, making this a very attractive place to park some cash, all while enjoying the social justice-themed cover of "doing well by doing good."

There are many other ways outside investors glean cash from the proliferation of charter schools through real estate investment strategies. A recent series in a New Jersey outlet by reporters Jean Rimbach and Abbott Koloff extensively revealed "how tax dollars meant for public education can yield profits for investors" in the Garden State through a range of schemes that include low-interest loans, profitable lease agreements, related party transactions, and property markups that exceed market values.

'Gone Forever'

It's clear private real estate developers, investment bankers and consulting groups like TenSquare have successfully figured out how to cash in on publicly funded charters with little accountability to taxpayers. These various money-making schemes largely exist under the radar, far from the growing scrutiny of presidential candidates who have newfound disdain for for-profit charter schools.

In cities such as St. Paul, where these financing options increasingly control where charter school construction goes, neighbors suddenly have little to no say in where and when such schools can set up shop. As TCGIS itself pointed out, charter schools are not neighborhood schools; by law, they can and do draw students from a boundary-free radius. And now, TCGIS can pour its millions in low-interest bond debt into a newly constructed school building, as St. Andrew's church has been leveled.

On a recent morning, as demolition crews waited for the go-ahead, a handful of neighbors gathered outside the school, shaking their heads in dismay. "I don't think this school will even be here in five years," one observer mentioned, noting the charter school's previous series of moves. "But the church will be gone forever."

On August 20, just days after St. Andrew's Church was reduced to rubble, the State Historic Preservation Board posthumously recognized it as a historic property worthy of earning a spot on the National Register of Historic Places.

To learn more about school privatization, check out Who Controls Our Schools? The Privatization of American Public Education, a free ebook published by the Independent Media Institute.

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