The Chandler, Arizona, school received a PPP loan of nearly $2.2 million, the largest forgivable loan among the 132 Arizona charter schools that obtained them.
But Primavera’s loan appears to have been more of a bonus than a lifeline.
The school, which like all Arizona public schools didn’t lose state funding because of the pandemic, ended its fiscal year on June 30 with $8.8 million in the bank – almost double the annual payroll costs for its 85 teachers, records show.
The school also shipped $10 million to its lone shareholder: StrongMind, an affiliated company owned by Primavera’s founder and former CEO Damian Creamer.
The school’s annual audit indicates Creamer controls both Primavera and StrongMind, noting he has “the ability to influence the school’s operations for the benefit of StrongMind.” Primavera paid StrongMind nearly $23 million this past fiscal year for software and curriculum services, records show.
Creamer declined to comment.
An Arizona Republic review of more than 100 charter school financial records, audits and federal Small Business Administration documents found the overwhelming majority of the Arizona charter schools that obtained PPP loans didn’t need the money.
John Todd, a longtime auditor of Arizona charter schools, said there are numerous problems with fully funded charter schools getting PPP loans intended to help struggling businesses.
“The PPP loans are taxpayer dollars intended to help the needy, not the greedy,” Todd said.
A federal stimulus package agreed upon Sunday by Congress includes an extension of the small business Paycheck Protection Program, which expanded eligibility to local newspapers, broadcasters and nonprofits. It will direct another $20 billion to small business grants and $15 billion to live event venues.
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A few charters, including Legacy Traditional Schools, repaid several million dollars worth of PPP loans after The Republic, part of the USA TODAY Network, reported in August that Legacy and other operators had millions of dollars in the bank when they received loans.
Most charters that got loans didn’t need them
The Republic found that most of the charter schools getting PPP funds padded their cash balances (savings accounts), and a few for-profit charter operations, like Primavera, gave money away to shareholders that matched or exceeded their PPP loan amounts.
Meanwhile, tens of thousands of small businesses have permanently closed because of COVID-19.
Further, The Republic found that PPP loans didn’t significantly enhance teacher pay at schools that received them. The 132 Arizona charter school loan recipients, on average, paid their teachers several thousands dollars less than the statewide average. The 132 charter schools receiving PPP loans increased teacher pay by an average of 5% – an amount similar to all 555 charter operations and 263 school districts.
Arizona public schools saw no major job losses or layoffs this year because the state Legislature fully funded schools and gave them additional money to raise teacher pay.
A 2018 Republic investigation found the state’s charter school industry, which gets more than $1 billion annually from the state general fund, has produced several multi-millionaires through self-dealing and lax oversight.
Creamer is among the prominent figures who’ve made millions of dollars operating Arizona charter schools. His online alternative school boasts more than 20,000 full- and part-time students. Primavera paid Creamer $10.1 million in 2017 and 2018.
A spokesman for StrongMind declined to say how much the company paid Creamer.
Ian Kidd, superintendent of Pima Prevention Partnership, said financially strong charter schools that took PPP loans open themselves to criticism and scrutiny.
“I don’t subscribe to making money off of students. It’s not appropriate,” Kidd said.
Kidd said he obtained PPP loans for his three charter schools, but the money was used to cover social and behavioral services for low-income, at-risk kids. His three charters had a combined negative $7,031 in cash balances, even after getting PPP loans.
How it worked
Businesses across the country in April and May obtained SBA-backed loans from private banks, which received processing fees of up to 5% of the loans’ value.
The program’s goal was to save jobs as the national economy was cratering during the early months of the pandemic.
The federal government promised to forgive the loans if at least 60% of the cash was used to keep workers on payroll, with the rest used for legitimate business expenses. Otherwise, the loans would be repaid at 1% interest.
The SBA, under pressure from news outlets, recently released specific figures for all PPP loan recipients. Previously, it released only the names of the borrowers and loan ranges above $150,000.
Several watchdog groups, including Accountable.Us, have panned the loan program for enriching companies that didn’t need the money while shutting out many minority- and women-owned businesses.
Kyle Herrig, president of Accountable.Us, which compiled a database of all PPP recipients, said there has been widespread fraud and abuse of the program, including celebrities and wealthy companies getting loans.
“The Trump administration’s faulty design and mismanagement of the Paycheck Protection Program let thousands of mom-and-pop businesses slip through the cracks without adequate aid while charter schools cashed in,” Herrig said.
Herrig’s organization said that the PPP loans given to Creamer’s interests “merit further investigation” because his “businesses seem to have fared well throughout the pandemic.”
Cody Bendix, a spokesman for StrongMind, said the company has and will continue to follow all SBA rules and regulations. He declined to answer additional questions.
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Miryam Barajas, an SBA spokeswoman, said the agency does not comment on individual PPP loans. However, she said any loan over $150,000 would be looked at closely and recipients would be required “to prove the loan was used appropriately.”
“The loan is not automatically forgiven. There is an audit and review process to show how the funds were used for the loan to be forgiven,” she said.
Arizona Schools Superintendent Kathy Hoffman, who also is a member of the Charter Board, said she was astonished by The Republic’s findings.
“It saddens me those dollars are not going to students,” she said. “It’s very excessive. These dollars should be going where they are needed most, and that’s the students and instructional needs.”
Hoffman, a Democrat, said Republican Gov. Doug Ducey and the GOP-controlled Legislature should consider reducing state funding for full-time virtual charter schools like Primavera, which receives nearly the same per-student funding as brick-and-mortar schools that have more costs.
Ducey, at a news conference Wednesday, declined to answer questions regarding Hoffman’s proposal. He also declined to answer whether charter schools that received the PPP loans should return the money or have their state funding reduced by an amount equal to the loans.
Ducey said the PPP loans were a federal issue, but added: “I want to make sure all public schools have available funding.”
Creamer has been a major political donor to Ducey, records show.
Creamer spent at least $137,650 during the past two elections to mostly help conservative Republicans retain control of the Legislature. Among his political giving was $50,000 in December 2019 to the Republican Legislative Victory Fund, state campaign finance records show.
There has been no significant effort by Republicans in the Legislature to change the funding formula for online charter schools. A few of those lawmakers have financial interests in charter schools.
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Paying shareholders, boosting reserves
In addition to Primavera, at least three other charter school operators that received PPP loans paid distributions to shareholders. Most of the rest put large sums in savings.
The Republic found:
• The average Arizona charter school PPP loan was $393,055. Nationally, at least 5.2 million loans for small businesses were approved totaling $525 billion, with the average loan being $100,729, according to the SBA.
• The year-end cash balance for the 132 Arizona charter schools that received $51.8 million in PPP loans in April and May, increased by $62.6 million. Individually, cash balances increased for 87% of the loan recipients.
• Twenty-one charter schools that received PPP loans increased their cash reserves by at least $1 million, with Primavera seeing a $3.3 million increase.
Educational Options Foundation of Peoria, which got a $278,292 loan, saw its cash balance increase by $2 million to $13.7 million. The school has enough money to operate for four years without additional money. The state Charter Board only requires schools to have one month of cash liquidity. A call to the school was not returned.
• For-profit charters Humanities and Sciences Academy in Tempe and Accelerated Learning Center in Phoenix made shareholder distributions of $388,770 and $230,000 this past fiscal year, respectively. Both amounts exceed the charters’ PPP loans.
The Montessori Schoolhouse of Tucson gave a shareholder distribution of $92,372, equal to about 72% of its PPP loan.
Calls to the three schools were not returned.
Jim Hall, a former public school administrator who runs Arizonans for Charter School Accountability, compiled financial records from charter schools that received PPP loans and said he concluded that they didn’t need the money.
Hall said those loans should have gone to small businesses that have struggled to make payroll or mortgage payments. He said several of the charter operators engaged in “unmitigated greed.”
Some schools repay PPP loans
Legacy Traditional Schools, which had more than $30 million in reserves to start this past school year, obtained $6.2 million in PPP loans for six of its campuses and its management company, Vertex Education.
While the program was designed to help businesses with fewer than 500 employees, The Republic on Aug. 3, reported that 656 employees worked at those six campuses and the management firm, putting Legacy over the SBA threshold for a forgivable loan.
Corey Kennedy, Vertex Education’s chief of staff, said this summer that the money was needed because of financial uncertainty.
But Legacy’s school board, which manages all of those schools and several others, reversed course, voting in mid-October to repay $4.1 million in PPP loans for the six schools, records show.
Board meeting minutes say the federal government quickly rolled out the loan program with “little initial guidance” and that updated guidance determined that “the Legacy schools that received PPP loans were not eligible for the funds after all.”
Kennedy declined to comment for this story.
Matt Benson, a spokesman for Legacy, said Legacy hasn’t determined whether Vertex will also repay its $2.1 million PPP loan.
A rarely enforced state charter school law prohibits taxpayers from paying “twice to educate the same pupils.” The law requires a school that has been twice compensated to have its base-level funding reduced by an equal amount if additional federal or state monies received by the school were “intended for the basic maintenance and operations of the school.”
The Auditor General’s Office subsequently ruled that Arizona charter schools that received PPP forgivable loans can keep the money and not have any of their state funding cut.
But Joe Thomas, president of the Arizona Education Association, said charter schools should consider sending their PPP loans back, or the state should reduce their education funding by the same amount as the loans.
“That would reward the charter school owners who are playing by the rules and being ethical,” Thomas said. “There is no way to defend this. It’s not ethical, and it doesn’t provide one more educational opportunity for students, reduce class sizes or invest in teachers. It’s greed. That’s all it is, and it’s shameful.”
Contributing: Jessica Menton, USA TODAY
Follow reporter Craig Harris on Twitter @charrisazrep.
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