S.F. charter operator in financial hot water

Envision Schools, which in SFUSD runs City Arts & Tech off Ocean and the new Metro Arts & Tech on the north side of Bernal, is in trouble in Marin over the financial situation at its flagship school, Marin School of Arts & Technology in Novato.

The Marin Independent Journal article below describes MSAT as "high achieving." But actually it was notably low-achieving -- especially far below Novato's other two high schools in Similar Schools scores -- until the most recent year, when the API shot up just as MSAT was put on stern notice from the chartering school district.

This should serve as a big red flag to SFUSD!

Charter school lashed over deficit
Jeff Mitchell
Marin Independent Journal
Jan. 12, 2006

For the second time in less than a year, Novato school board members grilled officials with the high-achieving Marin School of Arts and Technology over concerns about the charter school's shaky financial condition.

During a tense three-hour session Tuesday, school board members lambasted Daniel McLaughlin, Envision Schools president and chief executive officer, for failing to keep the Novato charter school out of a deficit and for failing to ensure that the school maintain a 3 percent reserve fund.

continue reading...

Several board members said they supported filing a legal "notice of cure" with San Francisco-based Envision — the first step the district would need to take in the process of revoking the school's charter and shutting down the school.

Currently, MSAT serves 240 ninth-, 10th- and 11th-grade students.

"We understand that MSAT's deficit is of serious concern to Novato Unified," McLaughlin told the board. "(However) we will be in the black by next year. We are shooting for a 3 1/2-percent reserve."

Envision runs MSAT and two other charter school operations in the Bay Area.

MSAT students have distinguished themselves academically, posting some of the strongest test scores in the county recently.

Charter schools are publicly funded, independently operated institutions whose curriculums have been tailored to the needs of individual communities. Like other public schools, charter schools receive the bulk of their funding based on attendance formulas determined by the state. Parents and other private interests also often donate funds in support of a given school.

At issue Tuesday was the charter school's projected deficit — expected to exceed $300,000 by the end of the 2005-06 fiscal year — and the absence of a reserve fund.

The 3 percent reserve fund requirement was part of the charter school's original memorandum of understanding signed with the district in December 2001. The school first opened its doors at the College of Marin's Indian Valley campus in fall 2003.

But since its opening, the charter school has neither climbed out of deficit mode nor established the required reserve fund.

"We have a (multiyear) pattern of noncompliance with our (memorandum of understanding)," said board member Jennifer Treppa.

Last summer, the board took Envision and MSAT to task not only over its concern about finances but also because of the way the school deviated from district and state special education and student discipline procedures — allegations Envision officials denied at the time.

The board voted to issue a "notice of cure" letter related to the special education and student discipline dispute. Since that time, district officials said the school has complied with the regulations.

At Tuesday's meeting, the board — concerned that an MSAT financial failure could leave the district on the hook and disrupt the lives of a large number of students — turned up the intensity of its public comments.

It didn't help matters that, during the discussion, board members Cindi Clinton and Leslie Schwarze remarked that a financial accounting report provided by MSAT was filled with errors.

"These numbers don't add up," Clinton said. "I don't have any confidence in these numbers. If our (chief financial officer) presented a report like this, I would be talking to our superintendent about (seeking) a replacement."

Board member Derek Knell agreed and said it was time the district assert itself legally again.

"I would support (issuing) a notice of cure as soon as possible," he said.

McLaughlin, joined by a cadre of Envision executives and supporters, acknowledged the school's financial difficulties but said that he expected that a surge in student enrollment (between 75 to 110 new students) for the 2006-07 school year would drive the school into the financial black enough to establish the reserve fund.

On Wednesday, McLaughlin noted that MSAT already has received 50 new student applications for enrollment for the 2006-07 school year.

"Let me assure everyone that this isn't a matter of MSAT going under - far from it," he said.

McLaughlin said Envision, a nonprofit corporation, remains financially viable, has a $1.1 million cash reserve and has been the recent recipient of money from the Bill and Melinda Gates Foundation.

He noted that charter schools commonly struggle financially in their first five years of operation due to costly one-time expenditures for equipment, computers, books and supplies.

At the end of the session, board members decided to avoid issuing a "notice of cure" to MSAT, fearing the action would place a "chilling effect" on the school's efforts to recruit students that would doom its financial rehabilitation.

However, the board directed district staff to set up a schedule of frequent "checking points" to determine whether the school is making adequate progress to establish financial solvency.

The board also asked Jim Cerreta, the district's chief financial officer, to regularly report back on the results of those so-called "checking point" meetings.

— Caroline