Did charter schools game the system? Many cashed in on forgiven PPP loans they didn't actually need
America's charter schools received at least a $1 billion windfall during the pandemic, an unneeded cash infusion for most from a federal program intended to bail out struggling small businesses, USA TODAY has found.
More than 1,000 of the publicly funded but privately operated schools that educate a fraction of U.S. children jumped at the chance to collect forgivable loans up to $10 million after Congress created the Paycheck Protection Program in March 2020.
The hastily launched program was designed to save small businesses during the pandemic by helping them cover employee salaries and other costs.
While more than 90% of all eligible businesses across the country took the roughly $800 billion in loan allocations, charter schools were among the first to get the money – ahead of mom-and-pop shops and minority-owned companies – during the early days of the crisis when the economy was cratering and many business owners scrambled to get a financial lifeline.
And charter schools were uniquely positioned to get the loans – even though they continually received funding from taxes, just like traditional public schools. But unlike those schools, which educate the vast majority of American children, charters qualified for what would eventually become pots of free money because they are considered a business.
Did charter schools need PPP money?
A USA TODAY investigation, based on public records, found 93% of the charter schools may not have needed the money because they were in states that continued to fund them at the same level as before the pandemic, or at even higher levels in some cases. These schools also had access to federal COVID-19 grants.
Records show some of the private companies that operate the charter schools used the money to pad savings accounts or, in one case, hand millions of dollars to an investor.
USA TODAY's investigation is based on publicly available documents from 1,139 charter schools, as well as federal and state agencies, including 37 departments of education that oversee local funding for charter schools.
"It makes me furious because there was absolutely no reason for those (charter) schools to get that money and take it from small businesses," said Carol Corbett Burris, a critic of charter schools and executive director of the Network for Public Education Foundation, an advocacy group in New York City. "They successfully double-dipped."
The loan program had enough leeway to allow small businesses, including charter schools, to qualify without showing any financial need. Federal regulations only required businesses seeking the loans to say they faced "economic uncertainty" and the money was necessary to support ongoing operations.
The federal government would forgive the loans if businesses kept employment and wages close to pre-crisis levels in the months after they received the money, according to a January 2022 paper by the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts.
Charter school advocates said operators were entitled to the loans, which ranged from $150,746 to $9.8 million, because they are technically private businesses.
"Funding is always difficult to secure but was even more challenging during the pandemic," said Nina Rees, president and CEO of the National Alliance for Public Charter Schools.
Rees added that charter schools typically receive less public funding than traditional school districts and Congress intended for them to get the money because of "the special nature of these unique public schools."
Critics have a different view.
A congresswoman who has monitored the program said that while the schools may have done nothing legally wrong, their decisions to take the money were "terrible." And one superintendent who leads an inner-city San Diego charter operation said that despite the legality, the behavior was unethical because financially strong charter businesses took money from those truly in need.
"At the time PPP became available, we had not suffered financially," said David Sciarretta, superintendent of the Albert Einstein Academies, which has 1,450 students from kindergarten to eighth grade at two San Diego campuses. "I saw PPP as a way to help small businesses, especially those in the service sector. … There is a fiscal way to look at it, and there's a moral and ethical way to look at it."
While Sciarretta declined to call out specifics schools, USA TODAY found, for example, that at least 14 affiliates of the California-based charter chain Knowledge Is Power Program (KIPP) took a collective $28.4 million in loans and had them forgiven at locations around the U.S.
Its national headquarters in San Francisco, meanwhile, saw its bottom line swell 56% to $75 million during the first year of the pandemic.
The KIPP Foundation said its headquarters is a distinct organization that is separate from its local charter organizations that make independent decisions based on the "financial needs" of its schools.
Small portion of PPP saved jobs
Congress created the PPP program in the early stages of the pandemic to provide uncollateralized, low-interest loans to small businesses.
Unable to quickly disburse the money, Congress used private banks, which were paid a 1% to 5% processing fee per loan.
However, the program, which ran through May 2021, was far from efficient.
According to the NBER research, the program kept up to 3 million workers employed an additional year at a cost of up to $258,000 per job retained.
The researchers found up to 77% of all loan money flowed to business owners and company shareholders as well as creditors and suppliers of PPP-receiving firms. Researchers also found that Congress continually altered the rules so nearly every PPP loan qualified for forgiveness.
The report did not break down business sectors, such as charter schools.
"It did some good," said lead researcher David Autor from the Massachusetts Institute of Technology. "But it was for a low rate of return and a very high cost."
Autor, who said he supports charter schools, said those operators saw a chance to get free money from the government.
"They did what everyone else did, and that's problematic," he said.
Yet Autor said among the "misuses" of loan funds, charter schools weren't even "above the median of egregious."
Did charter school students benefit?
Today, 44 states and Washington, D.C., have 3.4 million students in roughly 7,700 charter schools, according to the National Alliance for Public Charter Schools in Washington, D.C. That's just more than 7% of all public school students.
The exact percentage of students who benefitted from the forgiven PPP loans from operators in 37 states who sought loans is difficult to determine. That's because federal records only show that the extra money went to more than 1,100 operators, and most of those businesses run a chain of schools.
Rees, of the National Alliance for Public Charter Schools, said the schools, on average, receive 70% of the public funding from local and state taxes that goes to traditional district schools, forcing charter operators to raise additional funds to cover rent, maintenance and utilities.
"PPP loans were a lifeline for charter schools, enabling them to pivot quickly to absorb the extra expenditures related to the pandemic such as providing laptops, Wi-Fi hotspots, and additional teacher and staff training," Rees said.
Rees, whose organization had its $680,182 loan forgiven, said she had no problem with Primavera, headquartered in Chandler, Arizona, paying millions in shareholder distributions while also having its loan forgiven.
"Two facts can coexist," she said. "The school may have needed the PPP loan and the management company may have earned a dividend for its overall business performance. They are not the same."
Chu, the California congresswoman, disagrees.
She said it was not the intent of the loan program for companies to give away millions of dollars to shareholders.
"It was to keep businesses afloat during this tough time. It was not to make a huge profit for CEOs or investors," she said.
Critics say charter schools are allowed to use less stringent auditing rules and have non-elected oversight boards, and their operators can make unlimited amounts of money through their budgets.
While SBA officials declined repeated requests for interviews to USA TODAY, a cadre of public policy advocacy groups said they have met with the agency and are pressuring the SBA to take a second look at financially stable charter schools that had their loans forgiven and may have misappropriated the money.
They note that in addition to the forgiven loans, all U.S. charter schools had access to federal COVID-19-related grants to implement social distancing and to disinfect schools. (Traditional public schools were eligible for those grants but not PPP loans.)
Primavera, records show, accepted nearly $2 million in federal COVID-19 relief funds in addition to getting a similar-size loan forgiven.
Damian Creamer, the school's founder, has received $23.6 million in shareholder distributions since 2017, records show. He declined to comment.
Clare Crawford, senior policy adviser for In the Public Interest, which conducts research on how tax dollars are used, spent the past two years examining charter schools and PPP loans.
Her organization is among those pressuring the SBA to claw back money from charter schools because she alleges that many charters operators misused PPP money.
"There's no routine oversight to see what happened with the money," said Crawford, who blames state and federal officials.
USA TODAY's findings
USA TODAY's investigation into charter schools and PPP loans was based on IRS, SBA, state Departments of Education and charter school documents as well as more than a dozen interviews.
The findings include:
►The range of forgiven loans was $150,746 to $9.8 million. The largest went to River Springs Charter School in Temecula, California.
River Springs Superintendent Kathleen Hermsmeyer said her charter network, the largest in California, enrolled 1,000 more students after the pandemic began. She said the loan was used for technology, hiring more teachers and payroll, and the state didn't cover additional expenses for specialized charter schools like hers that provide remote or hybrid learning.
Her network and others have filed a class-action suit against the state for more money.
►About 10% of charter schools getting PPP loans lost public funding. Only Colorado, Georgia, Idaho, Missouri and Nevada slightly cut that funding during the health crisis, while the remaining states did not. However, Georgia and Missouri later restored all lost revenue, meaning about 93% of charter schools getting forgiven PPP loans lost no public funding.
►California led all states with $335 million in forgiven PPP loans for at least 268 charter schools. New York was second with $114 million in forgiven loans for at least 86 charters. In Florida, at least $67 million was forgiven for 92 charters, while in Arizona, nearly $57 million was forgiven for 94 charters.
Delaware was last with a $150,928 forgiven loan for a single school.
►At least 22 nonprofit companies that run charter schools and obtained loans in excess of $2 million reported having more than 500 employees, above the federal cutoff to be considered a small business eligible for PPP loans. Of those, 13 schools had more than 600 employees, and one had 1,302.
►Among the 118 charter schools that had forgiven PPP loans in excess of $2 million, the majority had financial records showing they didn't need the money because of large fund balances and wealthy donors for some charters.
Aliya Sabharwal, campaign manager for Americans for Financial Reform, said her group and five other public policy organizations met in January with SBA Deputy Chief of Staff Arthur Plews.
The goal: Determine if any of the forgiven loans that her organization claims were improperly used could be clawed back.
Sabharwal, whose group works to fight racism in the country's financial system, said SBA officials indicated to them that they have the power to get money back if recipients misused funds.
"Maybe charter schools were eligible and they didn't break any rules and there was no outright fraud, but the spirit of the program was that it was explicitly for small businesses," she said.
Plews did not respond to requests for comment.
Arlene Martínez, who is deputy executive director for Good Jobs First and is part of the group, said while she's hopeful the SBA will get some of the money back, government officials also told them that their "hands were tied under the former administration" on how much can be done.
"They still have a lot of power to make sure this does not happen again," said Martínez, whose group compiles data and promotes accountability in economic development.
Autor, the MIT economics scholar, said he expects to see more media scrutiny now that loans are being forgiven.
"But the money will not be recovered in a substantial sense," he said, noting officials don't have a strong interest in getting the money back. "The media does not have enough capacity to shame everyone who needed to be shamed."
However, Chu said she has been assured by SBA officials that they have begun working through a massive backlog of fraud tips for the entire PPP loan program and are working with the Department of Justice.
"They have gotten thousands of tips," Chu said. "It tells me that many feel there could have been some underhanded businesses with loans."
Have a tip on business or investigative stories? Reach the reporter at firstname.lastname@example.org or 602-509-3613 or on Twitter @CraigHarrisUSAT or linkedin.com/in/craig-harris-70024030/
A small San Diego charter school chain that caters to low-income children could have used a PPP loan, but school leaders decided to turn it down for ethical reasons.
The KIPP Foundation made $27 million during COVID, so why did taxpayers pick up a near identical tab in PPP loans?
This article originally appeared on USA TODAY: U.S. charter schools get paid twice with $1 billion forgiven PPP loans