Charter Founder Profits; Students Struggle

From its headquarters one block south of Wall Street, Mosaica Education claims to operate with a simple mission: “To empower students to learn and achieve – every child, every day.”

This for-profit charter management company was founded in 1997 by Sandy Springs resident Gene Eidelman and has since expanded to a network of 90 schools, generating more than $125M in annual revenue.  For several years, Inc. Magazine has ranked Mosaica as one of the fastest growing companies in urban America.[i] 

Unfortunately, students attending schools managed by Mosaica have not seen their educational trajectories rise with the management company’s revenue.  Instead, Mosaica’s students around the country consistently underperform their peers.

Mirroring the organization’s national record, Mosiaca’s local charter school, Atlanta Preparatory Academy (APA), is one of Georgia’s worst performing schools on annual exams, with students in all grades scoring in the bottom 20% statewide. 

The school is currently up for charter renewal and has requested that the Atlanta Board of Education grant it a five-year charter extension.

During the December 2012 school board meeting, Mr. Allen Mueller, Executive Director of Innovation for Atlanta Public Schools (APS), recommended that the Board of Education decline to renew APA’s charter, citing low academic achievement and concerns about the school’s financial independence from Mosaica.  District 1 Board of Education representative, Ms. Brenda Muhammad, quickly rebuffed this recommendation and advocated extending the school’s charter for an additional five years.  The Board ultimately voted to delay any decisions until its January 2013 meeting.

A review of Mosaica and APA’s history, academic performance, and financial management raises serious questions about the prudence of granting the charter school an extension.

A Brief History of Scandal

During Mosaica’s short tenure on the national stage, it has found itself immersed in a series of scandals across the country. 

The Lafayette Academy Charter School opened in the fall of 2006, paying Mosaica $773,000 for the first year of a five-year management contract.  Less than 10 days into the school year, the charter’s governing board started “noticing problems.”  In a lawsuit filed against Mosaica, the governing board alleged that the management company failed to align its curriculum to Louisiana standards, failed to establish an after-school program for struggling students, and failed to properly organize transportation to and from the school.  On September 14, 2007, an arbitrator awarded the governing board a $350,000 judgment against Mosaica and upheld the school’s termination of its management agreement.

Two years later, Mosaica’s Howard Road Academy in D.C. was embroiled in a cheating scandal when a student announced to her exam proctor that she knew all the answers to the DC-CAS standardized test because she had been given the test to practice the day before.  The Washington Post later reported that Mosaica administrators distributed tests prior to exam day for “extra practice.”    

In April 2012, Mosaica’s STEAM Academy of Winston-Salem, North Carolina faced revocation of its charter for financial problems and low academic performance.  Just before annual exams were to be administered, The Winston-Salem Journal reported that Mosaica hired Susan Willis to run the school.  Prior to landing this job, Ms. Willis was fired by her previous employer when an investigation found that she conspired to boost test scores as the principal of William Flemming High School in Roanoke, Virginia.  Mosaica claimed to be “aware of a testing irregularity,” when hiring Ms. Willis, but “didn’t think it was anything significant.”

Last month, four of Mosaica’s Atlanta students were injured when a classmate mixed dry ice, vinegar and water together in a bottle.  One student was burned.  Another was hit in the head with the exploding bottle, and another got chemicals on his face.  The injuries occurred when a substitute teacher “wasn’t looking.”

Just last week, the Detroit News reported that Mosaica’s newest school in Muskegon Heights, Michigan has struggled to maintain a stable staff during its first year of operations.  The principal quit before classes started, and just three months into the school year, 25% of the teachers have also left the school.  A student described his experience as follows: "It's confusing because I go from this learning process to this learning process to that learning process and it's just ridiculous how some teachers leave and we have to start all over and learn something new…It’s just, it’s crazy." 

The Mosaica Growth Model

The nation’s most admired charter networks (e.g. KIPP, Uncommon Schools, Achievement First, Success Academies, etc.) have all followed a familiar pattern of expansion.  First, they started with a single school in a single city, worked to perfect that school, and then replicated the successful model.  As they expand, the networks strive to ensure their new schools consistently implement the approaches which proved successful in their flagship location.

Unlike these organizations, high standards do not seem to be a priority at Mosaica.  Perhaps the thing most consistent about Mosaica’s schools is their failure.

A comprehensive analysis conducted by Arizona State University lists the first 36 schools founded by Mosaica since it began operating in 1997.  Twenty seven of those schools have since been shut down by local authorizers or have extricated themselves from Mosaica’s management.

Of the nine which survived, eight can be classified as categorical failures.  They have consistently scraped along the bottom of the barrel in their states as measured by performance on annual exams.  Here are those schools’ most recent statewide percentile rankings on exams as compiled by SchoolDigger:

• Arts and Technology Academy of Pontiac (MI) – 10th Percentile
• Bay County Public School Academy (MI) – 15th Percentile
• Columbus Arts & Technology Academy (OH) – 11th Percentile
• Columbus Humanities Arts and Technology Academy (OH) – 8th Percentile
• Grand Blanc Academy (MI) – 16th Percentile
• Howard Road Academy (DC) – 14th Percentile
• Phoenix Advantage Charter School (AZ) – 34th Percentile

The only possible beacon of success among Mosaica’s first 36 education attempts is the Columbus Preparatory Academy.  Founded in 2004, until recently, the school has struggled, its test scores falling in the 6th percentile in 2008.  After the Columbus Dispatch ran a story including the school on a list of charters facing closure, the Columbus Preparatory Academy saw its performance undergo a meteoric rise to the 81st percentile on the state’s 2011 tests. 

Even if this single-year increase is an accurate reflection of lasting student growth at Columbus Prepartory Academy, Mosaica has demonstrated no capacity to duplicate the success elsewhere.  Instead, the organization seems willing to accept a certain level of school closures, focusing instead on a strategy of opening new schools.  During the time the network watched 27 of its first 36 schools close, it was able to open more than 75 new schools.  As long as Mosaica opens more schools than it sees closed each year, its revenue can continue to grow.

By the time local or state authorities step in to shut schools down, Mosaica has already earned several years of profits and can move on to the next opportunity.

Founding of Atlanta Preparatory Academy

In December 2006, Mosaica’s President Gene Eidelman filed a charter petition to open the Atlanta Preparatory Academy (APA).  The charter application indicates that non-profit APA intended to contract with for-profit Mosaica to provide all services. 

Unlike Grant Park’s community-based Atlanta Neighborhood Charter School, APA was not founded by a group of local parents seeking better options for their kids.  Instead, Gene Eidelman was joined by a team of three outsiders, none of whom live in the community where APA planned to operate its school and none of whom send children to the school.  The charter lists its inaugural board as follows:

1. Gene Eidelman – President
2. Neil Shorthouse
3.  Ann Davis Jones
4.  Falomi Prescott-Adams

The application acknowledged a conflict of interest as APA’s President was also the founder, owner, and President of Mosaica.

Undeterred by this conflict, the APS Board of Education approved the application, paving the way for APA to open in the fall of 2008.  The school was not prepared to receive students in 2008 and ultimately delayed its start to August 2009.

Since the Board of Education approved the school’s charter five years ago, APA has been a revolving door for board members who join then leave the organization.  Founders Ann Davis Jones and Falomi Prescott-Adams have both severed ties to APA.  According to filings with the Georgia Secretary of State’s office, each of the past four years the school has had a different Chief Financial Officer (CFO).  None of the individuals who have served as CFO appear to have earned a degree in finance or accounting.

• 2009 CFO Gene Eidelman did not graduate from college.
• 2010 CFO Neil Shorthouse earned a bachelor’s degree in Political Science from the University of Pittsburgh.
• 2011 CFO Colin Colvin’s background is unclear
• 2012 CFO Dekisha Drayton is an MD who studied Biology as an undergraduate.

This instability and lack of financial experience stands in stark contrast to the consistent financial leadership seen at Atlanta’s successful charters.  One of the city’s most highly regarded charters is the Charles R. Drew Charter School.  Its CFO, Brian P. Williams, has served in that role for at least six years.  He also has a financial background and worked for 10 years as a CPA with PriceWaterhouseCoopers.

Academic Achievement

Much like Mosaica’s other schools, APA’s students rank among the bottom of the pack on Georgia exams.  For the 2012 CRCT, the school didn’t see students in any grade exceed the 20th percentile statewide.  In three of five grades, students ranked in the 10th percentile or lower (See attached Table 1).

Importantly, the school’s highest performing students are 7th graders who received their K-4 educations elsewhere, prior to APA opening.

Only one APS-approved charter school has seen its students achieve at low levels similar to APA--The Intown Academy.  Each of the district’s other charter schools see students perform at much higher levels.  Attached as Table 2 are the 2012 average percentiles for all grades served by Atlanta’s charter schools.

APA’s sub-par performance is even more disappointing when one considers that, with a low-income percentage of 61%, fewer of its students may face the challenges faced by students in most other APS charters.

In addition to raw performance, APS also tracks “value-added” metrics which measure year-over-year growth in CRCT scores on a student-by-student basis.  By this measure, APA’s elementary students only achieved 6.9 months of learning during a full school year while middle school students achieved 7.9 months of learning.  Both tallies are among the lowest in the district.

In every year since the charter began operating, APA failed to meet the Adequate Yearly Progress metrics established under the No Child Left Behind act.

In addition to the charter’s dismal academic achievement, a review of APA’s financial statements raises questions about whether the school has been a good steward of public resources. 

Instructional Outlays

The Management Agreement between APA and Mosaica calls for a fee of 12.5% of per-pupil revenue received by the school, which in 2012 amounted to $577,716.  It goes on to say that this fee “will not preclude the payment of additional consideration,” paving the way for Mosaica to charge more for any services not covered under the Management Agreement.

Only 36.2% of APA’s revenue for the year ended June 30, 2012 actually went toward instruction.  This was the lowest percentage of expenses allocated to instruction among all of Atlanta’s charter schools.[ii]  The percentages for other schools are presented below.

• Atlanta Neighborhood Charter School – 82%
• KIPP (Combined)[iii] – 75%
• The Kindezi School – 62%
• Charles R. Drew Charter School – 61%
• Wesley International Academy – 52%
• The Intown Academy – 48%

The school’s remaining $2.6M of public funds was spent in a variety of other ways.  Below are some of the broad categories and amounts reported in the school’s financials:

• “Maintenance and Operation of Plant Services” - $850,623
• “Management Fees” - $577,716[iv]
• “Improvement of Instructional Services” - $376,781
• “School Administration” - $268,947
• “General Administration” - $165,539
• “Support Services - Business” - $146,358
• “Other Outlays” – $166,459

The lack of detail provided makes it difficult to determine the total amount paid to Mosaica.  For example, Mosaica may have provided what is classified as “Improvement of Instructional Services.”  If these services were determined to fall outside the management agreement, the $376,781 would have been paid to Mosaica on top of its $577,716 management fee.  The same goes for other expense categories.

Real Estate Purchase

As noted in its charter application, Gene Eidelman identified a potential site for the school prior to founding APA.  On July 18, 2008, APA purchased that site, a tract of land on Fairburn Road, just outside the 285 perimeter. 

The tax assessor’s office indicates that the land was purchased from Sterling Trust Company for $475,000.  Prior to this $475,000 transaction, the 3.12-acre parcel was last sold in 2000, when Sterling Trust Company acquired it for $82,779.[v]  

According to APA’s 2012 Audited Financial Statements, $200,000 of the purchase price was financed by the seller while the remaining amount was financed by a Denver-based financial firm, Tatonka Capital.  In addition, Tatonka provided $275,000 to cover “engineering, loan fees, legal fees, permit costs, and prorated items.”

Approximately one year after the purchase, Tatonka Capital assigned the financing note to Mosaica, and the management company has continued to collect interest from APA for the loan. APA’s 2012 Financial Statements indicate that this loan was secured by the property and accumulated interest at a variable rate which is currently 7.25%.[vi]  Annual interest on a $550,000 loan at 7.25% totals approximately $40,000.

No building was ever constructed at the site, and it has continued to sit vacant for the past four years. Estimated expenditures to date on the Fairburn property are attached as Table 3. 

To date, APA has spent close to one million dollars of public money on a site which in no way contributed to education.

Lease Agreement

As loans financing the Fairburn property continue to accumulate interest, APA operates in a facility located at 569 Martin Luther King Junior Drive in west Atlanta.  The facility, known as Jordan Hall, was once part of the Morris Brown College campus.  In 2009, Morris Brown lost the facility to foreclosure in the wake of an embezzlement scandal that led to a loss of accreditation and long-lasting financial troubles for the college.

The purchaser of Jordan Hall, GTAS Properties LLC, paid $900,000 for the facility on March 3, 2009.  Less than three months later, APA entered an agreement to rent the facility.  According to APA’s 2012 Audited Financial Statements, the school paid $402,870 in rent for the year ended June 30, 2012.  This annual lease rate represents approximately 45% of the building’s most recent sales value.  The school enrolled 441 students during the 2011-2012 school year, resulting in a per pupil lease expense of $914.

It is not uncommon for charter schools operating in the APS system to lease facilities; however, many lease their facilities directly from the school system, which makes excess space available rent-free to locally approved charter schools.  The following APS charter schools have accepted these rent-free facilities.

• Atlanta Neighborhood Charter School
• KIPP Vision
• KIPP Atlanta Collegiate
• KIPP WAYS
• The Kindezi School
• The Intown Academy

The Charles R. Drew Charter School operates in facilities owned by the East Lake Foundation, and its financial statements do not indicate that any lease payments were made for the use of the facilities.  

In response to a request for information, the APS Department of Innovation, which oversees charter schools and their use of excess space in district buildings, indicated that buildings have been available each of the past five years including a recent opening at the Herndon facility near Jordan Hall; no one from APA has contacted the Department of Innovation to express interest in leasing free facilities.

Unresponsive Board

I have attempted to contact several past and present APA board members.  However, none have responded to my request for a meeting to discuss the school’s financial management, relationship with Mosaica, and academic performance. 

I have also called and emailed Board of Education representative Brenda Muhammad to inquire about her advocacy that APA be granted a renewal of its charter.  She has not responded.

Decision on Pending Charter Extension Application

During its January 2013 meeting, the Atlanta Board of Education will vote whether or not to approve APA’s application for charter renewal.  Under its current charter term, APA has delivered consistently subpar education to its students while squandering financial resources.  The school’s students and Atlanta’s taxpayers deserve better.  It is time for the Atlanta Board of Education to follow the lead of authorizers around the nation by turning off the citizen-funded cash spigot to Gene Eidelman and his Mosaica enterprise.

Jarod Apperson is a CPA and Atlanta resident.  He is a supporter of high-quality charter schools and accountability for all public schools, both traditional and charter.  

[i] http://auroraacademies.org/board-member/gene-eidelman/

[ii] It is important to keep in mind that the financial statements prepared by charter schools are significantly less detailed than those prepared by districts such as the Atlanta Public Schools.  While districts, must lay out detailed accounts down to the number and type of employees in each department, charters are free to report more limited information.  As such, most charters report broad categories such as “instructional expense” which should include primarily teacher salaries, but may also include other expenses.  In addition expenses are not classified uniformly across charter schools, which may make some comparisons between schools unreliable.

[iii] Rather than listing “Instructional” expenses as a single line item, KIPP provides a detailed breakdown.  For this calculation the following expenses have been considered: “Payroll,” “Payroll Taxes and Benefits,” and “Direct Student Expenses.”

[iv] This amount is reported in Note 7 to the financial statements; however, it does not appear on the income statement, so it may comprise portions of some of the other items listed

[v] Sterling Trust Company is a financial services firm offering self-directed IRA’s.  Therefore, ownership of the Fairburn property was likely on behalf of one of its IRA clients.  The identity of the seller is unclear.

[vi] The contract stipulates prime plus 4.00%.  The Wall Street Journal prime rate is 3.25%.