School Lane among auditor general's charter lease targets

State Auditor General Eugene DePasquale said Thursday that regular audits of six charter schools across Pennsylvania found they had improperly received a total of more than $550,000 in taxpayer money from the state's charter lease-reimbursement program.

"Our audit found that these schools violated program parameters by filing for reimbursements for properties related to or owned by the charter schools," he said.

School Lane Charter School in Bensalem was one of the six. Auditors alleged the charter improperly collected $60,248 in state lease reimbursements.

The performance audits, which began before DePasquale took office in January, also covered one charter school in each of five other counties: Lackawanna, Lehigh, Luzerne, Mercer and Monroe.

Although auditors found problems with teacher certifications, record-keeping and failure to file federal nonprofit tax forms at some of the charters, problems with the reimbursement program cropped up at all.

"Six for six," DePasquale said Thursday afternoon after he released the reports outside the Lackawanna County Courthouse in Scranton.

He said the Auditor General's Office added lease reimbursements to the auditing protocols for charter schools after Philadelphia City Controller Alan Butkovitz found many questionable lease reimbursements at Philadelphia charter schools in 2010.

"We looked for it and we found it," DePasquale said, adding that the prevalence suggests the problem is widespread. "If that trend continues, we're talking tens of millions of dollars."

He called on the state Department of Education, the Pennsylvania Coalition of Public Charter Schools and the 157 traditional charter schools to work to resolve problems with the state program that reimburses charters for a portion of their rental costs.

Timothy Eller, a spokesman for the Education Department, said Secretary Ronald J. Tomalis "looks forward to receiving the audits and will review them to determine what, if any, actions should be taken."

The statewide charter coalition said it was not familiar with the details of the audits DePasquale had discussed.

"Charter schools welcome fair and objective audits as a way to both improve operations and ensure transparency and accountability," the coalition said in a statement. "From our understanding of what was discussed at [Thursday's] news conference, the situation may be a process issue as opposed to any intentional or inappropriate actions on the part of the charter schools."

Pennsylvania does not provide capital funds for charters to buy buildings. Charter operators - especially in the first years after the legislature passed the 1997 charter school law - found that banks and other lenders were reluctant to give mortgages to schools authorized to operate for only five years. As a solution, many charter schools created nonprofits to buy buildings for the schools to lease.

In 2001, the legislature gave charters another reason to use nonprofits when it created the program to reimburse charters for part of their rental costs.

School Lane, which opened in 1998, educates nearly 600 K-8 students in a building once owned by the Bensalem Township School District.

In April 2006, state auditors said, School Lane created the School Lane Foundation. A year later, the charter sold the building to the foundation and signed an agreement to lease the facility. In 2010, the foundation sold the building back to the charter for $1.

"Since the charter school sold the main building to the foundation to create a circular leasing arrangement to file for state lease reimbursement, we maintain that the charter school maintained ownership interest in the building that it was essentially leasing to itself," the Auditor General's Office said.

Auditors also found that School Lane improperly received reimbursements for an annex and land used for parking. Only leases with an educational purpose are eligible for reimbursement.

Altogether, DePasquale's office said, School Lane received over $60,000 more than it was entitled to receive in the 2006-07 and 2007-08 school years.

In its response, School Lane said the Education Department had approved the reimbursements.

"Therefore, School Lane Charter School was not out of compliance in this matter," the school said. "Regardless, the matter is no longer an issue, as we have since merged the School Lane Foundation into the school. Once that entity was discontinued, applying for lease reimbursements was no longer an option."

School Lane said there was nothing in state regulations that prevents a tax-exempt foundation that supports a charter school from buying a building and leasing it to the charter, and the charter applying for rent reimbursement.

"Lease reimbursement is the only way a charter school can receive state funds for buildings," School Lane said in its statement. "We are disappointed that the auditor general believes this a misuse of educational funds."