Germantown charter school's use of taxpayer funds being investigated

With renewal of its charter already in jeopardy, the Germantown Settlement Charter School is being investigated by law enforcement agencies for allegedly diverting some of the $31 million in taxpayer funds it received over nine years to prop up other nonprofits operated by its parent group.

The school, with 456 fifth through eighth graders, is in crisis.

Its test scores dramatically lag state benchmarks, dozens of vendors clamor daily for payments, and the school has been threatened with eviction by a sister nonprofit created by its parent, Germantown Settlement.

The school's accounts have been drained, and the school has run deficits as high as $406,617, according to school and district documents.

An Inquirer analysis shows the school spent 38.4 percent of its 2006-07 budget on instruction - the fifth-lowest percentage of 118 charter schools in the state.

And, in a 2006-07 IRS filing, the school reported spending part of its $4.4 million budget on noneducational items: $179,736 on legal fees; $13,633 on meals and entertainment and $26,549 on travel. Only $21,369 was spent on books and instructional materials.

It also paid $616,155 - 14 percent of its budget - in rent to subsidiaries of Germantown Settlement.

Emanuel V. Freeman, president of the school's board and Germantown Settlement, denied wrongdoing and vowed to appeal any decision to close the school.

Germantown Settlement Charter is the third Philadelphia school to fall under federal scrutiny in a widening probe of publicly funded charter schools for mismanagement, misuse of public funds, and cronyism.

Troubled by the school's academic and fiscal woes, the Philadelphia School Reform Commission voted in April to deny the school a new five-year charter. The commission held hearings this summer and will make a final decision Wednesday. If the SRC votes to close the school, it would be a first in 11 years of charters in Philadelphia.

The allegations under federal, state and district review at Germantown Settlement Charter are similar to those under investigation at Philadelphia Academy Charter School: missing funds, improper spending, and conflicts of interest between the school and its parent group, including lease agreements with related nonprofits.

Philadelphia Academy remains open with a new board and new administrators while the federal criminal probe continues.

The U.S. Attorney's Office is conducting a separate investigation of Germantown Settlement's operations, according to people with knowledge of that probe. That inquiry began at least 18 months ago in response to complaints.

At Germantown Settlement Charter, former employees and frustrated vendors say the board's policies - paying rent first, reneging on funding promises, and failing to pay bills - cause the school to lurch from crisis to crisis.

On the same day last spring, the school lost its phone service and utilities were threatening shutoffs, said a former staffer. The school often received three or four calls daily from vendors demanding payment, said another.

Textbook publishers and nurses are among those clamoring for their money. This summer, the charter was $60,000 behind in state retirement payments.

"When I got there, people told me this was the pattern," said Daniel Lee, a psychologist who is suing the school for $63,000. "They get providers in. They don't pay, and they burn their bridges."

James Foster, a veteran community activist, has long complained about Germantown Settlement.

"The Settlement Charter School is simply another opportunistic move by the management to lash itself to a community need that would lead directly to large amounts of public dollars and continued revenue stream with no real intent to perform in any manner beyond the minimum it could get away with," said Foster, who last year ran as an independent in a bid to unseat City Councilwoman Donna Reed Miller, who years ago served on Germantown Settlement's board.

The investigations at Germantown Settlement Charter are being conducted by the U.S. Attorney's Office, the Pennsylvania attorney general, the state auditor, and the district's inspector general, according to sources with knowledge of the probes.

Investigators are trying to unravel how much of the charter's troubles can be traced to Germantown Settlement, a community-development organization with an array of nonprofit and for-profit subsidiaries. The largest, Greater Germantown Housing Development Corp., has received about $100 million in public and private money over three decades.

In an interview last week, Freeman said he was not aware of the investigations and dismissed them as "not unusual" given the allegations that surfaced during Philadelphia Academy's renewal in April.

Freeman heads the charter school's board but draws no salary. He was paid $156,000 as chief operating officer of Germantown Settlement in 2006-07, according to its most recent tax filing. His wife, Emma Cummings Freeman, received $75,000 as a vice president.

Freeman acknowledged that the charter "loaned" money to other Germantown entities by making repairs to school buildings. He referred to $50,000 spent by the school in 2005.

The school rents two buildings on Wayne and Germantown Avenues.

But a former administrator claimed the school improperly paid Germantown Settlement $500,000 in 2000. Linda Ralph Kern sued, contending she was fired for reporting the payments to the charter's board in 2001. The charter settled the suit four years ago.

Internal school documents obtained by The Inquirer show that charter officials refused to sign the school's 2006 tax return until accountants removed this language: "The charter school has from time to time loaned funds to another organization that the board president operates."

The final version said only that Freeman was president of both the charter board and one of the school's landlords and that the school expected to be reimbursed for the building repairs.

Freeman said he was optimistic the SRC would renew the school's charter.

"While our academic progress is not where we would like it," he said, "we still think we are making incremental improvements in the lives of the children. . . . Even after this whole issue of renewal is up in the air, parents are still flocking to the school."

The school remains under-enrolled and is one of a few of the city's 63 charter schools with no waiting list. Though enrollment grew from 416 students to 456 this fall, the school is authorized for 512.

Since opening in 1999, the school has failed to meet state academic benchmarks, though it was credited with "making progress" last year.

The reading scores improved in 2007-08, but 37 percent of students scored below basic - the lowest category on state tests. Math scores fell to 48.5 percent below basic.

Jeffrey Williams, who has been trying to improve academics since he became principal in 2007, blames the math-score decline on the fact that the charter adopted a new curriculum last year but ran out of money to complete teacher training.

Several parents last week praised the charter's dedicated staff, safety, and small classes of 22 to 25 students.

"The smaller classes are geared more to the ones who might get lost with 33 kids in the classroom," said Ora Frisby, a retired district classroom assistant whose grandson Zier Richardson Hartley, 13, is an eighth grader.

Troy Allen, whose son Devon also is in eighth grade, said "it would be an injustice to the neighborhood" if the SRC voted to close the school. "It's a safe haven for kids."

But the school has been running out of money.

In 2006-07, the school got $4.4 million in taxpayer funds but ended with a $44,335 deficit, an improvement over the $406,617 deficit of 2005-06, tax records show.

In those same years, the school made payments for "community services," its financial statements show.

During an SRC hearing, Freeman said he could not explain the payments of $53,554 in 2005 and $58,400 in 2006.

Freeman last week blamed the school's under-enrollment for its financial struggles.

Under the state charter law, the school this year will receive $8,088 per student and $17,658 for those requiring special education.

The school also faces scrutiny of its relationship with Germantown Settlement, its subsidiaries, and their overlapping boards.

Four of the school's dozen board members listed in its 2007 report were Settlement officials, including Freeman and his wife.

Freeman also presides over Greater Germantown Housing, the landlord for the charter's building for seventh and eighth graders at 5538 Wayne Ave.

But, he said, he does not join in lease discussions.

The school is locked in a dispute over repairs to its Wayne Avenue building. The school was ordered to pay more than $152,000 in past-due rent by Sept. 24 or face eviction.

Williams, the principal, said he had been assured an agreement had been negotiated.

"This is where I have to really trust the board that all is well," he said.

Last year, the same landlord caused havoc with the school's budget by erecting a wall that cut off exits. The school was forced to spend $250,000 to meet city codes so it could open that September, Williams said.

The school also pays rent to another subsidiary - Germantown Education & Development Corp. - for its fifth- and sixth-grade campus at 4811 Germantown Ave. Freeman said he's not on that board.

Last week, Freeman volunteered that the charter school would be changing its board leadership and bringing in members from outside Germantown Settlement with expertise in education and fund-raising to stabilize the school and address the SRC's conflict-of-interest concerns.

To read other stories in the charter school investigation, visit http://go.philly.com/charterEndText