First of two parts.
To many in the impoverished city of Chester, the Chester Community Charter School is a beacon of hope.
The state's largest charter school, it boasts safe hallways, new facilities and energetic teachers. It outperforms the city's regular elementary and middle schools on state tests.
But there's another side to the school's operation that Pennsylvania Education Secretary Gerald L. Zahorchak and Barbara Nelson, a top aide, say raises questions about whether the school is spending too much of its budget on administration and too little on teaching. Zahorchak says he has asked the Chester Upland School District to report on financial data from the school "to the last penny spent."
The state is also seeking changes in the school's special-education program, which has a high percentage of mildly disabled students. Under state law, the school receives three times the regular-student subsidy for each special-education student, whether he or she is mildly or severely impaired. But it spends only a fraction of that on services to those students and uses the rest for other purposes.
The school denies any improper practices and has challenged the state's review in Commonwealth Court, which has ordered hearings and arbitration.
The charter, a nonprofit, pays millions of dollars in annual rents, management fees and salaries to a for-profit company and its chief executive officer, Vahan H. Gureghian, a wealthy lawyer and Republican fund-raiser who lives in one of the largest mansions ever built on the Main Line.
While the charter pays its teachers among the lowest salaries in the state, Gureghian and his company are being paid $14 million in salaries and rent this school year. That brings the total he has received since he began running the school in 1999 to $60.6 million, according to school records submitted to the state.
The portion of the school's money going to business and administration is consistently among the highest for charter schools in Pennsylvania, state records show, and its spending percentage on instruction is among the lowest.
The charter - with 2,350 students in kindergarten through eighth grade - enrolls almost half the Chester Upland School District's elementary and middle school students and is larger than half the school districts in Pennsylvania.
In a written statement, Gureghian said he was "most proud of the work I've been able to do, through my management firm, on behalf of the Chester Community Charter School."
He told an audience at the school this month: "We are having a real impact, and we're putting the students of Chester on a level playing field, where they belong, against the students of our region's leading districts." He declined to be interviewed.
Test scores at Chester Community Charter are significantly higher than those in the Chester Upland School District. Nonetheless, the school has not met state educational standards in four of the last five years.
Nelson, chief of the division that collects spending and revenue data at the Department of Education, called the school's spending "off-balance" compared with other charters and school districts. The school spent 44.6 percent on administration and business in 2006-07, compared with the average for all charters of 17.3 percent, and 30.5 percent on instruction, compared with the charter average of 50.3 percent.
About 14 percent of the school's total enrollment last school year were classified as speech- or language-impaired. This compares with 1.4 percent in Chester Upland and 2.4 percent statewide the year before.
The school receives $23,279 for every Chester Upland special-education student, regardless of whether the student has a mild disability that can be addressed with a modicum of additional instruction or a major one, such as severe mental retardation, that requires far more costly intervention. The state's charter law allows schools to keep whatever special-education money they don't spend on special education.
"This school has its priorities backwards, it's very clear," said James Lytle, a professor at the University of Pennsylvania's Graduate School of Education and a former Philadelphia School District official. "It is working with kids from the most disadvantaged community in Pennsylvania, and one of the goals should be to maximize the amount spent on direct instruction."
Kevin Dooley Kent, Gureghian's attorney, wrote in a letter to The Inquirer that there was no way the school could achieve its academic results without spending ample amounts on instruction. The school and the company "have provided, and will continue to provide in the future, the necessary resources" that students "require to continue their quality education," he wrote.
Gureghian grew up the son of a machinist in Delaware County and, after graduating from Upper Darby High School, became the first in his family to attend college and law school.
"I think it's important to note that I've always been a hard worker and a 'self-made man,' " Gureghian, 54, said in a statement.
As a partner at the Philadelphia law firm of Obermayer Rebmann Maxwell & Hippel L.L.P., Gureghian became involved with Chester Community Charter in 1998 when he helped its nonprofit board obtain a charter from the Chester Upland School District.
In less than a year, Gureghian's management firm took over the school. He ultimately resigned from Obermayer and made running the school his full-time job.
The school started out with 97 students in a hotel and grew rapidly. Gureghian installed modular trailers, then put up permanent buildings on Chester's East Side; a few years later, he opened a second campus.
The charter now has six classroom buildings, two gymnasiums, a Head Start center, and an administration building, all of which Gureghian owns and leases to the school.
Over the years, Gureghian has invested nearly $50 million in the school and its properties, which his lawyer notes is more than "all the other real estate investors in the area with the exception of the tax-exempt Harrah's Casino."
Gureghian has gotten about $80 million in mortgages on school properties, real estate records show. One, a $22 million loan, uses his mansion in Gladwyne and 17 school parcels as collateral. The loan, which he obtained in 2006 from the Bancorp Bank, is in the names of Gureghian; his firm, Charter School Management Inc.; and his wife, Danielle, who works for the firm as its general counsel.
The Gureghians have given more than $1 million to school causes and donated $400,000 this month for 1,400 laptops at the school.
All charter schools are nonprofit institutions, required by federal law to file nonprofit tax returns, Form 990s, which list a wealth of financial information, including the salaries of their top five employees and the amounts paid to their top five independent contractors.
Typically, a charter school's board hires teachers and administrators. Contractors, including management firms, are often used to perform specific tasks.
But Chester Community Charter has a different structure. While the school is nonprofit, its board employs no one directly and has turned over all operations to Gureghian's firm. The firm receives and disburses the school's local, state and federal subsidies - about $30 million this school year.
In the 2003-04 school year, the board reported on its 990 that it had paid Gureghian's firm a management fee of $2.7 million. Since then, it has stopped reporting a management fee.
In June 2006, the board signed a new agreement with Gureghian that stated his firm "shall retain any excess of revenues over expenditures as its compensation for the variety of educational and management services."
Because Gureghian's firm employs all of the staff and managers, the school's 990 for 2006-07 does not list its top five officers, or its top five contractors, or any of their salaries or payments. Therefore, the school does not report how much Gureghian or any of his senior managers are paid.
Reports by Chester Community Charter for 2006-07 show three different figures for the excess of revenues over expenditures.
The tax document reported $170,062. In a second financial statement required of all charter schools, the board said the excess was $294,771. In a third report that year, an annual financial report required by state law, the school reported it at $1.95 million.
Most recently, in its financial report filed this month for the 2007-08 school year, the school reported an excess of revenues of just over $2.25 million.
Gureghian's attorney and Spencer Seaton Jr., the board's chairman, said the numbers reflected different accounting rules. The two did not say which amount was actually paid to Gureghian's firm.
In 2007, the state Supreme Court ruled in a lawsuit by a Delaware County Daily Times reporter that Chester Community Charter and Gureghian's management firm were covered by the state's Right to Know Law. The law requires schools to reveal salaries, management fees, and other financial information related to their operations.
Citing that law, The Inquirer asked the school and Gureghian's firm for information about how much Gureghian and other officers of his firm are paid.
Both declined to provide that information. Seaton termed The Inquirer's payment figures "incorrect and inflated."
Zahorchak, the state secretary of education, said the school's payments must be disclosed because "that is public information" and "those are public funds."
For every regular-education student at Chester Community Charter, it receives $8,000 in public subsidies from the Chester Upland School District. For special-education students, the charter receives $23,000, almost three times as much.
The charter school and the school district had similarly high special-education enrollments in 2006-07 - 24.4 percent and 25.6 percent, respectively - but there the similarity ends.
At the charter school, 3.2 percent (16 of 495) of those special-education students were severely impaired; at the school district, the figure was 17.5 percent (188 of 1,075).
The disparity was even greater among students classified as speech- or language-impaired. At Chester Community Charter, 43.0 percent of special-education students have been so designated, compared with 5.4 percent in the school district.
After state officials discovered this disparity in the fall of 2007, an extensive review found "myriad problems" in the way the school identified and served learning-disabled students, "especially those with speech and language disabilities."
The state determined that many student records lacked required information, resulting in 70 percent of students identified as speech- or language-disabled failing to meet eligibility requirements.
State officials also said that "though the nature and severity of their disabilities were quite different," 72.1 percent of all special-education students were receiving three hours or less of special education a week.
The school, they concluded, "does not appear to align the degree of need and the amount of special-education services it provided."
The bureau ordered new evaluations for many students and a redo of any faulty education plans. The school was also told to provide training to staff and contracted specialists.
The charter denied virtually all of the findings and said a computer glitch had caused many of the discrepancies involving the completeness of student records. It took the Department of Education to Commonwealth Court in September.
Seaton, the board chairman, said in a statement that the charter was being singled out for extra monitoring by the state, an assertion the state denies.
Ninety-one percent of Chester Community Charter's students are African American, and Linda Bland-Stewart, a professor of communication sciences and disorders at Howard University, said schools that identify disproportionately high percentages of African American children as speech- or language-impaired often use culturally biased testing.
Many low-income African American children enter school unfamiliar with standard English and should not be identified as impaired on the basis of tests that determine a student's performance in standard English, she said.
These students, she said, "need more language stimulation" in their regular classrooms. "There is no need to identify them and put them in special education," she said.
Bland-Stewart stressed that she had not studied the situation at Chester Community Charter and did not know which tests it used to identify students with speech or language impairments.
Seaton and Gureghian's attorney did not respond to questions about its procedures for classifying its students. Seaton, in a written response, said the charter's special-education students "receive the extra help they need in order to succeed."
There is also the larger issue of spending on special-education instruction.
Since 2000-01, Chester Community Charter has spent or budgeted on average only 20.7 percent of the millions it receives each year for special-education students on special-education services.
Tom Parrish, an expert in special-education funding at the American Institutes for Research in Palo Alto, Calif., who is familiar with Pennsylvania's funding system, said it encouraged charters to identify mild learning disabilities so they could collect large payments and have leftover money.
"There is a glaring loophole here," he said. "It has to be addressed."
To close the loophole, the Rendell administration this year proposed that charters return any special-education payments not spent on special-education students. The proposal never came up for a vote in the General Assembly.
Many parents enthusiastically support Chester Community Charter, saying it contrasts sharply with the old, dilapidated and often chaotic Chester Upland schools.
Tareeah Garrett has two children at Chester Community Charter, in third grade and in a Head Start program. She said she did not want them at the district's Columbus Elementary School. "When you go there, it's so rowdy, it makes you want to walk back out the door."
Her children like the charter school and are doing well, she said. And "all the teachers are excellent. When you go to PTA meetings and teacher conferences . . . they sit down and explain everything to you one on one."
The charter hires mostly young teachers just starting in the profession. Pay is low - an average of $35,540 in 2006-07, plus bonuses for achievement. That ranked 703d out of 727 school districts, charter and vocational schools in Pennsylvania.
Chester Community teachers are enthusiastic and well-trained, said the school's chief administrative officer, Steven Lee. Every grade on each campus, he said, has a grade director who works with teachers and children to improve instruction.
"It's a great system," he said. "It provides instant support for the teachers."
Still, teacher turnover is often high; in several recent years, about 30 percent of the teachers did not return the next year, school records show.
School officials declined The Inquirer's request to interview teachers. Several former teachers also declined to comment.
Seaton said in a statement that some teachers had not been asked back.
"We fortunately are not bound by the restraints of teachers unions, and, therefore, we are free to make our staffing decisions based on performance," the board chairman wrote.
Teachers face a $2,000 fine if they leave the school between June 1 and Sept. 15 or, at any time, fail to give 15 days' notice.
Two former teachers have sued over the practice. Arbitration is slated.
Because Gureghian's firm and not the school employs the teachers, they are not eligible to join the Public School Employees' Retirement System, Pennsylvania's gold-plated pension plan for teachers. Instead of paying into the state system, Gureghian's firm offers a 401(k) retirement plan with a 2 percent employer match.
Only five other charters statewide are not part of the state plan.
In kindergarten and first grade, the school uses Direct Instruction, a highly scripted academic program.
Students wear uniforms, halls are clean and quiet, and surveillance video cameras are everywhere.
Hallways have names like Mastery Street and Bright Beginnings Avenue. Students are rewarded for good behavior and high attendance with parties and play dollars they can spend in the school store.
Student achievement at the school has improved consistently since 2001. Despite the school's positives, however, many students continue to struggle academically. This year, 52.7 percent met the state standard in math on the annual test, the Pennsylvania System of School Assessment; the state math target was 56 percent. In reading, 50.3 percent of the students met the mark; the state target was 63 percent.
Students in the Chester Upland School District scored 28.2 percent in math and 28.8 percent in reading.
Chester Community Charter also outperformed Philadelphia in grades three to eight this year in math and reading, and its African American students scored above their group's statewide average in math and reading.
The charter scored higher in math than Chester Upland and the William Penn School District but lower than all other districts in Delaware County. In reading, the charter outperformed only Chester Upland.
In a statement, Seaton said his students were clearly outperforming their peers in Chester's public schools and overcoming a host of disadvantages.
The charter's students, he wrote, "have lived in a world surrounded by persistent generational poverty, high community crime, street gangs, frequent child abuse, and a pervasive drug culture. At CCCS, however, these factors no longer interfere with the development of the academic skills necessary to break the cycle of poverty. A culture of safety at CCCS - without guns, drugs or graffiti - has finally allowed the children of Chester to achieve a fruitful and successful education."
To read earlier articles on charter schools, go to http://go.philly.com/charterEndText