Investigation: Charter school paying founder’s firm for loan never made


Eagle Arts Academy, one of Palm Beach County’s largest charter schools, is paying more than $38,000 to a company owned by its founder, calling it a loan “repayment” even though the school never borrowed money from the company and owes it no debt, a Palm Beach Post investigation has found.

Rather than repaying a loan, the school is steering taxpayer dollars to a business owned by Gregory James Blount for money he claims he spent writing a charter application years before the school opened, records show.

The arrangement — using classroom dollars to reimburse private expenses incurred before the school’s creation — is an extraordinary measure that charter school experts called an unethical use of public money. Though not expressly prohibited by state law, the payment “does not pass the smell test,” a top state lawmaker told The Post.

Questions about the appropriateness of using public money to compensate private costs aren’t the only potential problem with the financially troubled school’s payment to Blount’s company, The Post found. School records also show that:

  • By calling the deal a loan repayment, Eagle Arts is allowing Blount’s company to collect thousands of additional dollars in interest, even though the school signed no loan agreement.
  • Though the arrangement is effectively a reimbursement for expenses, not a traditional debt payment, the school’s board approved it despite being provided with only a basic list of expenses and no invoices detailing the major ones.
  • The expenses that Blount’s company claimed for creating the charter application are more than double what experts say is the typical cost of writing one.
  • Discrepancies in the company’s compensation request raise questions about whether Blount inflated his costs by as much as $14,500.

 

Blount, a self-described former model and event producer who emerged from personal bankruptcy in 2010, said in a report to the school that his company spent most of the $38,780 in 2011 and 2012 while researching and writing an application to create the charter school.

But the 680-student school was not formed until July 2012 and did not open until August 2014. Records show that Eagle Arts, which is privately run but publicly financed, never signed a loan agreement or repayment plan with Blount’s company, Sound Tree Entertainment, and there was no written acknowledgement of the “start-up loan” until May.

Yet records show the school’s board of directors approved the payment and agreed to let Blount’s company earn a profit on top of it by treating it as a loan and paying 3 1/2 years of 7.5 percent annual interest, a gesture potentially worth more than $9,000.

The payment was arranged despite the fact that Blount provided the school with scant documentation. Rather than invoices detailing his company’s expenses and the services received, Blount presented a one-page list of 20 payments to companies and individuals, accompanied by one-line descriptions of the purpose for each one, according to records obtained from the school. The only invoices provided were for a handful of small expenses, along with copies of canceled checks.

The revelation comes while the school is already under investigation by the county school board’s inspector general, which launched a probe after The Post revealed last month how two other Blount companies profited off the school’s operations.

In a statement, Eagle Arts defended the payment as a legitimate loan.

“The school is not ‘compensating’ Sound Tree for anything,” a school spokeswoman said in an email. “It is simply repaying the deferred start-up costs to write and start the charter school.”

But charter school experts called the arrangement highly unusual and contrary to the intent of Florida law.

“Those aren’t costs that ever get recouped,” said Faith-Ann Cheek, a charter school consultant and former director of the Palm Beach County School District’s charter school department. “They’re just part of the set-up of the school. I don’t know how legally or ethically somebody could take that money back out.”

State Sen. John Legg, chairman of the Senate’s education committee and a charter school operator himself, called the arrangement “questionable at best.”

“That does not pass smell the test,” said Legg, R-Lutz. “They should not reimburse those dollars.”

2-member board OKs payments

Board meeting minutes indicate that just two members signed off on the payment, doing so without debate at a May 4 board meeting after the “repayment” plan was suggested by the board’s then-chairman William “Patch” Paczkowski.

Paczkowski, a business professor at Palm Beach State College, proposed the payment to Blount’s company, voted to approve it and resigned from the board immediately afterward, meeting minutes show.

The person he tapped to replace him: Blount.

Blount, who was at the meeting, assumed the chairmanship a moment later, despite a provision in the school’s charter that prohibits board members from profiting from the school. Blount had been the school’s first chairman but resigned last summer so that another company of his, Artademics, could profit from a contract it signed to design the school’s arts-infused curriculum.

On May 12, days after Blount took over again as chairman, records show that the school wrote Blount’s company a check for $9,694, the first of four installments to pay off what the school later called a “start-up loan” in a letter to its new board of directors.

It’s not clear how many other payments Blount’s company has received. The school declined this week to answer questions about the number of payments disbursed so far.

Blount and the school’s principal, Ann Simone, declined to comment on the payments or The Post’s findings. Paczkowski did not respond to requests for comment.

But Colleen Kirk, a California-based publicist hired by the school, argued that Blount’s company deserved repayment because its expenses benefited the school.

“It is a loan from Sound Tree to the school for start-up costs that were incurred between 2011 and 2014,” Kirk said in an email. “Sound Tree fronted costs to hire expert consultants, lawyers, as well as the costs necessary to create the charter. Sound Tree deferred the reimbursement of the loan until 2015, more than three years since the loan began.”

Because the school received no money from Sound Tree and didn’t recognize or agree to reimburse the expenses until years later, it’s not a loan, said Richard Rampell, CEO of the Palm Beach accounting firm Rampell and Rampell.

“Without a promissory note or some other written, contemporaneously executed document memorializing the debt, such as in the board minutes or by board resolution, he would not normally be entitled to get this money,” Rampell said.

Legg, the state senator, said costs incurred before a school is created aren’t supposed to be recovered years later from money intended for the classroom. Charter school management companies recover upfront costs through their annual management fees, but he said trying to recover start-up costs directly is “a real slippery slope.”

“I don’t know how you can reimburse yourself for pre-contract expenses,” he said. “I don’t know how that’s possible.”

A spokeswoman for the state Department of Education said state law doesn’t specifically prohibit such arrangements.

Kirk told The Post that Blount renounced the interest payment before becoming the school’s chairman on May 4, but a school memo shows that on May 12 the school was still planning to pay his company interest.

‘He just gave it to me’

Blount’s expenses included $14,552 to consultants to prepare a charter school application and another $14,500 to pay off loans the company itself reportedly took out to cover application-writing costs.

The fact that the company is asking for repayment to cover both expenses and other loans raises questions about whether Sound Tree may effectively have charged the school twice for the same costs. But the lack of invoices make it impossible to verify what Sound Tree’s reported loans paid for.

“This would be something that we would call a red flag,” said Rampell, who reviewed the company’s reported expenses at The Post’s request.

Both Blount and the school declined to answer questions about the discrepancy this week.

Rather than borrow from banks or other lending agencies, Blount’s company said it borrowed money from private individuals. The company identified its lenders only as Katie Summers and Nancy Flinn and did not give the school any evidence of loan agreements with them.

Sound Tree’s largest reported expense was $10,000 paid to a woman named Natalia Romero, listed as “payment for writing charter application.”

In a brief interview, Romero told The Post she received money from Blount’s company but declined to say what work she had performed on the application. She identified herself as a consultant who occasionally works with schools.

But the extent of Romero’s involvement in the project was questioned by Liz Knowles, who was hired to be the school’s first principal and participated in the charter-writing process.

“She was visible, but I wasn’t sure what her contribution was,” said Knowles, who resigned shortly before the school’s opening last year after clashing with Blount.

For her part, Knowles received $2,500 from Sound Tree for her role in designing that application. But she said that she never provided Blount with an invoice or even quoted him a price for her work.

One day, she said, he simply handed her a check.

“He just gave it to me,” she said. “I don’t know where he came up with that amount.”

Expert: Costs seem ‘really high’

Records show that more than $5,700 of the expenses weren’t incurred by Sound Tree, but by a separate company operated by Blount: EMPPAC Foundation.

Blount had pitched EMPPAC to parents and the school board as a nonprofit that would support the school by raising money and contributing donations. But records show that Blount wants the school to compensate EMPPAC for money spent on attorneys, signs and fliers.

Despite the fact that EMPPAC, not Sound Tree, spent that money, the school’s board of directors agreed to compensate Sound Tree for the expenses.

All told, Blount claimed to spend more than $35,000, including more than $5,000 to attorneys, on costs related to preparing the 130-page charter school application, an unusually high amount.

While the cost of preparing applications can vary dramatically, it is rare for the costs to run higher than $15,000, said Cheek, the charter school consultant and former school district administrator.

“That’s really high, especially for several years ago,” she said. “He didn’t shop around for a good price, I’ll tell you that.”

The payments to Blount’s company come as the school struggles to manage hundreds of thousands of dollars in debt to a contractor and its former management company.

But the school says it is in strong financial shape.

“The financial health of the school is fine,” Kirk, the spokeswoman, said in an email. “(The school) has just completed building a $100K state-of-the-art iMac animation lab, as well as a $500K TV production studio and dance studio.”



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