Millions in costly real estate deals threaten Albany charter school foundation
For 15 years, the Brighter Choice Foundationhas been the leading backer of charter schools in Albany, which is among the most concentrated and contentious charter proving grounds in the state.
Founded by ideological pioneers of New York's charter movement, Brighter Choice helped seed 11 of the 12 charter schools once operating within a 20-minute walk of the state Capitol. Seven will still be open next school year.
But the nonprofit has altered the city's landscape in a more material way inseparable from its mission to provide alternatives to struggling city schools: It has also been one of Albany's most prolific real estate developers.
The foundation has struck complex financing arrangements for tens of millions of dollars to build nine new schools — the equivalent of a second school district paid for with tax money city schools are legally bound to share with the charters to educate the children who choose to attend them.
There may be no better example than the Brighter Choice Middle School for Boys and Brighter Choice Middle School for Girls, which will saddle the foundation with a $15 million debt on the 4-year-old Elk Street building they share when they close next month.
The deals rest on a key assumption: That the schools, whose charters need to be renewed by the state every five years, will stay open long enough to pay the loans taken out to build them.
To critics, they represent big-money gambles on unproven schools. To boosters they are emblematic of a fundamental flaw in New York's 1998 charter school law that excluded charters from the huge pool of state aid — some $2.7 billion this year — to renovate or replace aging public school buildings.
"We started off with one hand tied behind our back," said Kyle Rosenkrans, CEO of the New York City-based Northeast Charter Schools Network.
The result, the network alleges in a lawsuit filed against the state last year, is that charters spend money on real estate rather than on educating students.
Brighter Choice may be ground zero for the long-term consequences of that.
Buffeted by a series of school closures, the foundation finds itself under significant financial pressure in part due to bets on several schools the state says have failed to meet their educational benchmarks, according to financial documents reviewed by the Times Union.
The closure of the Brighter Choice middle schools will eventually leave the foundation on the hook for a $15.1 million construction debt it guaranteed that Wall Street doubts it can pay for more than three years.
The 30-year bonds were issued in 2012 through the Industrial Development Authority of the City of Phoenix; in March, Fitch Ratings called the schools' default "inevitable."
The foundation has also guaranteed another $1.35 million in related loans for the schools.
A default by the schools would force the foundation to find a way to pay the bondholders — Chicago-based Nuveen Asset Management — without the $14,072 per-student revenue that is the core of the Brighter Choice business model, or face having the building sold out from under it.
This has happened before. After New Covenant Charter School on North Lark Street lost its charter in 2010 with nearly $16 million in principal still owed on bonds issued to build it, the city school district ultimately bought the building for $2.5 million, with bondholders recouping just a fraction of their investment.
New Covenant was the city's first charter school and the only one not backed by Brighter Choice.
Despite the acrimony between the two, the city school district may help provide Brighter Choice a short-term reprieve. Scrambling to find space to accommodate the roughly 440 students from the closing middle schools, the district is in talks to lease the middle school building through the end of next school year for up to $371,855 — a fraction of the annual debt payments, which are in excess of $1 million, according to financial statements.
