After New Schools’ collapse, questions emerge about finances, spending
NC New Schools, a champion of specialty and early-college high schools, was a rock star in the world of education.
The group landed several grants exceeding $10 million. It got federal grants and money from Bill and Melinda Gates and several of North Carolina’s biggest businesses. It made North Carolina the nation’s leader in special high schools, which provide college-level classes for high school students. Last year, the organization spread its work to four other states.
Then in April, New Schools abruptly shut down, giving its 80 employees less than 24 hours notice that their jobs had evaporated. It filed for bankruptcy, showing debts of $1.5 million more than its assets.
The sudden collapse shocked many in the world of education. Tony Habit, the executive director since the group’s founding in 2003, attributed the financial failure to the organization’s expansion.
“Our growth exceeded the capability of our finance office,” Habit said in an interview. “By the time we discovered the gap, it was insurmountable.”
Habit said the financial problem became clear to him in January.
Internal emails and spreadsheets obtained by The News & Observer show that Habit knew at least as early as June 2015 that New Schools could face a $2.1 million deficit, a huge problem for an organization with a $10.5 million budget. The board chairman said he did not see records of this possible deficit until after the agency closed.
Despite the looming shortfall, Habit moved NC New Schools to a new, more expensive office in Research Triangle Park and outfitted the space with $600,000 worth of new furniture, computers and audiovisual equipment, bankruptcy records show. New Schools continued to pay rent on the office it vacated near Crabtree Valley Mall in Raleigh. Bankruptcy records show that New Schools paid 50 percent more each month for the RTP office, which was significantly larger.
Sam Houston, director of the N.C. Science, Technology and Math Education Center, was instrumental in the founding of New Schools. He said he attended a conference at New Schools’ new RTP office days before the organization closed.
Houston heard that Habit was busy trying to raise money from donors, but he said the tone of the meeting was upbeat.
“All of a sudden, the bottom fell out,” Houston said. “How you go from an optimistic, pro-growth, proactive position into bankruptcy in such a short time is puzzling.”
School systems stiffed
The North Carolina New Schools Project started in 2003 with a five-year, $11 million grant from the Bill and Melinda Gates Foundation to restructure secondary education by creating smaller high schools. The Gates funding ended, but New Schools won at least two federal grants totaling $35 million and millions more in grants from foundations connected to Duke Energy, GlaxoSmithKline and other corporations.
The organization supported early-college high schools, regional specialty high schools and STEM (science, technology, engineering and mathematics) schools. Much of the money was spent on staff and consultants who trained teachers and administrators.
Early-college high schools target students who will be the first in their family to attend college and offer students the chance to graduate with up to two years of college credit or an associate’s degree. Those schools are standouts for their high graduation rates.
The organization began offering its services for hire in recent years, charging school districts upfront for training teachers or coaching principals over the course of the school year.
Last year, New Schools added Breakthrough Learning to its name and began working in South Carolina, Mississippi, Illinois and Indiana.
The bankruptcy filing shows that New Schools owes more than$950,000 to school districts and schools across the state, most of them rural and poor. Some of the owed money is for training the schools never received and some of it is to reimburse schools for positions that were paid for in advance.