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Wednesday, September 3, 2014

IF NOT FOR YOU: Miss Fortune Analyzes Grand Traverse Academy Board's Smart Schools Management/Steve Ingersoll Support Statement

With the next Grand Traverse Academy Board meeting coming up on September 12, Miss Fortune analyzes a statement read by Academy Board President Brad Habermehl during the July 18 meeting.

Although some of the claims can be easily verified, it would take a forensic audit—examining bank account transfers, cash flows, and other payments—to uncover the whole truth. 

Some of Habermehl's assertions appear inconsistent and misleading, while others are just bat-s**t crazy.
 
Miss Fortune examined Habermehl's claims, using historic Academy fiscal audits acquired in part by a Freedom of Information Act (FOIA) request, legally vetted information presented in two Academy municipal bond issues (Series 2002: $9,110,000, Series 2007: $16,200,00), the Academy’s charter agreement with its authorizer Lake Superior State University, and contemporaneous news reports. 


The "board minutes" Habermehl referenced in his statement were not examined. Although they were included in my FOIA request, they were not provided. However, meeting minutes are not subject to an audit, like the Academy's financial statements.

The picture that emerges is much more nuanced and complicated and creates more questions than it answers.


THE CONTRIBUTIONS OF KAYE MENTLEY, STEVEN INGERSOLL

If not for the efforts and intellectual contributions of Dr. Steven Ingersoll and Kaye Mentley and Smart Schools’ willingness to rebate its earnings, GTA would not likely exist today.

The Academy opened its doors in October 2000 in a building still under construction. After the school’s original developer, Floyd Schecter of Nashville, went bankrupt, the Academy ultimately purchased the building from Comstock Construction. 


Prior to purchasing the building on December 11, 2002, the Academy had obtained equipment financing (furniture, partitions, etc.) from Charter FS Corporation, allowing the school to operate during its so-called "Tyvek" years.

Kaye Mentley, a founder of the school and former principal, launched the school on a foundation of Choice Theory, based on her previous work at another Glasser Quality School in Wyoming, Michigan.
 

The criteria for a Glasser Quality School include a school-wide atmosphere of trust and respect, elimination of discipline problems, schooling replaced by useful education with students achieving beyond competence and students and staff using and applying Choice Theory at home and in school. Other components of the designation include parents studying Choice Theory, students excelling at standardized tests and a general joyful environment at the school.

In 2005, the Academy was named a Glasser Quality School, one of 18 schools honored that year. Dr. William Glasser of the Glasser Institute visited the Academy, sharing how his Choice Theory principles have been applied at all levels of the school. 


Ingersoll’s intellectual contribution to the Academy was Integrated Visual Learning (IVL), an optometric-based process he developed.  Although unsupported by peer-reviewed research, Ingersoll claims that IVL helps identify, assess and correct students’ vision.

The IVL process combines vision procedure with cognitive processing drills and mental and motor skills.

While the “intellectual contributions” of Mentley and Ingersoll are more easily confirmed, it’s much more difficult to confirm Habermehl’s assertion that Smart Schools actually did “rebate its earnings” in the Academy’s early years.

FINANCIAL VIABILITY AND SMART SCHOOLS

Over the years GTA needed substantial financial support and Smart Schools always supplied what the Academy needed.

In the Academy’s April 6, 2004 Lake Superior State University charter contract renewal, then-Principal Kaye Mentley referred to the Grand Traverse Academy’s finances as “solvent and stable”. Mentley backs up her claim, revealing that the “school has ended each year with a surplus”.

Mentley states that the Grand Traverse Academy has “entered into a long term agreement with Smart Schools Inc. to provide building, equipment, financing and educational management.”

Mentley goes on to add that Smart Schools also “owns and operates Excel Institutes, which are community based learning centers that provide drug free treatments for Learning Disabilities, Dyslexia and Attention Deficits.”

Referring to the 2002 Series bond issue, Mentley states that the “financial success has allowed Grand Traverse Academy to purchase and complete renovations on its building in December of 2002.”

The very first Academy audit—June 30, 2001—is unavailable for review. The Board’s response to my Freedom of Information Act request resulted in a digital file that could not be opened, and further inquiry revealed that no hard copy existed.

In addition, while the June 2002 fiscal audit had a recap of the previous year’s Combined Statements of Revenues and Expenditures, it did not break out detailed budget line item information.


However, the Series 2002 bond issue document included information about the Academy’s renewed management contract with Smart Schools, running through 2007.

The contract called for the Academy to pay Smart Schools an annual fixed base fee of $361,800 for the first year of the term (beginning June 2002). The contract stated that the base fee “shall be increased in subsequent years to reflect increases in the total aid received by the Academy from the State of Michigan pursuant to the State School Aid Act of 1979, as amended, for the particular number of students enrolled in the Academy.”

That agreement capped Smart Schools’ management fee at $650,000.

A review of the Academy’s 2002-2007 fiscal audits show the following management fee payments to Smart Schools:

2002: $279,201
2003: $317,073
2004: $432,701
2005: $561,472
2006: $650,000
2007: $240,000


If the theory for Habermehl’s claim is by accepting less than its contractually-mandated maximum of $650,000, Smart Schools was “rebating” its earnings, I believe that contention has stretched the truth.

However, financial fact-checkers may have a future opportunity to dispute that shaky assumption. 


FINANCIAL SUPPORT: TAXPAYERS SUPPLIED THE BACON...SMART SCHOOLS JUST THE SQUEAL


According to the terms mandated in its contract with the Grand Traverse Academy, Smart Schools did deliver financial support. In addition to the two bond issues, Smart Schools arranged financing from Charter FS Corporation that allowed the Academy to equip its classrooms. 

But while Smart Schools did its part, its contributions were far outweighed by the taxpayers of Michigan and the United States government, as you can see in the chart above.

From the Academy’s inaugural year through June 2013, Michigan has provided the Academy with nearly $72.0 million dollars in taxpayer funds.

In addition, various grants and federal funding (including over $800,000 from the American Recovery and Reinvestment Act of 2009, popularly known as “the Stimulus”) added roughly $8.5 million in financial support.
 

It looks like taxpayers “brought home the bacon”...and paid for the pan that fried it up.

SMART SCHOOLS “GAVE” THE GTA $3.3 MILLION DOLLARS?

Analysis of GTA’s audited financial statements and board minutes from June, 2004 through March, 2014 shows that Smart Schools gave GTA $3.3 million from its budgeted and contractually authorized earnings. Additionally, Smart Schools planned to rebate another $1.6 million from its future earnings which is classified on GTA’s books as a non-spendable asset.

"Gave" is a peculiar term to use. It generally means to "present voluntarily and without expecting compensation", so it can give the perception that no "strings" were attached.


I reviewed the Academy’s audited financial statements (from June 2002-June 2013) and could not substantiate the claim that Smart Schools “gave (emphasis added) GTA $3.3 million from its budgeted and contractually authorized earnings.”

Aside from a reference in the Academy’s June 2004 fiscal audit referring to a “$41,414 in decreases allocated to support services in the General Fund donated by Smart Schools Management”, I was unable to locate any additional "donations".

However, in the June 2013 audit under “Related Party Activities”, there was this statement: “Total payments to Smart Schools Management, Inc. during the year totaled $6,946,462 and refunds received total $1,897,805. As of June 30, 2013, the Academy carried a prepaid expense/expenditure balance of $2,338,980 for payments made to Smart Schools Management, Inc.”


As there is no explanation of the “refunds received” in the Academy’s 2013 fiscal audit, I am unable to determine if the “refund” was merely transfer by Smart Schools back to the Academy’s bank account based on an inflated budget projection or an actual “donation”.

But here’s where Habermehl’s logic goes totally off the rails, and becomes a caboose on the crazy train: his claim that “Smart Schools planned to rebate another $1.6 million from its future earnings, which is classified on GTA’s books as a non-spendable asset.”

This whopper deserves its own section!


ANOTHER $1.6 MILLION FROM ITS FUTURE EARNINGS? WHAT EARNINGS?

Smart Schools planned to rebate another $1.6 million from its future earnings which is classified on GTA’s books as a non-spendable asset.

What happens when you make a business deal with someone, and they take your money but don’t deliver?

You sue him, right?

Well, only if you have something in writing!

It’s an old legal joke: a verbal agreement is not worth the paper it’s written on.

When Habermehl stood up at the July 18th board meeting and read the Board's statement in support of Steve Ingersoll, he certainly knew that no agreement existed that could compel Ingersoll’s Smart Schools to repay the outstanding $1.6 million dollars.

In addition, once the Academy parted ways with Ingersoll’s Smart Schools in March, it didn’t matter what Ingersoll had “planned” to do months before.


I mean, I’d planned on having shiny hair like Daryl Hall and marrying a news anchorman—and just look how that turned out!

You lost me here, Brad, along with any shred of credibility left clinging to your “statement”.

I mean, how can the Academy keep the missing $1.6 million dollars on the Academy’s books as a “non-spendable asset”?

That phrase belongs in the Euphemism Hall of Fame!

DEMONSTRABLY MISLEADING ELEMENTS…FROM EMPTY RHETORIC TO OUTRIGHT DISTORTION

Smart Schools founded and funded GTA from its origin. GTA flourished in large part because Smart Schools was willing to rebate its contract and budget authorized earnings during GTA’s lean years of infancy, expansion and State funding reductions. 

I suppose the Academy’s September 12th Board meeting will likely be as awkward as a preschool Christmas pageant—with parents flocking like baby penguins angling for regurgitated fish.

Remember, brutal consistency is the key to credibility—to call them “white lies” just insults all the white liars in the world.

Vipers are measured by the pitful for a reason!


NOTE: If the Academy Board would like to comment on this article or provide a rebuttal, I'll be happy to post the response. That is, if the three Board members left can find the time!

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