Nearly 18 months after signing an exclusive easement agreement, the Grand Traverse Academy board has apparently pulled the plug on a deal the Traverse City charter school struck with Mark Noss, former board president and current head of Full Spectrum Management, LLC, its current management company.
Under the terms of the deal, Noss (and his private property development entity, MDN Development, LLC) was to construct an expansion for a new math and science wing and lease it back to the school. That June 26, 2015 deal, which granted a private, for-profit company an easement on land financed by tax-exempt bonds, was illegal.
However, it appears the Academy board never sought an attorney's opinion regarding possible conflicts of interest, including the Noss arrangement's potential for jeopardizing the school's federal
So why should you care?
Because it's your money.
Just image this scenario: every night, you put your purse, or wallet, on a console table in your hallway. And every morning, there's money missing.
It's not much at the beginning, so you might ignore it thinking you've made a mistake.
But it continues to happen, and the daily amount grows.
A few months later, in the middle of the night, you wake up and catch the thief who's been stealing your money — red-handed. You see his face, and you know his name.
But he just laughs, telling you he cannot afford to pay you and his taxes all at the same time, and needs to have the debt characterized as a loan.
And, even worse, he keeps taking your money even after admitting he can't pay back what he already owes you: around $5 million. Eventually, he gets your neighbor to agree to waive recovery of that debt...and he does it.
But, wait a minute. It's your money, right?
In 2012, the IRS identified its primary issue of concern as the possibility of impermissible private benefit to a for-profit management company involved in a charter school’s operation (however, a nonprofit management company’s
operation of a charter school can also trigger IRS scrutiny and possible denial of tax exempt status).
Cozy relationships between charter schools and their management companies — like that of Steven Ingersoll and the Grand Traverse Academy, followed by Mark Noss after the March 19, 2014 Fidel/Raúl-like handoff — subject federal funds to serious risks of fraud and abuse.
Apparently emboldened by filing false financial statements for nearly seven years with its bond trustee, the Grand Traverse Academy (its board and management company) cooked up a deal that would have required five-figure monthly lease payments made from taxpayer funds.
And it almost worked...almost.
Charter school/management company relationships have long confounded the IRS.
The IRS’s principal concern is that a nonprofit entity controlled by a for-profit entity may operate to reduce costs and maximize revenue rather than to maximize the delivery of educational services.
The perception of a conflict of interest is unavoidable.
Although the IRS has acknowledged these relationships for many years, it has established no defined or consistent approach in analyzing what relationships are permissible for charter schools.
Consequently, many management companies have become aggressive in creating and perpetuating relationships with charter schools. The IRS believes that in egregious instances, management companies have so profoundly taken control of charter schools as to vitiate the public benefit the schools are created to fulfill.
In these egregious instances, “private benefit” or “private inurement” concerns arise.
As described above, tax-exempt charter schools must operate exclusively for a public benefit – i.e., the benefit of their students.
When a management company’s control of a school is pervasive, and where there is little transparency in regard to the management company’s expenditure of public funds, there exists the potential that the management company could operate the school for its own benefit rather than for the benefit of the school and its students.
So while the board has finally rejected its (misad)venture capitalist (“Relative to some big, fancy venture capitalist that wanted to invested in an educational building? No, that was not part of the thought process.”), and replaced him with a vulture fund specializing in short-term, high yield municipal bonds, questions about the deal still remain unanswered.
For example, why was there no legal review by the Grand Traverse Academy board of the deal before the easement was signed in 2015?
In addition to Mark Noss, just who are the MDN Development, LLC partners involved in this deal?
And will Noss compel the Grand Traverse Academy board to pay the “dead deal costs” he and his partners incurred?
Why should you care?
Because it is your money.
Do you know where you wallet is?