}

Thursday, May 18, 2017

PUTTING THE “ASS” IN ASCERTAIN: Correcting The Record…Eagle, That Is!

UPDATE - May 19, 2017: UPDATE: An earlier version of this story, published on May 18, 2017 at 3:26pm, incorrectly stated that a $2.3 million SAN, authorized by the Grand Traverse Academy’s board of directors during its August 30, 2016 special meeting, had been issued by the Michigan Finance Authority. This version has been corrected. A spokesperson for the Michigan Treasury Department confirmed the “Grand Traverse Academy does not have an existing School Aid Note (SAN) Program loan with the Michigan Finance Authority.” The confirmation raises even more doubt with the Record-Eagle story, as it claimed the MFA refused to reauthorize a new loan for the GTA, implying the $2.3 million loan was originated by the MFA. It was not; scroll to the bottom of this post for an update.

Yesterday's Record-Eagle article (“GTA seeks $2.3M loan”) was rife with misleading statements, and erroneously labeled the Grand Traverse Academy's $2.3 million 2016 Michigan State Aid Note loan (SAN) a “decade-old debt”.

Additionally, the piece included quotes from two GTA board officials that further cloud the issue.  

THE REAL TRUTH, RUTH!

If you didn't know better, after reading the Record-Eagle article you'd be left thinking the GTA has been refinancing the same SAN loan for ten years, and the Traverse City charter school was singled out for harsh treatment by the Michigan Treasury Department.

Neither contention is true.

The Michigan Finance Authority (as outlined in Michigan's Revised School Code) requires SAN loans funded by the Michigan Treasury be repaid not later than 372 days from from date the note was issued, and has for years. The statute authorizing state aid notes also requires funding from any other source (like municipal bond underwriting and placement firms) also be term-limited to 12 months.

In addition, the loan in question, a $2.3 million SAN loan, was authorized by the Grand Traverse Academy board during an August 30, 2016 special board meeting.

It is apparently the loan that requires refinancing by the board, as funds are not available to make a $2.3 million balloon payment to its lender (which is not the Michigan Finance Authority) in the next few months.

The quote attributed to the board's treasurer, Samer Bourdkanki (“This note, even though it’s interest-only, every year we try to take a little bite off it. It was at $3.3 million then down to $2.8 million. Now it’s at $2.3 million.”) underlines the farcical and erroneous assertion the board is “taking a little bite” and “chipping away at small portions” of a decade-old debt.

As I revealed on this blog yesterday, beginning with the fiscal year ending June 30, 2009, the Grand Traverse Academy's manager, Steven Ingersoll, began to borrow massive sums through SAN loans on behalf of the school, spurred by the impact Ingersoll's embezzlement was beginning to have on the Academy's throttled cash flow. 

Ingersoll established a pernicious pattern the board is still locked into today: an addictive reliance on balloon payments and new notes every year.

The Academy had two short-term notes payable at the end of the fiscal year ending June 30, 2009 totaling $3.2 million dollars. 

At the end of June 2009, there was still $2,000,000 yet to be paid. By the end of the fiscal year ending June 30, 2011, the Academy had two short-term notes totaling $5,587,294 (with a $5,537,219 principal and $50,076 accrued interest). 

Starting in May of 2011, the State of Michigan began taking payments for a $2.0 million State Aid Anticipation Note with the Michigan Finance Authority directly out of state aid payments prior to distributing the remaining funds through Lake Superior State University and Wells Fargo. 

And finally, the credulous quotes attributed to board president Lesley Werth (“Why does (the loan debt) keep being increased? These are discussions we need to ask our management company during the whole process. These are questions that have been asked. (Noss) is responsible with directing the budget.”) might sound more realistic coming from a woman who just found a condom in her husband's wallet, and not from someone who's warmed a seat on the GTA board since the school opened in 2000.

In fact, on August 10, 2016, Werth received an email from Rebecca Clawson at Lake Superior State University's charter school office (shown below), notifying her that Oak Ridge Financial, a private municipal bond lender, had denied the GTA's request for a $2.88 million State Aid Note loan funded by that firm.


By hook or by crook?

Ironic board treasurer Bourdkani would use that phrase, especially considering it was Steven Ingersoll's $5.0 embezzlement, and the board's decision not to pursue recovery or criminal prosecution, that drove the school into its current financial position. 

UPDATE - May 19: The loan in question was not provided by the Michigan Finance Authority, it was provided by an as yet unidentified bond underwriting firm.

As noted below, a $2.9 million bond was solicited by Mark Noss/Full Spectrum Management on behalf of the GTA with an August 1, 2016 pitch that appeared on Bid4Michigan.

As you can see, the loan was secured by the GTA's 2016-2017 state aid payments and the obligation appears on the school's 3rd Quarter balance sheet, uploaded to a municipal bond reporting site on May 8, 2017.


Cash Flow Projections for the current fiscal year, ending June 30, 2017, predicted a 1,250 student count. 

That projection fell short of actual student counts: according to audited Michigan Education Department records, the fall 2016 count was 1,180, with the spring count dropping to 1,162. (Click on spreadsheet below to enlarge image.)


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