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Friday, June 19, 2020

BAY CITY ACADEMY UPDATE: Charter School Described In 2016 A “Sorry Excuse For A School” Has Gotten Worse; Five-Year Deficit Elimination Plan Approved In 2016 By Michigan Department Of Education Proposed To “Wipe Out” $1.3 Million Deficit With “More Students”—Four Years Later, Bay City Academy Ended 2018/2019 School Year -$986,750 In The Hole


The Bay City Academy was placed under financial oversight by the Michigan Treasury Department in August 2017, roughly 18 months after concealing a massive $1.3 million-dollar budget hole from the Department of Education in October 2015. The Academy and its management company, Mitten Educational Management, was called on the carpet in late 2015 by then MDE State Superintendent Brian J. Whiston after neglecting to proactively report its ominous financial straits as required, belatedly reacting only after the MDE interceded and ordered the charter school to file a formal deficit elimination plan.

The board of the faltering charter school, founded by convicted tax cheat Steven J. Ingersoll, originally approved a five-year deficit elimination plan on January 21, 2016. And while the school’s original five-year plan was described by then board president Craig Johnston, a boyhood friend and longtime business associate of convicted felon Ingersoll, as “not unsurmountable by a long shot”, that five-year term was not a given—except as Steven Ingersoll’s maximum federal sentence. 

According to the Michigan Department of Education's September 7, 2016 “Quarterly Report to the Legislature on Deficit Districts”, issued by Whiston, the Bay City Academy was identified as a district that would end the year with a reduced deficit. However, that designation was prepared with data as of August 30, 2016, and the MDE's June 14, 2017 Quarterly Report revealed the Bay City Academy's deficit grew by $211,243 from the June 2016 to June 2017. 

Based on $3,015,076 projected FYE June 30, 2017 revenue, the Bay City Academy's -$1,366,699 deficit represented 45.33% of that revenue. 

On March 30, 2018, the Michigan Department of Treasury issued a Final Preliminary Review Report of the Bay City Academy. Under supervision of the Treasury since June 2017, is required to submit for Treasury review an Enhanced Deficit Elimination plan. 

According to the report, among the findings indicative of “financial stress” are: an existing deficit of greater than 15% of general fund revenues; a history of spending outside the appropriations established by the local school board in violation of Uniform Budgeting and Accounting Act (UBAA); significant audit findings and/or material weaknesses identified; and a history of supplying the Treasury with DEP information that is inaccurate or inconsistent with actual revenues and expenditures at year end. 

In addition, the report stated that the Bay City Academy has “experienced difficulty in paying their State Aid Notes and a bus note according to the original terms of the agreements.” Noting the Bay City Academy has experienced declining enrollment for the last four years, the Treasury also called out the Academy's rosy future student population projections showing an increase in enrollment, which contradict a significant declining enrollment trend.

The Department of Treasury's June 1, 2020 Deficit School Districts quarterly report shows the Bay City Academy with a FY 2019 audited General Fund balance of  -$986,750.

However, while the Academy's Bay City student count experienced minor growth over the past several years, population of the Mancelona-based campus of the North Central Academy plunged nearly 40 percent from its 191 peak in 2015-16, nosediving to 117 in 2019-20.

And here's the thing: after building's former resident, the Concord Academy, went tits up in 2012, Lake Superior State University, voted to terminate the school’s charter due to “poor academic performance and mismanagement”. 

As a result, the school closed at the end of the 2011-2012 school year and the bonds defaulted. 

For the next three subsequent academic years, the facility was leased to the Bay City Academy. (In 2012, Lake Superior State University transferred the Concord Academy’s charter to Steven Ingersoll for the North Central Academy.) 

After reviving its lapsed Michigan corporate existence on January 25, 2016, the Concord Academy, with U. S. Bank's approval, transferred the Mancelona building's title to the Bay City Academy. It was registered in Antrim County's Register of Deeds office on February 29, 2016. 

The building lease expired on July 31, 2015, and was not formally extended, although the Bay City Academy continued to occupy the building rent-free. 

According to documents filed by U. S. Bank, the Bay City Academy agreed to “occupy, protect, insure the premises” through the conclusion of the 2015-2016 school year. 

On July 14, 2016, U. S. National Bank Association, the trustee of a $2.8 million municipal bond issued August 1, 2001 on behalf of the Concord Academy, held a public conference call with Mitten Educational Management's Michael Randel regarding the building currently housing Mancelona's North Central Academy. Randel and his business partner, former Bay City Academy superintendent Brian Lynch, manage the charter school owned by convicted felon Steven Ingersoll. 

During the call, which I listened to during its now-expired replay period, Randel managed to convince U. S. Bank reps Bill Smith and Sandra Spivey that the Bay City Academy was in such “dire straits” that it could not afford a $5,000 monthly lease payment. 

During the discussion regarding the Bay City Academy's finances, Randel asserted the charter school was left in such a pitiable financial position by Ingersoll's Smart Schools Management, which Randel said "overspent". 


Looks like CPA Randel must not have read the Bay City Academy's June 2015 financial audit very closely. If he had, he may have noticed this information: according to the 2015 financial report, the hobbled charter school founded and formerly managed by convicted felon Ingersoll incurred a significant operating deficit in 2015, resulting in a cash flow shortage — as of June 30, 2015, the Academy's liabilities exceeded its assets by $1,374,477. 

But let's get back to the July 14, 2016 bond call. 

With non-recourse custody of the Mancelona property, the Bay City Academy is not legally required to pay a mortgage, nor can it sell the building on its own. Pleading for relief, Randel asserting the school was slowly moving toward profitability, and estimated a fall 2016 student population of 375 for its three buildings. When asked about the Mancelona building's census, Randel insisted that “capacity” was 200 students, with last year's population at 164. 

Again, Randel provided incorrect information. State of Michigan data indicated the North Central Academy had 191 students in Mancelona, nearly the 200 student “in the black” population Randel projected. Spivey stated that although the bond holders have been stiffed, it was preferable to have the North Central Academy occupying the building rent-free than having it vacant and "becoming a meth lab" while it's again listed on the market. 

A determination was made by U. S. Bank to allow the Bay City Academy to occupy the Mancelona building through the end of the 2016-2017 school year in return for heating, insuring and maintaining it. 

On August 17, U. S. Bank officially notified bond holders that it had entered into a "forbearance agreement" with the Bay City Academy allowing it to occupy the Mancelona building rent-free. In addition, the Bay City Academy is required to report 2016-2017 enrollment figures to the bank by October 15, 2017. 

If enrollment exceeds 425 students, the Bay City Academy will pay "50 percent of the cash flow attributable to the excess enrollment" to U. S. Bank as rent for the Mancelona building. 

With the Trustee’s consent, Bay City Academy and Martin Commercial Properties entered into an agreement September 28, 2016, for the marketing and sale of the North Central Academy property, with a reduced listing price of $690,000. (It had previously been listed at $890,000.) After several more months without receiving an offer, Bay City Academy and Martin once again entered into an agreement dated October 21, 2019, extending the term of the Exclusive Marketing Agreement and reducing the listing price to $350,000. The Bay City ultimately entered into a Purchase and Sale Agreement April 28, 2020 with Alba Ventures, LLC for the sale of the Mancelona property for $250,000. During its May 2020 meeting, the Bay City Academy's board of directors voted to approve a lease agreement requiring the charter school to pay Alba Ventures, LLC $2,000 a month to rent the building. 

But you'll be surprised to learn who's behind Alba Ventures: Robert Munger, a Grand Rapids-area ”developer” who declared bankruptcy several years ago, stiffing his creditors out of nearly $5.0 million. 

Recently, Munger has popped up in Cadillac, purportedly flush with cash, boasting of deals made to acquire properties including the Cadillac Sands Resort and Herrmann's European Restaurant & Cafe, deals that did not close.

But here's a question for you: where does Robert Munger find the time (and money) to purchase and develop properties, when he's putting in a 40-hour week as the CEO of Exodus Place, a Grand Rapids-based transitional housing facility for men. 

The organization's most recent IRS Form 990, issued November 15, 2019 for the fiscal year ending December 2018 states Munger was paid a $62,732 salary, and reported he works 40 hours a week at the organization.

Robert Munger was sued September 19, 2019 in Wexford County Circuit Court by Atkins Electric LLC for non-payment of an amount in excess of $25,000. 

So where's Munger going to get that $250,000 for the North Central Academy building? 

I'm guessing Munger, who had nearly $4,000,000 in unsecured bankruptcy claims, and paid out just $529.28, knows somebody who knows a guy. 

See, I told you it would be juicy! 

(The fall of the Bay City Academy is a lot weirder than you thought.)