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Duggan: Recovery district got $6 million in DPS loans

Ohanian Comment:

Eli and Edythe Broad: Education Achievement Authority a path to success for Michigan students by Eli and Edythe Broad appeared in the Detroit Free Press on April 28, 2013.

NOTE: The Broad Foundation contributed $400,000 for start-up of Education Achievement Authority in 2011, with $500,000 to follow. John Covington, a former Kansas City, Mo., superintendent was tapped to lead the new authority. He was trained at the Broad program for urban schools leaders. In 2012, Broad kicked in another $10 million for the Authority.

On April 18, 2013, a garbled puff piece at Huffington Post by the Associate Editor for HuffPost informed readers Education Achievement Authority Curriculum For Detroit Students Is Individualized And Computerized This sort of thing is why I no longer write for the Huffington Post. I don't want my name to appear near them.

The Education Achievement Authority of Michigan was set up with 15 schools "in its portfolio." They were to show teachers how to do things: "the first statewide school system in the nation to offer a student-centered blended learning system that tracks students' current progress in real time and allows teachers to creatively tailor lessons and interventions according to each student's learning needs."

Blended learning = computers computers computers.

Reader Comment: the hits just keep coming. There needs to be an external investigation concerning the commingling of finances between DPS and EAA. How do you have a state funded charter school district borrowing funds from a public school district that is allegedly already strapped for cash and is running a deficiency? Why aren't any checks and balances put in place in-order to prevent this type of questionable financial engineering? Aren't the EAA and DPS school districts competing for the same children and if so when has a competitor ever loan their competition funds in-order to continue to operate? And lastly, why is the EAA running at such a deficiency in it's first year of operation that it has to borrow $6MM from a competing school district in-order to make pay roll and cover operating cost? If this is the type of school district that our elected officials in Lansing believe is a more financially efficient model for education then they need to take a class in financial management, accounting and business ethics.

By Jennifer Chambers and Chad Livengood

Detroit -- Administrators at the Education Achievement Authority took $6 million in loans from the cash-strapped Detroit school district without approval from EAA board members, according to the secretary of the recovery district's board.

Mike Duggan told The Detroit News on Thursday he learned of the secret loans from a constituent Wednesday night, but he never heard of the loans at monthly EAA board meetings, which he says he regularly attended.

"The board has never approved a loan from DPS. I'm pretty confident the board was never advised of it, either," said Duggan, who is running for mayor of Detroit.

The loans came to light this week in documents obtained by state Rep. Ellen Cogen Lipton through a Freedom of Information Act request.

The EAA is a newly formed statewide school district created by Gov. Rick Snyder to take over the state's lowest performing schools. All 15 EAA schools are former Detroit Public Schools.

"I think it's very troubling, and it raises questions about transparency. The finances of DPS and EAA need to be kept separate; a lot of board members feel that way," Duggan said.

DPS spokesman Steve Wasko, along with EAA board Chairwoman Carol Goss and EAA Chancellor John Covington, were not available for comment.

DPS loaned the EAA the $6 million by borrowing the money through the Michigan Finance Authority, with repayments guaranteed based on the EAA's future state funding payments, said Caleb Buhs, spokesman for the state Treasury Department, which approved the loans.

"This was a good arrangement for both as DPS has a vested interest in the success of the EAA and DPS' payments are protected by state aid from EAA," Buhs said late Thursday.

The EAA opened its doors in September. It raised $15 million in private donations, money intended to finance start-up costs while the district waited to collect state aid for each student it educates.

"The EAA was simply faced with cash-flow timing challenges, and to cover the difference when donation commitment and pledges were made versus came in, as well as when their state aid payment would come in," Snyder spokesman Sara Wurfel said late Thursday.

Snyder-backed legislation seeking to expand the reform district's reach to 50 schools failing statewide is pending in the state Senate.

The EAA asked for and received a $2 million loan from the state in January to fund operations and technology improvements after philanthropic funds fell short.

"I've asked about the cash flow issues at every board meeting," Duggan said.

One email Lipton obtained shows Snyder's transformation manager, Richard Baird, was sent a copy of a Sept. 7 message about the EAA needing $3 million for payroll from DPS. Baird was involved in the transaction because he serves as secretary/treasurer of the Michigan Education Excellence Foundation, a group that helped finance the EAA's start-up costs, Wurfel said.

The documents also show a $2 million loan by DPS to EAA to pay vendors and another $1.8 million for various payments. DPS chief financial officer Bill Aldridge signed off on all the requests.

The documents show DPS agreed to provide "public funds management services" to the EAA beginning Feb. 1.

"I need to study and review these documents," Duggan said. "I think the EAA is doing some good things in the classroom, but the board is going to have to do some serious questioning here."

Lipton, D-Huntington Woods, questioned how the cash-strapped city school district could afford to loan the EAA such large sums of money. DPS was taken over by the state in 2009 because of its financial problems.

The district's debt reached $327 million, and it has closed 200 schools and laid off thousands of employees.

"How does that further stabilize an already compromised school district?" Lipton asked.

Under the agreement, the EAA was to pay DPS back $1.2 million every month starting March 20 through July 22. It is not known if funds have been returned to the district.

In its application for advance payment, the EAA stated it had no regular K-12 funding from the state until the schools were operating.

"The costs associated with training, hiring and school readiness were covered by philanthropic gifts from corporations and foundations and there is a cash flow differential based on pledges made over time," said the application, dated Jan. 2. "The advance is necessary to bridge the period between pledge commitment and cash received against the pledge."

The records Lipton obtained show Baird sent an email Jan. 2 to EAA officials suggesting the application languagen.


— Jennifer Chambers and Chad Livengood
Detroit News





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