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Ethical questions raised around Cornerstone charter schools' real estate deals

Cornerstone Image
Posted at 6:13 PM, Mar 02, 2020
and last updated 2020-03-03 08:37:44-05

(WXYZ) — On a bitter morning last month, the board for Cornerstone Madison-Carver Academy met to hear from the school network’s founder, Clark Durant, about a plan aiming to reinvigorate funding for the schools.

"In the current structure, the enormous resources that used to come in around Cornerstone dissipated," Durant, a two-time Republican U.S. Senate candidate, explained, referring to the school’s genesis in 1991 as a group of private-religious schools that drew massive philanthropic contributions.

In 2009, the schools began transitioning to privately run, publicly funded charters. Today, all five Cornerstone schools, educating roughly 3,500 students, are charters. They collect roughly $20 million in public dollars each year. But, as Durant explained at the Feb. 12 board meeting, outside donations were lacking.

In order to convey why generating "resources" was so necessary, the attorney tailored his speech to the specific school-board audience at Madison-Carver Academy.

Recently, he explained, the teachers at Madison Carver Academy had complained the building had no space to bring students for independent one-on-one learning. But Durant had great news: He had an architect coming to the school that day to discuss modifications.

“We’ll go out to some of the existing partner-community," he said. "And I’ll get that money so that can get done, so that your teachers have the right space to do their work."

What was not brought up at that moment: Durant's relationship to property he was detailing, the one he was promising to get donations to modify.

Since 2012, when Madison-Carver first opened as a publicly-funded charter school, it has been paying 11% of its per pupil funding in rent. Its landlord? The New Common School Foundation. A nonprofit Durant created in 1996 to raise money for the Cornerstone schools. He currently serves as the president.

A 7 Action News review of a 2019 audit for the school found that Madison-Carver Academy spent over half a million dollars in rent to the New Common School foundation last year. These funds are in addition to the public dollars the school spends on maintenance, insurance and taxes, since the rental agreement is a triple-net lease, which places all upkeep expenses on the tenant. In 2019, according to the audit, these expenditures added up to over a quarter of a million dollars.

This set-up is found at all five Cornerstone charter schools. In the 2017-2018 school year, for example, the five charter schools spent over $2 million in public dollars on rent going to Durant-associated entities, a 7 Action News review of the schools’ check-registers found.

Durant declined an on-camera interview with Channel 7. Tina Kozak, a spokesperson for the schools and the New Common School Foundation, sent a statement saying that "all rents are used for the purposes consistent with the Foundation’s mission."

Adding that: "Besides its educational function, the Foundation also helps to raise funds and develop a real estate strategy to enhance the Cornerstone mission."

The budget numbers and statement, however, highlight a somewhat confusing conundrum: While Durant is pounding the pavement asking for donations to improve the education outcomes of the students — fundraising for expenses like the construction of a private work-nook at Madison Carver Academy — he is simultaneously siphoning money away from the network of schools via rental agreements.

"It certainly raises ethical questions," said Bruce Baker, a Rutgers University professor and expert on education financing, who points out that on top of the rental agreements, each Cornerstone school has a contract with its management company: Cornerstone Education Group. Durant currently serves as CEO.

While each contract is different, the management fees for Cornerstone Education Group range from 10% to 13.5% of each school’s per pupil funding. In other words, nearly a quarter of each school’s budget is going towards rent and management off the bat.

"A really big, disconcerting piece of this puzzle is that these are a number of entities drawing on the public dollars and then sending that money back and forth between themselves," Baker continued, noting that all of these budget decisions, in turn, divert money from the classroom.

A 7 Action News analysis of state-funding data found that while schools across the state spend, on average, 60% of their school funding on instruction, Cornerstone schools, on average, spend only 40% of their funding on instruction.

"Those relationships and the ability to see all the financial transactions between them or not, that’s a concern," Baker continued, noting that while the current Cornerstone set-up may raise moral questions, it is also completely legal.

"All of this stuff sort of operates at the edge of legal concerns. It’s kind of within the boundaries of lacking sufficient legal regulation to call it out as absolutely against the law or in violation of some particular law or policy. There is just not enough regulation or policy to close those loopholes as of yet."

Cornerstone-Model
Questions around Cornerstone were raised in December when Jared Davis, the principal of Cornerstone Health and Technology High School, was terminated.

Davis, who had been at the school for four and half years, filed a whistle-blower suit that month alleging that he was fired because of questions he raised around questionable contracts and ethics within the district.

At the center of the suit? The school’s management company: Cornerstone Education Group. Its landlord: New Common School Foundation. And the man behind both entities: Durant.

"It seems to be that the rich play by a different set of rules," Davis's attorney, Anthony Adams said.

"If this situation occurred in Detroit Public Schools, where the head of Detroit Public Schools was leasing schools to DPS and was also drawing a profit and a salary from those schools, that would be very problematic," he continued. "We’d like to understand why that is, in the context of charters that we have different sets of rules it seems to be."

Kozak sent over a statement from the Cornerstone charter school boards' attorney John Kava, who maintained that all lease agreements were arms length deals.

"I represent the four public school academies (PSAs) who have separately entered into arm’s length lease agreements with the New Common School Foundation and separate arm’s length education service provider agreements with the Cornerstone Education Group," wrote Kava. "Each agreement meets the high conflict of interest standards required by the authorizer, Grand Valley State University, and the highest standards of ethical behavior. The PSA board members are dedicated volunteers with an unwavering commitment to serving the children of Detroit. They sign a conflict of interest waiver annually to ensure their objective and productive engagement."

Kozak waved off Davis's suit as frivolous. She declined to answer further questions around the networks' definition of arms length.

Washington Parks-Lincoln King Leases by Allie Gross on Scribd


A former board member who spoke to 7 Action News on the condition of anonymity, however, explained that when they were asked to sign off on the rental agreement, the board turned to the management company — Cornerstone Education Group — for guidance.

Durant sat on the board of the management company at the time of the rental agreements. He was the president of the management company this winter when many of the contracts were up for renewal.

As a founder of the charter schools — his name is on the application for the charter application for Jefferson-Douglass Academy, for example — he also helped select the founding board members.

A founding board member for Madison-Carver Academy, Mindy Barry, who would have been involved in the original lease vote has hopped around between the various entities. According to a 2017 tax form for the New Common School Foundation, she was on the board of the nonprofit that serves as a landlord. She also held a brief stint as CEO of Cornerstone Education Group last fall.

David Arsen, a professor at Michigan State University who specialized in education policy and K-12 administration, said this interlocking nature is a red flag.

"I think one of the things that’s worth paying attention to is whether these different entities are in fact independent," Arsen said.

"There is a concern among some people that private interests are just trying to get into education to make money," he said. "Well, that’s not true for many people. And so, when you have a prominent example like this, where it looks like that could be one of the main motives involved, then it’s just the sort of thing that’s not good publicity for the entire movement. And I think it’s the sort of thing that advocates of choice, even if they believe in privatization, they’d want to make sure that these are arms length relationships, that they’re protecting the taxpayers, that they’re protecting public interests."

Payment
A big question around all of these deals is payment — who benefits? In 2012, Durant came under fire for his high salary — a compensation package of over $500,000 from the New Common School Foundation. He brushed it off at the time, telling Crain's that the payment was a gift from private donors, and that the New Common School Foundation was created so he wouldn't have to take funds away from the students.

2017 990s for the New Common School Foundation show Durant is still making over $500,000 from Cornerstone related entities.

NSCF 990 by Allie Gross on Scribd

Kozak sent a statement stating that Durant’s compensation was "totally provided by an annual gift from a separate donor to the Foundation so that zero funds from charter rents are used. Mr. Durant’s compensation is established by the Board pursuant to the recommendation of a nationally-recognized compensation firm, and Mr. Durant is not involved in the process."

The 2017 990 form showed that the board had three members: Durant, Barry and Jeff Neilson — Durant's attorney when he ran for U.S. Senate the first time in 1990.

The tax document indicates that the foundation also paid $125,000 to the Emmaus Road Group LLC for consulting. The resident agent for the LLC, according to a business entity search with the State of Michigan, is Durant. The associated address is his home address.

Kozak did not respond to questions around what consulting the organization provided, or what funds were used to pay the group.

The opaqueness around spending is not new, according to Casandra Ulbrich, the current president of the Michigan Board of Education. In 2013 and 2014, Ulbrich attempted to introduce legislation that would tighten accountability around the state's charter school laws. Both years, they failed to pass.

"It seems to me in the state of Michigan we’ve decided, unfortunately, that education is not a right, it’s a commodity/ And like any commodity that can be taken advantage of, and it can be manipulated," said Ulbrich.

Kozak's entire statement to WXYZ
For ten years, the New Common School Foundation has leased property to each public school academy board that oversees a Cornerstone charter school. For ten years, the Foundation has worked closely with the Cornerstone charter school management to help design an excellent education for the students. The contractual arrangements for these ten years have been in full compliance with rules and guidelines long established by their charter authorizer and the Michigan Department of Education”, said Tina Kozak the longtime spokesperson for the Cornerstone schools and the Foundation.

Clark Durant is a former President of the State Board of Education and now serves as the President of the Foundation and was recently asked to serve as the CEO of the Cornerstone’s charter management company.

“Besides its educational function, the Foundation also helps to raise funds and develop a real estate strategy to enhance the Cornerstone mission.” said Kozak. “For ten years New Common School Foundation (the designer) and the Cornerstone Education Group (the builder) have worked in tandem as a close knit team to deliver academics, character and career pathways for the students,” Kozak added.

“Mr. Durant’s compensation is totally provided by an annual gift from a separate donor to the Foundation so that zero funds from charter rents are used. Mr. Durant’s compensation is established by the Board pursuant to the recommendation of a nationally-recognized compensation firm, and Mr. Durant is not involved in the process,” said Kozak.

“All rents are used for purposes consistent with the Foundation’s mission. The Foundation’s Board has always received, as a matter of good governance, an audited opinion of correctness,” Kozak concluded.

“I represent the four public school academies (PSAs) who have separately entered into arm’s length lease agreements with the New Common School Foundation and separate arm’s length education service provider agreements with the Cornerstone Education Group. Each agreement meets the high conflict of interest standards required by the authorizer, Grand Valley State University, and the highest standards of ethical behavior. The PSA board members are dedicated volunteers with an unwavering commitment to serving the children of Detroit. They sign a conflict of interest waiver annually to ensure their objective and productive engagement,” said John Kava the General Counsel for all four Cornerstone Public School Academies.

Recently the Cornerstone Education Group terminated the employment of Mr. Jared Davis, one of its high school principals. Mr. Davis filed a lawsuit over the termination.

“Mr. Davis’ employment at Cornerstone Education Group ended because he abandoned his responsibilities as a leader and endangered students and others,” said Tom Costello, legal counsel representing Cornerstone. “Mr. Davis recklessly disregarded and acted contrary to Cornerstone’s policies and practices. He cannot detract from his own failures and reckless conduct by making false and outrageous statements about the New Common School Foundation and others in a frivolous lawsuit. We have answered Mr. Davis’ complaint and we will be filing a motion to dismiss these frivolous claims. We are confident we will prevail,” Costello further stated.

The Cornerstone charters are long standing members of the Michigan Association of Public School Academies (MAPSA). Cornerstone will soon make a major announcement that will help its students, teachers and the broader Cornerstone community. Cornerstone began in Detroit almost thirty years ago.