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Cyber Charter School Funding, Oversight and Accountability

Before the House Education Committee
Sept. 19, 2007

Lawrence A. Feinberg, Chairman,
Delaware County School Boards Legislative Council

Introduction
Chairman Roebuck, Chairman Stairs and members of the House Education Committee, thank you for making the effort to schedule these additional hearings and for the opportunity to present testimony to you regarding cyber charter funding, oversight and accountability. In particular, I would like to thank Representatives Curry, Leach, McIlvaine Smith and Milne for their responsiveness to their school districts' concerns with this issue. I would also like to thank Representatives Beyer, Vitali and DeLuca for sponsoring legislation that has helped focus the dialogue on cyber charter school funding, oversight and accountability.

I am here today wearing a few different hats. I am a second term school board member from the School District of Haverford Township in suburban Philadelphia and serve as that board's legislative liaison; I am the Chair of the Delaware County School Boards Legislative Council with school board representatives from each of the fifteen districts in Delaware County; I am the PSBA Legislative County Coordinator for Delaware County; and finally I am the co-chairman of the Southeastern Pennsylvania School Districts Education Coalition, a grass roots advocacy group with school board representatives from fourteen districts in Montgomery, Delaware, Chester and Lehigh counties. All of these are unpaid volunteer positions.

In my professional life I have been an information systems consultant for over 28 years and have a keen appreciation for the benefits that technology can provide. Let me be perfectly clear on this important point, so there is no misinterpretation later: there is no question that cyber schools have a place in the educational spectrum and that they work well for many students. This discussion is not about putting cyber schools out of business. It is about the disconnect between their authorization, funding and oversight. It is about accountability for taxpayers' money and it is about another rapidly growing unfunded state mandate in the context of Act 1 budget caps.

I understand that more than a few cyber school supporters attended the previous hearings. I commend them for their passion and interest in the education of our children. However, I would like to make sure that the members of this committee are invited to attend school board meetings in Haverford, William Penn, Upper Darby, West Chester or other school districts with capacity crowds when those school boards announce that they will have to cut programs because they are caught between rapidly escalating program costs, including funding for cyber schools, and their Act 1 budget caps.

Funding and Tuition Rates
In 1997, there was no such thing as cyber charter school tuition. Now ten years later, most of Pennsylvania's school districts cannot adequately budget for state-mandated cyber charter school payments prior to budget adoption each year. Last year Haverford budgeted $240,000 and ended up spending over $317,000 on cyber charter tuition. The five-year cost history for Haverford beginning with the 2001-02 school year is $40,383, $64,622, $154,159, $185,783 and $217,371. This year, my district budgeted $ 320,000 in cyber school payments or .11 mils. This represents a 792% increase since the 2001-02 school year.

I have heard the argument that cyber schools are saving districts' money because our per student spending is less. For Haverford, that is simply not the case. Of the 34 Haverford Township students attending cyber charters, 30 were previously home schooled at no cost to our district. Whether intentional or not, the Commonwealth has made a policy change with the cyber charter school law that resulted in large numbers of home-schooled students now being enrolled in cyber schools. These students represent an entirely new cost since school districts were not financially responsible for their home education. PDE estimates that nearly 40% of new cyber students were previously enrolled in a non-public school or a home education program. If the 40% figure is accurate then during the 2004-05 school year alone, 493 districts were mandated to provide just under $30 million in new tax dollars for those students.

With thirteen of fifteen Delaware County districts supplying data, the countywide costs for three years beginning with 2003-04 were $1,050,898, $1,924,658 and $2,551,458. In the 2006-2007 school year alone, the William Penn School District spent over $1 million on cyber tuition; Upper Darby spent $470,000, Southeast Delco $353,241, Rose Tree Media $331,000, Ridley $220,000, Wallingford Swarthmore $211,000, Chichester $155,000. Countywide costs (not including Chester Upland) for 2006-2007 were $3,903,338.

Even with Commonwealth reimbursement, which averages about 27%, these costs are staggering, when considering the fact that:

  1. Local school districts have no role in chartering these school entities;
  2. Districts and taxpayers have no accounting of how the cyber charter schools spend that money; and
  3. School district officials have no way to explain to taxpayers how their investments in cyber charter schools are paying off.

The State created cyber charter schools, provided for their existence and is ostensibly responsible for overseeing them. Therefore the state should assume full financial responsibility for these schools without deducting funds from school district subsidies.

The four suburban Philadelphia intermediate units formed the 21 st Century Charter School operating out of the Chester County IU. It is the only cyber school to make AYP for the last 3 consecutive years and I want to commend the commitment of its staff to raise the academic achievement level of 21 st Century's students. It is my understanding that the state presently has auditors working with 21 st Century to determine what the actual per student costs are for the school to provide a quality cyber education. For the 2007-08 school year, Haverford is required to pay $8,851.66 in cyber tuition for a non-special education student and $22,968.96 cyber tuition for a special education student, regardless of the actual cost to any cyber school for educating their students. I have also learned the Chester County IU has an account where 21 st Century has been accumulating the excess tuition over actual costs, but Section 1743-A(a)(1) of the School Code prohibits the school from reducing their tuition charges or providing a refund for the difference between our payment and what it actually costs to educate a student. These facts illustrate what PSBA and school districts have consistently been telling policymakers and taxpayers for years; that the formula used to determine cyber charter school tuition has no relation to the actual costs for a cyber education.

Furthermore, per pupil funding for all students, including special education students, has not been available to regular public schools since the early 1990s. This funding inconsistency requires all of us to ask the following questions:

  1. Why should cyber charter schools be paid on a per student basis when none of the regular public schools in the Commonwealth have seen excess cost per pupil reimbursement since 1992?
  2. Why should the calculations on the PDE-363 form used to compute special education payments be based on school districts' ADM and special education budget? These figures have nothing to do with the cyber schools' actual special education expenses or their actual special education enrollment.

Last year Haverford's special education population was 1,731 students (this figure does not include gifted students). Using the cyber charter school tuition charge of $22,968.96, the total per student tuition would be $39,759,269 if all of Haverford's special education students attended cyber schools. This is almost 3 times our total special education budget of $13.6 million .

This figure illustrates two facts for our taxpayers. First, school districts are doing everything they can to keep costs down - the General Assembly's directive under Act 1 -- while providing an adequate education to its students. For the 2007-08 school year, our mandated special education budget increased by more than $768,000, while our state special ed subsidy only increased by $45,000. Second, the cyber charter school tuition formula does not accurately reflect the cost of educating special needs students while respecting taxpayers' wallets.

Oversight and Accountability
More troubling are reports that the Pennsylvania Cyber School (where the majority of Haverford's cyber students are enrolled) made a $10 million cash payment out of their accumulated fund balance to prepay a twenty year lease for office space in a performing arts center that was being built in the town of Midland, essentially funding the construction of that facility. While a performing arts facility may be a great thing for the residents of Midland, is it appropriate for property taxpayers from across the state to be funding it through districts' cyber charter school payments?

If that $10 million had come from a single school district, there would be hell to pay from both the General Assembly and taxpayers. But if one spreads that cost over 370 school districts with inadequate oversight, nobody seems to know about it. There is no outrage, and consequently no accountability for my taxpayers' dollars.

If the tuition is not excessive, then how did the Pennsylvania Cyber Charter School, whose website notes that it is " the fastest growing, most successful cyber charter school in Pennsylvania", manage to accumulate and spend $10 million of property tax proceeds on a performing arts center? In a previous hearing by this committee, Representative O'Neill quickly estimated that cyber charter schools could be receiving in excess of a $400 surplus per student. The $10 million payment would represent an excess of 25,000 annual student tuitions.

Notwithstanding, our concerns with accountability for our taxpayers' funds are not limited to this single payment. It is my understanding that the salaries and total compensation of directors and top management of cyber charters also fall under the Right-to-Know law. However, if the cyber school contracts with a management company to operate the cyber school, their contract would be public information, but the salary information of the individuals working for the management and operating the cyber school would not, even though those salaries are paid with property taxpayer funds. Once again, if a Pennsylvania school district failed to publicize this information, or at the very least, make the information available to taxpayers when requested, there would be significant objections and outcry.

The prospect of requesting and reviewing board meeting minutes, check registers, financial disclosure statements and other pertinent documents from eleven cyber schools is not a practical means of oversight, yet these are the kinds of records that are needed so we can responsibly answer our taxpayers' questions. These documents should be available to the local districts and taxpayers that fund these schools.

The message that school boards are getting from the cyber schools is short and sweet: "Just give us the money and don't worry yourselves about what we do with it." As an elected official whose responsibilities include raising revenue via my neighbors' property taxes, that is just not acceptable. If my district expends $317,000 on 40 cyber charter students, that means we cannot spend the money on the other 5,400 students in Haverford. Their parents would like more counselors, newer books, smaller class sizes, better facilities or any one of a thousand other needs. Our taxpayers would like to know that their tax dollars are being spent on the educational services provided to its resident students and not on another community's performing arts center or supplementing a student's tuition on the other side of the Commonwealth.

I have read, "The Facts on Pennsylvania's Cyber Schools", prepared by Sharon Williams, Chief Administrative Officer of Agora Cyber Charter, Joanne Barnett, CEO of PA Virtual Charter School and Dr. Dennis Tulli, CEO of Commonwealth Connections Academy. In the document, they state that "when (students) enroll, the school districts no longer have any responsibility for the education or oversight of those students" . I would point out that school directors are, however, still responsible for the imposition of property taxes on our neighbors to fund those schools and the instruction of our resident students. While the "Facts" article addresses accountability, funding and fund balances it does not address my district's concerns with how my taxpayers' funds are being utilized.

Cyber charter schools are public schools. They accept public money and therefore are subject to public scrutiny, public criticism, public accountability, unfunded and underfunded government mandates and late payments by governmental entities. Welcome to the world of public education.

Recommendations
In closing, PSBA and its districts:

  • Ask that you not hold school directors accountable for expenditures that they have no control over.
  • Urge you to support legislation that would put into place oversight and accountability measures that would preclude any more $10 million facilities from being built inappropriately and that would insure that there is appropriate stewardship for public monies.
  • Request that you support fair and reasonable regular education and special education tuition rates for a cyber education that result in students meeting state standards.
  • Ask that you support legislation that would ensure that if a district or intermediate unit offers its students the option of an online curriculum, the students of that district who enroll in any other cyber school would do so at the expense of the parents, not of the district.
  • Urge you to have the Commonwealth assume all funding for cyber charters.

Thank you again for your time and attention to these issues. Please do not hesitate to contact me if I might provide any additional information.

Other important accountability facts
Section 324 of the Public School Code, which prohibits school directors from doing business with their school districts, does not apply to charter or cyber charter schools.

Section 322 of the School Code, which determines the eligibility of school directors in school districts, also does not apply to charter or cyber charter schools. We have been unable to find any section of the charter school law that would prohibit a cyber school employee from also sitting on the board of trustees.

Under current law brick and mortar charter schools are required to provide student grades and test scores to the school districts that are required to pay their tuition fees, but cyber charter schools have no such requirement.

   

Appendices

May 8, 2006 6:50 pm US/Eastern
KDKA Investigates: PA Cyber School
Andy Sheehan, Reporting

(KDKA) PITTSBURGH The Pennsylvania Cyber School teaches home-schoolers on the internet and the struggling town of Midland in Beaver County is reaping the benefits in new employment and growth.

But a KDKA investigation questions whether millions of your school district's tax dollars are being funneled into a network of other organizations to fund lavish trips, unrelated construction projects and the promotion of other cyber schools out of state.

All of this comes at a time when many local districts are closing schools and laying off teachers.

KDKA Investigator Andy Sheehan reports on the Midland miracle which may not be seem so miraculous when you find out that you're picking up the tab.

Pa Cyber School head Nick Trombetta says there's new life in Midland after the death of Crucible Steel.

"We've given ourselves a moral boost," said Trombetta. "The pride's back were it's always was."

But who paid for a trip for 90 to a New Mexico resort?

Or for assisting other cyber schools out of state. and who's paying for the construction of a $22 million dollar arts center?

Critics have a short answer -- you are.

"Every school district in this state and particularly the ones in this region are paying for this," said Ira Weiss, a solicitor for several school districts.

Even though cyber schools don't house students, don't pay for football teams or janitors, other school districts must cover 75 percent of the cost of each student -- roughly $6,000 a kid.

But members of the state education committee investigating cyber schools say less than half goes to actually educating students and recently filed court papers accuse Trombetta of funneling surpluses into organizations he's founded and runs and some into his own pockets.

Trombetta started and heads something called the Lincoln Park Performing Arts Center.

It's a $22 million building including a black box theater, an even larger theater and music and art rooms with what is expected to be some 20 Steinway baby grand pianos.

But even though the cyber school kids are spread out across the state, most will probably never use the facility.

The building got nearly half of it's funding from the cyber school at a time when many local school districts are closing schools and laying off teachers.

"You should be irate that your tax dollars are funding an operation that is of a far grander scale that what your home district has," said Michael Barney of RODIS Inc.

Trombetta says the cyber school fronted the building $10 million in the form of a pre-paid lease -- since the school will be using part of the building to house staff and teachers.

But in court exhibits, the cyber school's former business manager Michael Barney accuses Trombetta of funneling even more of your tax dollars into the building in the form of bogus management and consulting fees.

And what was the response?

"I got fired," said Barney.

Barney sued Trombetta for wrongful firing after Trombetta replaced Barney's company with his own -- the national network of digital school or NNDS.

Trombetta used $2 million of cyber school money to start NNDS -- in what he calls a management fee.

But NNDS' broader mission is to assist cyber schools throughout the nation, and in court papers, Barney accuses Trombetta of funneling Pennsylvania tax money to out of state operations.

NNDS recently sponsored a five-day conference at a super luxury resort in New Mexico, where Trombetta is assisting a cyber school.

Ninety-seven employees, out-of-state clients and their spouses attended and other school districts say you paid for it.

"It's publicly-funded junket," said Weiss.

Trombetta says NNDS has other paying clients besides PA Cyber and that he hosted the trip as part of doing business.

"Yeah, we went to national conference," said Trombetta. "We hosted a national conference. I don't know many (schools) that don't attend national conferences."

Now, Trombetta's former business manager accuses Trombetta of making unsecured loans to cyber schools in New Mexico and in Ohio.

A charge Trombetta denies.

But who is watching the store?

Tuesday evening, KDKA's Andy Sheehan will take a look at this nationwide network being built by Nick Trombetta and whether there's sufficient oversight of your tax dollars.

(© MMVI, CBS Broadcasting Inc. All Rights Reserved.)

clock2May 9, 2006 7:15 pm US/Eastern
KDKA Investigates: PA Cyber School
Andy Sheehan, Reporting

(KDKA) MIDLAND It's called the Midland miracle -- a cyber school that brought new life to a struggling Beaver County steel-town.

And it all came about through the efforts of one man.

But a KDKA Investigator Andy Sheehan looks at whether Nick Trombetta has funneled millions of taxpayer dollars into organizations he's created.

Teaching kids over the internet has given Midland a shot in the arm and made Pennsylvania Cyber School founder Nick Trombetta a hero.

But to critics like former Cyber School Manager Michael Barney, Trombetta's building a cyber school empire on the backs of Pennsylvania taxpayers.

"This is real abuse of public money," said Barney.

PA Cyber gets about $34 million a year from other school districts who charge that Trombetta is spending only about half of that to educate kids and funneling the rest into pet projects and organizations he controls.

Cyber school money is being used to fund the construction of a performing arts center in Midland that is being built by a foundation Trombetta founded and runs.

And the cyber school has a $2 million dollar management contract with NNDS -- The National Network of Digital Schools -- a non-profit company Trombetta also founded and runs.

NNDS recently sponsored a lavish trip for 90 to a New Mexico resort and spa.

Attendees included cyber school employees and Trombetta's NNDS employees and their spouses -- and critics say you paid for it.

"What did the movie network say: 'I'm mad as hell and I'm not going to take it any more.' public educators are mad as hell," said Ira Weiss, schools solicitor.

And taxpayers are also paying Trombetta's salaries -- all three of them.

He urges $100,000 a year as chief administrative officer of the cyber school, $120 thousand dollars as Superintendent of Midland Public Schools, and in 2004, Trombetta got another $58,000 as head of the performing arts center foundation.

It's nearly $300,000 a year -- but it's not likely that any of the board overseeing those organizations will object.

That's because some members of the Midland School Board work at the cyber school and members of the cyber school board are employed at either Midland Schools or the performing arts center.

And NNDS' board is full of cyber school employees.

In other words, Trombetta is their boss.

"There is no unbiased board governance," said Michael Barney, a former cyber school manager. "No independent board governance, and he controls all of the board entities and is able to control the flow of the dollars."

Trombetta counters that he's given jobs to deserving people and board assignments to concerned citizens.

"We don't have a nepotism policy," said Trombetta. "I think we hire qualified people."

But he also employs relatives of each of the Beaver County Commissioners, who contributed $3 million to the performing arts center and lease Trombetta a building for NNDS.

And when NNDS sponsored that five-day conference in New Mexico, Beaver County Commissioner Charles Camp and his wife -- also a Trombetta employee -- went along.

Weiss says the Attorney General should investigate Trombetta's entire operation.

"And it will not be pretty picture," said Weiss.

In a statement, a spokesman for the State Attorney General would not confirm or deny that they are investigating the Pennsylvania Cyber School, but Sheehan said he has independent confirmation that a preliminary investigation is underway.

Meantime, legislation was introduced last week that would reduce the funding for cyber schools, and require more oversight of all cyber schools in the state.

(© MMVI, CBS Broadcasting Inc. All Rights Reserved.)

Pittsburgh Post-Gazette Sunday, March 18, 2007
Cyber-school empire under attack
Beaver County educator fighting grand juries, suits and legislators
By Jonathan D. Silver

In the past seven years, Nicholas Trombetta has climbed from small-town Beaver County school administrator to the head of a sprawling educational network fueled by millions of taxpayer dollars.

Now this onetime wrestling coach finds himself grappling with a ring of powerful opponents -- from law enforcement agencies to the state Legislature to litigators -- who are imperiling the empire he built from scratch.

Detractors claim Dr. Trombetta has misused the public's money and engaged in a range of questionable business practices at his booming Pennsylvania Cyber Charter School and affiliated entities. Those include the Lincoln Park Performing Arts Center, a $23.5 million jewel that sits across from Dr. Trombetta's office on the main drag of Midland, population 3,000.

Although it is not clear exactly what state Attorney General Tom Corbett Jr. is investigating, a statewide grand jury whose term recently ended heard testimony over several months about alleged financial shenanigans within Dr. Trombetta's network. Prosecutors are expected to continue presenting evidence to a new grand jury next month.

Subpoenaed witnesses have provided the grand jury with information they say points to possible violations of a range of laws concerning charter schools, campaign finance, corporate governance and nonprofit organizations.

In a recent interview, Dr. Trombetta -- whose doctorate is in education -- declined comment on the grand jury but said he understands the intense scrutiny attracted by his organizations.

With his cyber school drawing 6,200 students and anticipated revenue this year of $50 million in tuition from school districts around the state, Dr. Trombetta views himself as an upstart bound to ruffle feathers among proponents of the traditional model of public education -- local students going to school rather than being educated online at home from anywhere in the state. Traditional schools, he said, are unused to the competition, and success breeds contempt.

"Has it been pleasant? No," Dr. Trombetta, 51, said of the controversy in Midland, an old steel town just across the border from Ohio. "I tell this to the staff: This is all part of it. No one who challenges a system that has been unchallenged for so long is going to go away unscathed. We are under the microscope, and we should be."

Dr. Trombetta is chief executive officer of the charter school, a 21st-century economic engine for tiny Midland. which foundered after Crucible Steel shut down in the 1980s.

The school, along with the performing arts center, the affiliated Lincoln Park Performing Arts Charter School, and the Beaver-based National Network of Digital Schools, a management group of which Dr. Trombetta is president, have created nearly 800 jobs.

Dr. Trombetta is also superintendent of the Midland School District, which approved the charter for the cyber school. He intends to step down July 1 as superintendent. Dr. Trombetta said this year he is earning $149,000 from the cyber charter school and $50,000 from Midland.

Well-oiled machine
Dr. Trombetta is perceived as a power broker in town, mighty by merit of the fact that he is at the heart of the web of educational entities. Critics have complained that many people in his employ or on the various boards of his organizations are beholden to him and therefore incapable of independent decision-making. In short, they say, Dr. Trombetta's rule is absolute.

"Just the way he's set things up, he's like an old ward leader who basically controls his turf, and anybody who's on a board out there either works for Nick or has someone in his family who works for Nick, so the chance that he would have any dissent is nil because everybody works for Nick or entities that he controls," claims Mark Zabierek, a lobbyist and longtime political player in Western Pennsylvania who worked for a firm, Centre Educational Consultants, that was fired by Mr. Trombetta. Mr. Zabierek has testified before the grand jury.

Dr. Trombetta's control, critics say, extends to how money is spent, whether on the construction of the performing arts center or accommodations for employees at a resort hotel for a conference. The debate is over whether Dr. Trombetta dispenses money for pet projects or legitimate business expenses.

"Nick has treated all of the accounts out there as if they were his own money," Mr. Zabierek said. "Just because you have all this money doesn't give you a license to go nuts. That wouldn't be accepted at any school district or on any government level."

Mr. Zabierek looks skeptically at the relationship between the cyber school and the National Network of Digital Schools. The cyber school pays 12 percent of its revenue -- an expected $5 million to $6 million this year -- to NNDS to handle non-instructional needs, from legal affairs to purchasing to billing. That represents the vast bulk of NNDS's revenue. Dr. Trombetta said the 12 percent is at the low end of the fair market range for the type of services NNDS provides.

Critics have pointed to an educational conference for cyber school educators at a New Mexico resort as wasteful spending of taxpayer dollars. But Dr. Trombetta said NNDS covered expenses -- not the cyber charter school -- for eight employees at a cost of $125 a night per room and defended the trip as legitimate.

Dr. Trombetta sees the money spent by NNDS as segregated from the tax dollars that flow into the cyber school.

"The boards are independent and to suggest that NNDS somehow exercises undue influence over PA Cyber, or vice versa, as your questions insinuate, is an insult to the board members of both organizations. Bear in mind too that these services and costs are audited then scrutinized by board members that are not paid a dime for their services," Dr. Trombetta said.

He also dismisses the criticisms that he runs an empire stocked with employees who are unqualified political hires.

"I think it demeans the people who worked hard to create what we have," he said. "People want to throw stones at people who are successful."

Dr. Trombetta's success stems from the hard times his town fell on two decades ago. Midland closed its high school in 1986, and with no other Beaver County school district willing to take its students, the borough eventually sent them across the border to East Liverpool, Ohio. That did not sit well with Dr. Trombetta, an Aliquippa native and resident of East Liverpool. He wanted Midland children to stay local.

By 2000, Dr. Trombetta had found the answer: Launch a cyber charter school that could attract both Midlanders and students from around the state.

Starting with 527 students in 2000-2001 and revenue of $2.9 million, the school has grown exponentially.

Cash cushion
Students' home school districts must pick up part of the tab for their education and pay the cyber charter school, whose expenses, critics say, are lower than traditional schools because there is no significant infrastructure to maintain, such as classrooms, swimming pools and stadiums.

However, Dr. Trombetta argues that just because cyber schools provide online education does not mean that they do not have significant expenses, including computers, textbooks and buildings for their employees.

This disparity in revenue and expense has led the cyber charter school to be immensely profitable. It has $9.1 million on hand. But appearances can be deceiving. Dr. Trombetta said that cash cushion is necessary to cover expenses for the coming year since some school district payments come in late, causing the cyber school to take out loans or lines of credit to meet expenses.

But critics question the use of the cyber school's income. Exhibit A in their opinion is the performing arts center. It was built with $7.5 million in state funds, $3 million from Beaver County, and $3 million from the Midland School District. Filling out the funding: a $10 million, 20-year pre-paid lease by the cyber charter school.

"The school has funneled millions of dollars into the construction of Lincoln Park Performing Arts Center ... without proper documentation, purpose or, at times, authority for such payments," Michael Barney, a former business associate, charged in a 2005 letter to Dr. Trombetta.

Mr. Barney declined comment for this story in order to "maintain the integrity of the grand jury investigation."

Dr. Trombetta said the cyber school uses about 35,000 square feet of space, which amounts to just over $14 per square foot -- a price he said was good, especially considering the quality of the accommodations.

It made more sense to lease additional space at a new facility and help build something significant in Midland that was a boon to the region than to spend $10 million to renovate the dozen buildings in which the cyber school's employees are housed, Dr. Trombetta said. The school occupies, owns or leases space in eight buildings in Midland and one each in Beaver, Beaver Falls, Cranberry and Philadelphia.

He also noted that public officials poured in millions of dollars, meaning that government officials were involved in the financing of the center from the get-go. If there were any legal problems or questionable spending, Dr. Trombetta said, there was ample opportunity for politicians to balk at funding the project.

Lawsuits and allegations
Mr. Barney is a key figure in the grand jury investigation. He runs Rodis LLC, which provided management services to the charter school for about eight months. But Dr. Trombetta fired Rodis, which then sued for breach of contract. The cyber school sued back, and the litigation is pending.

Mr. Barney was the first witness to testify before the grand jury. In a four-page letter to Mr. Trombetta dated March 2005, Mr. Barney questioned billing practices, use of public funds and some payments involving the cyber school and performing arts center.

Dr. Trombetta charged that Mr. Barney's motivation is about one thing: the nearly $500,000 he believes he is owed by the cyber charter school. Dr. Trombetta claims the transactions of the cyber school and related entities have been open and honest.

"We're a transparent organization. We have offered at every turn our willingness to cooperate with every state agency because at the end of the day we believe we will be standing tall and proud," Dr. Trombetta said.

Beyond contending with the grand jury investigation and the Rodis lawsuit, Dr. Trombetta has been targeted by a foe in Harrisburg, state Rep. Karen Beyer, R-Lehigh, a former school board president who is on the House Education Committee.

Ms. Beyer said she has based some of her conclusions on discussions with Mr. Barney, whom she described as a "whistle-blower."

Ms. Beyer said she told Dr. Trombetta. "Nick, you continue to operate, I have no problem with what you do. I'm not trying to ban cyber charter schools. I'm trying to get a handle on the money."

Dr. Trombetta said if anything, Ms. Beyer's criticisms have helped enrollment at the school by generating publicity.

"We have invited Rep. Beyer to come to Midland and learn about the high quality education we provide to over 6,000 students across the state of Pennsylvania. She has refused to take us up on that offer and continues to mischaracterize our work and our mission," Dr. Trombetta said.

"We remain at a loss why she is not interested in learning about what we are doing before making judgments. Other elected officials have done so and come away with a clear understanding that the work being done here is meaningful and important to many families across the Commonwealth and that we represent the future of public education."

Ms. Beyer has introduced legislation to tighten financial controls on cyber charter schools and cut tuition. She has written letters to both the state's attorney general and auditor general requesting investigations of Dr. Trombetta.

Ms. Beyer claims that the contract between the cyber school and NNDS and the funding of the performing arts center represent improper uses of taxpayer money.

"Those dollars were assigned to the students to use for their education. They weren't assigned to build a performing arts center," particularly one that tuition-paying students on the other side of the state don't have access to, she said.

As for NNDS, Ms. Beyer said, "He's taking these tuition payments and starting up some subsidiary business with the purpose of creating business out of the state." NNDS sells services to 33 clients other than Pennsylvania Cyber Charter School, including cyber charter schools in Ohio and New Mexico.

"He's required the utilization of taxpayer resources to execute his big, huge plan, whatever that ultimately is," Ms. Beyer said. "He wants to be the king of cyber schools, and I'm here to tell Mr. Trombetta he's not going to be the king of cyber schools with taxpayer money, period."

First published on March 18, 2007 at 12:00 am

Performing arts center built with public funds, had little oversight
By: Bob Bauder and Lori DeLauter - Times Staff

MIDLAND -The Lincoln Park Performing Arts Center was built with public money but very little public oversight, and included funding from Midland School District, a process one public school solicitor described as improper.

In recent months, The Times has been looking into a state grand jury investigation of the Midland education industry created by borough school Superintendent Nick Trombetta. Lincoln Center's construction is part of that investigation, according to witnesses who have been called to testify.

The Times has found that Lincoln Center's costs totaled at least $28.7 million, money supplied by the state, Beaver County, the Midland Pennsylvania Cyber Charter School and Midland School District.

A nonprofit organization, also known as the Lincoln Park Performing Arts Center, was expressly created to build and own the center. Its board of trustees was responsible for overseeing the organization, including all aspects of building construction.

But the board played virtually no role in its planning and had only limited involvement in the construction and oversight of expenses during initial construction phases, according to a review of board meeting minutes and interviews with board members.

In fact, the board members who were interviewed seemed to know very little about specific details of the project.

When asked who was in charge of it, former Lincoln Center board President Marvin Bahm indicated that it was Trombetta, who also serves as executive director of Lincoln Center.

"It was his program, his idea, his everything, so he really was the leader of the whole thing," Bahm said.

Pittsburgh lawyer Jack Owen, who specializes in the field of nonprofit organizations, said nonprofit boards have a duty to oversee all aspects of their organization's operations.

"Ultimately the board of directors is there to be a watchdog," he said. "You want to have people on your board who are sophisticated. The board represents the community."

In its first meetings in 2003 and 2004 - years in which the center was planned and construction began - the Lincoln Center board met just three times. Minutes from the two 2003 meetings reflect no action regarding the building. The board had no record from the lone meeting in 2004 other than an agenda, which made no mention of the building.

A review of Midland School District minutes indicates the district began making payments in June 2002 to N. John Cunzolo Associates architects and Castlebrook Development Group, both of Pittsburgh, and a consultant, Theatre Project Consultants. All were paid specifically for work on Lincoln Center.

From June 2002 through June 2004, payments from Midland School District to the three companies totaled at least $1.6 million. Those payments present a potential problem for the district, according to a public school expert.

Ira Weiss, a Pittsburgh lawyer with nearly 35 years of experience, represents nine regional districts including Ambridge Area, South Side Area and Pittsburgh City School District. Weiss' firm is also representing Western Beaver School District in a pending lawsuit against Midland School District.

Weiss said he thinks the use of school district revenue to build Lincoln Center was questionable.

"There's no way that I know of that a school district can spend public funds on a project that belongs to someone else," Weiss said. "I certainly wouldn't have approved it. A school district can't spend money on a project it doesn't own, just as it can't go out and build somebody a house."

Trombetta and Stephen Catanzarite, Lincoln Center's managing director, refused recent requests for an interview, saying they would answer questions only by e-mail.

Freedom Area Superintendent Ronald Sofo also questioned Midland's use of district funds on Lincoln Center.

Based on a conversation with his school solicitor, Sofo said there is no place in the state school code that allows a district to funnel money to a nonprofit for construction of a building the district does not own.

"I would not consider that an appropriate use of funds and would not advise our board to pursue that path," Sofo said.

The state attorney general's office, the state Department of Education and the state auditor general's office, agencies with regulatory power over public schools and nonprofit entities, have all refused to comment specifically on the Midland situation, citing the grand jury investigation.

Midland School Board approved its final budget in June 2003, which included $3 million from its fund balance to be designated as a one-time prepaid lease payment to Lincoln Center. It is unclear whether the $1.6 million paid to Cunzolo, Castlebrook and the theater consultants was classified as part of that prepaid lease.

The Pennsylvania Cyber Charter School, which Trombetta also heads, paid a $10 million prepaid lease in cash to Lincoln Center. Both schools' payments were made before Lincoln Center's board had even met; before official lease agreements were in place; and, as a cyberschool auditor pointed out in 2005, before fair-market assessments were done on the value of the leases.

The funds from Midland School District and PA Cyber were used for Lincoln Center's construction. State charter schools may receive and disburse funds for charter school purposes only, state Department of Education spokeswoman Sheila Ballen said when asked whether public schools can fund outside entities. She refused to comment specifically on PA Cyber, citing the attorney general's investigation.

"With a public entity, you cannot pay in advance for services or goods," Weiss said. "In my view, I do not believe a prepaid lease by a public entity is legal."

HOW IT BEGAN
The Lincoln Park Performing Arts Center sits like a sparkling gemstone in the center of steel-tarnished Midland.

Trombetta said he got the idea for it after seeing a well-attended local high school musical. It would become yet another accomplishment in a list of entities he would create.

Trombetta opened PA Cyber in 2000, and it is now the largest cyberschool in the state, with more than 6,500 students and a projected $50 million budget.

He went on to guide Lincoln Center; Lincoln Park Performing Arts Charter School, which also leases space inside Lincoln Center and opened last fall; and the nonprofit management foundation National Network of Digital Schools, which provides services to the other four Midland entities, as well as educational entities Trombetta has created in other states.

Trombetta heads every organization but the Lincoln Charter School. He announced this week that he plans to step down as president of NNDS on July 1 and as Midland school superintendent on Sept. 1.

The Lincoln Center idea was first mentioned at a Midland School Board meeting in 2001. In March 2002, the Midland School Board approved a resolution in support of it, and Trombetta began touring theaters in Pittsburgh and New Orleans.

Two months later, the school board approved architectural documents from Cunzolo Associates, a proposal from Commonwealth Securities and a letter of intent from developer Castlebrook, all specifically for the Lincoln Center project.

Midland School District also paid at least $164,000 to buy the former Lincoln High School property from the borough, tear down the old building and prepare the site, and then gave it to the nonprofit Lincoln Center. In January 2003, Trombetta unveiled a feasibility study done by Theatre Project Consultants, and nine months later, the governor came to the groundbreaking.

The Lincoln Center nonprofit was legally organized in September 2002, but its first board meeting did not take place until July 2003.

Even before the nonprofit was organized, Midland School District had made more than $717,000 in direct payments to Cunzolo and Castlebrook.

The nonprofit Lincoln Center board never voted to retain the two consultants.

In fact, there was no mention of the Lincoln Center project in its board minutes until May 2005, when the board got a building update. The building was opened in June 2006.

PREPAID LEASES
In a March 2005 letter to Trombetta, PA Cyber auditor John P. "Jack" Ellsworth listed several questionable payments among the "open issues" he said the school needed to address. At the top of his list was PA Cyber's $10 million prepaid rent to Lincoln Park Performing Arts Center and Midland School District's $3 million prepaid lease. "We look forward to resolving these issues as soon as possible," Ellsworth, of Cottrill, Aburtina and Associates of New Brighton, wrote at the end of his letter.

Although payments had already been set and made, Ellsworth said neither school had gotten a fair-market-value assessment of the space, nor were formal lease agreements in place.

"When this documentation is complete, we will need to perform certain procedures to ensure that the lease terms and the amounts of rent paid in advance represent a fair-market-value transaction," he wrote.

The month after Ellsworth's letter, on May 9, 2005, PA Cyber's board voted to hire Michael Kuhlman of Commonwealth Real Estate, and also the county's chief assessor, to appraise Lincoln Park Center.

According to PA Cyber's 2003-04 audit, which includes subsequent events dating to May 2005, the school entered into the official lease agreement in May 2005. The agreement took effect in November 2005.

By then, the audit said, PA Cyber had already paid Lincoln Park Center $6.21 million, and would pay the remaining portion of the $10 million by March 2006.

©Beaver County Times Allegheny Times 2007

Editorial - You paid for it

You have a right to know how your taxes are being spent. Such transparency is essential to maintaining accountability in government.

That's why the way in which tax dollars were spent in the construction of the Lincoln Park Performing Arts Center in Midland needs to be made public. As The Times reported on Sunday, the payment process for LPPAC was anything but open and transparent.

Because so little public information was available and officials were not forthcoming with the information, the paper submitted a written request to disclose bid and construction documents relating to the center, a nonprofit organization created specifically to build and own the facility.

Lincoln Center officials denied the request. They said they were not obligated to turn over the information because the center is a nonprofit organization and is not subject to the state's open-records law. (The Times is challenging that contention.)

However, LPPAC was built exclusively with tax dollars - at least $28.7million in all. That money came from the state, Beaver County, the Pennsylvania Cyber Charter School, the Pennsylvania Finance Authority and the Midland School District.

The public records that are available are of little or no use.

For instance, the Lincoln Park board of directors met three times in 2003 and 2004. Minutes from the two 2003 meetings reflect no action regarding the building, and the board had no record of the lone meeting in 2004 other than an agenda, which made no mention of the building.

How could a board of directors in charge of a $28.7 million undertaking not address that project at some point? It's unfathomable.

Compare that to what is taking place in the Center Area School District, which is in the process of renovating its middle and high schools and constructing a new primary center.

The district has its monthly board meeting minutes going back to July on its Web site. Every monthly report lists payments to vendors/contractors, the amount of money paid and the work orders. The monthly minutes also include multiple change orders, those inevitable adjustments that must be made during any construction project.

None of this basic information is available to the public on the construction of Lincoln Park.

LPPAC officials and charter school proponents like to claim that they need flexibility in what they are doing because they are in unexplored territory.

Educationally, perhaps. Financially, definitely not. Your right to know where your tax dollars are going is absolute and fundamental.

That's why LPPAC officials and others affiliated with this project owe you a full and open accounting as to how your tax dollars were spent.

State lawmakers and the Rendell administration do, too. Finding out where your taxes went shouldn't be a game of three-card monte.

©Beaver County Times Allegheny Times 2007

Cyberschool defends budget balance
By: Bob Bauder and Lori DeLauter - Times Staff

MIDLAND - The Pennsylvania Cyber Charter School in 2005-06 posted a $16.1 million fund equity - about 49 percent of annual expenses - as the school's assets continued to climb for a sixth straight year, according to an independent audit.

However, PA Cyber Chief Executive Officer Nick Trombetta said that most of the $16.1 million was tied up in prepaid expenses and that the school is forced to borrow before each new school year.

The audit, completed by McVey and Associates of Lower Burrell in April and filed at the Beaver County Courthouse last week, was ordered by the school under state requirements.

Cyberschool critics across the state have pointed to fund equities, or balances - accounting terms representing assets minus liabilities - as evidence that taxpayers are overpaying the schools to educate children.

Trombetta said the unrestricted portion of Midland-based PA Cyber's fund equity - which he characterized as a truer measure - was about $2 million and represented about 6 percent of that year's $33 million in expenses.

"There's no $16 million of a surplus lying around in a bank account," he said. "That's impossible."

The cyberschool's fund equity was much higher than those posted by traditional Beaver County school districts surveyed by The Times last week. The Hopewell Area School District, by comparison, had a $3.9 million fund balance in 2005-06, equal to about 11.6 percent of its annual expenses.

"I'd like to have that," Hopewell Superintendent Charles Reina said of the cyberschool's equity. "I can't compare one school district to another, because I don't know, but if we had a fund balance that high, we're not spending appropriately."

Reina and other area school superintendents, as well as charter school advocates, are scheduled to testify this week before the state House Education Committee. Hearings are planned for 1 p.m. Tuesday at Point Park University in Pittsburgh and 10 a.m. Wednesday at the Community College of Beaver County in Center Township to gather information about charter school funding.

The hearings come in the wake of legislation proposed to limit charter school funding and a report by the state auditor general, who found that three such schools in the state, two in Erie County and one in Lehigh County, were overfunded by taxpayers. PA Cyber was not mentioned in the report. Auditor General Jack Wagner called on the Legislature to "fix the state's charter school law immediately."

PA Cyber, which estimates it will have about 7,000 students enrolled this year, is one of the largest charter schools in the state.

The school opened in 2000-01 with a student enrollment of about 480 and a budget of about $2 million. Enrollment has doubled almost every year since then, and expenses have increased accordingly.

Most of the school's revenues arrive in the form of tuition payments from school districts across the state. Many of those districts have had to raise taxes and take other financial measures in order to pay the tuition bills.

In 2005-06, PA Cyber posted about $38 million in revenues and about $33 million in expenses. The $5 million excess was added to the fund equity, which has also increased each year.

Of the $16.1 million, about $10.6 million was designated for prepaid expenses, including $10 million for a 20-year lease at the Lincoln Park Performing Arts Center. The cyberschool rents the center's third floor to house a portion of its business offices.

Another $835,864 was reserved for retirement of long-term debt. About $2.5 million was tuition money due from school districts.

It left an unrestricted balance of about $2 million available for use in the ensuing school year.

"There's not $16 million sitting in the coffers here that they're able to spend," said Dale Cottrill of Cottrill Arbutina and Associates, whose firm handles financial matters for PA Cyber and other Midland school entities.

"The fund balance that is available to the school at the end of the year is $2 million. The rest of the money, they don't have that."

However, Cottrill said, the $16.1 million represented excess money that the school has received in the past that has been earmarked for specific purposes.

Charter school critics offer such accrued monies as proof that charter schools are receiving too much money via a funding formula designed by the state.

"This is exactly why I've written the legislation that I have," said state Rep. Karen Beyer, R-131, of Lehigh County, author of House Bill 446 designed to limit the funding. "No public school, be it a traditional public school or a charter school, should be able to carry a fund balance that large. What this means is (taxpayers) are paying a lot more than what it costs to educate children."

Freedom Area School District Superintendent Ron Sofo, who is also scheduled to testify before the House committee this week, said PA Cyber's ability to prepay a $10 million lease to Lincoln Park and record that as restricted revenue is evidence that cyberschools are overpaid.

"My opinion is they're covering up how high their fund balance is by recording a 20-year lease," he said. "To me, that's an example of why we need reform."

Trombetta, however, said each year is a financial struggle for PA Cyber.

Each year, the school opens in the red due to a continuing enrollment explosion, which makes it necessary to borrow for new books and computers and to hire more teachers and staff, he said. That, combined with a lag time in receiving tuition payments, makes it tough to stay ahead of the bills.

Trombetta said the fund equity is a large number, which surprised even him. But it's a number that is simply on paper.

"You never have a year where you have money in an account to pay the bills," he said. "You start out every year in heavy debt."

©Beaver County Times Allegheny Times 2007

Undesignated Fund Balances in PA Cyber Charter Schools, 2005-2006
From the Second Quarterly Report of the Task Force on School Cost Reduction
May 16, 2007
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Delaware County School Districts
Cyber Charter School Tuitions
2003-2004 through 2006-2007

 

2006-2007

 

 

School District

2005-2006

2004-2005

2003-2004

Chichester

155,017.93

104,336.75

34,971.30

53,552.78

Garnet Valley

206,997.42

109,772.25

161,417.16

117,761.38

Haverford

317,000.00

217,371.35

185,782.65

154,159.23

Interboro

109,847.19

95.664.28

120,911.77

84,591.54

Marple Newtown

183,609.00

168,885.99

53,404.00

19,288.54

Penn Delco

201,801.00

 Not reported

Not reported 

Not Reported

Radnor

63,300.00

148,497.33

17,963.04

28,694.01

Ridley

220,000.00

52,265.00

91,880.00

22,144.00

Rose Tree Media

331,000.00

212,128.36

104,380.92

95,901.13

Southeast Delco

353,241.53

173,741.25

74,147.19

28,241.74

Springfield

25,506.63

36,293.32

47,819.73

30,297.08

Upper Darby

470,000.00

343,342.00

309,980.00

106,167.00

Wallingford-Swarthmore

211,207.52

262,078.50

158,914.70

75,091.35

William Penn

1,054,810.00

722,746.00

563,086.00

235,009.00

Totals:

3,903,338.22

2,551,458.10

1,924,658.46

1,050,898.78

Spreadsheet detailing 4-year Delaware County School Districts cyber charter tuitions is included as an appendix.

School districts determine their non-special education and special education per student tuition rates utilizing the PDE 363 form. This worksheet is required to be completed and submitted to the department by August 31 of each year.

Several news articles about the funding of performing arts center are included in the appendix to this testimony.

The salaries and total compensation of school districts' superintendents and senior staff are public information under the Right-To-Know law.

Section 1741-A(c) of the School Code authorizes that districts can only receive a copies of cyber schools' charters, charter applications, all annual reports and a list of the resident students from requesting school districts.