Did Milwaukee Public Schools arrange a ‘nod and wink’ deal to avoid selling a vacant building to a private school?

Oct 18, 2013 by

MILWAUKEE – There’s been a huge ruckus in Milwaukee in recent weeks over the school district’s alleged refusal to sell vacant school buildings to charter or private voucher schools.

Now a story has surfaced that many believe demonstrates how far the Milwaukee school board will go to prevent competition for students from alternative “choice” schools.

The controversy focuses on the vacant Malcolm X Academy building, which the nearby St. Marcus Lutheran School has been trying to purchase from the City of Milwaukee and Milwaukee Public Schools for nearly a year.

On Monday the Milwaukee school board voted to ask the city to sell the building to a company called 2760 Holdings LLC, according to a news report from RightWisconsin.com. The sale price would be $2.1 million.

But the deal is not that simple.

Under terms of the proposed transaction, the purchaser would develop half of the space for “residential, retail and community use.” MPS would lease the other half from the company for undetermined instructional purposes for $1 million per year for up to four years.

At the end of the four years, MPS would have an option to repurchase the entire property, with credit for the $4 million in rent that had been paid over the previous four years.

To critics, it seems as though MPS is arranging for the company to take temporary possession of the structure, so the district can avoid selling the building to St. Marcus. They are particularly suspicious of the rental credit that MPS would receive if it chooses to buy the building back.

Picture this possible scenario – the company gives MPS $2.1 million for the building, MPS then pays the company $4 million in rent, so the company recovers its initial investment and uses the balance to renovate the building. Then the company sells the building back to the school for $4 million, which has already been paid in the form of rental “credits.”

It would be a wash for everyone. Why wouldn’t the district just keep the building and pay for the renovations itself, with the money it will pay in rent?

Perhaps because the school district is trying to rush a sale to beat the adoption of proposed state legislation that would pressure the district to sell vacant buildings to charter or voucher schools.

A ‘sham’ of a deal?

The Wisconsin Institute for Law and Liberty (WILL) has a very dim view of the proposed deal.

“It is hard to see how any rational person would enter into the contemplated transaction – unless motivated by a desire to avoid selling the building to a choice school,” the WILL staff wrote in a letter to Milwaukee Common Council President Willie Hines.

“JPC Construction, through (2760) Holdings LLC, will buy Malcolm X for $2.1 million. But, starting April 1, 2014 (or earlier), MPS has agreed to lease back one half of the building at an annual rent of one million dollars – essentially one half of the entire purchase price – for the next four years. That’s nearly a 50 percent annual return on investment!

“The investor takes no risk and MPS pays for the upgrades. Yet it can double its money in four years. Even worse, MPS has the option to pay the entire lease up front, permitting the developer to cash out after closing.

“The transaction gets stranger. At the end of the lease, MPS can buy Malcolm X back for an undisclosed price with a credit back on its rent payments. The credit for rent paid raises a question as to whether this is a sham transaction. It is not clear to us that, even if the transaction is closed prior to the passage of legislation, MPS will not continue to control and be the equitable partner in the property.

“To call this a ‘sweetheart’ deal is an understatement. Worse, MPS has chosen this in the face of a buyer with 130 years of history in the neighborhood and strong financial backing. This deal is so bad and its real purpose so transparent that it raises serious questions regarding its legal validity.”

The smoking gun may be a report from RightWisconsin.com that says the deed for the building will have a restriction that will say, “Property shall not be used for any use that has the effect of diminishing the annual average number of pupils enrolled in Milwaukee Public Schools.”

In other words, under no circumstances will the buyer be allowed to sell or lease the building to independent charter or voucher schools that would attract MPS students and the state aid money attached to them.

That could be interpreted as proof that the people who run MPS are more concerned about the preservation of their own jobs than they are about school choice and quality education for the children of the community.

The school district, in a written statement to EAGnews, confirmed that the deed restriction will be included, explaining: “…By virtue of the lease, MPS is contributing to the costs of rehabilitating the property and would want its students to benefit from that investment. The city of Milwaukee, which will actually sell the building, has stated it is not unusual to have deed restrictions.”

The key words there may be “its students.” One might expect MPS to have an interest in contributing to the education of all children in the community, regardless of the school they choose to attend.

The taxpayers of Milwaukee paid millions of dollars to construct this building for educational purposes. That’s how St. Marcus would use it. But that intent would be partially violated if MPS executes the proposed sale and half of the structure is used for profit-making and other activities.

Voucher schools not eligible

It seems pretty obvious that the decision makers at MPS are not fans of school choice.

Since 1990, Milwaukee students who qualify based on income have been free to enroll in the Milwaukee Parental Choice Program, which allows them to take a portion of their per-pupil state aid to use as tuition at private schools in the area.

The program has been a tremendous success. It currently enrolls about 25,000 students, while thousands more choose to attend local independent charter schools.

Every student that leaves MPS for a private or independent charter school costs MPS thousands of dollars in state aid. And as the public school district has continued to downsize over the years, fewer buildings have been needed.

As a result MPS has put several vacant school buildings up for sale in recent years. All of them have attracted interest from potential buyers in the charter or voucher school community, according to WILL. Yet only a few have been sold to charter schools and none have been sold to voucher schools.

The reason? Many believe it’s obviously because the district wants to limit the loss of further students to choice schools.

MPS board President Michael Bonds has been quoted as saying that MPS selling its vacant buildings to choice schools would be like “asking the Coca-Cola company to turn over its facilities to Pepsi.”

The district currently has approximately 20 vacant buildings, including the former Malcolm X Academy.

According to information provided to the state by WILL, “On Oct. 30, 2012, St. Marcus inquired about purchasing one of three vacant MPS buildings, including Malcolm X – all of which are located within eight blocks of St. Marcus.

“On Dec. 5, 2012, the city’s real estate manager said ‘no’ because (Milwaukee Parental Choice Program) schools are not eligible to purchase vacant MPS property.”

For some, the sale agreement with the private developer is a slick way to avoid having to do that. A bill currently in the state legislature would define vacant school buildings and force MPS to give choice schools the first option to buy the buildings, or wait four years to sell to other interested parties.

As RightWisconsin.com put it, “MPS is jumping through hoops and spending loads of district money in order to give the appearance of selling the empty school, but in reality is leasing it to itself.

“Meanwhile … the board of directors of St. Marcus Evangelical Lutheran Church has approved a full cash, market-rate offer for the former middle school and is ready to proceed with the purchase and development of the property for the benefit of the children and families in the immediate area.”

In their statement to EAGnews, MPS officials claim they want to use half the space for undetermined educational purposes, and want to maintain the right to reclaim the building due to recent growth in enrollment. They say they began discussing the use of vacant buildings as community centers in August, 2012 and started the planning process for converting Malcolm X in May of this year.

District officials say they have offered St. Marcus three other buildings, which the school allegedly turned down.

St. Marcus school officials could not be reached for comment.

Did Milwaukee Public Schools arrange a ‘nod and wink’ deal to avoid selling a vacant building to a private school? – EAGnews.org powered by Education Action Group Foundation, Inc..

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