Charter Schools Are Still Getting Public Funding. So Why Are They Applying For PPP Loans?

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UPDATED -- Leaders of at least four Los Angeles charter schools have applied for loans through the Paycheck Protection Program, or "PPP" -- a federal government relief program originally intended to help small businesses weather the coronavirus crisis.

The board of Gabriella Charter Schools, which operates two campuses in Echo Park and South L.A., authorized a $1.3 million PPP loan.

So did Ivy Academia in the west San Fernando Valley. That charter school's board accepted $962,300 through PPP.

The board of City Charter Schools, which runs campuses in Mid-City and Baldwin Hills, also applied for $997,000, the school's executive director said.

A fourth network, Fenton Charter Public Schools, also received a $5 million loan in mid-April. But last week, Fenton administrators decided to return the funds after deciding the schools didn't need the money, documents show.

And these four schools weren't alone. Through a fairly cursory review of governing board documents, KPCC/LAist found another three L.A. charter schools that have at least considered applying for part of the $660 billion pot of PPP funds.

Board documents don't make clear whether Granada Hills Charter High School or Birmingham Community Charter High School followed through with loan applications.

But board members for a third school, El Camino Real Charter High School, decided against applying -- in part, because they feared accepting PPP funds would be seen as controversial.

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THE CONTROVERSY: SHOULD CHARTER SCHOOLS GET PPP DOLLARS?

Government entities are not eligible for PPP loans. But while charter schools are publicly funded and tuition-free, they are not exactly government entities.

Charter schools are operated by nonprofit organizations. Nonprofits are eligible for the PPP program -- and national advocacy organizations have encouraged charter schools to apply for PPP funds.

Charter schools also receive the vast majority of their revenue from the government. While California is pondering cuts in K-12 spending, school funding has continued to flow uninterrupted during the pandemic thanks to an executive order from Gov. Gavin Newsom.

To United Teachers Los Angeles -- a labor union which opposes charter schools on a number of policy issues -- this raises the question: Why would charters need PPP money?

"There's been talk in the news," noted UTLA member and teacher Maria Sanchez, "about ... how some small businesses weren't given a chance to get a loan because [the money] was all taken. The fact Gabriella Charter was getting a loan when they have the same funding as public schools just didn't seem fair to me."

A Facebook Live video shows supports of United Teachers Los Angeles holding a protest outside the home of a charter school board member. The teachers union opposes a plan to have Gabriella Charter School 'co-locate' on the campus of the LAUSD-run Lizarraga Elementary. Gabriella's administrators oppose the move for a different reason; the charter already shares space on the campus of LAUSD's Trinity Elementary, and the district's plan would split the school between two campuses. (UTLA Facebook Page/Screenshot)

WHY CHARTER SCHOOLS SAY THEY NEED THE MONEY

The coronavirus crisis has forced many charter schools to shoulder extraordinary costs for meals, masks, gloves, cleaning supplies and technology for teaching kids online.

District-run public schools face these costs, too -- but officials with the California Charter Schools Association (CCSA) contend their member schools don't have access to the same funding tools to cover these costs.

For example, the L.A. Unified School District used $77 million in bond funds to purchase thousands of laptops during the crisis. Charter schools have long lamented that they don't have the authority to put similar construction bond or parcel tax questions before voters.

Additionally, if state lawmakers enact Gov. Newsom's proposed budget, California would delay its June payments to public schools. Charter schools -- which are often much smaller than districts -- are not as resilient as districts in handling these cash flow interruptions.

Ricardo Soto, CCSA's chief advocacy officer and general counsel, says that while school districts are able to borrow money to make payroll at "single-digit" interest rates, charter schools often must turn to private lenders to borrow funds at rates rivaling those of payday loan providers.

Meanwhile, the federal government has said the PPP loans -- which have interest rates of 1 percent or less -- can be forgiven if borrowers use them to cover payroll costs.

Soto says this makes PPP loans a good solution: the loans give charters "more flexibility with the other funding that they might have -- including from the state -- to address these other extraordinary expenses that they've had to incur during the crisis to continue to serve families and students."

THE LA SCHOOLS THAT (MAY HAVE) APPLIED

Soto said interest in the PPP program among charter schools has been widespread. He personally has been contacted by at least 15 charter schools across California considering the program. (His official advice to the charters: Ask your own lawyers about applying.)

Here are the four in L.A. we know about for sure:

• Gabriela Charter Schools turned to the PPP program as a solution to "major cash flow issues and revenue shortfalls starting this year," executive director Liza Bercovici said in a written statement. She said the school needed a loan "to begin shoring up cash reserves in anticipation of this fiscal crisis."
• City Charter Schools executive director Valerie Braimah said in an email that her small network of schools has limited reserves, lost revenue from spring fundraisers and took on huge costs for technology upgrades. "Our responsibility as fiduciaries for the organization," she wrote in an email, "is to make sure we can keep our employees and continue to serve our students. PPP is critical to our ability to do so now and in the early months of the next school year when cash is held up by the state."
• Ivy Academia charter school executive director Joe Herzog said in a statement that his school closely followed the advice from legal counsel and the U.S. Treasury Department.
• Fenton Public Charter Schools gave the money back after concluding that, thanks to "cautious fiscal planning of prior years," the school would be able to meet payroll "through June 30, 2020," according to a memo shared with the school's governing board.

In addition, we identified two schools whose governing boards at least considered a PPP loan: Granada Hills and Birmingham charter high schools.

The board documents do not indicate whether these two boards actually went through with PPP loan applications or accepted funds. We've reached out to both Granada and Birmingham leaders to ask and will update this story if we get a response.

Another caveat: This list is not exhaustive. We did not check agendas for each of the 200-plus charter schools in L.A.

Treasury secretary Steven Mnuchin speaks as U.S. President Donald Trump looks on during the daily coronavirus task force briefing at the White House on April 21, 2020 in Washington, DC. (Drew Angerer/Getty Images)

'ETHICAL CONFLICT'

Accepting PPP funds has opened up borrowers to scrutiny.

Restaurant chains like Shake Shack, Ruth's Chris and Potbelly Sandwiches returned their loans after public outcry that the program was intended to help small businesses -- not large, publicly traded firms. Kura Sushi returned its PPP loan after we reported on the $5.9 million the Irvine-based chain received.

Fears of this sort of reaction, in part, drove El Camino Real Charter High School's board to table a proposal to apply for a PPP loan on May 5.

During the meeting -- a recording of which was posted on the school's website -- El Camino's executive director David Hussey suggested the PPP loan could serve as a "safety net for the school if we needed to use it."

But El Camino also had an existing line of credit and cash reserves, and two board members objected on principle to the notion of accepting taxpayer money when small businesses might need the funds.

Board member John Perez noted that L.A. Times reporting prompted blowback against local private schools that had received PPP loans. Eventually, the Brentwood School returned its loan after President Trump criticized private schools for taking loans through the aid program, the Times reported.

Board president Scott Silverstein sounded torn.

"There are so many things that are unknown at the moment," Silverstein said, saying he recognized the school faced an "ethical conflict here."

In the end, Silverstein's motion to apply for a PPP loan died for lack of a second.

UPDATES:

Fri., May 22, 10:45 a.m.: This article was updated with comments from City Charter Schools.

This article was originally published on Thurs., May 21.