June 15, 2012 MEMORANDUM To: Members of the Board of Trustees’ Charter Schools Committee From: Susan Miller Barker, Executive Director, Charter Schools Institute Subject: Management Fee Increase Charter Revisions for Schools Managed by Success Academy Charter Schools, Inc. On June 12, 2012, the Board of Trustees delegated authority to the SUNY Charter Schools Institute (the “Institute”) to approve certain revisions to the charters of charter schools authorized by the Board of Trustees. The proposed management fee increase charter revisions for schools managed by Success Academy Charter Schools, Inc. falls into the category of revisions the Institute may now handle. Some of the revisions set forth below were to come before the Education, College Readiness and Success Committee (“ECRS Committee”) as part of the merger of four charter school education corporations into Harlem Success Academy Charter School 3, which the ECRS Committee approved on April 24, 2012. At the time, the Institute had requested further information regarding the management fee increase component of the merger and while Success Academy Charter Schools, Inc. provided information regarding the increase from 10% to 15% of per pupil revenue (see attached memo), there was insufficient time to analyze it prior to the ECRS Committee meeting. For that reason the Institute withdrew the fee increase from the merger revision. The charter revisions for the following merged schools and additional schools managed by Success Academy Charter Schools remain outstanding: • Harlem Success Academy Charter School 3 (Manhattan) - Harlem Success Academy Charter School 2 (Manhattan) - Harlem Success Academy Charter School 4 (Manhattan) - Harlem Success Academy Charter School 5 (Manhattan) • Bronx Success Academy Charter School 1 (Bronx) • Bronx Success Academy Charter School 2 (Bronx) • Brooklyn Success Academy Charter School 2 (Brooklyn) • Brooklyn Success Academy Charter School 3 (Brooklyn) • Brooklyn Success Academy Charter School 4 (Brooklyn) The Institute conducts due diligence on all charter revision requests. The Institute reviews revision requests concerning changes to the fiscal operations of an education corporation to ensure the school remains fiscally sound and in compliance with applicable law, and to ascertain the degree to which the proposed fiscal revision strengthens or harms the education corporation’s fiscal health. In addition, the Institute analyzes the resulting impact of the request on the education corporation’s five-year budget projections, and as appropriate requests revised budgets. Pursuant to this particular request, Institute staff and an outside financial analyst with national expertise in analyzing charter network and not-for-profit education corporation budgets conducted an analysis of the fee increase, and the resulting impact on the Harlem Success Academy Charter School 3 education corporation’s fiscal viability. The analyses determined the education corporation’s board and finance committee chair were committed to the fiscal health of the education corporation and presented a compelling argument, accompanied by budget projections, that the increase in fee would not harm the corporation’s fiscal health and viability. The Institutes’ analysis aligned with this finding. Assuming the fee increase, the resulting projected cash balance for Harlem Success Academy Charter School 3, assuming cost increases in instructional materials, staff compensation and benefits, and all other operating costs, is approximately $24 million. The education corporation board of trustees analyzes, on a quarterly basis, the fiscal health of all schools prior to the submission of quarterly financials required by the Institute. In addition, as with all schools chartered by SUNY, each school submits an annual audit conducted in accordance with government auditing standards. The education corporation board of trustees, as well as Institute staff, analyze these audits to monitor the fiscal health, adherence to generally accepted accounting principles, and compliance with fiscal regulations required of all charter schools in New York. The Harlem Success Academy Charter School 3 board presented a sound argument outlining the strong academic outcomes delivered by Success Academy Charter Schools, Inc. and their understanding of the increase in services provided by the non-profit charter management organization not reflected in the current fee. The Institute conducted a similar fiscal analysis for each school seeking the same charter revision and found each school would be fiscally sound if the revision was approved. The Institute also reviewed the proposed management contracts and independent attorney review letters supplied by each school, and found them to be satisfactory from both a legal perspective. As with all charter school education corporations authorized by SUNY, the Institute holds the board of trustees accountable for positive academic, legal, regulatory and fiscal outcomes. In the case of this requested fee increase, the Institute’s analysis resulted in finding that the education corporation’s board of trustees meets the requirements for fiscal oversight outlined in the SUNY Charter Renewal Benchmarks and that each education corporation presents sound five-year budget and cash flow projections resulting in a positive cash balance over the projected five years. Given this analysis, combined with the Institute’s ongoing financial monitoring, the Institute recommends approval of the fee increase. Memo from Success Academy available only in .pdf. Please call 518-433-8277 for access.