By David S. Fallis and April Witt
Washington Post Staff Writers
Sunday, December 14, 2008
When a band of Brookland neighbors packed a public meeting to try to stop one of the District's public charter schools from moving to their quiet cul-de-sac, their pleas seemed to receive a warm reception.
Thomas A. Nida, chairman of the board that supervises one of the nation's largest charter school systems, encouraged testimony from the group on that summer evening in 2007. "And anything else you've got to say, put it in writing and we'll take it," Nida said, noting that the charter board would not decide on the move for a month. "That way we will give everybody a chance to express their views."
What Nida failed to mention was his own stake in the matter. As a senior vice president at United Bank, he had been working on a $7 million loan to the Elsie Whitlow Stokes charter school to finance the very relocation that neighbors opposed.
By the time the D.C. Public Charter School Board approved the move in August 2007 -- with Nida recusing himself from the vote -- the loan deal was done. Nida's employer would receive hundreds of thousands of dollars in interest payments for years to come.
Homeowners on the losing end of that dispute had encountered one of the hidden financial conflicts of interest in the city's burgeoning charter school movement. Key members of the public bodies that regulate and fund the schools have taken part in official decisions that stood to benefit themselves, their colleagues, employers and companies with whom they have business ties, The Washington Post has found.
The Post's review found conflicts of interest involving almost $200 million worth of business deals, typically real estate transactions, at more than a third of the District's 60 charter schools. The conflicts are documented in thousands of pages of internal charter board documents, land records, tax returns, audits and other records reviewed by The Post.
In the 12 years since Congress authorized charter schools in the District to spur competition and improve urban education, charters have burgeoned into an independent and parallel public school system. They are private, nonprofit businesses operating under a public "charter" and largely funded by taxpayer dollars. D.C. students can attend for free. An independent seven-member charter board now oversees about 26,000 students, more than one-third of the city's public school population.
Nida, who joined the board in 2003, is the official with the most extensive financial links to schools he regulates. Since he went to work for United Bank, it has lent more than $55 million to charter schools, their developers or their landlords, records and interviews show. As a public official, Nida has voted repeatedly to increase student enrollment -- and thus taxpayer funding -- for charter schools that borrow money from his bank, records show.
Nida recused himself from a handful of votes affecting charter schools or developers doing business with his bank but participated in dozens of other votes and actions involving bank customers, records show.
Before he was on the board, Nida wrote a banking industry primer on how to profit from charters by using their flow of public funding as loan collateral. According to a charter developer's Web site, Nida told bankers: "After 25 deals, I've had no losses or even late payments. The loans give me my largest margins and they are the most profitable piece of my portfolio."
In an interview, Nida said that all of his official actions have been appropriate and that he has taken steps to avoid potential conflicts of interest. He said he considers it a key part of his job to make sure charter schools have "adequate and affordable" buildings.
"My role as the board chair is always to do what is best and in the interest of the students and the school," he said. "Any consideration of the bank, good or bad, is not a factor. If I think it could be, then I will speak up and recuse myself."
D.C. law dictates that "no public official shall use his or her official position or office to obtain financial gain for himself or herself, any member of his or her household, or any business with which he or she or a member of his or her household is associated."
Whether an official's conduct violates the city's conflict-of-interest law is decided "on a case-by-case basis," said Kathy Williams, general counsel for the D.C. Office of Campaign Finance, which enforces the District's ethics rules. "The vote is the pivotal point, because therein lies whether there was any financial gain -- business, financial, familial or otherwise."
Nida expressed surprise that the law is so sweeping and said he views the issue of conflicts of interest "more narrowly than that." He added: "I have not had anybody raise the issue heretofore."
He said he believes that he dealt with the potential conflict involving the Elsie Whitlow Stokes school by notifying other board members about the bank loan and recusing himself from the board's final vote.
Nida said United Bank pays him an annual bonus based in part on how much loan business he generates. He said he did not receive any commission on the loan to Elsie Whitlow Stokes or any other charter school. "Did I personally benefit? No," Nida said. "United Bank does not compensate that way to anybody."
James Consagra, president and chief executive of United Bank, did not respond to questions about Nida's compensation or his involvement with charter lending. He e-mailed a statement saying that United takes "the proper steps to prevent conflicts of interest. This includes ensuring those who may have a perceived conflict are not involved in the lending-decision process."Building With Tax Dollars
Since 1996, the District has spent more than $2 billion in local and federal funds to build and operate charter schools. Much of that public money has gone to buy, lease and renovate school buildings that are now in private hands. Charter schools typically finance their property purchases or renovations with multimillion-dollar loans from banks and other lenders. They repay those loans using their guaranteed funding from the city. In addition to funding charters' educational operations, the District is one of the few jurisdictions in the country to provide charters with a per-child cash "facilities allotment."
The system has provided some charter students with new buildings that are among the best-equipped in the city. It also has benefited charter schools' landlords, developers, bankers and investors while taxpayers fund two separate school infrastructures.
"They are using public money to finance private real estate development," said Anne Dougherty, a community activist who opposed locating a charter school in a neighborhood where two traditional public schools were closing.
Charter schools are overseen by unpaid political appointees on two panels created by Congress. One is the charter board, which has authority over who can open a charter school, how fast schools can grow and when they should be forced out of business. Its members are appointed by the mayor from a list provided by the federal executive branch. The other is the five-member D.C. Public Charter School Credit Enhancement and Direct Loan Funds Committee, which awards millions of dollars in taxpayer loans and guarantees to charter schools and their developers. Appointments to the committee are split between the public charter board and the mayor's office.
Nida is not the only member of those bodies whose private business interests intersected with a public role, The Post's review found.
Barbara "Bobbie" Hart, who chairs the credit enhancement committee, which has awarded $47 million in taxpayer financing in the past seven years to private ventures involving charters, is also a vice president at Adams National Bank and markets loans to charter schools. Since she was appointed to the committee in 2006, it has repeatedly awarded funding to Hart's loan customers, records show. Hart has recused herself from all but two votes involving applicants that had given her loan business or were about to, records show. Hart declined to comment.
Another public official whose private business overlapped his public position was Karl Jentoft, a developer who has served on both the credit enhancement committee with Hart and on the public charter board with Nida. Jentoft became a charter school developer seven years ago with the help of a bank loan he secured through Nida.
Jentoft joined the credit committee in 2006, and last year moved to Nida's charter board. In that capacity, he reviewed and recommended a lease benefiting a controversial charter school project opposed by residents in the Brady Hall neighborhood, not far from Catholic University. Within weeks, the developer hired Jentoft as a consultant on that and another charter project and began paying him $14,000 a month.
Once hired, Jentoft tried to assuage the concerns of residents who feared that moving two charter schools to a single building in their neighborhood would lead to a big increase in traffic and noise. He logged on to a local Internet discussion group last March and introduced himself as the "owners' representative" on the project. "We are working to resolve some of the obvious traffic flow issues," Jentoft wrote.
A stunned homeowner, Steve Lowe, shot back questions: Was he the same Karl Jentoft who sat on the charter board? If so, "why did you fail to mention this?"
"I did not include this or additional hobbies/projects because I do not think they are relevant to the current project," Jentoft responded. "I am not acting in my capacity as a Public Charter School board" member on this project.
Nida also had ties to the Brady Hall project. He was an unpaid board member for the developer, the Charter Schools Development Corp. His bank, United Bank, also was financing the project with loans that eventually totaled $9.2 million.
The charter board green-lighted the Brady Hall project in May, with Jentoft and Nida recusing themselves. Jentoft, who recently resigned from the charter board and moved to London, said in an e-mailed response to questions from The Post: "Any potential conflicts of interest were discussed with the organizations involved, have been documented as part of the public record, and have been acted on appropriately."More Kids, More Cash
For all their educational goals, D.C. charter schools are businesses navigating market realities. For each child it enrolls, a charter school receives a minimum of $11,879 annually in tax money. The need to borrow large sums to buy or renovate real estate drives many charter operators to expand as quickly as possible to maximize taxpayer funding: more kids, more cash.
The growth of charter schools coincided with a decline in the number of school-age children in the District. Competition from charters accelerated the exodus from the traditional public school system and left school buildings with acres of empty classrooms.
Some District school officials have been resistant to sharing space with charters, and some charter operators preferred to find their own buildings to avoid the city bureaucracy. As a result, only about 25 percent of charter school campuses lease space in public schools or other government buildings. Most of the rest bought their own buildings or lease from private landlords.
Some charter school critics have complained that the system allows taxpayer funds to be used for private gain. The D.C. Council responded two years ago with a requirement that if a charter closes down, its net assets, including real estate, must be turned over to the city. However, the law contains so many loopholes that District taxpayers are unlikely to recoup their expenditures. It also does not prevent a charter from selling its building, keeping the proceeds and moving somewhere else.
The law also protects banks and other creditors, mandating that outstanding loans be repaid before any assets are returned to taxpayers.
That was not the first time that elected officials have considered the interest of bankers in the District's charter network. One reason Congress dictated in 1996 that D.C. charter schools be initially authorized for 15 years -- three times as long as in most states -- was to help them secure long-term bank loans, according to the activists who prodded lawmakers to create the system.
In 2004, when then-Mayor Anthony A. Williams tried to cap facilities allotments to charter schools during a citywide budget crunch, the "vigorous opposition" of bankers who then had about $150 million in outstanding loans to charter schools persuaded the D.C. Council to overturn his efforts, according to a 2006 report by the pro-charter group Friends of Choice in Urban Schools. The report noted that the council directed the mayor "to work out any future changes in the formula with public charter school representation and their creditor institutions."
Bankers and developers moved into early leadership roles on the city's charter bodies. Joseph F. Horning Jr., a D.C. real estate developer and a board member of City First Bank, was a founding member of the charter board who sometimes voted and deliberated on matters involving schools that did business with his bank. In response to questions from The Post, Horning said he did not consider his banking position a conflict because he was an unpaid director and he had no idea which charter schools did business with City First.
No banker has had more influence than Nida, 60, who grew up in Southeast and resides part time in an apartment in Northwest. He has lived much of his adult life in Front Royal, Va., where he owns a historic home and plays the drums in his church band, the Flock.
In the late 1990s, Nida joined City First Bank and pioneered lending to charter schools. He wrote an article in 2002 for a banking journal touting the profitability and exponential growth potential of lending to charter schools, charter developers and their investors. "With added public funding, including federal credit enhancement funding, this market will continue to grow," Nida wrote. "The market is there, or soon will be there. . . . In all, this is a lending opportunity worth pursuing."
After that article was published, Nida was sitting at his desk when the White House called. The executive branch has authority to name a slate of three prospective members for each vacancy on the D.C. charter board. A White House aide told Nida that his name had "bubbled up from a number of sources," Nida said in an interview. The mayor ultimately appointed him.
The D.C.-based Friends of Choice in Urban Schools took credit for nominating Nida to the charter board. Leaders of the organization described Nida as an analytical, hardworking man of integrity who pioneered charter lending and made a huge contribution to a system that has produced a number of high-quality schools that serve the District's poorest children.
"In D.C., as in many other cities, there are a small number of bankers, developers, contractors and business people who really took a risk on charter schools early on and made it possible for charter schools to grow and thrive," said Robert Cane, the group's executive director. "Tom Nida is one of the first. Without these people, we wouldn't have 35 percent of the kids in charter schools."
About six months after Nida began serving on the charter board in 2003, he changed banks. He worked briefly at Eagle Bank before United Bank recruited him, he said. United then began aggressively seeking charter business, records show.
Of the $55 million United has lent since then to charters, their landlords or developers, Nida has been directly involved in loans worth at least $35 million, as loan officer or a bank representative, according to records and interviews. United loans have paid for the purchase, refinancing or renovation of buildings used by at least 10 of the 60 schools that Nida regulates.
Charter schools are required to submit any contract worth more than $25,000 to the board for review and approval. Nida reviewed and recommended approving some contracts even when his bank was funding the school or its landlord, records show.
Nida said United Bank's charter school lending in the District is managed by a colleague, Thomas McCracken, whose office is a few desks away from Nida's. Nida said he acts as a "mentor as necessary" to McCracken's staff. Nida and McCracken serve together on the bank's credit committee, but Nida said he recuses himself from voting on loans involving charter schools. "Whenever there is a charter school deal that comes up," Nida said. "I opt out of the conversation, unless somebody asks me a question."
McCracken said in an interview that when charter school operators approach Nida for a loan, Nida does not directly negotiate with them on United's behalf. "He refers them all to me," McCracken said.Reclaimed Warehouses
Two of the first charter-related loans that Nida helped arrange at United Bank went in 2004 to developers planning a cluster of schools along a desolate block of Edgewood Terrace in Northeast.
The potential of Edgewood Terrace had caught the attention of Bethesda-based developer Fred Ezra and his associates after a pioneering charter school, D.C. Preparatory Academy, bought a rat-infested warehouse and began converting it into an educational showplace.
Ezra-related companies purchased two neighboring vacant warehouses and marketed them to charter schools. "We have a little charter school team here," president Fred Ezra told the Washington Business Journal in June 2004. "And we're going to be contacting all the charter schools."
United Bank struck loan commitments with the Ezra interests for up to $11.6 million to purchase and renovate the warehouses. Nida was the loan officer, records show, and he acknowledged that he toured the buildings with the buyers on behalf of the bank.
Although large direct loans to charter schools are supposed to be reviewed by the charter board, loans to their developers or landlords are not subject to that scrutiny. Nida repeatedly participated as a charter board official in discussions and decisions involving tenants or potential buyers of Ezra's two warehouses, records show. Meeting minutes do not indicate that Nida disclosed his private involvement.
One warehouse tenant, William E. Doar Jr. Public Charter School for the Performing Arts, leased 22,000 square feet on the top floor at 705 Edgewood. Doar's leaders wanted to expand to use all the available space in the warehouse, which would mean even more rent for its landlord.
To afford and make use of the larger space, Doar asked to enroll more students. In February 2006, Nida and the charter board agreed to let Doar grow eventually to almost 800 students and serve additional grades, even though the school had not yet "implemented a curriculum for the school's current grade levels," charter board records show.
Doar's rent was now so high -- $679,000 the first year and then escalating to more than $1 million, records show -- that the school could "probably purchase the facility for what is being paid monthly in lease payments," the charter credit enhancement committee noted in October 2006.
The school needed the charter board's permission to hire a contractor to do renovations. On behalf of the board, Nida reviewed and recommended approving the contract, records show. To fund the renovations, Doar made arrangements to borrow $1.6 million. Its lender? United Bank.
In October 2006, Ezra's company sold its other warehouse, at 707 Edgewood, to D.C. Prep, the charter middle school down the block that had touched off the street's renaissance two years earlier. Nida and the rest of the charter board had voted to allow D.C. Prep to open an elementary school on the new campus. Again, minutes do not indicate that Nida's financial ties to the seller came up. An Ezra associate declined to comment on behalf of the investors.
The real estate market had turned. The warehouse sold for $5 million -- more than twice what the United Bank-financed developer had paid in 2004. "They totally flipped it to us," said Emily Lawson, D.C. Prep's founder. "From that perspective, it was frustrating."The Math Mentor
After one school complained to the public charter board about the onerous lease it had signed with its landlord, Nida later quietly became the landlord's banker.
Washington Mathematics Science Technology Public Charter was on probation in 2003 for what the assistant principal called a "storm" of financial woes. School leaders complained to the charter board that part of the problem was their lease, escalating to more than $1.3 million a year, at a hulking former garage in Southeast known as the Blue Castle because of its faux turrets and garish paint job. Washington Math survived financially by subletting some of its space to another charter, Eagle Academy.
An independent reviewer for the charter board reported in 2002 that Washington Math's lease with the building's owners was "troubling" and risky. The next year, the reviewer said the terms of Eagle's sublease unduly favored the Blue Castle's owners. But Nida defended the sublet, pointing out the strong position of the landlord.
"I'm not sure that Eagle Academy had any real negotiating leverage with the landlord for this space, given the current shortage of affordable, adequate space for charter school facilities," Nida wrote in a fall 2003 memo. The charter board approved both leases.
By late 2004, records show, Nida sold a loan to the landlord with the strong position. United Bank lent $9.5 million to Bethesda-based 770 Limited Partnership to refinance and improve the Blue Castle, by then home to three charter schools. Nida signed one loan document and is listed on others as United Bank's representative. Despite Nida's business ties to the Blue Castle, he continued to vote on board matters involving its tenants.
"If I did a loan to a landlord and they just happen to lease to a charter school, I don't think that takes me out of the running of being able to review accountability plans and those types of things," Nida said.
By late 2005, Washington Math had become sound enough to be looking to move into its own place. To do that, it would have to get out of its lease, find a 50,000-square-foot building and secure financing. "We could not get a loan . . . if we were on the hook with a lease at the Blue Castle," said Shawn O'Reilly, then treasurer for Washington Math and now a member of the credit enhancement committee.
Nida helped. Privately, he said, he had advised school leaders on how to get out of their predicament. Then he took a series of official actions that effectively helped clear the way for the school to buy a building with a $6.6 million loan from United Bank, records show.
First, to get out of its lease, Washington Math needed Eagle Academy to take over its space. Eagle would need to enroll a lot more children to afford that. Nida and fellow members of the charter board took care of that Dec. 19, 2005, voting to almost double Eagle's enrollment ceiling to 260.
Next, Washington Math needed a big vacant building. One soon became available.
At a public charter board meeting Jan. 23, 2006, Nida proposed revoking the charter of the New School for Enterprise and Development, which was in a 50,000-square-foot renovated warehouse on Bladensburg Road. Like several other charters with troubles, New School had appeared before the board repeatedly and had been placed on probation. Revocation is the charter board's harshest punishment. At the time, it had meted out the sanction only once before, records show. In proposing to close New School, Nida decried its "lack of achievement and lack of results," minutes show. The motion carried.
Former New School board chairman Albert Hopkins Jr. said he disagreed with the decision to close New School. "I could never understand why they were in a hurry to have us sell the building," Hopkins said.
Washington Math's leaders were optimistic that they would benefit from New School's demise, records show. But then Eagle Academy announced that it planned to buy its own building rather than sublet the Blue Castle space.
Nida blocked Eagle's plan. At the charter board meeting Feb. 21, 2006, he lectured Eagle's leadership on problems with its proposed building purchase. "Mr. Nida concluded that the Board has decided not to take action on this request," board minutes note.
Eagle Academy soon struck a deal to sublet Washington Math's space, and in August 2006, Washington Math bought the defunct New School's building for $8.9 million -- funded with a $6.6 million loan from United Bank. Weeks later, Nida and the rest of the charter board approved Washington Math's move.
At board headquarters, a Post-It note attached to Washington Math's contract for the building purchase indicates that Nida personally approved that, too. Referring to the charter school by its initials, the note said, "Tom approved this agreement via e-mail w/appropriate parties from WMST."
Nida was not the loan officer for the United Bank loan to Washington Math and said in the interview he had nothing to do with the transaction. He said all his decisions about that school, Eagle Academy and New School were made in the interests of students and not to benefit United Bank or himself.The Pushback
In some areas of the city, homeowners began pushing back against rapid expansion of charters in their neighborhoods. They were unaware that they sometimes were complaining to public officials with private ties to the projects they opposed.
In the fall of 2006, Elsie Whitlow Stokes Community Freedom Public Charter School was planning a move to a former seminary at the top of a dead-end street in the Brookland neighborhood.
Elsie Whitlow Stokes was still under the authority of the D.C. school board, which under the original congressional legislation had granted charters to more than a dozen schools and performed its own oversight. The public charter school board, however, was making plans to assume authority over Stokes and the other Board of Education charter schools.
Nida said that his public charter board was willing to regulate the additional schools. "There's no reason they should be cast adrift," he told The Post. The D.C. school board scheduled a Nov. 8 vote on exiting the charter business.
Two days before the vote, Nida wrote a letter to Elsie Whitlow Stokes officials. He offered a $6 million, 25-year loan from United Bank to help the school purchase and renovate the former seminary in Brookland.
"We look forward to building a mutually beneficial relationship with your school," Nida wrote on United Bank letterhead, noting that the deal included a $60,000 origination fee, with $10,000 due on acceptance. "Thanks for this opportunity to be of service."
Collateral for the loan would be all of the charter school's assets and all the taxpayer facilities funding, the letter said.
(United Bank eventually struck loan deals with three of the Board of Education schools newly coming under Nida's purview, records and interviews show.)
It would be another nine months before unwitting Brookland neighbors had the opportunity to stand before Nida and the public charter board in July 2007, asking them not to permit the school's move.
A month later, the charter board approved the Stokes relocation, with Nida recusing himself. By then, Nida had directed District officials to start sending taxpayer funds intended for the school directly to his bank to secure the loan. "Please make this change as soon as possible," Nida wrote on his bank letterhead.
"They shoved it in our face, and that was it," said Vicki Langford, a Brookland resident who only later realized that Nida had been involved in financing the move. "It feels like it is one big scam."
In 2006 on Capitol Hill, a zoning battle with homeowners prevented AppleTree Early Learning Public Charter School from operating a school on a residential block. So AppleTree asked the charter board in early 2007 for permission to increase its enrollment from 36 to 180 and open in two other locations.
Enrolling the extra preschoolers would bring the school's taxpayer funding to more than $3 million annually, records show. That would allow the school's operators to borrow more money, they told Nida and his colleagues. "Greater scale will provide us with greater opportunities for facilities financing," an AppleTree official said, according to a reporter's tape recording of the February 2007 meeting. The official explained that AppleTree needed $900,000 to ready the new space.
As the board prepared to vote, a commissioner from one of Capitol Hill's neighborhood advisory bodies tried to comment. "This is not a public hearing," Nida said, silencing the elected official. "This is a public meeting. And the agenda does not have public comment."
The charter board voted unanimously to approve AppleTree's enrollment request, although the school had failed to meet its current enrollment ceiling. And soon, Nida's employer, United Bank, lent AppleTree Institute $900,000 for its renovations, records show. Nida went on in his official capacity to recommend approval of AppleTree's lease, vote for its request to open new locations and vote months later to increase the school's enrollment yet again.
In the interview, Nida said he knew AppleTree officials needed a loan but did not consider recusing himself from the matter because he did not know they had decided to use his bank and had nothing to do with the transaction. "If I knew that they were dealing with United Bank specifically," Nida said, "I might have taken a different approach."
Nida said he was benefiting the community as both a charter school banker and a regulator. "I have done what I needed to to serve as best I could in this capacity," he said.
"If I have had any involvement with charter schools facilities of any kind, it is because there's been such an overarching need for charter schools to get access to any facilities anywhere, anyhow," Nida said. "In my connectedness with the charter community as lender originally and working with other lenders along the way, and as a person who is a resource, you know, at a national level for charter school facility financing, I am in the middle of this whether I like it or not."
Staff writers James V. Grimaldi, Theola Labbé-DeBose and Joe Stephens and researchers Rena Kirsch, Meg Smith and Julie Tate contributed to this report.