Charter schools default on construction bonds

Fulton Science Academy Middle School and its two sister schools have been declared in default on an $18.9 million construction loan for failing to disclose last fall that the academy's public school charter was in trouble, documents obtained Wednesday show.

In a default notice dated May 15, an official with Wells Fargo Bank said the three schools "omitted material information" last October when they were arranging to obtain the money through bonds issued by the Alpharetta Development Authority.

Bank officials learned after the fact that officials with the Fulton County School System had communicated to leadership at the middle school that they had "significant reservations" about extending the school's charter, the notice says.

"This omission [is] a breach of the agreement," it states.

Alpharetta, its citizens and the development authority have no liability for the bond issue, Assistant City Manager James Drinkard said.

“The only way we’d have been obligated is if we’d pledged the full faith and credit of the city for all or parts of the debt, which we weren’t interested in doing," Drinkard said.

As a charter school, the academy, which has 507 students, receives about $3.7 million a year in public funds, some of which could have been used to cover the annual $1.5 million bond payments. In 10 years, the school has received more than $30 million in taxpayer money.

But that annual funding will cut off June 30, when the academy's charter contract with Fulton expires.

The school system and the state both refused to extend the academy's charter for another 10 years, citing concerns about the fiscal and management practices of the school, which they say has ties to Turkish imam and educational leader M. Fetullah Gulen. School officials deny any ties to Gulen.

The academy rejected a counter offer of a three-year charter contract and instead will become a private school July 1.

An audit commissioned by Fulton County Schools and released Tuesday said the financial viability of the two sister schools -- Fulton Sunshine Academy, an elementary school; and Fulton Science Academy High School -- were put at risk when the school leadership obtained the bond issue without knowing whether the middle school charter would be extended.

Auditors also found that the middle school had issued contracts without bids and to organizations with ties to school officials.

Now that the bonds have been declared in default, the trustee for those who bought them can foreclose on the property or take control of the three schools' revenues to pay back bondholders. Bondholders also could hold off on forclosure if a better alternative is proposed.

The bond issue holds all three schools equally liable.

The bonds have plunged in value and been knocked down to junk bond status. On Tuesday, worried investors sold some of the academy's bonds for as low as 69 cents on the dollar.

The bonds were issued so the elementary, middle and high schools could move out of separate leased facilities and come together on a single 44-acre campus in Alpharetta.

The bulldozers had just started rolling when state officials sent the schools a letter, telling them they were violating state school board policy by failing to obtain prior state approval.

"We can't technically make them stop -- we're not the police," said Matt Cardoza, state Department of Education spokesman.

But after the letter, the work was halted.

The plans submitted to the state had called for construction of a two-story building with 90,370 square feet of space and 58 instructional units (classrooms, labs, gym and media) to serve grades 6-12.

Staff writer Pat Fox contributed to this article.

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