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Closed Detroit charter school pays creditors instead of teachers

Jul 27, 2017

Credit Frank Juarez / Flickr - http://j.mp/1SPGCl0

Charter school employees at Michigan Technical Academy in metro Detroit are not getting paid for time they worked in the classroom.

The charter school’s license was revoked last month for poor academics and financial problems -- it owed roughly $16 million in long-term debt and $50,000 in short-term loans, according to Central Michigan University officials. CMU authorized the school and issued its charter.

Many of the school’s employees have their paychecks spread throughout the year, but as Chalkbeat Detroit reported earlier this week, the charter’s board is using state school aid funds to pay off its bondholders instead of paying teachers and school staff:

Teachers at the Michigan Technical Academy had contracts that required the school to pay them through the summer for work they did during the school year. But the school’s management company, Matchbook Learning, alerted teachers in an email Wednesday that the money would instead go to pay off the school’s debts.

“Last Friday, Matchbook Learning became aware that the holders of MTA’s outstanding bond debt are refusing to allow use of funds for any summer payroll and instead, are requiring that any available funds be used toward payment of the bond debt,” Matchbook’s CEO Sajan George told teachers in the email. “We are disappointed and deeply saddened by this development because this means funds will not be there for July or August payroll.”

Janelle Brzezinski is with the Governor John Engler Center for Charter Schools at Central Michigan University. She says the creditors wanted to speed up their repayment, which they’re legally allowed to do under the terms of the loan. Here's the "accelerated payment" language, provided by CMU:

Long-term bonds acceleration language:

Upon the occurrence and continuance of any Event of Default hereunder of which it has notice, the Trustee may and upon (i) the written request of the holders of not less than fifty-one percent (51 %) in aggregate principal amount of the Bonds then Outstanding or (ii) the occurrence of an Event of Default under subsection (a) or (b) of Section 7.01 hereof, the Trustee shall immediately, by notice in writing sent to the Authority, declare the principal of and any premium on all the Bonds then Outstanding (if not then due and payable) and the interest accrued thereon to be due and payable Immediately, and, upon such declaration, such principal and premium, if any, and interest shall become and be immediately due and payable. Interest on the Bonds shall cease to accrue on the date of such declaration.

Short-term note acceleration language:

If at any time and from time to time prior to the maturity date of the Note the Authority has reason to believe that you will be unable to pay in full the principal and interest on the Note when due, the Authority, in its sole discretion, may by phone or e-mail request from you a written confirmation of both your ability to pay the Note when due and a description of the source of funds for the repayment of the Note. If you fail within ten calendar days to provide such confirmation to the satisfaction of the Authority, you hereby authorize the intercept of any Pledged State Aid to be distributed to you earlier than August 2017 in such amount as determined by the Authority to be appropriate and further authorize the Authority to give notice to the State Treasurer to intercept the amount of any Pledged State Aid which has not already been transferred to you or to your Authorizing Body. Any Pledged State which is thus intercepted shall be transferred to the Trustee or Depository, as applicable, and shall be applied in the same manner as provided above.

Brzezinski says "there wasn’t enough money to process the July 31 payroll, and there may not be sufficient funds to meet the August payrolls." CMU does not directly employ the staff at the school. That responsibility falls to Matchbook Learning, the charter management company that was hired by MTA's board of directors.

Matchbook Learning's CEO Sajan George sent out a second letter today to the charter school staff expressing how "unfair" the situation was and how he was working to find a solution. "I am not sure what recourse Matchbook Learning has," George writes, "but we are not going to take this lying down."

You can read the full letter here.

George was not available for further comment, so it is unclear how many Michigan Technical Academy employees are affected by the payroll issue. CMU's Brzezinski says there are 80 employees at the school, but she did not know how many employees had deferred payments that stretched out over the summer.

Central Michigan University is one of the largest charter authorizers in the state. It currently authorizes 62 schools, six of which closed this year for low performance, including Michigan Technical Academy, which had a campus in Redford and one in Detroit. Its other schools that officially closed their doors this year are Starr Detroit Academy in Harper Woods, Woodward Academy in Detroit, Academy of International Studies in Hamtramck, Taylor International Academy in Southfield, and Morey Montessori Public School Academy in Shepherd.