After Ingersoll: Charter district climbs out of debt with COVID-19 funds

Mar. 5—MANCELONA — Bay City Academy, a charter school with a satellite campus in Mancelona, has reached a positive fund balance for the first time in seven years.

With an influx of federal COVID funding and an increase in enrollment, the district has been able to bounce back from years of operating in the red, school officials say.

"There's really no reason why we should be open today, but here we are," said current Bay City Academy Superintendent Brian Lynch, who also co-owns Mitten Educational Management, LLC, which manages the schools.

The charter school district was founded by Steven Ingersoll, who was sentenced to nearly four years in prison for tax fraud in 2016. Ingersoll also co-owned the school's management company, Smart Schools Inc., which was running the school's finances at the time it fell into a general fund deficit of more than $1 million.

In the 2014-15 fiscal year, Bay City Academy had a general fund deficit of $1.259 million, Ron Leix at the Michigan Department of Treasury said in an email to the Record-Eagle. That was the beginning of years of financial instability for the school district, which currently consists of the Farragut Campus in Bay City and the North Central Academy campus in Mancelona.

In 2016, Bay City Academy was required to submit a 5-year Deficit Elimination Plan to the state treasury. The district failed to eliminate its general fund deficit in five years — which Lynch said can be attributed to the enrollment decline at the time — and was required to submit an updated plan to the state in 2021 and monthly reports to the state treasury until the deficit was eliminated.

Finally, by the end of the 2021-22 school fiscal year, Bay City Academy reached a positive fund balance, according to a letter from the Michigan Department of Treasury, which was shared with the Record-Eagle by North Central Academy Principal Jill Kettlewell.

According to MI School Data, the school's fund balance jumped from a deficit of $1,749 in 2021 to a positive balance of $582,105 in 2022, a roughly 33,400 percent change.

Now that the school district is debt-free, Lynch said the administration will be able to pay for more "wants" that will expand opportunities for students.

In the last 16 months, the school district has bought its building at North Central Academy from a land developer based in Grand Rapids and begun building a mountain bike trail on the extra 28 acres of the property that students will be able to use during recess and physical education class, Lynch said. To do this, the district had to clear its deficit first, otherwise banks would not lend any money to them, Lynch said.

The district also just purchased two new curriculums and increased staff pay and benefits, Lynch said. They are also planning to add more staff next year and potentially add a third bus route for North Central Academy.

The first two rounds of Elementary and Secondary School Emergency Relief, or ESSER, funds were a huge boon, as they allowed the district pay expenses while paying off their debt, Lynch said. They still have about $1.2 million in ESSER III money, he said.

Renegotiating contracts with staff, adjusting staff benefits, re-evaluating expenses, increases in per-pupil funding and robust enrollment growth since the start of the pandemic also helped the district recover from the general fund deficit, Lynch said.

In the years before Bay City Academy became solvent, the school was "running as thin as possible," Lynch said.

Repairs were often put off and two of the Bay City buildings had to be closed — One closed because the building's boilers failed and they did not have the money to fix them, and the other, which was owned by Ingersoll at the time, closed due to a bank foreclosure, Lynch said.

The administrative team at Bay City Academy tried to be creative and find other funding streams to maintain programming like art, music and physical education, said Darci Long, the Bay City Academy's assistant superintendent.

"The financial thing is a big hurdle, and we got out of debt much earlier than we ever thought we would," Long said. "That's a testimony to our team of people who were there in the trenches with us doing that day in and day out for kids."

A complicated past

Steven Ingersoll founded Grand Traverse Academy and Bay City Academy and owned Smart Schools Management Inc., which managed both schools' finances and services up until his indictment in 2014. In 2016, he was sentenced to 41 months in prison for tax evasion.

Federal prosecutors detailed a series of financial transactions in which Ingersoll moved money between the two charter schools, his companies and a construction project in Bay City. Authorities also argued that Ingersoll victimized GTA and his sentence should be enhanced beyond tax evasion, but, in the end, a judge found that only the IRS, not GTA, sustained harm in the case, as previously reported.

Ingersoll originally owed GTA around $3.5 million after he budgeted that amount as a management fee that the school owed Smart Schools, but he gradually paid off some of his debts until they reached roughly $1.6 million at the time he was indicted, as previously reported. GTA eventually wrote off the $1.6 million, putting them in a deficit of about $365,000 in 2014, as previously reported.

After Ingersoll's indictment, GTA and Bay City Academy administrators and board members tried to distance themselves from him, but some of his peers remained.

Mark Noss, a college friend of Ingersoll's, created an educational management company, Full Spectrum Management, shortly after Ingersoll's indictment that Grand Traverse Academy then used to manage their finances and services until he was fired in 2017. The school's finances were also being handled by Ingersoll's daughter-in-law, as previously reported.

Brian Lynch, who is Noss' son-in-law, worked as an educational consultant with Smart Schools for Bay City Academy and North Central Academy for under a year before the board chose him to take over as superintendent shortly after Ingersoll's indictment.

"I did that very reluctantly. I didn't really want the job," Lynch said. "I had a lot of stipulations when I took the job of what I needed to do to fix stuff, because I've only really been a part of the organization for a handful of months really up to that point."

At the time, the Bay City Academy school board interviewed a few other management companies that they felt were not good options, because they would have made staffing cuts, Lynch said.

Lynch started Mitten Educational Management, LLC, in April 2015 alongside Michael Randel, a CPA based in Bingham Farms, according to the Michigan Department of Licensing and Regulatory Affairs. He said he started the management company to save both schools.

Mitten is a full service provider that charges the school 9 percent of its state aid, which ranged from $266,692 in 2018 to $481,492 in 2022, according to the school's audited financial reports, which are posted to the Bay City Academy website. Mitten does not manage any other charter schools, Lynch said.

Lynch said the deficit can be blamed, at least in part, on enrollment decline between the 2013-14 school year and the 2014-15 school year — due in part to the image the school was developing in the media at the time — and mismanagement, although he said Smart Schools Inc. was not entirely to blame for the deficit.

"I think the easy way would just be to cast blame on one person or one entity, but there are a collective variety of issues at hand that obviously weren't working," Lynch said.

Bay City Academy was also criticized for its academics at the time.

During the 2012-13 and 2013-14 school years, the percent of Bay City Academy students who were scored either advanced or proficient on reading, writing and math on the MEAP tests all trended below the percentage of students statewide who received that grading. In some instances, the percent of Bay City Academy students that earned the advanced or proficient mark was a quarter of that for students statewide.

Between the 2014-15 school year and the 2018-19 school year, the district's scores on the M-STEP, the state's new standardized test, either fluctuated between high and low for some grades and some school subjects throughout the years, while some grades saw steady increases in test scores, according to data from MI School Data.

At the time of Ingersoll's indictment, some saw his financial misdeeds and their impact on Grand Traverse Academy and Bay City Academy as prime examples of the pitfalls of poor legislation mandating transparency for charter schools, a conversation that continues today.

"For me, that was just one example in a bigger pattern of this," said Gary Miron, a professor of educational leadership, research and technology at Western Michigan University. "We just don't have the transparency, especially when they have the management structure, because they have that veil of privacy."

Miron has evaluated charter school reforms for state governments throughout the U.S. and produced several studies related to school choice reforms and charter schools. In that work, he has often seen firsthand how charter school management companies can charge schools large fees and hire family members and close friends.

Charter schools serve roughly 150,000 Michigan students today. They are authorized by an outside body, which acts as the school's regulator, conducts oversight and intakes the charter schools' state funding, and they are often run by outside management companies.

Nationwide, about 53.3 percent of charter school students are in schools that are operated by private companies, Miron said. In Michigan, that number is closer to 90 percent, he said.

Some of these private companies are not subject to public disclosure laws, which means that the government, the public and sometimes the school boards are often unable to get a full picture of how taxpayer dollars are spent by charter schools.

"We know that the money is public, but it quickly becomes privatized," Miron said.

Michigan Democrats have long promised to reform the charter school system, and now that the party has control of the state house, senate and governorship, legislative change involving a cap on charter schools, changes to how they are funded and changes to transparency laws may be on the horizon.

In December, the state board of education voted to urge that legislation be written and passed that would require charter schools and their management companies to be "as transparent in the use of taxpayer money as traditional public school districts," and post reports detailing the use of public funds, according to posted meeting minutes.

In early February, Gov. Gretchen Whitmer released her budget proposal for the next state school aid act, which included 20 percent less funding for online charter schools than brick-and-mortar schools.

Mike Addonizio, a professor emeritus of education policy at Wayne State University, said he would be supportive of both of those legislative moves. In addition to a need for more transparency in these schools' budgets, he said online charter schools should "no doubt" cost less to run than a traditional brick-and-mortar school.

Addonizio, who was an education policy advisor at the state level under Gov. John Engler, and Miron both said they were supportive of the original concept of charter schools: Schools that would be run by public school teachers for the most part and allow them more autonomy to design innovative and creative programs. But with the current function of the charter school system, both said there's a great need for reform.

"We still have about 10% of our K-12 kids attending charter schools, so they are clearly a part of our educational landscape, and we've got to do right by all of those children," Addonizio said. "But we've got to be, as a state, more demanding of information as to how the public resources are being used."

Looking forward

Bay City Academy officials and officials at Lake Superior State University, the school's authorizer, acknowledge that the school is lucky to still be up and running.

"There were people on the outside saying, 'This fledgling charter school just had the deck stacked too much against it,'" said Keith Krahnke, a supervisory field officer with LSSU. "They obviously, through doing a lot of correct things and growing and putting together a great program there, have beaten the odds. It is nothing but good news."

In his role at LSSU, Krahnke, a former superintendent at a traditional public school, acts as a liaison between the university and some of the schools it charters, including Bay City Academy. It's his job to make sure the school board and administrators are complying with the charter contract and Michigan law.

Bay City Academy currently has a 9 percent general fund, and Krahnke said he expects their fund balance to be somewhere between 10 and 15 percent by the end of this current fiscal year, June 30, 2023.

Now that the school is "out of the woods," their budget and finances will still be monitored by the university but they will not have to report to the state treasury.

"They've taken a little bit of work off of their desks, and I can tell you, they're going to do everything within their power to make sure they don't go back in the opposite direction," Krahnke said. "I've got a lot of confidence they'll be fine."

Lynch maintains that Bay City Academy has successfully distanced itself from Ingersoll and is on a new path forward. He said he feels optimistic about the future, especially because Lake Superior State University just offered the school a five-year authorization extension.

Lynch said he's appreciative of the parents who have stuck with the school through the rumors and doubts about the school's ability to reach financial stability and remain open. Now that the school is out of "survival mode," he said he's feeling very optimistic.

"We're just kind of just kind of waiting for the next challenge around the corner and being proactive," Lynch said. "Now we can do a little bit more dreaming and strategic planning."