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Muskegon Heights ends contract with charter school company

Lindsey Smith
Michigan Radio

Updated 5:10 p.m.

Mosaica Education and Muskegon Heights Public School Academy have come to a mutual agreement to end their working relationship.

“This was a difficult decision for us and our board,” Mosaica Chief Executive Officer Michael Connelly said in a written statement.

“We are very proud of the academic turnaround we were able to achieve under the leadership of Alena Zachery-Ross, our regional vice president and the superintendent for the system,” he said.

Agreement to end contract mutual: “The cost of doing business was excessive”

Both Mosaica and the charter school district agree not to sue one another in the separation agreement.

Mosaica will make significantly less money than originally outlined in the management agreement. It will receive $760,000 it fronted the district to make payroll this year. It will also get roughly $84,000 to pay five administrators who are paid directly by the company.

Mosaica is waiving all of its management fees; basically it’s agreed to operate the district this year for free. An attorney for the emergency manager said Mosaica received partial payment for operating the schools last year; between $900,000 and $1.2 million.

“It doesn’t fit their model,” Emergency Manager Gregory Weatherspoon said when asked why Mosaica might agree to a loss. “So when you’re looking at something, how much would you continue putting in a broke down car? That’s a weird scenario but the bottom line is when something’s not working and you cannot predict and have predictability of it – you’ve got to leave it alone,” he said.

"To be brutally honest - they had to be brutally honest to themselves as well with us - in their model as a for profit company, their profit was not there," Weatherspoon said.

“Mosaica in our opinion did a great job,” Muskegon Heights Public School Academy Board President Arthur Scott said.

The cost of doing business was excessive,” Scott said. “It is unreasonable in business that those costs could be covered under the current agreement.”

Weatherspoon says he and the district didn’t always have a clear picture of the financial situation.

“What we feel the number one lesson learned was that you have a company that sits outside here and it operates. We didn’t have constant contact from day one to see the weekly cash flow. And when we did start looking at the weekly cash flow we understood that there was an issue here,” Weatherspoon said.

Weatherspoon, Scott and their attorneys did not know what the current budget deficit is.

State likely to loan Muskegon Heights schools more money

In order to pay teachers, vendors and staff for the rest of this school year, Weatherspoon is asking the state for a $1.4 million loan. That loan would go to the original Muskegon Heights Public School district, which would then funnel the cash to the new charter district it authorizes, Muskegon Heights Public School Academy.

It seems likely the state’s Emergency Loan Board will approve the loan. At first Weatherspoon told reporters the loan had already been approved.

“Yes it has,” he said. When asked when, Weatherspoon responded: “Well, that’s what we’re doing Monday.”

“We’ve been working on this for a long time,” Weatherspoon’s attorney Gary Britton said. He wouldn’t say how long.  

The money from the loan would cover expenses through June 30, 2014. It’s not clear yet where the district will get money to start the new school year or the estimated $650,000 it’ll need to finish repairs to its four school buildings. Weatherspoon says one of the buildings will likely be closed instead of being repaired because it’s expected to take about $400,000 to fix.

The charter board adopted a number of changes to various legal agreements with the emergency manager and Mosaica. Copies of those documents were not available to reporters or the public yet.

An attorney for the charter board explained that the changes require the charter district to end this school year without a deficit and it must pay vendors. It also gives Weatherspoon the authority “to grab all our state aid payment and make sure things get paid” if those requirements are not met.

Next steps: Muskegon Heights now hiring a new charter company

As part of the agreement, Mosaica will work with the charter board and whatever new management company the board hires on a transition.

The board will put out requests for a proposals before May 1. It wants those proposals returned by May 23, but reserved the right to consider proposals that came in later than that.

The board, Weatherspoon, and a group of community members the board chooses will interview the school operators that apply.

“We want to make sure that we get it right. And we certainly want to make sure that we have an operator with the experience that is needed to manage the culture that exists in our community today," charter board President Arthur Scott said.

The hope it to have a new operator in place no later than June 30.

Mosaica also agreed to waive “no compete” clauses for five top administrators with the district: Alena Zachery-Ross, the special education director, and three heads of schools.

“We believe that the staff that’s in place today will be a great asset to the new provider,” Scott said.

The transition from the traditional public school and the new charter district run by Mosaica did not go very smoothly, for a number of reasons. The district lost 474 students, nearly 30%, that summer alone.

Weatherspoon says he doesn’t expect this transition to be nearly as dramatic.

“That’s why we’re trying to grab as many of the staff and make this a seamless transition. That’s why we went after staff because we figure – well we know that with Alena (Zachery-Ross’s) leadership – well, a lot of things can happen,” Weatherspoon said.

But the new operator would not be required to hire the teachers and administrators working in Muskegon Heights for Mosaica this year. Weatherspoon said that would be a suggestion though. Teachers and administrators obviously wouldn’t be required to stay either.

"So it's going be a hope and a prayer that we get (the current staff) because that's all in the vision that we have. But what rolls out? Who knows," Weatherspoon said.

At least a couple of dozen teachers attended the special board meeting. No one spoke during the public comment portion of the meeting.

Maurice Satterfield says he’s worked at the school district for 25 years. He’s currently a special education teacher at the high school. He views the changes as a positive step that are simply part of the district’s larger restructuring.

“Now they’re being proactive and taking care of the debt while ensuring that the teachers are taken care of and there’s no longer smaller issues that need to be taken care of,” Satterfield said.

Weatherspoon says some charter operators have already contacted him about running the district next year. He couldn’t say which ones. He did mention that the state’s Education Achievement Authority could make a bid to run the district, assuming lawmakers eventually pass legislation that would allow the EAA to expand beyond Detroit.

Scott says the bids should include extracurricular activities like sports. “No doubt about it (there will be sports next year). That’s the heartbeat of our community,” Scott said, noting the basketball team made it to Michigan’s semi-finals this school year.

The charter district is looking for a shorter running contract this time around. It will cover the 2014-15 school year to the 2016-17 school year.

Posted 11:45 a.m.

Muskegon Heights Public School Academy voted this morning to end its contract with private charter school company Mosaica Education. The agreement ends the five-year contract three years early on June 30, 2014.

This story will be updated with more details early this afternoon.

The new charter district, Muskegon Heights Public School Academy, was created in the summer of 2012. Then Emergency Manager Donald Weatherspoon created the PSA after he was appointed to run Muskegon Heights Public Schoolsin April 2012.

Severe cash problemsprompted a state takeover of the traditional school district. It was unique at the time because the elected school board requested a state takeover in December 2011.

But by the end of MHPSA’s first school year, it reported a deficit of more than $500,000. By December 2013, it was having cash flow problems of its own. Mosaica Education's CEO said last week MHPSA owed the charter company more than $2 million in unpaid management fees and cash the company claims it advanced to cover the district’s payroll.

The cash flow problems have three main causes. Mosaica underestimated how much special education would cost. The company and the charter board underestimated how many students would enroll in the new PSA. The company and the emergency manager underestimated how much it would cost to get the four previously neglected school buildings up to state building codes (that still hasn’t happened).

Lindsey Smith is a Peabody Award-winning journalist currently leading the station's Amplify Team. She previously served as Michigan Public's Morning News Editor, Investigative Reporter and West Michigan Reporter.
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