Star Ledger - Some N.J. private schools for disabled students cashing in on taxpayers "...In an era when public schools are under intense pressure to do more with less, the newspaper’s review showed nepotism, high executive salaries, generous pensions, fancy cars and questionable business deals are common in parts of this more than $600 million New Jersey industry. Prompted by a state auditor’s report earlier this year raising concerns about these schools, The Star-Ledger reviewed more than 8,000 pages of annual financial audits and other documents obtained from the state Department of Education under the Open Public Records Act..."
Star Ledger - Some N.J. private schools for disabled students cashing in on taxpayers
Christopher Baxter/The Star-Ledger The Star-Ledger on October 13, 2013 at 7:10 AM
TRENTON — The payroll at Somerset Hills School reads like a family tree, with 10 relatives sprinkled throughout. Four of them earn six-figure salaries.
The cafeteria serves up a nice profit, paying hundreds of thousands of dollars for food to a company founded and owned by the school's executive director.
Even the land and buildings are worth big bucks. The school paid nearly half a million dollars for rent in 2012, mostly to a company owned by its former executive director.
Tucked away amid lush green meadows in Warren Township, Somerset Hills is one of about 180 private schools across the state where more than 10,000 severely disabled children go for an education when their public schools can’t handle them.
Though Somerset Hills is privately owned and run, it’s like a public school in one simple way: You pay for all of it.
A two-month Star-Ledger investigation found Somerset Hills and schools like it operate in a twilight zone of the state education system, under a unique set of rules that allows them to spend taxpayer money in ways few would tolerate of public schools.
In an era when public schools are under intense pressure to do more with less, the newspaper’s review showed nepotism, high executive salaries, generous pensions, fancy cars and questionable business deals are common in parts of this more than $600 million New Jersey industry.
Prompted by a state auditor’s report earlier this year raising concerns about these schools, The Star-Ledger reviewed more than 8,000 pages of annual financial audits and other documents obtained from the state Department of Education under the Open Public Records Act.
The records, covering the fiscal year ending June 30, 2012, for about 170 schools, reveal a laundry list of some of the most despised practices in government and paint a picture of what privatization can cost when state oversight fails to guard the public’s wallet.
Among the findings:
• While Gov. Chris Christie rails about the pay of public school superintendents, top employees at these schools live in another world, spared from his rancor. Nineteen directors were paid the maximum allowed salary — $225,734 — to oversee schools with anywhere from 30 to 327 students a day. And 52 people at these schools took home more than $175,000, the most superintendents are allowed to earn in public schools with up to 10,000 students.
• About a third of the schools did business with companies owned or controlled by the same people who run the schools, or their relatives or associates, oftentimes at a higher cost than other schools pay. The deals ran the gamut from real estate to bus rentals to food.
• Nearly one-fifth of schools had instances of nepotism. One school had four related directors, three of whom earned the maximum $225,734. Another employed a part-time classroom aide related to the director who earned $94,000 in 2013, three times other aides’ salaries.
• Three dozen schools offered generous pension plans paid for by the public but requiring no contributions by employees, in stark contrast to public school teachers and administrators’ plans. At one school, a former official collected retiree health benefits after she served time for ripping off taxpayers.
• Twenty-two cars — including two BMWs, a Land Rover, three Lexus and two Mercedes — were charged in part to taxpayers despite being used for personal transportation by officials. School disclosure reports show many cars were kept at officials’ homes.
"We don’t want to see one penny spent that doesn’t need to be, let alone in ways that seem wholly inappropriate," said Ruth Lowenkron, a senior attorney with the Education Law Center, which advocates for fair school funding. "We’re very concerned about how these schools contain costs."
Gerard Thiers, the executive director of ASAH, an association representing the schools, said they provide a vital service for parents of disabled children, from preschoolers to high schoolers, with severe autism, speech impediments, blindness, deafness and developmental problems.
"Many of these schools are very successful and they are very cost-effective," Thiers said. "They have great reputations."
The state guarantees an education to every child, but sometimes students’ disabilities are so complex that public schools must send them to other schools, such as these private ones, which offer specialized services.
<a href="http://polldaddy.com/poll/7470008/">Should N.J. crack down on spending at the the state's private special needs schools?</a> Average tuition at the schools rose 12 percent from 2008 to 2012, to $57,601 per student, state numbers show, and one school topped $100,000 in the 2011-12 school year. The tuition is charged to public schools, and, in turn, to New Jersey’s property-tax payers.
But unlike public schools, there are no elected officials to hold accountable, no school board meetings to attend or budgets to examine. As a result, the investigation found, questionable spending has continued for more than a decade — all hidden in plain sight.
Thiers disagreed with the investigation’s findings and said the schools are already hamstrung by too many needless restrictions on spending.
"All of these regulations have been applied to the schools over the years, and it buries us in all this compliance stuff that reduces the flexibility we have to develop programs to serve the kids," Thiers said, adding that the state’s oversight was "too heavy" and often unfair.
The complaints have resonated with Christie, a strong supporter of privatization and greater school choice. In an interview with The Star-Ledger, Thiers revealed that the state Education Department is considering a proposal largely put forward by the schools that would lift many existing spending rules but would also cap tuition at a set amount.
The governor’s office referred questions to the department, whose spokesman, Michael Yaple, confirmed the proposal was under review by Commissioner Christopher Cerf. Yaple said the changes would reduce costs and be the first "substantial" update to regulations for the private schools in about a quarter-century.
But Yaple said that because the schools are private entities, current law and various court decisions limit the state’s oversight authority and "unfortunately, those are impediments that have extended different treatment to these schools."
He said addressing many of the issues raised by the investigation would require action by the state Legislature. Many education experts said private special-needs schools enjoy extra protection from censure because lawmakers are reluctant to tackle an issue sure to raise backlash from parents who want what’s best for their children at any cost.
(Read about one mother whose autistic twins found the education they needed at one of New Jersey's private special-needs schools.)
LAX OVERSIGHT
The state administrative code specifies in some detail how private special-needs schools can and cannot spend, but the rules are more relaxed than those for traditional public schools or, in some cases, even charter schools, The Star-Ledger’s investigation found.
"They’re either profit or nonprofit, so they’re accountable to directors or shareholders, but not the public," said Mary Ciccone, managing attorney for Disability Rights New Jersey. "So they charge their tuition and public schools are basically stuck paying for it regardless."
The spending practices by these schools are not unique. There are approximately 2,600 private special-needs schools across the country, Thiers said, each with varying degrees of government oversight. Some 300 in New York have come under intense scrutiny of late.
In a report released in December, New York Comptroller Thomas DiNapoli said taxpayers there were suffering because of poor state oversight and wasteful spending — including inflated costs related to nepotism, insider dealings and criminal conduct.
"Children with disabilities and taxpayers are being ripped off and it has to stop," DiNapoli said in the report.
Officials in New Jersey rely on schools to tell the truth about expenses on annual disclosure forms, though not all submit them as required. Schools must also provide annual audits by their accounting firms, which disallowed nearly $3.9 million — or less than 1 percent of spending — in 2012.
But when state officials visit the schools to review their books, which is required once every six years, they find numerous examples of improper spending missed by the auditors, such as salaries higher than those allowed by state rules, overnight hotel stays, yearbook costs and landscaping.
A report released by the state auditor this year also found that as of March, 46 of the 140 private special-needs schools open since 2006 had not been visited by the state for an on-site fiscal review during the past six years.
When the reviews find excessive spending and the state demands public schools be refunded, the private schools often file lengthy appeals and pass those costs back to taxpayers. The schools spent about $554,000 on litigation in 2012, records show.
Yaple, the spokesman for the Education Department, estimated that more than half of all audits by the department identify at least one item of noncompliance — some minor and some serious — and the department defends its actions in appeals and in the courts.
He added the department was expanding the number of people assigned to reviewing the schools’ books.
Thiers said the association’s own analysis in 2011 found that the private special-needs schools offered the best price for taxpayers when compared with the cost of special-needs programs in local public school districts — cheaper as well than programs set up at the county level.
He added that the schools do not have access to public money to construct buildings, and he estimated they fundraise $25 million every year — through events and from board members, parents, foundations and corporations — to invest back into their students.
At a few schools, a small number of students privately enroll and pay their tuition as well, which supports costs, he said.
BIG SALARIES
During his first year in office, Christie waged an intense battle against highly paid public school superintendents to promote his proposed salary cap, which, combined with a 2 percent cap on property tax hikes, was intended to bring relief to homeowners.
The battle reached its peak during a town hall in Parsippany in 2010, where he lambasted then-Parsippany-Troy Hills Superintendent Leroy Seitz for a raise that would boost his salary above $216,000, far more than the governor’s paycheck of $175,000.
Christie called Seitz "the new poster boy for all that’s wrong with the public school system" and said that if he "wants to try to put his greed and his arrogance ahead of the taxpayers of New Jersey, you elected me to stand up to people like Lee Seitz and others across the state, and I will."
But Christie never has criticized the leaders of the state’s private special-needs schools, who are also paid by taxpayers.
Under the public school salary cap, which took effect in 2011, a superintendent overseeing 6,501 to 9,999 students can make a maximum of $175,000. Records for fiscal year 2012 show 52 employees at the private schools, some with average daily enrollments as low as 27, earned more.
Of those, 19 directors made the top salary of $225,734 — which is set by the state and was recently increased to $233,556 — and another three made $34 less than that amount. It’s unclear how many now make the $233,556 maximum amount.
Asked about the differences, Yaple, of the Education Department, said limiting public school superintendent salaries "yielded the greatest immediate savings of tax dollars."
Unlike most superintendents, who must have a master’s degree and state certification, directors of these private schools need nothing more than a bachelor’s degree. Of the 19 who earned the top salary, disclosure reports show three had only bachelor’s degrees and no education certifications.
State rules also do not put any limits on the number of directors a school can employ and say only that administrative expenses cannot exceed 25 percent of total spending, though some do and then auditors or the state must find and toss out the costs.
Thiers said private school leaders should have fewer educational and professional requirements so as not to limit who — from parents to entrepreneurs — can open a school.
"Superintendents are paid according to the number of kids they serve, but in a special education system that’s unfair because there’s many more staff serving less kids, because you have to provide very intense services," he said.
A FAMILY AFFAIR
State rules require traditional public schools and charter schools that receive school aid to have a nepotism policy. But that mandate does not apply to private special-needs schools.
A review of school payroll records found 30 institutions, or about 18 percent, with relatives among the staff. The findings were similar to the review earlier this year by the state auditor, which found 27 instances of nepotism among just administrative staffs.
The auditor noted nepotism as one of a number of items that, while allowed under state rules, could be better regulated to control costs. The report said that on average, schools with nepotism had general administrative salaries 44 percent higher than other schools in fiscal year 2012.
At the for-profit Somerset Hills School, three directors and a principal were related, and two of them earned the maximum $225,734, a disclosure report shows. The four helped oversee an average daily enrollment of 97 students in 2012, according to the school’s audit.
But their connections to one another are hard to detect on the disclosure form because some used maiden names.
The school reported that a principal, Maria Torres, made $142,812 in 2012, and that a director, Christopher Kimmins, made $131,678. But the two were actually married, and property records and voter registration records list the wife’s name as Maria Kimmins.
The school also employed Christopher Kimmins’ son, Ryan, and his wife, Stacey, who both earned the maximum salary. But on state disclosure forms, the wife was listed as Stacey Alexander, despite public records that show her using the name Stacey Kimmins.
Overall, the school listed 10 relatives on its payroll of about 106 and had one of the highest administrative salary costs per student among private special-needs schools at $6,514.
Ryan Kimmins said the two women worked for the school before they each married, and it would have been wrong to ask them to find another job once they were married, or to question why they continued to use their maiden names.
"Family members also mortgaged homes, borrowed from retirement savings and delayed paychecks to keep the organization solvent," he said.
Kimmins added that his father retired earlier this year.
The for-profit Deron School, with locations in Union and Montclair, had four related directors — Eric Alter, Kenneth Alter, Lori Alter and Ronald Alter — who earned a combined salary of $838,253, or an average of $209,563, to oversee an average daily enrollment of 220 students.
Kenneth Alter said that while base salaries for the directors are higher than those for comparable public school superintendents, the directors there are not entitled to lifetime pension plans that promise a guaranteed percentage of their salary or to lifetime health benefits.
The school in 2012 did offer a profit-sharing plan for employees that guarantees a pension based on the amount of money contributed by the company over the course of their employment. The school charged $362,974 to taxpayers as a contribution to the plan that year.
At the for-profit Y.A.L.E. School in Cherry Hill, Pelageia Sarandoulias, a relative of director Chris Sarandoulias, earned $75,200 to work part time as a classroom aide despite not having any educational certifications or a college degree, disclosure reports show.
In 2013, she earned $94,000 for the same part-time job, those records show, more than three times any other classroom aide at the school. Pelageia Sarandoulias did not return calls for comment, and Chris Sarandoulias did not respond to questions about the salary.
BUSINESS WITH BOSSES
Despite the schools’ contentions that competition on the free market — and not state oversight — would result in the lowest costs for taxpayers, records show 56 had dealings with companies related to their leadership, families of their leadership or other associates in 2012.
For schools that reported rent costs in excess of $10,000, those with these kinds of deals paid about 9 percent more than others, the investigation found. Audits show about half of all for-profit private special-needs schools had deals connected to leadership, families or other associates. By contrast, such deals were found at about a quarter of nonprofit schools.
In some cases, such as the for-profit Green Brook Academy in Bound Brook, the same person signed the lease for the school and the company that owns the land and buildings. School disclosure reports show a five-year deal worth $156,000 annually was signed by one of the school’s owners, Edward Dougherty, on behalf of both the school and his company, E&C Ventures.
State rules limit Dougherty’s profit off the deal to 2.5 percent of the cost of owning the land and buildings. But that cost can include a host of expenses, including mortgage interest payments, taxes, insurance payments, maintenance, legal fees, garbage and repairs.
The Deron School reported nearly $1.4 million in rent costs for its two schools, and all of it was paid to three companies owned by the Alter family, the same people who ran the school, disclosure reports show. Kenneth Alter said the deals were fully compliant with state rules.
"We began in 1967 when my parents, Ronald and Diane Alter, opened with one student," Alter said. "Combined we have more than 123 years’ experience working in education."
The Y.A.L.E. School, with locations throughout Central and South Jersey, reported nearly $800,000 worth of business with seven companies owned by the same people who own the school. One of the school’s owners, Ann Davidson, sits on the Medford Township Board of Education, which rents space to Y.A.L.E. School. The public school district also placed 10 students at Y.A.L.E. School in 2012, records show, at a cost of $416,606 to taxpayers.
Davidson did not return requests for comment, but school director Chris Sarandoulias said she recuses herself from any discussions or votes by the board of education related to the private school.
Three of four schools that paid the most per student for transportation rent buses from companies controlled by the same people who run the school, records show. The fourth school said on disclosure forms it took students between home and school, but state rules prohibit that cost.
Other schools reported deals for equipment, management, personnel, consulting, legal and investment advice, and food, records show.
The Somerset Hills School paid a company $380,407 in 2012 for food services, nearly $4,000 per student, records show. The per-student cost for food was $1,000 more than what the next-highest school paid and nearly five times higher than that of schools with similar enrollments.
Business records show the company, West Hills Food Purveyors, was founded in 2006 and owned by Ryan Kimmins, the school’s executive director.
Kimmins said students were fed breakfast and lunch every day and any comparison of the cost with other schools does not account for the needs of students or the amount of food served. He said concerns about the arrangement were moot because West Hills was dissolved earlier this year, but he did not say who now provides the food.
Somerset Hills also spent $431,075 in rent costs for land and buildings in 2012, most of which was paid to Home School Realty. Business records show that company was purchased by the school’s former longtime executive director, Jerome Amedeo, in 2007, the same year he retired.
Kimmins said Amedeo no longer had control over the school, "so we do not know of any concerns about a conflict of interest."
Amedeo owes $181,739 in unpaid federal taxes from 2008, 2009 and 2010, according to a lien filed with the Somerset County clerk. Amedeo said he was penalized by the Internal Revenue Service for using his entire 401(k) retirement account to purchase the school property. He said he was on a payment plan with the IRS and expected the lien to be resolved by the middle of next year.
Amedeo and his wife, Carol, are major Republican donors, having given about $170,000 to state GOP coffers, dating to 1993, campaign records show. That includes $17,400 to Christie, including $3,800 from him in February.
He served on Christie’s transition team in 2009, and in May 2011, was nominated by the governor to the board of commissioners for the North Jersey District Water Supply Commission, where he earns $1,200.
Amedeo also serves on the board of trustees at Monmouth University, his alma mater, and was nominated by former Gov. Jon Corzine to the Department of Education’s School Ethics Commission, which enforces school ethics rules. Neither position is paid.
Aside from Somerset Hills School, Amedeo earns money through rent paid to his company by the Somerset Hills Residential Treatment Center, which, according to its website, is affiliated with the school and serves boys ages 11 to 15 with severe emotional and behavioral disabilities.
The state Department of Children and Families contracts with the treatment center to provide housing and services for children in need. The Christie administration last year signed a two-year deal with the center worth a maximum $14.3 million, department records show.
The officers of the center were the same three directors of the school, records show, but how much money they earned — paid by the center — was not listed. The most recent audit submitted to the state showed the center paid a total of $819,454 to shareholders in 2010 and 2011.
In his most recent financial disclosure, Amedeo reported that he receives a pension from the center, though the amount was not listed.
Amedeo also earns income overseeing Camp Harmony, a family-run, 87-year-old private summer retreat held on the grounds of the school and the treatment center. To make room for the camp, Somerset Hills School sends its students to another camp in Bergen County for six weeks.
That camp — which offers outdoor activities as well as classroom instruction — was certified by the state as an extended school year program, allowing the school to charge public school districts, and, in turn, taxpayers, an additional $12,426 per student for those who attended in 2012.
Amedeo said the extended school year was created because students required extra instructional time. Ryan Kimmins reiterated that the arrangement has existed for many years, follows all rules and regulations and has the blessing of state officials.
PENSIONS AND PERKS
One of the hallmarks of Christie’s first term as governor has been his fight to require public employees, including public school teachers, to pay more for health and pension benefits. He said the reforms, passed in 2011, would help save taxpayer money and balance the state budget.
But the governor has taken no action to rein in pension costs charged by these private schools, which surpassed $19 million in 2012, records show.
Most of the schools offer their own private pension plans that they administer, but the public gets the bill. Some of the pensions are based upon the amount of money contributed to the plan, and some pay out a guaranteed amount of money similar to plans offered to public employees.
One critical difference, however, is that many of the schools do not require their employees to kick in any money, as opposed to public employees such as teachers, who pay 6.78 percent of their salary toward pension, and police and firefighters, who pay 10 percent.
The nonprofit Milton School in Maplewood, which served a daily average of 11 students in 2012, contributed the equivalent of 25 percent of employees’ salaries to pensions and required no contributions by its employees. The school had the highest per-student pension cost at $8,233.
School Director Virgilio Alomar said he employs a "highly talented professional staff who have been trained to meet the academic, social and emotional needs of our student population" and noted his teachers earn less than the average public school teacher.
Other schools that offered generous pensions were the nonprofit Oakwood School in Tinton Falls, which had an average daily enrollment of 32 and paid $6,949 per student in pension costs, financial audits show, and Somerset Hills, which had an average daily enrollment of 97 and paid $6,766 per student.
Overall, the average pension cost per student at all schools was about $2,200.
Steve Baker, a spokesman for the New Jersey Education Association, the largest public school teachers union in the state, said every dollar put toward education should be spent well, "and that should absolutely be true of money that’s passed on to private entities."
"Anyone who sees money being given to private entities who are not held accountable for how it’s used, well, I think that’s an issue a lot of taxpayers will care about," Baker said.
Some schools offer other retirement perks, even after employees get in trouble.
At the High Road Schools of N.J., a former official who admitted in 2008 to overbilling taxpayers more than $1.3 million has subsequently collected more than $88,000 in retiree health benefits, paid for by the same taxpayers she ripped off, documents obtained by The Star-Ledger show.
Ellyn Lerner — the former president and chief executive of High Road and another company, Kids 1 — served three months for boosting the schools’ profits at the public’s expense and charging taxpayers for equipment sent to out-of-state schools.
Peter Aseltine, a spokesman for the state Attorney General’s Office, which prosecuted Lerner, said the health benefit was not in violation of the plea agreement. High Road paid restitution and no longer does business in the state, and the schools are now run by New Road Schools of New Jersey. Lerner and New Road Schools did not return requests for comment.
LUXURY CARS
Fifteen schools reported charging taxpayers in part for 22 cars, many of them luxury brands, used not for instructional purposes but as personal transportation for school officials. The majority of the cars were kept at officials’ homes, according to disclosure reports.
State rules require schools to keep mileage logs and deduct personal use from the cost of the cars, and there is a maximum that can be charged to taxpayers. The schools, however, are not required to show on disclosure reports or in their annual audits how much they charge the public.
For example, each of the Deron schools listed a 2009 Lexus ES 350 and 2010 BMW X5 with combined lease payments of more than $700 a month. Kenneth Alter said the school charged the state limit of $6,535 to taxpayers — about $545 per month — and the owners paid the rest.
The Y.A.L.E. School in Cherry Hill reported owning a 2007 Lexus LS 460 purchased for $53,746 and a 2010 Land Rover LR4 purchased for $59,377. The school’s director, Chris Sarandoulias, said a total $5,571 was charged to tuition in the 2010 school year, and a similar amount in 2011. He did not provide amounts for 2012, but said that any nonbusiness use of the cars was paid by the owners and not the public.
The for-profit Alpha School in Jackson reported paying $819 a month to lease a 2011 BMW 535xi, according to disclosure reports, and the for-profit Clearview School in Wayne reported paying $500 a month to lease a 2011 Lexus RX 350. It was unclear how much was charged to taxpayers.
Officials for Clearview said in state disclosure forms the Lexus was necessary for "business-related duties" such as "attending conferences, seminars and meetings, visiting district business offices and meeting with professional support staff and consultants."
Public schools cannot own luxury vehicles, but state rules do allow districts to assign vehicles to superintendents, security supervisors or other top officials who are on-call 24 hours. The vehicles must be used for official business.
Thiers said the expenses were a drop in the bucket compared with overall spending.
"There’s nothing illegal about it or anything," he said.