LADY LIBERTY: Why is Murphy covering up Christie’s $10 million loan to failing charter school?

The New Jersey state education department has refused to release public documents that might  shed light on former Gov. Chris Christie’s loan of $10 million in state funds to a failing Newark charter school and its partner, a private, for-profit real estate developer that was receiving more than $800,000 in public funds as annual rent from the school.

The state’s  action, in response to a demand filed under the Open Public Records Act (OPRA), contributes to a stifling veil of silence covering up the details of the unusual $10 million loan—a loan granted by the New Jersey Economic Development Authority (NJEDA) despite the lack of any collateral that could be used to repay the loan if the school defaulted.

The school, Lady Liberty Academy Charter School, did close and no longer receives the state aid it needs  to pay its rent to the developer, BWP School Partners, LLC.  Under the unusual terms of the loan agreement between the NJEDA and BWP,  the state has limited its ability to recoup the loan from the developer  to finding a new charter school to take the place of Lady Liberty. The school is now boarded up and so, this year at least, that won’t happen.

The existence of the unusual $10 million loan was first disclosed by this site last month but the continued refusal by the NJEDA, the state education department, the Newark school district and private sources to discuss details has added to the mystery of why the state would loan $10 million to a charter school that faced problems since 2003, when it was opened as part of Newark’s New Community Corporation’s social outreach efforts. Lady Liberty was placed on probation by the state three times and finally closed this year after  Christie left office.

So that’s the first question that no one at the  state or elsewhere wants to answer:

Why would the NJEDA invest $10 million in a school that its state leadership knew was in trouble virtually from its start? And, that if the school failed, couldn’t pay its rent?

It is known that, shortly after he took office in 2010, Christie announced a new initiative  by the NJEDA to pump $30 million into charter school construction—part of an initiative  to vastly expand charter schools in New Jersey.  In the press statement Christie released announcing the pro-charter school plan, Brian Keenan, a real estate developer specializing in charters, is quoted as saying:

“Charter schools are in the business of educating kids, not developing real estate. They don’t have equity on hand to invest in real estate and build schools. This low-interest bond money provided by the State will enable charter schools to leverage as much as 10 times this amount in private sector financing,” said Keenan.

Keenan, then a promoter of Christie’s plan, is now head of BWP School Partners, LLC, the for-profit real estate development company that borrowed $10 million to fund new construction and other costs for Lady Liberty.

The infestation of charter schools by private developers is not new. Indeed, in 2014, the Newark school district—while under state control during the Christie administration sold, at a discount,  a public school to the oddly named  “Pink Hula Hoop” corporation that would serve as a real estate holding company for a chain of charter schools.

But the $10 million Lady Liberty fiasco shows this infestation of private profit in publicly-funded schools runs even deeper. Christie’s NJEDA loaned money to BWP and took back a mortgage from the company to secure the loan—but BWP didn’t even own the property.

Real estate records show that BWP only leases the property for $200,000 a year from the Ukrainian Catholic Church which operated a private school—St. John’s Ruthenian– on the property used by Lady Liberty. And only that lease is recorded in Essex County.

So here’s another really big question:

Why did Christie’s NJEDA grant a mortgage to BWP on property that wasn’t owned by the company that borrowed the money secured by the mortgage?

Here’s another  shocker of a question:

 A search of Essex County records shows no evidence that a mortgage was ever recorded on the property at 746 Sandford Avenue, the site of Lady Liberty. Why not?

No law requires the recording of mortgages but anyone—or any financial  institution—that lends money without requiring notice to others risks losing money. St. John’s Ruthenian could, in effect, borrow money against the same property and record a mortgage that would supersede the state’s unrecorded mortgage.

Church officials were asked repeatedly about the deal with BWP. Msgr. Peter D. Waslo, chancellor and chief financial officer of the Ukrainian Catholic Archeparchy of Philadelphia, which owns St. John’s, did not respond to questions. Nor did its communications office.

Public officials—and private individuals– have been nothing but opaque in talking about Christie’s $10 million deal with Lady Liberty and BWP.

Let’s start with Virginia Pellerin, a spokeswoman for the NJEDA. She turned aside most questions about the loan but kept repeating a mantra that, when the state issued the $10 million in bonds that funded the loan, it used a “conduit” procedure in which public funds would not be at risk.

Yet Pellerin couldn’t say who or what was at risk. Or why the NJEDA issued bonds that required little collateral to back them up.

And the 340-page NJEDA bond offering that resulted in the loan to BWP includes a whole section on how the state will rely on a trustee—United States Bank National Association in Morristown—to represent its interests and those of bondholders to go after BWP if it defaults on its mortgage payments.

So, then, this question:

Why does the state need a trustee to sue BWP on its behalf if the state has no money at risk? If it has no skin in the game?

Part of the answer is this: The law isn’t settled whether the state can simply disavow completely its responsibility for a bond issue—especially when it does not require any

collateral for the money it lends out with the proceeds from the bonds. One expert argues a state bond authority can be held responsible for some failures, put “at risk of having their names attached to failed deals.” Bad headlines, heavy litigation expenses, lowered credit ratings, investor lawsuits, IRS intervention–all are risks.

Such deals, however, can be  good for investors. Because of the risks involved,  the bonds are cheaper, interest returns to investors are higher—and they are tax free. But—and it’s a big but—these bonds can be turned into taxable investments if the scheme appears to be in violation of laws governing the issuance of public bonds.

Another party to this scheme is the underwriter,  RBC Capital Markets, a financial institution that bought the bonds—less a discount fee—and then either kept or resold them (it isnt’ saying). RBC, by the way, stands for Royal Bank of Canada. RBC, like all of the principals involved in the transaction, refused to respond to questions about its role in the $10 million scheme.

The company does, however, boast of a long history of funding charter schools in the United States—to the tune of about $1 billion.

Who said public schools can’t make you rich?

But, ironically, the Royal Bank of Canada makes its money from charter schools in the US; charter schools never caught on in Canada.

Brian Keenan himself, after granting a brief interview about his role in the $10 million scheme, won’t answer any further questions. But he admits he and BWP—both its for-profit and non-profit side—are just about out of the charter school business. The market’s gone bad.

So, another question:

Who takes the fall if BWP defaults on its payment of the mortgage held by the state?

The NJEDA won’t answer the question. And neither will the state education department. The best guess is that, if BWP can’t make its payments to the state, if the trustee can’t insure the bondholders will be paid, the whole mess will end up in the courts.

The NJ education department hasn’t been very helpful. Not only will it admit to no role in the fiscal fiasco, it won’t provide any answer about what happened to the money already spent on Lady Liberty Academy Charter School.

Michael Yaple of the state education department was repeatedly asked about why Lady Liberty was allowed—with its partner, BWP—to borrow money from the state when it had a long record of academic failure. No answer.

No answer, too, to questions about what happened to Lady Liberty’s assets once the privately-run school collapsed.

This is where it gets very dicey—and suggests the state education department, even under Gov. Phil Murphy, is trying to hide its relationship with the money—state aid and bond issues—going to New Jersey charter schools.

After a New Jersey charter school closes, regulations require it must file a “dissolution plan.” It also must hire an independent trustee who—like a trustee in bankruptcy—puts together a report on what the charter school owns and owes, assets and liabilities.

The expectation is that its assets will revert back either to the state or the district in which the charter school is located—in the case of Lady Liberty, Newark.

But that didn’t happen. And a spokeswoman for the  Newark Public Schools won’t answer questions about what claim the city’s resource-starved public schools might have on what’s left of Lady Liberty.

Lady Liberty was likely deep in debt because of the finance scheme that required it to pay nearly $900,000 a year to BWP.  So, instead of returning its assets to the Newark public schools, it held an auction, selling off hundreds of computers, its furniture, and other supplies. Didn’t make much money on the deal.

The only one who really knows all the details of what the collapse of Lady Liberty might cost New Jersey taxpayers is the “independent trustee” who wrapped up Lady Liberty’s financial affairs after he was appointed.

And that trustee, Scott Loeffler of East Hanover, isn’t talking. He has repeatedly refused to return calls seeking details about the financial status of Lady Liberty and its partner, BWP.

Loeffler did file a report required by—and received by—the state education department about the fiscal status of  Lady Liberty. But, despite the clear language of New Jersey’s Open Public Records Act (OPRA), Gov. Murphy’s state education department is refusing to make Loeffler’s report public.

Get this: The OPRA requires release of documents it defines as “means any record that has been made, maintained, or kept on file in the course of official business, or that has been received in the course of official business.”

Loeffler’s report was required by the state and, at the very least, “received by the state in the course of official business.” Yet the state education department refused to release Loeffler’s report, contending it  was “not Made, Maintained, Filed or Received” by the state.

So, with Loeffler and the state refusing to reveal the truth of the $10 million loan to a trouble-plagued charter school, the only person left who could provide some explanation is Brian Keenan, the head of BWP School Partners, LLC.

He was initially cooperative. But, despite promises of additional interviews, Keenan has refused to take calls and answer questions.

These were some of the questions this site asked Brian Keenan, sent to him in an e-mail August 10:

3) I understand the lien represented by the (NJEDA) mortgage covers ONLY the leasehold interest you/BWP own in the property/buildings at 746-772 Sandford Avenue, Newark, the location of the Lady Liberty Academy Charter School. Is that correct?

4) What is the FMV—fair market value–of the property? Would its sale cover the costs of a default if the bonds and interest were called? Who/what entity would have to make up the loss if the property doesn’t cover a default?

5) Under the lease you have with St. John’s Ukrainian (Ruthenian) church, you/BWP pay $192,000 a year. Is that accurate? If not, what is the rent?

6) Lady Liberty Charter School has a long history of academic problems dating back to its founding. In the last few years, it has been on state probation. Did it come as a surprise to you that it was shut down by the state? Why did you think it would be a good investment, especially given the recitation of risks in the bond offering?

7) When we spoke, I asked you the  selling price of the property. You said, “Well, there’s a $10 million mortgage on it.” We also discussed who held the mortgage and you said it had been resold several times and you compared it to the second mortgage market.

8) The bond offering statement requires that all mortgages on the property/proceeds be recorded. But I could find no record of any mortgage on the property. Indeed, the only document found by the Essex County Register was a memorandum of lease between BWP and St. John’s. Are the documents memorializing the transaction with the NJEDA/ its Trustee, and Lady Liberty Charter School recorded as required by the bond offering? If so, where?

9) What was the last payment made by Lady Liberty under the bond transaction and when was it made?

10) Is Lady Liberty in default under the terms of the bond offering/loan agreement?

11) A memorandum from the NJEDA outlining the costs of the bond issue suggest only $5.7 million of the $10 million would go to construction. Can you explain why the bond issue was nearly twice that amount?

12) Do you believe the NJ state education department was correct in shutting down Lady Liberty? Were you consulted as to the financial implications for you and other parties of defunct school with no income that had been the subject of a $10 million state bond issue?

13) In July, Lady Liberty held an auction at which it sold various items including furniture and computers. You said that auction had no bearing on BWP’s interest. Yet would not those funds raised at the auction be available to Lady Liberty to pay off its annual rental payment of some $800,000?

14) According to the latest (Federal) Form 990, you drew a salary of $160,000 plus $27,150 in other benefits from Build With Purpose. Is that still true? That same Form 990 indicated BWP held $17.3 in assets. Would those assets be available to cover a default involving Lady Liberty?

15) I recently visited the property and observed workers boarding up the windows. Does this mean you have not found a new tenant for the buildings for the upcoming school ear? What happens if you don’t? How will the rental payment be covered?

16) What is the position of RBC—Royal Bank of Canada Capital Markets– in this transaction? Does it face a loss on a default?

So many questions, so few answers.  So many people who know so much who are saying so little.

More than $10 million in public money is loaned to a private developer to help a failing Newark charter school that, within a matter of a few years, closes before hardly any of the money is paid back.

And all of this leads to the final question—a question aimed at many people, but it all starts and ends with the man at the top:

Gov. Phil Murphy, why are you hiding the truth about the $10 million awarded to Lady Liberty Academy Charter School and its private developer partner?