BACKGROUND At a June 30, 2017 “special meeting”, the Grand Traverse Academy’s board of directors approved a “Resolution Authorizing A Line Of Credit For School Operations”, ostensibly to cover cash flow shortages in the Academy’s General Fund.
Four board members approved the Resolution (Samer Bourdkani, Mike Drilling, Lea Piché and Lesley Werth; Mike Rogers was absent), which authorized the Academy to obtain a line of credit from a “private financial institution to secure funds for school operations”.
The loan amount was capped at $2,335,000, but the money was not used for cash flow shortages.
Instead, the Grand Traverse Academy’s board earmarked the new loan to fulfill its outstanding $2,341,536.74 obligation to Traverse City State Bank.
The Michigan Finance Authority requires SAN loans funded by the Michigan Treasury be repaid not later than 372 days from from date the note was issued, and has for years. The statute authorizing state aid notes also requires funding from any other source (like municipal bond underwriting and placement firms) also be term-limited to 12 months.
In addition, the loan in question, a $2.3 million SAN loan underwritten by Traverse City State Bank, was authorized by the Grand Traverse Academy board during an August 30, 2016 special board meeting.
An August 9, 2016 Cash Flow Projection, created by Mark Noss for the fiscal year that ended June 30, 2016, aggressively predicted a 1,250 student count during the 2016/2017 school year.
To make matters worse, Grand Traverse Academy superintendent Susan Dameron publicly stated in the last few months that she expected up to 1,200 students to enroll in the 2017-2018 school year. (A more conservative estimate set the population at 1,160, roughly the Grand Traverse Academy's tally from the official Michigan Spring 2017 school count.)
But only a little more than 1,100 students actually enrolled.
Michigan will provide the Grand Traverse Academy a foundation allowance of $7,631 per student in FY 2018.
With 65 fewer students, that means the district will get roughly $496,015 less than it originally budgeted for this school year. That loss of students compounded the Traverse City charter school’s cash flow problems.
With the new loan, roughly $100,000 per month will be intercepted by the Michigan Treasury, diverted from the Grand Traverse Academy and transmitted directly to bondholders for debt-service payments.
And the board would prefer that you did not notice it held a “special meeting” on June 30, 2017, where it approved a “Resolution Authorizing A Line Of Credit For School Operations”.
By giving that action a murky “Resolution for the Michigan Finance Authority” reference in the June meeting's official minutes (belatedly released on October 2, 2017), the board helped delay any discovery of the school's true financial picture.
But it's been revealed, and this September 26, 2017 letter from Miller Canfield's Jim Crowley to the Michigan Treasury Department on behalf of the Grand Traverse Academy makes it official.
(The letter was part of the official Security Report for the $2,330,000 State Aid Note, issued on September 15, 2017. The report was obtained by a Freedom of Information Act request.)
According to the Michigan School Code, a school district (the Grand Traverse Academy is considered a district) “or intermediate school district that is not able to redeem its notes within 372 days after the date on which the notes were issued may enter into a multi-year agreement with a lending institution to repay its obligation. A repayment agreement shall not be executed without the prior approval of an authorized representative of the state board or, for notes sold to the Michigan finance authority only, without the approval of an authorized representative of the department of treasury.”
Oh, sure you've read lots “pretty little lies” about the financial storm roiling the Grand Traverse Academy—and some big, ugly ones, too.
Let's look back: Grand Traverse Academy board president Lesley Werth claimed that a new offer from the PNC Bank – also “in conjunction with the MFA” – would allow officials to pay back the debt and keep the school afloat; superintendent Susan Dameron asserted “We’re rockin’ and rollin’. … We’re feeling so good about our financial picture right now and the direction that we’re headed in.”; and board treasurer Samer Bourdkani making this ludicrous claim: “If we don’t pay the state aid to Traverse City State Bank, they’re allowed to intercept our state aid coming in from the state and take it until the (debt) is satisfied.”
The new loan, described in the Security Report as a “cash flow” note, was not made in conjunction with the Michigan Finance Authority as Lesley Werth claimed.
Instead, the Treasury department was not involved as a partner in the loan, but in its proper legal oversight role for municipal securities issued in Michigan.
In addition, the current financial picture at the Grand Traverse Academy is hardly the 60's soundtrack described by the school's superintendent: in order to strike a deal with the charter school, its investment advisor, R. W. Baird, required the additional security of a state aid intercept agreement.
Fearing the Grand Traverse Academy would be unable to pay in full the monthly principal and interest on the September 2017 note when due, Baird arranged for the intercept agreement between the Academy and its lender, PNC Bank, to be included in the deal.
And those $97,000 monthly payments (plus interest), shown below, begin on November 20, 2017 and run through July 20, 2018—ending with an August 20, 2018 $1,521,227.65 balloon payment.
Here's an excerpt of that June 30, 2017 resolution:
So why all the secrecy, and misleading public statements?
The Grand Traverse Academy can never be honest about its finances, as it would then be forced to admit the cause of the current crunch: allowing its former manager, Steven Ingersoll, to get away with stealing nearly $5.0 million dollars—and not lifting a finger to get any of that money back.
Nothing.