PARADISE ISLAND, Bahamas On a sun-drenched weekend in September, a group of South Florida charter school principals jetted off to a leadership retreat at The Cove, an exclusive enclave of the Atlantis resort. A Friday morning meeting gave way to champagne flutes, a dip in the pool and a trip down a waterslide. The evening ended at the casino.
Leading the toast by the pool: Fernando Zulueta, the CEO of Academica Corp., which manages the principals schools.
Zulueta had reason to cheer. During the past 15 years, Zulueta and his brother, Ignacio, have built Academica into Floridas largest and richest for-profit charter school management company, and one of the largest in the country. In Miami-Dade and Broward counties, Academica runs more than 60 schools with $158 million in total annual revenue and more than 20,000 students more pupils than 38 Florida school districts, records show.
Academicas schools consistently get high marks for academic achievement, with some schools earning national recognition. Mater Academy Charter High in Hialeah Gardens is considered among the nations best high schools by U.S. News & World Report, and recently won the College Board Inspiration Award.
And despite recent cuts in state funding for public and charter schools, Academicas schools have prospered financially: One of its chains of nonprofit schools has assets of more than $36 million, the company says.
Academicas achievements have been profitable. The South Miami company receives more than $9 million a year in management fees just from its South Florida charter schools fees that ultimately come from public tax dollars.
But the Zuluetas greatest financial success is largely unseen: Through more than two dozen other companies, the Zuluetas control more than $115 million in South Florida real estate all exempt from property taxes as public schools and act as landlords for many of Academicas signature schools, records show.
These companies collected about $19 million in lease payments last year from charter schools with nine schools paying rents exceeding 20 percent of their revenue, records show.
Academica has fostered a close-knit culture among its schools, recruiting principals and teachers who rarely leave the ranks and are often promoted from one Academica school to another though the staffers technically work for their respective schools, not for the management company.
But the principals play another crucial role: Several also serve as board members at other Academica schools, where they approve and oversee Academicas management contracts and the real-estate leases including the leases with the Zulueta companies.
Zulueta says the schools and their boards are all independent and free of Academica control, and any real-estate deals with his other companies are done at arms length and at fair market value.
We take our cue from what the boards mission is, Zulueta said. The [school] principals dont report to Academica.
The big four
Academicas reach extends from Florida to Georgia, Texas, Nevada, Utah and California, where the company also manages charter schools. But Academica is best known for managing four prominent school networks in Miami-Dade and Broward counties: the Mater Academies, the Somerset Academies, the Doral Academies and the Pinecrest Academies.
In the 2010-11 school year, these four chains had 44 South Florida schools with about 19,000 students.
Each network of schools is run by a nonprofit corporation, which in turn is run by a volunteer governing board. These boards set policy for the schools, and also approve the management contracts and property leases including the land deals with the Zulueta companies. While the teachers and principals work for the nonprofits, Academica routinely vets personnel and recommends principals from within its stable of schools.
In addition to the principals, the governing boards have also included people tied to Academica or Zulueta in other ways.
For example, the current head of the Somerset Academy board is Andreina Figueroa, a lobbyist who represents the Florida Consortium of Public Charter Schools, a pro-charter association that includes Zulueta as an officer. Since 2010, Figueroas consulting firm has earned more than $110,000 representing the consortium in Tallahassee, state records show.
Figueroa said she does not believe the arrangement with the consortium poses a conflict. She said she has worked for the consortium as a subcontractor through another lobbying firm, and that contract ended in August.
My work advocating for charter schools does not create a conflict with my role as a Somerset board member, Figueroa said in an email to The Miami Herald. My desire to be involved as a board member stemmed from my personal experience as the sister of a charter school graduate and as a charter school parent.
In the past, the Miami-Dade school district has criticized the board arrangements at some Academica schools, saying the principals dual roles created weak governance and potential conflicts at one school network.
In 2007, school district auditors asked the Miami-Dade state attorneys office to investigate a 2003 construction contract to build the Mater Academy Charter High facilities after learning that the contractor, Alejandro Remos, also served on Maters board when the $5.8 million contract was approved, records show. It was unclear from prosecutors records whether Remos voted on the contract.
Auditors called Remos two roles a serious conflict of interest. Remos denied wrongdoing, and no charges were ever filed.
Around the same time, school district auditors also questioned the ties among Mater High, the Zulueta brothers, and the schools corporate landlord.
Since 2004, Mater High has leased its property from a company called School Development HG II LLC, records show. At the time the lease was approved, Zuluetas brother was the managing member of a Panamanian company that owned the land company, records show.
The Zuluetas denied any wrongdoing in the Mater deals, and dismissed the districts investigation as flawed. They said that they had no ownership stake with the land company at the time the lease was approved though they control that company today and they said the lease costs were fair.
Two years later, a Miami-Dade prosecutor interviewed a former Mater board member, Ruth Jacoby, about her knowledge of the Zuluetas land deals, records show. When asked about another Zulueta lease approved by the Mater board while she had been a member, Jacoby replied: I dont know anything about it.
Jacoby is currently the director of education for the Somerset Academies, also run by Academica.
In the 2009-10 school year, Mater High paid the Zuluetas company more than $1.9 million in rent, records show. The school property is now worth more than $19 million.
Despite the criticism, the Zuluetas have repeated this business strategy across Miami-Dade and Broward counties. Through similar arrangements, the Zuluetas control more than 20 land companies doing business with Academica schools. These companies received about $19 million in lease payments in 2010, records show.
Zulueta said he and his brother hold a controlling interest in the land companies. The businesses also have minority investors, whom he declined to name.
On average, schools leasing Zulueta-controlled properties in 2010 paid higher rents than Academica schools with independent landlords, according to a Miami Herald review of the schools financial audits. Academica schools renting from Zulueta companies paid an average rent of 16 percent of their income, while other Academica schools paid an average of 11 percent, records show.
One reason for the disparity: The Zuluetas former real-estate developers before going into the charter school business bought and built many properties during the boom years of the mid-2000s, when land and construction costs were high. The lower-cost Academica schools are located in older, less-expensive facilities, including several schools leased from the Catholic archdiocese.
Zulueta said he was forced to provide the land for the schools because the charters could not get land or financing on their own a common problem for charter schools, which often lose money during their first few years, scaring off lenders.
If I didnt do it, it couldnt get done, Zulueta said.
Academica pays for the construction of its schools in part through bonds sold to Wall Street investors. An Academica subsidiary issued $54 million in bonds in 2004, using mortgages on the school campuses to secure the debt. In 2009 the Wall Street rating agency Standard & Poors rescinded its rating of the Academica bonds, citing a lack of information on the company.
Zulueta said he could not recall if any school governing board had ever asked for details about the profits generated by the leases. I dont think they care, he said.
All lease deals between Zuluetas companies and the schools are first reviewed by independent appraisers, and the schools must hire outside attorneys to help them negotiate the contracts, Zulueta said. Since 2007, Zulueta has repeatedly disclosed his interest in the land deals to the boards of the schools, according to records of the governing board meetings.
The board is well aware that Mr. Zulueta has an interest in some properties leased by the Somerset schools, Figueroa said. The schools lease those properties at fair market value.
The different Academica chains all rely on the same company to perform the property appraisals. And many schools have used the same attorney to negotiate the leases with the Zulueta land companies.
That attorney, Charles Gibson, also has ties to Academica, records show. Gibson is on the board of the Theodore R. and Thelma A. Gibson Charter School in Overtown an Academica-run school founded by Gibsons grandparents. The school has received $415,000 in grants and loans from Academica, records show.
Gibson said all the leases have been negotiated at arms length, and his unpaid, volunteer position on the schools board does not cause a problem. I get no personal gain out of it, he said.
Though some Academica schools paid rents as high as 23 percent of their revenue in 2010 higher than the average rent of 13.5 percent for Miami-Dade and Broward charter schools last year the companys schools almost always make more money than they spend.
The Mater Academy chain, with 16 schools, has stockpiled assets of more than $36 million now held by the nonprofit corporation, records show. The Somerset Academy chain, with 28 schools in three states, has assets of $25 million, the management company says. The money is controlled by the schools.
Academica deploys a team of accountants, lawyers and education experts to help these schools make money while sustaining academic standards. In this way, Academica stands out from much of the charter school industry in Florida, where one in four charter schools have closed.
You need to manage your finances very, very closely, said Zulueta, a lawyer and a former accountant. Im obsessive about that part of it. If you dont track it carefully, youll get killed.
An advisory role
Zulueta says Academica is nothing more than an advisor to its schools, and the governing boards at Mater, Doral, Somerset and Pinecrest all make independent decisions.
While the school networks are not formally affiliated, they have pursued similar agendas of expansion. In the past two years, the boards of Mater, Doral and Somerset have begun planning to open private colleges, and all four school networks have submitted plans for new facilities and virtual online schools, records show.
The different school networks sometimes share staffs, with teachers and principals migrating from one group of Academica schools to another and, in some cases, to Academicas staff. And the boards that oversee these school networks each include at least one principal from another Academica school.
For example, Judith Marty serves as the chairwoman of the board at Pinecrest Academy, while also working as the principal at Mater Academy Charter Middle/High. At Mater, Marty received a salary of almost $143,000 in 2010, plus almost $24,000 in bonuses for outstanding performance in 2009 and 2010, Zulueta said.
Marty said the volunteer boards recruit Academica principals because they try to seek people with educational expertise a task made difficult because the Miami-Dade school district discourages its employees from serving on charter boards.
Zulueta calls the reliance on other principals a best practice that encourages the different school chains to share ideas.
It must be an excellent practice because a lot of districts dont like it, Zulueta said.
But the principals and Academica managers are never far apart.
In September, Zulueta and other Academica staffers joined a group of principals at a leadership retreat at a Bahamas resort. In an interview in November, Zulueta said the trip was organized by the Mater Academy principals for strategic planning after the Mater schools were recognized as a school district by the Southern Association of Colleges and Schools. However, a Miami Herald reporter also observed principals from the Somerset and Doral academies on the trip.
The trip was also an opportunity for fun. A Herald reporter observed champagne flutes along with a copy of a Mater Academy PowerPoint presentation in a conference room at the resort after a Friday morning meeting. The reporter also observed Zulueta and the Academica principals sipping drinks one late morning at Cain, described on the Atlantis website as an adults-only ultra-pool with an outdoor gaming pavilion. That afternoon, members of the group sang and danced on the way to the waterslides. Just before midnight, some visited the casino.
Zulueta initially said the trip was paid for in part with a contribution from Academica, during the November interview. But last week after Herald reporters began asking questions of others about the trip he said he was mistaken, and the trip was paid for with other private funds of the schools.
Joseph Raia, an attorney for Mater Academy, said Tuesday that the Mater principals expenses were paid for with a $25,000 gift from ADP TotalSource, a company that provides payroll and other services for many Academica schools. ADP wanted to do something for these schools to support and recognize the good work they have done, Raia said. ADP executives could not be reached for comment Tuesday.
Its unclear how the expenses for the Doral and Somerset principals were paid. Zulueta stressed that no tax dollars were used, and said there was nothing inappropriate about the trip.
The Mater and Somerset schools did not provide records of the trip expenses.
Marty, who was among those on the Bahamas trip, said the retreat was created by principals for principals, and it allowed the principals to share information about new techniques and technologies.
I dont believe this trip created a conflict of any type. Academica did not pay my travel or hotel expenses, she said in an email to The Miami Herald.
John Schuster, spokesman for the Miami-Dade school district, said he could not comment on the specifics of the Bahamas trip, because the district has not been made aware of it. But the district does have the authority to audit charter schools if the district receives a complaint.
Of course, we do not have the right to audit a for-profit management company, Schuster added.
Eye on the future
Zulueta sees the Academica school networks as part of an emerging new phenomenon in education, citing the schools test scores and national accolades for many Academica schools as proof of this phenomenons success.
Its a phenomenon that promises to grow larger: In Miami-Dade alone, Academicas schools have 30 new charter school applications awaiting review, including nine under consideration by the Miami-Dade School Board on Wednesday.