Paterson Charter School for Science and Technology:
Related-Party Deals
November 3, 2013
Paterson Charter School for Science and Technology (PCSST) is a publicly-funded Gulen-affiliated charter school in Paterson, New Jersey. Evidence of its Gulen connections can be seen on here and here. The school was placed on probation in 2007. PCSST currently has two campuses, at 276 Wabash Avenue for grades K-6, and at 764 Eleventh Avenue for grades 7-12.
In 2011-12, PCSST had 733 students. This grew to 1039 in 2012-13, because of expansion of the elementary grades.
PCSST's academic performance has not been impressive. A May 26, 2012 Bergen Record piece headlined "City charter school makes higher education its mission" based its optimistic perspective partly on PCSST increasing its average SAT scores from 365 to 420 (math) and 372 to 402 (verbal). The problem is, the "improved" scores are still quite low, well below what is considered college-ready. PCSST's 2010 Annual Report, under a list of "Colleges and universities to which the students were accepted," names, among others, "Capri Institute of Hair Design" and "Parisian Beauty Academy."
Thirty million dollars in New Jersey bonds in 2012
Apple Educational Services, via its subsidiary Railway Avenue Properties, obtained a total of $30,000,000 in (mostly) tax-exempt bonds in 2012, for facilities that it leases or is planning to lease to PCSST:
New Jersey Economic Development Authority Charter School Revenue Bonds
"Paterson Charter School for Science and Technology Inc. Project"
$11,590,000 Series 2012 A (tax-exempt)
$355,000 Series 2012 B (taxable)
$17,770,000 Series 2012 C (tax-exempt)
$285,000 Series 2012 D (taxable)
It is important to note that the borrower on this 30 million is not the school itself. The borrower is Railway Avenue Properties, which leases buildings to the school.
PCSST's total revenue in 2011-12 was $15,084,521. The total bond amount is therefore approximately twice the school's annual revenue.
The following two links give detailed documents on these bonds:
http://www.mcelweequinn.com/system/files/job-pdfs/2012_njeda_patersoncharterschool_os.pdf
http://www.mandq.biz/system/files/job-pdfs/2012_patersoncharterschool_os.pdf
Apple Educational Services, via its subsidiary Railway Avenue Properties, obtained a total of $30,000,000 in (mostly) tax-exempt bonds in 2012, for facilities that it leases or is planning to lease to PCSST:
New Jersey Economic Development Authority Charter School Revenue Bonds
"Paterson Charter School for Science and Technology Inc. Project"
$11,590,000 Series 2012 A (tax-exempt)
$355,000 Series 2012 B (taxable)
$17,770,000 Series 2012 C (tax-exempt)
$285,000 Series 2012 D (taxable)
It is important to note that the borrower on this 30 million is not the school itself. The borrower is Railway Avenue Properties, which leases buildings to the school.
PCSST's total revenue in 2011-12 was $15,084,521. The total bond amount is therefore approximately twice the school's annual revenue.
The following two links give detailed documents on these bonds:
http://www.mcelweequinn.com/system/files/job-pdfs/2012_njeda_patersoncharterschool_os.pdf
http://www.mandq.biz/system/files/job-pdfs/2012_patersoncharterschool_os.pdf
Which properties are involved
The $11,945,000 in Series A and B bonds were for Railway Avenue Properties' acquisition of the site at 276 Wabash Ave, Paterson NJ, the current location of PCSST's elementary campus.
The $18,055,000 in Series C and D bonds is for Railway Avenue Properties' acquisition and renovation of a site at 196 West Railway Avenue, Paterson NJ. Evidently there is a plan to move the school to this site at some point.
According to the Bergen Dispatch, the property at 196 West Railway Avenue was last sold for $3,500,000 on September 26, 2012, to Railway Avenue Properties, LLC. In 2013, the land was assessed at $764,500, and the improvements were assessed at $2,813,800.
The $11,945,000 in Series A and B bonds were for Railway Avenue Properties' acquisition of the site at 276 Wabash Ave, Paterson NJ, the current location of PCSST's elementary campus.
The $18,055,000 in Series C and D bonds is for Railway Avenue Properties' acquisition and renovation of a site at 196 West Railway Avenue, Paterson NJ. Evidently there is a plan to move the school to this site at some point.
According to the Bergen Dispatch, the property at 196 West Railway Avenue was last sold for $3,500,000 on September 26, 2012, to Railway Avenue Properties, LLC. In 2013, the land was assessed at $764,500, and the improvements were assessed at $2,813,800.
Related-party deals
As noted on another page on this site, the affiliation of Paterson Charter School for Science and Technology with the Gulen Movement is even admitted on Fethullah Gulen's official website. Our page on Apple Educational Services shows that this foreign corporation is also affiliated with the Gulen Movement. As noted there, Apple is providing services to every Gulen charter school in the northeastern US, and is even linked to Gulen charter schools in the mid-Atlantic states (Maryland, North Carolina). Apple is also closely related to other Gulenist corporations contracting to these charter schools. This is a tightly-knit web of related-party deals that spans a number of states.
Apple Educational Services' leases to Buffalo Academy of Science Charter School and its contracting to Syracuse Academy of Science Charter School have been faulted in critical audits by the New York State Comptroller. Its related-party deals with Pioneer Charter School of Science in Massachusetts were mentioned in a Boston Globe 2013 article (see the page on Apple Educational Services for details).
Bond documents show Kemal Aydin as President of the Board of Trustees of PCSST; this affiliation is also documented in minutes of the school board meetings.
At the same time, a document from the New Jersey Economic Development Authority, dated July 12, 2012, states that:
"The sole member of Railway Avenue Properties, LLC is Apple Educational Services, Inc. ('AES'), a 501 (c)(3) organization, which collaborates with charter schools and other educational institutions to enhance educational opportunities and improve the quality of education for youth and adults in the U.S. AES has provided supplemental education services to about 30 schools in 9 states in different capacities. Kemal Aydin is the President."
This dual role of Kemal Aydin as president of PCSST and Apple Educational Services represents a major conflict of interest, since Apple is leasing facilities to PCSST.
Even apart from this, it is clear that Apple Educational Services' leasing and other contracting to Gulen charter schools, including PCSST, amounts to millions of dollars in related-party deals.
As noted on another page on this site, the affiliation of Paterson Charter School for Science and Technology with the Gulen Movement is even admitted on Fethullah Gulen's official website. Our page on Apple Educational Services shows that this foreign corporation is also affiliated with the Gulen Movement. As noted there, Apple is providing services to every Gulen charter school in the northeastern US, and is even linked to Gulen charter schools in the mid-Atlantic states (Maryland, North Carolina). Apple is also closely related to other Gulenist corporations contracting to these charter schools. This is a tightly-knit web of related-party deals that spans a number of states.
Apple Educational Services' leases to Buffalo Academy of Science Charter School and its contracting to Syracuse Academy of Science Charter School have been faulted in critical audits by the New York State Comptroller. Its related-party deals with Pioneer Charter School of Science in Massachusetts were mentioned in a Boston Globe 2013 article (see the page on Apple Educational Services for details).
Bond documents show Kemal Aydin as President of the Board of Trustees of PCSST; this affiliation is also documented in minutes of the school board meetings.
At the same time, a document from the New Jersey Economic Development Authority, dated July 12, 2012, states that:
"The sole member of Railway Avenue Properties, LLC is Apple Educational Services, Inc. ('AES'), a 501 (c)(3) organization, which collaborates with charter schools and other educational institutions to enhance educational opportunities and improve the quality of education for youth and adults in the U.S. AES has provided supplemental education services to about 30 schools in 9 states in different capacities. Kemal Aydin is the President."
This dual role of Kemal Aydin as president of PCSST and Apple Educational Services represents a major conflict of interest, since Apple is leasing facilities to PCSST.
Even apart from this, it is clear that Apple Educational Services' leasing and other contracting to Gulen charter schools, including PCSST, amounts to millions of dollars in related-party deals.
A direct financial connection to the Gulen Movement
Bond documents indicate that the "PCSST Project" Series A/B bond deal was conditional on a threeway agreement between Railway Avenue Properties (=Apple Educational Services), Milkyway (misspelled as "Milky Way") Education Center, and PCSST. Milkyway was to sell the property to Railway Avenue Properties, which would then lease it to PCSST:
"This lease shall be contingent, and only become effective, upon the closing and transfer of title of the premises to landload pursuant to the terms of that certain contract of sale between landlord and Milky Way Education Center, Inc. dated January 6, 2012 (the 'Contract')."
Milkyway Education Center operates Pioneer Academy of Science, a private school in New Jersey known to be affiliated with the Gulen Movement. Pioneer Academy of Science is a member of the Turkic American Alliance, the umbrella organization for the Gulen Movement in the US (see this page for evidence of the connection). Its Gulen affiliation has been mentioned in several academic studies, and is furthermore shown by the Gulenist affiliations of many individuals tied to the school (see this page). Erkan Acar (a.k.a. Ercan Acar), who has stayed at the Golden Generation complex where Fethullah Gulen himself resides, wrote his PhD thesis on Pioneer Academy of Science; the title is "A Case Study of a Gulen-Inspired School in the US." (Acar appears in a Pocono Record photo with caption "Sipping tea and chatting after lunch at the Golden Generation Worship and Retreat Center in Saylorsburg are, from left, Kemal Ozgur, Erkan Acar, Bekir Aksoy, and Sal Dincer. Photo By: David Kidwell/Pocono Record.")
PCSST's lease from Milkyway, and the bond deal in which its facilities are purchased form Milkyway and then leased to PCSST, therefore represent a direct financial conduit from a publicly-funded Gulen charter school to the Gulen Movement.
Milkyway's Form 990s have the following answers to the question "State the name, physical address, and telephone number of the person who possesses the books and records of the organization."
IRS Form 990 for year ending June 30, 2008:
"ORGANIZATION 6975 LEHIGH AVE PATERSON NJ 07503"
IRS Form 990 for year ending June 30, 2009:
"ORGANIZATION 6975 LEHIG Clifton NJ 07011"
This is significant because at the time, Milkyway was leasing the 6975 Lehigh Avenue site to PCSST (see below). The fact that it still considered this address to belong to Milkyway and that its accounting books were kept there is one illustration of the close relationship between Milkyway and PCSST.
Milkyway's 2008 Form 990 states:
"The loan is secured by a first mortgage on real property and improvements located at 69-75 Lehigh Avenue, Paterson, New Jersey and a first assignment of all present and future rents and leases regarding these premises, which are leased by the Paterson Charter School for Science and Technology as discussed in Note 3."
"In May, 2008, the School entered into a five-year lease agreement with renewal terms for an additional five years with the Paterson Charter School for Science and Technology at an average annual rent of $931,600. The rent for the years ended June 30, 2009 and June 30, 2008 was $917,750 and $641,250, respectively."
Note the almost 50% increase in rent in one year, at a time when the US economy was in a deep recession. It is unknown whether this rent increase could be justified by any major improvements to the facilities.
The IRS Form 990 for Milkyway Education Center for the year ending June 30, 2009 shows what appears to be a payment, with name "Kemal Aydin (Clover Business Services)" in the amount of $22,200.00. If this is indeed a payment (the document is ambiguous), then there is an additional conflict of interest in that Aydin was receiving money from Milkyway at the same time that he, as Board President of PCSST, was responsible for the school's lease from Milkyway.
One additional detail merits mention. The same Milkyway IRS Form 990 shows what appears to be a payment of 27,550.00 to Armagan Tanir. This is, with virtual certainty, the same Armagan Tanir mentioned in a July 21, 2012 Bergen Record article:
"Armagan Tanir, 42, of Little Falls is charged with conspiracy to defraud the United States, trying to obstruct the Internal Revenue Service, four counts of submitting false tax returns and other charges, according to U.S. Attorney Preet Bharara in the Southern District of New York."
(This federal tax fraud case also involved Gulenist Adem Arici.)
Bond documents indicate that the "PCSST Project" Series A/B bond deal was conditional on a threeway agreement between Railway Avenue Properties (=Apple Educational Services), Milkyway (misspelled as "Milky Way") Education Center, and PCSST. Milkyway was to sell the property to Railway Avenue Properties, which would then lease it to PCSST:
"This lease shall be contingent, and only become effective, upon the closing and transfer of title of the premises to landload pursuant to the terms of that certain contract of sale between landlord and Milky Way Education Center, Inc. dated January 6, 2012 (the 'Contract')."
Milkyway Education Center operates Pioneer Academy of Science, a private school in New Jersey known to be affiliated with the Gulen Movement. Pioneer Academy of Science is a member of the Turkic American Alliance, the umbrella organization for the Gulen Movement in the US (see this page for evidence of the connection). Its Gulen affiliation has been mentioned in several academic studies, and is furthermore shown by the Gulenist affiliations of many individuals tied to the school (see this page). Erkan Acar (a.k.a. Ercan Acar), who has stayed at the Golden Generation complex where Fethullah Gulen himself resides, wrote his PhD thesis on Pioneer Academy of Science; the title is "A Case Study of a Gulen-Inspired School in the US." (Acar appears in a Pocono Record photo with caption "Sipping tea and chatting after lunch at the Golden Generation Worship and Retreat Center in Saylorsburg are, from left, Kemal Ozgur, Erkan Acar, Bekir Aksoy, and Sal Dincer. Photo By: David Kidwell/Pocono Record.")
PCSST's lease from Milkyway, and the bond deal in which its facilities are purchased form Milkyway and then leased to PCSST, therefore represent a direct financial conduit from a publicly-funded Gulen charter school to the Gulen Movement.
Milkyway's Form 990s have the following answers to the question "State the name, physical address, and telephone number of the person who possesses the books and records of the organization."
IRS Form 990 for year ending June 30, 2008:
"ORGANIZATION 6975 LEHIGH AVE PATERSON NJ 07503"
IRS Form 990 for year ending June 30, 2009:
"ORGANIZATION 6975 LEHIG Clifton NJ 07011"
This is significant because at the time, Milkyway was leasing the 6975 Lehigh Avenue site to PCSST (see below). The fact that it still considered this address to belong to Milkyway and that its accounting books were kept there is one illustration of the close relationship between Milkyway and PCSST.
Milkyway's 2008 Form 990 states:
"The loan is secured by a first mortgage on real property and improvements located at 69-75 Lehigh Avenue, Paterson, New Jersey and a first assignment of all present and future rents and leases regarding these premises, which are leased by the Paterson Charter School for Science and Technology as discussed in Note 3."
"In May, 2008, the School entered into a five-year lease agreement with renewal terms for an additional five years with the Paterson Charter School for Science and Technology at an average annual rent of $931,600. The rent for the years ended June 30, 2009 and June 30, 2008 was $917,750 and $641,250, respectively."
Note the almost 50% increase in rent in one year, at a time when the US economy was in a deep recession. It is unknown whether this rent increase could be justified by any major improvements to the facilities.
The IRS Form 990 for Milkyway Education Center for the year ending June 30, 2009 shows what appears to be a payment, with name "Kemal Aydin (Clover Business Services)" in the amount of $22,200.00. If this is indeed a payment (the document is ambiguous), then there is an additional conflict of interest in that Aydin was receiving money from Milkyway at the same time that he, as Board President of PCSST, was responsible for the school's lease from Milkyway.
One additional detail merits mention. The same Milkyway IRS Form 990 shows what appears to be a payment of 27,550.00 to Armagan Tanir. This is, with virtual certainty, the same Armagan Tanir mentioned in a July 21, 2012 Bergen Record article:
"Armagan Tanir, 42, of Little Falls is charged with conspiracy to defraud the United States, trying to obstruct the Internal Revenue Service, four counts of submitting false tax returns and other charges, according to U.S. Attorney Preet Bharara in the Southern District of New York."
(This federal tax fraud case also involved Gulenist Adem Arici.)
New Jersey charter school law requires using "lowest responsible bidder"
Related-party deals with insufficient documentation that they involved the lowest bidder may violate New Jersey law. In the bond documents, it is clear that Railway Avenue Properties is acquiring properties with the prior intent of leasing them to PCSST. How, then, can taxpayers be assured that these leases satisfy the lowest bidder requirement?
New Jersey bidding law is explained in a 2011 document available at the website of Build With Purpose, a non-profit that assists charter schools with facilities:
" If so, when are charter schools required to comply with New Jersey public bidding laws?
Every contract by the board of trustees of a charter school for the performance of goods or services, the cost of which in the aggregate exceeds the bid threshold amount (currently $21,000), must be awarded to the lowest responsible bidder after public advertising for bids and bidding in accordance with the Public School Contracts Law. The public contracting rules apply whether or not charter schools own the property on which the school is operated at the time of the bid."
Related-party deals with insufficient documentation that they involved the lowest bidder may violate New Jersey law. In the bond documents, it is clear that Railway Avenue Properties is acquiring properties with the prior intent of leasing them to PCSST. How, then, can taxpayers be assured that these leases satisfy the lowest bidder requirement?
New Jersey bidding law is explained in a 2011 document available at the website of Build With Purpose, a non-profit that assists charter schools with facilities:
" If so, when are charter schools required to comply with New Jersey public bidding laws?
Every contract by the board of trustees of a charter school for the performance of goods or services, the cost of which in the aggregate exceeds the bid threshold amount (currently $21,000), must be awarded to the lowest responsible bidder after public advertising for bids and bidding in accordance with the Public School Contracts Law. The public contracting rules apply whether or not charter schools own the property on which the school is operated at the time of the bid."
These "charter school" bonds are in fact a taxpayer-funded subsidy to a private, foreign corporation
It is important to note that while the bond project is named after the PCSST school, the actual borrower is a private, foreign corporation, Apple Educational Services, via its subsidiary "Railway Avenue Properties."
Apple is benefiting from the bonds by getting a lower-than-normal interest rate on the debt. Because the amount borrowed is in the millions, the savings in interest is substantial.
Charter school bonds are a complicated, indirect way in which taxpayers subsidize a private corporation. Here is a simplified explanation:
1. Apple Educational Services gains by borrowing millions of dollars at a lower-than-market interest rate.
2. Investors that loan this money gain by being exempt from federal and state taxes on their interest income.
3. Both the US and NJ governments lose tax revenue (that they would have gotten on the interest income), a loss that is passed on to the general public.
Taxpayers should bear in mind that when the government gives tax breaks to a private corporation, this does not mean that budgets are reduced by that amount. In other words, the government will still obtain that tax money elsewhere - that is, from all other taxpayers. Taxpayers should therefore only support corporate tax breaks when there is a clear benefit to the public.
Unless Apple's reduced interest payments on its loan are truly being passed on to PCSST in the form of below-market lease payments, there is no discernible benefit to the public from these bond deals.
Furthermore, Apple bought the site at 196 West Railway Avenue for $3,500,000, yet has obtained $18,055,000 in bond funds to acquire and renovate this property. The bonds will be paid off with PCSST's operating funds. (The bond document states: "The Borrower [=Apple] is a single purpose entity and is entirely dependent on payments from the School under the Lease Agreement to make payments under the Loan Agreement.") The bond amount of $18,055,000 is six times greater than the purchase price. Only part of this can be attributed to debt service. If most of this difference is due to the renovations that will be made, then Apple, a private corporation, is going to end up with a property worth perhaps up to 6 times its purchase price, with the improvements paid entirely with public school operations funds.
It is important to note that while the bond project is named after the PCSST school, the actual borrower is a private, foreign corporation, Apple Educational Services, via its subsidiary "Railway Avenue Properties."
Apple is benefiting from the bonds by getting a lower-than-normal interest rate on the debt. Because the amount borrowed is in the millions, the savings in interest is substantial.
Charter school bonds are a complicated, indirect way in which taxpayers subsidize a private corporation. Here is a simplified explanation:
1. Apple Educational Services gains by borrowing millions of dollars at a lower-than-market interest rate.
2. Investors that loan this money gain by being exempt from federal and state taxes on their interest income.
3. Both the US and NJ governments lose tax revenue (that they would have gotten on the interest income), a loss that is passed on to the general public.
Taxpayers should bear in mind that when the government gives tax breaks to a private corporation, this does not mean that budgets are reduced by that amount. In other words, the government will still obtain that tax money elsewhere - that is, from all other taxpayers. Taxpayers should therefore only support corporate tax breaks when there is a clear benefit to the public.
Unless Apple's reduced interest payments on its loan are truly being passed on to PCSST in the form of below-market lease payments, there is no discernible benefit to the public from these bond deals.
Furthermore, Apple bought the site at 196 West Railway Avenue for $3,500,000, yet has obtained $18,055,000 in bond funds to acquire and renovate this property. The bonds will be paid off with PCSST's operating funds. (The bond document states: "The Borrower [=Apple] is a single purpose entity and is entirely dependent on payments from the School under the Lease Agreement to make payments under the Loan Agreement.") The bond amount of $18,055,000 is six times greater than the purchase price. Only part of this can be attributed to debt service. If most of this difference is due to the renovations that will be made, then Apple, a private corporation, is going to end up with a property worth perhaps up to 6 times its purchase price, with the improvements paid entirely with public school operations funds.
Need for investigation
There is an urgent need for New Jersey state auditors to investigate PCSST's related-party deals and the bonds it has been involved with.
New Jersey journalists would also do the public a great service by reporting on how the Gulen Movement is benefiting financially from PCSST.
There is an urgent need for New Jersey state auditors to investigate PCSST's related-party deals and the bonds it has been involved with.
New Jersey journalists would also do the public a great service by reporting on how the Gulen Movement is benefiting financially from PCSST.