R.I.’s charter schools face an ethical dilemma: Should they keep millions in federal loans that traditional districts can’t get?

Achievement First charter school in Providence.David Goldman/Associated Press

PROVIDENCE – When board members for The Learning Community charter school in Central Falls convened a meeting over Zoom last week, there was only one topic on the agenda: a discussion about whether to accept a $1.3 million low-interest federal loan designed to help cover employee salaries in the face of the global pandemic.

The board found itself facing an ethical dilemma.

On one hand, it’s the fiduciary responsibility of nonprofit board members to make the best financial decisions possible for their organizations, and a looming education funding crisis for state governments threatens to harm all public schools, not just charters.

On the other hand, traditional public schools aren’t eligible for loans through the Small Business Administration’s Paycheck Protection Program, and accepting the money would open charters to the common criticism that they play by different rules.

The board ultimately voted to return its loan, but other charter schools in Rhode Island – and across the country – have chosen to keep the money. While all eyes have been on the coronavirus, the state’s normally tight-knit charter school community has been quietly debating the issue for more than a month, and officials are divided on the right approach.

“That was painful,” said Hillary Salmons, a prominent nonprofit leader who sits on The Learning Community’s board, following a 90-minute debate.

Small businesses and nonprofits have received hundreds of billions of dollars in low-interest loans since Congress approved the Paycheck Protection Program in March. Businesses that have 500 or fewer employees are eligible for the 1 percent interest loans, which can be forgiven if the proceeds are used to retain or rehire workers.

In many states, charter schools have sought and been approved for the loans, but critics have accused them of taking advantage of a program that bills itself as being designed for small businesses with few employees, like restaurants. Charter schools are publicly funded, so they still have revenue streams from state and local governments that other small businesses lack.

In Rhode Island, charter schools are 501(c)3 nonprofit organizations, which are eligible for PPP loans. By comparison, most charter schools in Massachusetts are considered government entities, and are not eligible for the program, according to a spokeswoman for the Massachusetts Charter Public School Association.

But Rhode Island leaders have repeatedly said they are considering all options for closing a massive budget shortfall next year, and Director of Administration Brett Smiley confirmed this week that could include significantly reducing the $1.3 billion that Governor Gina Raimondo proposed spending on schools in January.

So that uncertainty around future funding led some charter schools in the state to apply for the federal loans.

Board members for Blackstone Valley Prep, which runs several charter schools, voted this week to hold on to a $4 million PPP loan that the school had already received, even though several municipal leaders who serve on the board pushed the board to give the money back.

During a board meeting on Zoom Monday evening, Lincoln Town Administrator T. Joseph Almond said he didn’t believe the loan money was meant for charter schools. Cumberland Mayor Jeff Mutter argued that the school didn’t need the money because it continues to receive per-pupil funding from districts, as is required under state law.

“Has any sending district not made a payment to BVP? The answer is no,” Mutter said.

But Michael Magee, a board member and CEO of Chiefs for Change, a national nonprofit that trains reform-minded state and local school superintendents, said it was clear that Rhode Island has enough questions about future education funding to justify keeping the loan.

“Purely on the merits, is there still a significant amount of fiscal uncertainty that might require us to lay off employees?" Magee said. "I’d say the answer is clearly yes.”

The board ultimately voted to keep the money, but Central Falls Mayor James Diossa, who serves as Blackstone Valley Prep’s chairman, said that if the school doesn’t face state budget cuts, it should then return the money.

Other charter schools in the state have been split on whether to accept the money. Achievement First, a mayoral academy that primarily serves students in Providence, has held on to a $2.5 million loan because “we are very concerned about both public and private funding for next year,” according to Elizabeth Winangun, the organization’s director of external relations.

The uncertainty cuts both ways. Lawyers for different charter schools have offered different interpretations of the eligibility rules for the loans, while lobbyists have privately warned their clients that accepting the money could open them to criticism from teachers’ unions and lawmakers who already have a negative view of charter schools.

Marc Greenfield, an attorney who chairs the board for The Learning Community, said the concept and vision of the PPP program has “continued to be redefined since its inception,” which left the board in a precarious situation.

“We have come to believe that the PPP loans are intended for a more distinct or traditional nonprofit, and while we are technically a nonprofit, our primary identity, mission, and value is as a public school,” he said.

Keith Oliveira, executive director of Rhode Island League of Charter Schools, said at least nine of his 18 member schools have received a PPP loan or were considering applying for one. While The Learning Community and Kingston Hill Academy turned down their loans, the Nowell Leadership Academy decided to keep the $407,000 it received.

“We have had lengthy discussions with our member schools and have concluded that the decision to pursue such loans should be made by each school,” Oliveira said in a statement. “Each school must decide for itself what is in their school’s best interest.”

Jonathan E. Collins, an assistant professor of education and political science at Brown University, said charter schools can’t be faulted for taking advantage of their tax status, but he suggested that accepting the money undermines the argument that charters play by the same rules as traditional public schools.

The federal CARES act that was approved to provide relief from the coronavirus includes billions of dollars in the Elementary and Secondary School Education Relief Fund, but Collins said the use of PPP loans raises questions about whether traditional districts will be eligible for more support from the federal government going forward.

“The scariest part of this is I don’t know the answer,” Collins said.