Which Is Higher at BASIS Schools: Its AP Scores, or Its Debt?

On April 25, 2017, three BASIS charter schools located in Arizona have found themselves celebrated in US News and World Report for being US News’ top-rated high schools.

BASIS Scottsdale was ranked Number One.

Turns out that AP test scores matter much in the US News high-school-ranking system, and BASIS high schools require their students to take at least eight AP courses and six AP exams. In 2016, the average BASIS graduate took over 11 AP exams. BASIS contends that “AP exam scores are by no means the focus of our curriculum”; however, the same page boasts that “many BASIS.ed graduates take as many as 20 AP Exams.”

It sounds like BASIS is pretty AP-centered; even on its curriculum/diploma webpage, BASIS counts AP exams as “foundational for learning.”

And for all of its detail, the same curriculum/diploma webpage alludes to BASIS’s founders only in general terms: “founded by two economists.” No names.

Still, one can find those names on the BASIS “about” page:

Michael and Olga Block.

BASIS is a tough school; one gains this sense by reading the ~160 comments on the GreatSchools BASIS Scottsdale page. And for more on the BASIS school story/debate, one can read the back-and-forth between Network for Public Education (NPE) Executive Director Carol Burris and BASIS CEO Peter Bezanson (be sure to read the comments on Bezanson’s opinion piece, which connect to this Washington Post editorial by Burris).

What caught my attention in the above-noted BASIS Schools exchange is the back-and-forth over BASIS’s overhead and alleged financial struggles.

So, I read the BASIS Schools tax forms, which tell an interesting story about Michael and Olga Block and some of their extended family.

Now, let me mention that in 2013, I wrote about Arizona charters and the state’s soft “conflict of interest” guidelines. In Arizona, it’s pretty easy to make charter school operations a lucrative family affair.

Let me also add that when I read the GreatSchools comments about BASIS Scottsdale, the following comment about BASIS Scottsdale being used as a BASIS teacher training center caught my attention.

Posted by “a parent” on August 08, 2014, on the GreatSchools page for reviews of BASIS Scottsdale:

Last year, BASIS underwent a massive expansion with BASIS schools all over AZ, and some in other States. BASIS Corporate trains their teachers at BASIS Scottsdale, and then have them move to these new school, hence a higher turnover rate at BASIS Scottsdale. More recently, a huge blow to BASIS Scottsdale was Mr. Sullivan resigning! While, it’s a given that BASIS Students are considered cream of the crop, and no doubt they work harder than an average student, BASIS students suffer having these teachers leave (some even leaving middle if the school year!). The school is top notch with rigour and academic excellence – rated number 1 charter school in the US. No it’s not for everybody, and requires time, effort, and energy! We’ve been happy academically but very worried that one day, BASIS management will shoot itself in the foot and will compromise its standards! [Emphasis added.]

So, with the above in mind, I read the BASIS School (later BASIS Schools) tax forms and began to see the lucrative (and arguably fiscally problematic) unfolding of the BASIS Schools history and associated management.

I also delved into the LLC filings related to BASIS and Michael and Olga Block.

This is a long and (at some points, tedious) post. Moreover, the information contained in this post is well beyond suitable examination in a single blog entry. I only scrape a complex, confusing surface here, but in the end, one gains some notable information regarding the Blocks’ enriching themselves via BASIS.

Here we go.

BASIS School, Inc., became a nonprofit in November 1998. However, it seems that on the 2001 return, someone checked the “initial return” box then (possibly) erased it. At any rate, 2001 is the earliest BASIS tax return in my possession. (Note that the 2001 return lists property dating back to June 1998.)

BASIS School, Inc., has been filing annual reports with the State of Arizona since 1999. (Note that BASIS also has “independent schools,” which are organized as an LLC (limited liability company), and BASIS Global, also an LLC that shares the BASIS Independent Schools address.

It is also worth noting that members of an LLC cannot be held personally liable for company debts. From Investopedia:

The primary reason an LLC is selected as an ownership structure is to limit the principals’ personal liability. An LLC is often thought of as a blend of a partnership, which is a simple business formation of two or more owners under an agreement, and a corporation which is afforded certain liability protections. An LLC is a more formal partnership arrangement requiring articles of organization to be filed with the state. An LLC is much easier to set up than a corporation, and it provides more flexibility along with the protection. However, creditors may be able to pierce the corporate veil of an LLC in cases of fraud or when legal and reporting requirements haven’t been met.

As of December 2015, BASIS also has an LLC on file to manage its schools, BASIS Educational Group, LLC. (One can see this management group listed at the bottom of this BASIS Scottsdale school webpage, for example.) BASIS Educational Group has existed since 2009 (more to come on this history).

The managers of all of the BASIS entities are Michael and Olga Block, and BASIS Educational Group is no exception. However, it seems that one day before forming BASIS Educational Group in Arizona, the Blocks filed BASIS Educational Group as an LLC in Delaware (DE LLC search engine here)– and listed themselves as the managers of BASIS Educational Group in AZ (originally called BASIS MergeCo because that is exactly what the Blocks were doing: merging the DE and AZ LLCs).

One week later, on December 30, 2015, the BASIS MergeCo name in AZ was changed to BASIS Educational Group in AZ. Merge complete. (That same day, December 30, 2015, the Blocks formed yet another AZ LLC, ProEd Management. (I know. It’s a web greater than what I mention here. But that is what they want. LLCs begetting LLCs can make more money and hide it, as well.)

As for BASIS ED Group and BASIS MergeCo: Why two LLCs in two different states?

Answer: To give “ownership” of the AZ LLC to an out-of-state entity so that the Blocks can further hide their role as owners of the AZ LLC and just list themselves as “managers.”

In other words, the Blocks removed the “sole ownership” of BASIS Educational Group in AZ to BASIS Educational Group, LLC, in Delaware. What this DE LLC owning an AZ LLC allows is for the Blocks to conceal themselves as sole owners of BASIS Ed Group in AZ.

More to come on this LLC chase, which is very important because it is through BASIS Educational Group (later LLC) that the Blocks pull in the big money. But first, back to the BASIS School tax forms. (BASIS School tax form links can be found at the end of this post).

There is a money-making (and possibly greed-induced money-losing) history to follow here.

2001

In 2001, BASIS School, Inc. (located in Tucson), had over $1 million in revenue and almost as much in expenses. It ended 2001 with a net balance of $39,000.

In 2001, BASIS School, Inc., had a 3-member board: Olga Block, president; Michael Block, secretary/treasurer, and Lewis Solmon. Only Olga Block was compensated: $83,750.

January – June 2002

The 2002 return was filed only from January to June since BASIS School was apparently shifting to filing its returns by fiscal year. For these six months, total revenue was $660,000, and end of year net balance was $47,251. The board remained the same, with Olga Block being the only compensated member at $40,000 for six months.

FY2002 (July 2002 – June 2003)

For FY2002 (July 2002 – June 2003), BASIS School had $1.3 million in total revenue and an end-of-year net balance of $38,000. The board remained the same. Only Olga Block was paid ($90,000).

FY2003

The FY2003 BASIS School tax return is the first to use a Scottsdale address, which is curious since the next two years continue to use a Tucson address (it is the same nonprofit regardless of address).

This FY2003 return was filed in March 2005.

Total revenue: $2.4 million; end-of-year net balance: $40,577. The board has expanded to five individuals, with Olga Block now “CEO” ($90,000 plus $4,680 for benefits) and Michael Block as “COO” (chief operating officer) ($72,000 plus $3,744 for benefits). The books are in Olga Block’s care, at the Tucson address, which happens to be the current address for BASIS Tucson Primary.

There must be two schools at this point, for the “five highest paid employees” list only includes two school directors– one with the BASIS Tucson Primary address, and the other, with the same Scottsdale address as the FY2003 return.

No independent contractors are listed on the FY2003 return.

FY2004

In FY2004, total revenue was $3.1 million; end-of-year net assets were $124,000. No end-of-year negative balance yet. Back to using Tucson address. Same five board members; Olga Block as CEO ($103,000 plus $5,871 for benefits), and Michael Block, as COO/treasurer ($72,000 plus $4,104 for benefits).

Too, Michael Block was reimbursed $25,300 and Olga Block, $4,390, for “school related travel.”

“Five highest paid employees” includes both school directors (Tucson, Scottsdale) and one teacher (Scottsdale) (total compensation between $57,000 and $73,000).

FY2005

In FY2005, BASIS is still in the black: $3.7 million in total revenue; end-of-year net assets of $135,636. Michael and Olga Block still only paid board members (CEO Olga, $120,000 plus $12,577 for benefits; COO Michael, $96,000 plus $10,823 for benefits). Michael is also reimbursed $26,359 for “school related travel”; Olga is reimbursed $8,059 for the same.

And in FY2005, Michael and Olga Block begin employing their relatives. Michael Block’s son Robert is paid $13,769 for “IT services,” and Olga Block’s daughter, Michaela Vyborna, is paid $7,453 for “PR material design.”

FY2006

Spending cuts it a bit closer in FY2006: Total revenue is $5.1 million, and end-of-year net assets are only $23,000. The Blocks receive raises (CEO Olga: $150,000 plus $17,688 for benefits; COO Michael: $120,000 plus $14,958 for benefits). Michael is also reimbursed $24,675 for “school related travel”; Olga is reimbursed $7,261 for the same.

The board gains a couple more members working zero hours per week; only the Blocks are paid.

FY2006 also shows five school personnel named as the “five highest paid employees, one in Tucson and four in Scottsdale: three school directors, one school director assistant, and one master teacher; salaries range from $64,000 to $91,000, and benefits range from $9,900 to $12,300.

And more Block relatives are added to the payroll. Olga Block’s sister, Katerina, Schmidtova, is paid $36,893 for “accounting services (provided in Czech Republic)”; Olga Block’s daughter, Michaela Vyborna is paid $4,868 for “PR material design”; Michael Block’s son Robert is paid $8,500 in “employee compensation,” and Olga Block’s daughter, Petra Vyborna, is paid $2,550 in “employee compensation.”

FY2007

As for FY2007, total revenue is up ($7.4 million), but the end-of-year net balance is in the red for almost half a million dollars (-$480,000). (Note: The end-of-year net balance deficit is more clearly recorded on the FY2008 tax form as “prior year”).

Olga and Michael Block both get raises again (CEO Olga: $175,000 plus $20,082 for benefits; COO Michael: $140,000 plus $17,482 for benefits). Michael is also reimbursed $37,237 for “school related travel”; Olga is reimbursed $8,823 for the same.

The five highest paid employees are paid more, with salaries ranging from $75,000 to $97,000 and benefits ranging from $9,000 to $11,800 (note that salaries increased and benefit contribution decreased from FY 2006 to FY 2007).

Note also that in FY2007, the BASIS School tax return first includes a name listed under “five highest paid independent contractors for professional services”: Olga’s sister, Katerina Schmidtova, who “performs her services in Czech Republic via the internet,” is paid $61,461 for “accounting serv. and consultancy.”

In FY2007, Olga Block has two other relatives on the BASIS School payroll: Daughter Michaela Vyborna continues to be paid for “PR material design” ($2,255), and daughter Petra Vyborna is paid $23,634 in “employee compensation.”

FY2008

On to FY 2008. Total revenue is up slightly ($7.7 million), as it the negative end-of-year net balance (-$798,000).

And here comes an interesting development:

Both CEO Olga and COO Michael resign their paid positions on the BASIS School board effective May 25, 2009. For FY2008, Olga is paid $220,462 in total compensation, and Michael, $175,568 in total compensation. Michael remains on the BASIS School board as an unpaid “director,” and Olga leaves completely.

On the FY2008 tax form section entitled, “Business Transactions Involving Interested Persons,” Olga’s daughter, Petra Vyborna, is listed as receiving $19,000 for “employment,” and Olga’s sister, Katerina Schmidtova, is listed as receiving $53,047 for “accounting services (performed in Czech Repub.).”

FY2009

Sure enough, in FY2009, Olga Block is off of the BASIS School, Inc., board, and Michael Block is an uncompensated “director.” Total revenue is $9.2 million. And again, end-of-year net assets are in the hole: -$658,000.

And in FY2009, “Business Transactions Involving Interested Persons” takes a turn. No more Block relatives listed on the BASIS School tax form.

Instead, only one Block is listed as an “interested person,” and that is Michael Block, who received a total of $6.5 million for two reasons:

$1.8 million for “management fees.”

$4.7 million for… “leased employee costs.”

And there is the big money, folks: The Blocks formed a company to allow them to manage BASIS Schools– including charging fees for “leasing” employees to the BASIS schools. (On the FY2009 BASIS School tax form, the $4.7 million in employee leasing is designated as a “reimbursement paid to other organization for expenses.”)

Based upon the GreatSchools website comment about BASIS Scottsdale being a teacher training turnstile, it seems that BASIS Educational Group is using BASIS Scottsdale as some sort of leased-teacher training hub.

According to the Reference for Business, employee leasing programs are usually conducted through an “outside contractor”:

Employee leasing programs are arrangements in which businesses lease their employees through an outside contractor that attends to the various personnel-related activities commonly associated with human resources management.

So, in order to fill their pockets with potential millions instead of hundreds of thousands, Michael and Olga Block position themselves on some pseudo-“outside” in order to create a management and employee-leasing company.

It seems reasonable to assume that relatives benefiting from BASIS School money could be benefiting even more in association with the Blocks’ “outside” company: BASIS Educational Group.

BASIS Educational Group is identified as a “management delegated” entity on the FY2009 BASIS School tax form:

BASIS Educational Group is our educational management company which oversees all of our management duties.

Even though BASIS Educational Group is described as “an outside management company” in one section of the BASIS School FY2009 tax form, BASIS Educational Group has an address on the same street as BASIS School, Inc., and is also listed as a “related organization” on the BASIS School, Inc., FY2009 tax form.

(Beginning with the FY2010 BASIS School tax form, BASIS Educational Group’s address is in the same building in a neighboring suite.)

Outside or related? No, no: Outside and related.

Furthermore, BASIS Educational Group includes an EIN (employee identification number); however, it was never a nonprofit, and it has no record as being an LLC until December 2015.

The Blocks might not have been concerned about liability until 2015. Note that the BASIS School (later BASIS Schools), Inc., debt hits the millions in FY2012 and continues to rise.)

BASIS Educational Group has business status in 2009, and it collects $6.5 million from BASIS School, Inc.

BASIS Educational Group handsomely benefits Michael and Olga Block and whatever relatives might be employed by them.

On to FY2010.

FY2010

In FY2010, BASIS School’s total revenue rises notably: $14.3 million. (In FY2010, BASIS opens a new school: BASIS Oro Valley, which could account for the jump in revenue.) Its end-of-year net assets are still negative, but less so (-$25,604). BASIS Educational Group is listed as the only “independent contractor” for its management ($2.6 million).

The table summarizing Michael Block’s BASIS Educational Group receipts is incomplete: It notes that leased employee costs were paid but fails to note an amount.

FY2011

In FY2011, total revenue again makes a major jump, to $27.5 million, and BASIS School, Inc., was in the black at the end of the year: $762,664. (BASIS opens three new schools: BASIS Chandler, BASIS Peoria, and BASIS Flagstaff.)

Michael Block receives $5.2 million in management fees and $14.5 million for “leased employee cost.” BASIS Educational Group continues to be described as “an outside management company.”

FY2012

In FY2012, total revenue again soars: $35.3 million.

However, the negative end-of-year fund balance was now in the seven figures: -$2.1 million.

Michael Block collects $7.1 million in management fees and $18.6 million in leased employee costs.

BASIS School, Inc., changes its name to BASIS Schools, Inc.

FY2013

In FY2013, total revenue is up ($51.8 million), but not as high as total expenses ($56.3 million). Figure in last year’s deficit of -$2.1 million, and now, BASIS Schools has a FY2013 end-of-year fund balance of -$6.5 million.

Michael Block collects $9.1 million in management fees and $25.4 million for those leased employees.

Volunteers begin helping in the classrooms (for whatever reason).

FY2014

In FY2014, BASIS Schools’ total revenue is $68.5 million– and its total expenses are $72.7 million. Plus, there’s the previous deficit of -$6.5 million. Sooo, by the end of the year, BASIS Schools, Inc., has a fund balance of -$15.3 million.

Still, BASIS Schools pays BASIS Educational Group (AKA Michael and Olga Block) $10.5 million in management fees and $44.3 million in employee leasing costs.

Now, I do not have a breakdown on these employee leasing costs; however, what I do know is that through BASIS Educational Group, Michael and Olga Block are reaping some sort of fee or fees.

Moreover, BASIS Educational Group is not an outside company– it is an inbred company, and there is no indication that BASIS Schools was even in a position to consider any management option other than that of CEO Olga Block and COO Michael Block.

The Block company, BASIS Educational Group, was created specifically for BASIS schools.

Other BASIS Schools

Note that BASIS Educational Group (BEG) is also receiving management fees and leased employee costs from BASIS DC (BDC), which files its own returns as a related entity to BASIS Schools, Inc. Michael Block sits on the BDC board; his title is “agent of BEG– sole member”:

• BDC FY2012: $2.5 million (leased employee cost); $1.3 million (management fees)
• BDC FY2013: $3.1 million (leased employee cost); $1.5 million (management fee)
• BDC FY2014: $4.0 million (leased employee cost); $890,617 (management fee)

Too, BASIS San Antonio (BTX) is a related entity to BASIS Schools, Inc., and pays management fees to Basis Educational Group: $366,036 in FY2013, and $2.0 million in FY2014.

Back to that BASIS Schools, Inc., Growing, Negative End-of-Year Net Balance

Michael and Olga Block might not currently be calling themselves CEO and COO of BASIS Schools, but these two dominate the BASIS enterprise– and the BASIS enterprise is headed toward a fiscal crisis.

This is trouble, folks. No amount of US News and World Report recognition can remedy the BASIS Schools debt sinkhole. Shiny AP scores cannot fix this debt issue.

Irony straight from the BASIS Schools website:

Founded by two economists, from our earliest days our schools have been committed to the smart, network-wide use of student performance data. We hold ourselves ACCOUNTABLE to use the insights this data provides to sustain and improve learning outcomes for our students.

How about the data provided by BASIS Schools tax forms? Better home in on the *insight* to be had there.

And while we’re talking “insight”:

BASIS Schools were “founded by two economists”– the very same economists whose apparent financial self-interest could be the BASIS Schools fiscal undoing.

***

BASIS Schools, Inc., Tax Forms:

• BASIS School 2001 990
• BASIS School 2002 990
• BASIS School 2002B 990
• BASIS School 2003 990
• BASIS School 2004 990
• BASIS School 2005 990
• BASIS School 2006 990
• BASIS School 2007 990
• BASIS School 2008 990
• BASIS School 2009 990
• BASIS School 2010 990
• BASIS School 2011 990
• BASIS Schools 2012 990
• BASIS Schools 2013 990
• BASIS Schools 2014 990

BASIS DC tax forms:

• BDC 2012 990
• BDC 2013 990
• BDC 2014 990

BASIS San Antonio tax forms:

• BTX 2013 990
• BTX 2014 990

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Want to read about the history of charter schools and vouchers?

School Choice: The End of Public Education? 

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Schneider is a southern Louisiana native, career teacher, trained researcher, and author of two other books: A Chronicle of Echoes: Who’s Who In the Implosion of American Public Education and Common Core Dilemma: Who Owns Our Schools?.

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