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On April 16, the D.C. Board of Education delivered a setback to the embattled officials of the Jos-Arz Therapeutic Public Charter School (“Cracking the Books,” 9/20/02), voting to deny the school a letter of good standing.

Jos-Arz officials requested the letter, which assures lenders that the school’s finances are sound, more than a year ago, so that the school could secure $16 million in bond financing from the District. The money was slated for construction and renovation costs; without the bonds, school officials have said, they will not be able to keep operating.

Issuing a letter of good standing is usually a formality. But in the case of Jos-Arz, the process led to a yearlong examination of the school’s finances. Jos Arz serves high-school-age special-education students, many of whom would otherwise be sent to schools or institutions outside the D.C. public system, at a cost of $35,000 per child per year. Since the school opened, in September 2000, the District has given it more than $10 million—even though no more than 41 students have been enrolled at the school each year, according to audited enrollment figures.

The school board waited to vote on the letter of good standing until after it had read the results of an audit of Jos-Arz by the Office of the Chief Financial Officer. When a preliminary draft of the audit was released earlier this year, Jos-Arz hailed it as vindication.

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Not all the auditors’ findings were favorable, however. The school board had asked auditors to look at interlocking relationships among the school and various other organizations headed by Jos-Arz Executive Director Gwendolyn Kimbrough and her husband, Rollie Kimbrough. Gwendolyn Kimbrough is also president and CEO of American Therapeutic Services, which provides transportation, employee drug testing, and physical-therapy services to Jos-Arz. Rollie Kimbrough is a director of Community Research Inc., a nonprofit that owns the school’s facilities. (Neither Kimbrough returned calls seeking comment.)

The auditors determined that the lease agreement between Community Research and Jos-Arz was legal. But they said the close ties among the school, its landlord, and American Therapeutic Services created an “appearance of conflict of interest.”

The auditors’ biggest criticism stemmed from the school’s contracting practices. Auditors found that Jos-Arz officials had violated procurement regulations by not advertising six contracts in a general-circulation newspaper, by awarding six contracts without competitive bidding, and by failing to send 11 contracts, each worth more than $25,000, to the Board of Education for required review. Auditors also concluded that American Therapeutic Services had provided services without a valid contract.

Another move, in which Jos-Arz officials used part of an $8 million payment from the District to secure a $4 million line of credit for Community Research, passed muster with the auditors. The leveraging of public funds was legal, auditors concluded, and “payments made from this loan appeared to be related to construction expenditures.”

The infusion of cash from public coffers was supposed to help Jos-Arz get on its feet. Since September 2000, enrollment has consistently fallen short of projections, producing a funding crisis. Jos-Arz officials have long blamed that situation on D.C. Public Schools (DCPS), saying the system violates its own regulations by not referring students to the charter. The auditors agreed with Jos-Arz officials that DCPS hadn’t been making referrals; DCPS officials countered that they can’t force parents to place their children in a particular school.

The auditors commented, “If the school’s enrollment doesn’t improve significantly, or if substantial funds from sources other than the District are not obtained, Jos Arz status as a going concern could be in serious jeopardy.”

At the April 16 hearing, several school-board members likewise expressed concern over the school’s long-term viability. “By their calculations, they would end the year with a deficit of more than $200,000. By the school board’s calculations, they would end the year with a deficit of more than $2 million,” says Julie Mikuta, school-board representative for Wards 1 and 2. Several months ago, Mikuta asked Jos-Arz officials to supply a budget plan based on their audited enrollment figures. But as of last week’s hearing, school officials had yet to produce one.

Between the school’s deficit and the absence of a plan, Mikuta decided to vote against issuing a letter of good standing. She was joined by school-board members Mirian Saez (appointed), William Lockridge (Wards 7 and 8), and President Peggy Cooper Cafritz.

Jos-Arz is not without its defenders. At the April 16 hearing, Ward 5 and 6 representative Tommy Wells argued that the board had treated Jos-Arz in “a hostile manner” and subjected the school to more scrutiny than private special-education providers have received. He voted to support the letter of good standing, as did Ward 3 and 4 rep Dwight Singleton. Appointed member Laura Gardner, who arrived late at the hearing, abstained. CP