The private Christian college behind South Carolina’s largest charter school district says it’s out $1 million after the operator of several schools the district oversaw defaulted on a loan deal.
The transaction, revealed in a new lawsuit, raises the question why cash-strapped Erskine College loaned money to the holding company of a for-profit education management organization, or EMO. It also sows doubt that the taxpayer-funded Charter Institute at Erskine, which oversees more than two dozen charter schools, can objectively oversee schools in which its parent institution has a financial stake, experts said.
“How do you engage in good faith oversight on behalf of the state when you have a financial interest in the thing you’re overseeing?” said Derek Black, a University of South Carolina law professor who specializes in education law and policy.
The college’s questionable lending practices came to light earlier this month when it sued Icelaven Development Group for breach of contract in hopes of recouping the loan, plus interest.
Icelaven is the parent company of Reason & Republic, a for-profit charter school management organization founded by James Galyean that, until recently, operated three charter schools authorized by the Charter Institute.
Galyean, who helped found the Charter Institute in 2017 and previously served as its general counsel, was a major contributor to Ellen Weaver’s 2022 state superintendent campaign and is currently running for an Anderson County House seat.
He declined comment on the outstanding loan through an Icelaven representative, citing the pending litigation, but said the company looked forward to its day in court.
Erskine, which failed to report the loan to Galyean’s company on federal tax forms, did not respond to a request for a comment on the transaction.
A 2022 audit of the college obtained by The State newspaper shows a $1 million loan receivable listed as a related party transaction, but has scant details on its recipient and no details on its purpose.
The Due West college and its affiliated Charter Institute have come under increased scrutiny this year following reporting by the State Media Co. that shed light on its spending and operations.
Over the past several months, the newspaper has reported on the Charter Institute’s formation and funding of a nonprofit called Teach Right USA, its leaders’ involvement in a plan to open schools in Tennessee through Teach Right USA and its approval of a new Lexington County school that plans to partner with Teach Right USA and Erskine College.
While not explicitly prohibited by South Carolina’s charter schools law, the Charter Institute’s engagement in activities beyond its statutory scope has attracted the attention of state lawmakers who have requested an investigation.
A bipartisan group of House lawmakers, led by Education Committee chairwoman Shannon Erickson, R-Beaufort, recently asked the state’s Legislative Audit Council to look into Erskine with a specific focus on the EMO loan deal and allegations that charter school vendors and prospective vendors use donations to curry favor with the Institute.
“We are concerned that if transactions like these have occurred, they may compromise the ability of Erskine to perform its duties under the (Charter Schools Act) with fidelity and/or may cause Erskine to apply inconsistent standards of accountability to different charter schools that it sponsors,” Erickson wrote in a May 8 letter to Legislative Audit Council Director Earle Powell, whose agency conducts independent audits of state agencies.
Erickson said it was past time the General Assembly update the Charter Schools Act which doesn’t address many of the complex issues that have emerged since colleges and universities began authorizing charter schools roughly a decade ago.
“If I’m going to be an all-of-the-above education choice proponent, I also have to be an all-of-the-above accountability proponent,” she told The State this week. “We can’t afford to have silence on issues that are making the work of our school choice situations not accountable.”
Erskine’s loan to Galyean
The loan agreement between Erskine College and Icelaven Development, signed Aug. 1, 2021, appears to have unraveled quickly.
Icelaven, which had agreed to pay back the money plus 5% interest in annual installments, missed its first payment on Dec. 31, 2021, and has repaid only $35,000 to date, according to the lawsuit Erskine filed May 9 in Anderson County circuit court.
The suit claims Icelaven failed to respond to the college’s repeated demands for the money, which have escalated in recent months, culminating in Erskine declaring the loan in default and demanding repayment in full plus interest, a sum of roughly $1.2 million, by April 30.
The financial dispute coincided with a fracturing of the once-tight relationship between Reason & Republic and the Charter Institute amid allegations that Galyean’s EMO overcharged its schools for services, exerted undue control over their finances and mismanaged money.
The boards of Belton Preparatory and Summit Classical, two of the Charter Institute’s most esteemed schools, recently cut ties with the EMO to align themselves with the Charter Institute, which has temporarily taken over their finances.
Charter Institute CEO and Superintendent Cameron Runyan did not respond when asked whether Erskine College’s dispute with Icelaven had influenced the Charter Institute’s treatment of Reason & Republic.
The college, which has dealt with cash flow problems for years, entered into the loan with Galyean’s company at a particularly precarious time for the institution. The following year its accrediting agent denied reaffirmation of its accreditation and placed it on warning status for not meeting governance and financial management standards.
The Southern Association of Colleges and Schools Commission on Colleges, commonly referred to as SACS, dinged Erskine’s governing board in December 2022 for failing to exercise fiduciary oversight; failing to demonstrate a stable financial base to support its mission and programming; and failing to manage its financial resources in a responsible manner.
It isn’t known whether the loan to Icelaven factored into the sanctions levied by SACS.
The accrediting body will reassess Erskine in December and decide then whether to lift sanctions, place it on probation or revoke its accreditation.
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