At East Austin College Prep in Texas, raccoons and rats invade offices and classrooms. When it rains, the roof of the main building leaks. Room 106 was so rickety a chair leg fell through the floor. Yet for all this, the secondary school pays almost $ 900,000 in annual rent.
It has little choice: Its landlord is also its founder, Southwest Key Programs, a charity that is the nation’s largest provider of shelters for migrant children. The nonprofit says it formed the charter school and three others to help disadvantaged students get to college, but Southwest Key has financially benefited from the schools. Not only does it collect rent, but it has forced them to hire its for-profit companies, which have charged high fees for everything from maintenance to school lunches.
“We don’t even have a cafeteria — we eat in our gym,” said Yamilet Perez, 18, the student council president at the Austin secondary school. “You’re sitting there eating your lunch, and you can still smell the sweat of the class before.”
The operations of the charter schools, serving about 1,000 students, show how Southwest Key profits off public money, boosting compensation for charity leaders and stockpiling tens of millions of dollars.
The charity has been awarded almost $ 1.8 billion to run migrant shelters over the last decade, but is now under federal investigation for possible financial improprieties, prompted by an article last December in The New York Times. Two top officials, including the founder, Juan Sanchez, have stepped down. And a complaint about mismanagement at the schools, which have received more than $ 65 million in government money over the last decade, is under review by the Texas Education Agency.
A spokesman for Southwest Key, Neil Nowlin, disputed that the charity had unfairly taken money from the schools. In a statement, the new superintendent, Salvador Cavazos, said that “our teachers and administrators come to work every day dedicated to supporting students and families.”
Southwest Key began about 30 years ago when Mr. Sanchez, who grew up poor in Brownsville, Tex., and went on to Harvard, founded it to help keep troubled children out of prison. The expansion into migrant shelters made Mr. Sanchez and his inner circle wealthy.
A dozen years ago, Southwest Key decided to open charter schools and for-profit companies, including a florist, that ended up funneling money into the charity. The charters, called Promesa Public Schools, pay almost $ 1.4 million in rent annually to Southwest Key.
“This is public money they could turn into private money,” said Jaime Huerta, the former superintendent, who was laid off recently after repeatedly battling with Southwest Key. “And then they could use it for whatever they wanted.”
Money from the schools and for-profits helped raise salaries for charity officials, letting them collect pay far beyond the federal cap for migrant shelter grants — $ 187,000 in 2017. Mr. Sanchez was paid $ 1.5 million that year, the most recent tax return available. His wife, Jennifer Nelson, earned $ 500,000 as a vice president, and Melody Chung, the chief financial officer, was paid $ 1 million.
Mr. Sanchez resigned on Monday. Neither he nor Ms. Chung, who left Southwest Key last month, would comment for this article.
As of last month, the charters were almost $ 3 million in debt, largely because of a decision last year to add schools in Brownsville and Corpus Christi. The schools — and students — have felt the squeeze.
Teachers have left and not been replaced, forcing others to take on new roles. A Spanish instructor is teaching world history; a special-education instructor is teaching photography. Sports teams do not have enough equipment or any practice fields. Officials also cited problems from leaks, including mold and structural and electrical issues, according to an October 2017 email.
Mr. Nowlin said that Southwest Key was “working to resolve” the leaks, and that not all teachers needed to be replaced because fewer students were enrolled.
Because of the budget crisis, seven officials have been laid off in recent months. But Mr. Cavazos, the new superintendent, a longtime colleague of Mr. Sanchez’s, earns almost $ 250,000 a year. His predecessor, Mr. Huerta, earned just over $ 140,000 last year.
Over the years, the schools became the biggest client for Southwest Key’s for-profit companies. One employee, John De Los Santos, wanted to change that in 2014, when he joined the schools after running the charity’s for-profits. He had noticed discrepancies and overcharges from Southwest Key’s accounting team, and wanted to cut school costs by hiring external firms.
Southwest Key Maintenance would charge about $ 192,000 for janitorial work at the Austin secondary school. But an outside company, Vanguard Cleaning, would charge about $ 93,000, records show.
“I was shot down,” said Mr. De Los Santos, who soon quit. The schools were finally allowed to hire in-house maintenance workers in 2017.
Southwest Key’s for-profit food company, Café del Sol, drew many complaints about high prices, poor quality and limited offerings. Students staged at least one hunger strike. Yet the vendor collected almost $ 3 million from the schools, records show.
After years of pressure by students, parents and officials, the charters hired another provider at lower cost. The new vendor charged $ 2.86 per lunch in 2017, a drop from the $ 3.25 charged by Café del Sol in 2015. School board minutes have showed no further complaints.
Although Promesa’s school board is supposed to be an independent watchdog, Southwest Key has effectively controlled it. For years, the board has consisted of Mr. Sanchez; another charity executive, Alexia Rodriguez; Mr. Sanchez’s longtime friend and real estate partner, Ruth Hsu; and a Latino activist and retired disc jockey. Two new members joined last month. It was not clear what Mr. Sanchez’s resignation at Southwest Key meant for his role on the school board.
Southwest Key had a pattern of hiring officials with questionable pasts, The Times found, and in 2011 the school board hired a superintendent, Joe Gonzales, who had been indicted almost a decade earlier for embezzlement. Seven of the eight counts were dropped, and Mr. Gonzales agreed to reimburse the school district to settle the eighth. He had left another job with a buyout after being suspended over alleged financial improprieties.
“We hired him because he was good at what he did,” Mr. Sanchez said in a September interview.
A former board member, Martha Cotera, said the board had not been informed of Mr. Gonzales’s past, though he told The Times that he had notified his employers about the indictment. He also said he had contested the claims of financial improprieties. “In every single case, I was right,” he said.
After Mr. Gonzales was hired, one of the charity’s for-profits, Southwest Key Green Energy & Construction, signed on a new subcontractor, SJ&G Contractors, for “management and operational support.” The company was one person: Steven J. Gonzales, Mr. Gonzales’s son, who reported directly to Mr. Sanchez, records show.
Joe Gonzales rejected any suggestion of a conflict of interest, saying his son had earned the job on his own. “They knew of him,” he said.
The younger Mr. Gonzales then oversaw an almost $ 3 million renovation of a church into a school, city records show. Former officials described the work as substandard. In a statement forwarded by his father, Steven Gonzales said that the project passed city inspections and that he was given “very small budgets,” complaining that Southwest Key rejected proposals it considered “too costly.”
“Clearly, the quality of work on any construction project has a great deal to do with the amount of budget allocated,” he said.
His father quit in 2014 and went to work for another Texas school, which promoted him to superintendent before suspending him in 2015. An audit found that dozens of contractors and employees had been improperly hired or paid — including Joe Gonzales’s wife and son. Mr. Gonzales said his family members had been hired by the previous superintendent.
Southwest Key has also raised money for the schools by holding benefit events and asking employees at Promesa to donate a set amount out of their paychecks. But none of that money goes to existing schools, Mr. Huerta said. Instead, Southwest Key plans to use it to build a new school in Austin.
A year ago, Mr. Sanchez announced that $ 13 million had been raised for that project, according to school board minutes. But Mr. Nowlin, the spokesman, said that the school fund had only about $ 2.3 million, and that Mr. Sanchez had included a potential loan and tax credits in his remarks.
For the Corpus Christi school, Southwest Key lent $ 6 million to a shell company called Chacbak, run by two real estate developers it had worked with to buy shelters. Chacbak then bought and converted a shopping complex. The hallway floors are dotted with mismatched tiles and scarred with peeling grout; the ceilings are already leaking. For this, Promesa pays about $ 360,000 a year in rent.
“Some of the classrooms are just walls of glass, which is a major safety concern,” said Bernardo Diaz, the former operations director, who was laid off in January. “They were like storefronts.”
Mr. Nowlin addressed the complaints by saying that opening the Corpus Christi and Brownsville schools in one year was “challenging and complex.”
Southwest Key also charges Promesa a large management fee — $ 334,000 this year — and its accounting fees keep increasing. In the 2014-15 academic year, when the Austin schools had about 850 students, it charged $ 84,000 for accounting; after enrollment dropped to about 640 three years later, the fee had grown to $ 103,000.
Mr. Huerta said he discovered that Ms. Chung had used school grants to pay bonuses to accountants who handled the schools’ books — about $ 8,000 in December 2017, emails show. He said she stopped after he complained.
Incensed students protested conditions at a December school board meeting, led partly by Ms. Perez, the student council president.
She is struggling to cobble together loans and scholarships to attend her dream school of Penn State. The chief guidance counselor, who helped seniors with college applications and financial aid forms, was one of the people let go.
“She had the answers for all the seniors,” Ms. Perez said. “Honestly, they ruined every single one of our college applications.”
No one has been hired to replace the officials who were laid off. Even so, the school did decide to hire one new person: a recruiter, to try to get more students to come to Promesa.