A Los Angeles County Superior Court judge ruled Friday that two charter schools previously ordered shut down by L.A. Unified will be allowed to remain open despite questions over their financial management.
Los Angeles County Superior Court Judge Luis A. Lavin, echoing a tentative decision made Thursday, ruled that district officials acted outside their authority when they moved to close two campuses operated by the Magnolia Education and Research Foundation without first presenting the issue to the Board of Education.
The ruling said there was no evidence that the board delegated such authority to district officials.
The schools in question are science academies in Palms and Northridge, two of eight schools operated by Magnolia. Charters are independently run and publicly financed; Magnolia is authorized by L.A. Unified.
In a court hearing this week, Lavin expressed concern that Magnolia officials were not given an opportunity to respond to an audit that found financial mismanagement before they were notified by the district that their charters would not be renewed.
Magnolia officials, who have denied the allegations, said they were thrilled to be able to open the new school year and will cooperate with district officials.
"Magnolia will continue to seek any and all opportunities to work with LAUSD to resolve this issue and prove their financial health without the need for further litigation," the organization said in a statement.
L.A. schools chief John Deasy said in a statement that the ruling will allow the school to remain intact while the process "reaches its inevitable conclusion."
"Our primary concern has always been the students who attend Magnolia," Deasy said. "While it is never an easy decision to disrupt a school community, Magnolia's fiscal mismanagement and serious fiscal issues gave the district no choice."
The situation has outraged parents, who have rallied in support of the school and expressed anger at the prospect of being without a campus for their children just weeks before the new school year.
Deasy has said previously that the district has expanded its investigation into all eight schools, which are focused on math and science and celebrate Turkish culture.
Board member Bennett Kayser called on the state to conduct an audit of all charter schools operated by Magnolia and sharply criticized the district's charter school division.
"Today's ruling and the situation in which LAUSD finds itself is purely the result of a lack of oversight and accountability of all charter schools authorized by the Los Angeles Unified School District," Kayser said in a statement. "For too long charter school advocates have looked the other way knowing full well that some truly rotten apples are our accessing our children."
L.A. Unified officials have acknowledged that while the campuses in Palms and Northridge have done well academically, the financial issues "rise to the level of severity that seriously questions [Magnolia's] ability to operate the school let alone support itself," wrote Jose Cole-Gutierrez, the district's charter school division director, in his June 27 letter to foundation officials.
The audit — performed by an outside firm for the district's Office of Inspector General — found that the foundation was $1.66 million in the red, owed $2.8 million to the schools it oversees and were insolvent. The Palms academy was also found to be insolvent, according to the audit.
The report found a lack of disclosure of debts, improper fiscal controls over the principals' use of debit cards and questionable payments for immigration fees and services. The audit also found that the foundation may be paying for duplicative academic and business services to a related nonprofit.
In a July 3 response, Mehmet Argin, the foundation's chief executive, said Magnolia was in sound fiscal health with $4.8 million in net assets in 2013, which officials estimated would rise to more than $7 million by June 2014. Argin denied the other allegations.
Under the ruling, the campuses will be allowed to begin the 2014-15 school year in August while litigation continues.
Magnolia must also provide the district with a copy of the 2013-14 audit report for its schools; provide updates on the schools' finances every 30 days; refrain from deficit spending while maintaining a reserve of 5%; make no further immigration-related expenses; provide the district copies of all its agreements with vendors; and cooperate with any inquiry of its finances from the district.