Many Trombetta associates had role in school's development
August 12, 2012 12:00 PM
The three-story brick office building at 735 Midland Ave. the Pennsylvania Cyber Charter School secured.
Prima Learning Center sign in the window of 735 Midland Ave.
By Rich Lord Pittsburgh Post-Gazette
When the Pennsylvania Cyber Charter School needed more office space, then-superintendent Nick Trombetta didn't hesitate to seek help from his friends.
The burgeoning school secured property on the main drag of the Beaver County town of Midland with the aid of Mr. Trombetta's high school wrestling teammate. It built a three-story brick office building at 735 Midland Ave. under the supervision of the teammate's brother.
A nonprofit run in part by allies and relatives of the superintendent's inner circle leased and later sold the building to PA Cyber. And a company run by a PA Cyber board member sold the school teleconferencing equipment for the facility.
In the process, hundreds of thousands of dollars that originated with local public schools flowed through PA Cyber into the hands of people with long relationships with Mr. Trombetta.
PG graphic: Following the money (Click image for larger version)
The FBI, the Internal Revenue Service and a federal grand jury are probing some people who have been associated with PA Cyber. The Post-Gazette has learned that some of those involved with the 735 Midland project have been questioned. Neither agency has revealed the focus of the probe, and investigations can often extend far and wide without finding criminality.
The Post-Gazette asked PA Cyber 11 questions about the development and outfitting of 735 Midland. The school's spokeswoman, Christina Zarek, said she "cannot respond, in light of the ongoing investigation."
"From what we know, the investigation touches on everything," said Joseph Askar, an attorney for the nonprofit National Network of Digital Schools, which owned 735 Midland for three years before selling it to PA Cyber.
Others who have watched PA Cyber for years, when told of the transactions involved in the construction of 735 Midland, said they weren't the norm in public education, but did seem to reflect the charter school's dealings.
"This could not happen in a regular school district," said Ira Weiss, solicitor for the Pittsburgh Public Schools, who has sparred legally with Mr. Trombetta on behalf of other clients. "I think it's typical of many, many relationships that [PA Cyber] has."
Turning to a teammate
In 2006, PA Cyber was projecting a 55 percent enrollment increase, to 6,500 students. (It topped 11,000 last year.) It had just hired 70 new staff members.
It was in the midst of a property acquisition spree that would eventually give it control of many of the prime properties in Midland, transforming the left-for-dead steel town into a cheery educational hub.
That transformation has come at the expense of traditional public schools statewide.
When a student chooses PA Cyber, his home district must pay tuition to the charter school based on a portion of the district's average per-pupil costs. Because cybereducation is less expensive than bricks-and-mortar schooling, online charters have proved to be cash cows, spending thousands of dollars less per student than they take in, according to reports by state Auditor General Jack Wagner.
When Mr. Trombetta sought to expand, he turned to Cranberry developer Lawrence Dorsch.
Mr. Dorsch wrestled on the same team with Mr. Trombetta at Quigley Catholic High School in Baden, Beaver County. They were the stars of the team in 1972 and '73, and both went on to success -- Mr. Trombetta as a superintendent first of the Midland Borough School District and then of PA Cyber, and Mr. Dorsch as an executive with his wife's development firm, Kellaur Corp.
Mr. Trombetta had been in talks with Mr. Dorsch about possible land deals since late 2004, according to Mike Barney, an education entrepreneur whom PA Cyber hired to analyze its operations that year, and then to manage the school through mid-2005. PA Cyber broke off relations with Mr. Barney in early 2005, sparking a lawsuit that was eventually settled. Talks between Mr. Trombetta and Mr. Dorsch regarding development of a former farm near Midland didn't pan out, Mr. Barney said.
But, acting as PA Cyber's agent, Kellaur Corp. in June 2006 paid $155,500 for three parcels that became 735 Midland.
PA Cyber would not describe for the Post-Gazette the process by which Kellaur Corp. was picked to acquire the property.
"We are cooperating fully with the government, who I've met with," said Robert Stewart, an attorney hired by PA Cyber to address the investigation. He said PA Cyber as an institution is not a target of the probe. "We don't want to make any comment that may have an impact on their investigation."
Mr. Dorsch said his attorney told him not to talk about PA Cyber, and that attorney could not be reached for comment. Mr. Trombetta, who stepped down June 30, could not be reached.
When a traditional public school wants to buy property, it can contract with a broker. There is no requirement that such work be competitively bid, but often schools seek proposals from competing brokers and choose one based on its experience and price, said Daniel Castagna, superintendent of the West Mifflin Area School District, which faced investigations under a prior superintendent, Patrick Risha.
Would he ask a longtime friend to handle property purchases for his school? "I think you would be highly scrutinized in a [traditional] public school environment," he said. "I have to be very careful with the relationships I have with any outside contracted services."
Getting the revenue out
Seven months after buying three Midland Avenue properties, Kellaur Corp. sold them, for $126,645, to NNDS. It is unclear how that purchase price was reached, or whether Kellaur Corp. got other payments for its services.
NNDS was created in 2005 to manage PA Cyber, and for that service it gets 12 percent of the charter school's revenue, plus payments for curriculum, rent and other services. That's not unusual. Many charter schools outsource their office functions.
Why did PA Cyber, which opened in 2000, create a management foundation in 2005?
After educational expenses, PA Cyber still had 30 to 40 percent of its revenue left over, said Mr. Barney, who is currently working on an academic technology project. That kind of surplus threatened to snowball over time. Mr. Trombetta in 2004 "says, 'I need to get this revenue out of the school,' " Mr. Barney said, and the vehicle devised was NNDS.
During the 2010-11 fiscal year, PA Cyber paid NNDS $44 million.
In 2007, when NNDS bought 735 Midland, three of its board members also held seats on PA Cyber's board. Mr. Trombetta served dual roles as superintendent of PA Cyber and president of NNDS. Direct overlap between leadership at PA Cyber and at NNDS ended by early 2008, after the state Department of Education demanded that the two organizations de-link.
In 2010, the state Department of Education under Gov. Ed Rendell demanded more transparency regarding PA Cyber's dealings with NNDS, threatening to revoke the school's charter. Last year Gov. Tom Corbett's administration dropped that ultimatum.
'A lot of money'
When NNDS set out to build 735 Midland, it hired Martlin Management Inc., owned by Martin V. Dorsch, who is Lawrence Dorsch's brother. PA Cyber declined to tell the Post-Gazette how the firm was chosen.
Mr. Weiss said schools are allowed to choose construction managers without competitive bids, but often solicit price quotes. "Unless you have a long history with one that has been satisfactory," he said, "I generally recommend testing the market to see who's out there and what the prices are."
Based in Martin Dorsch's Valencia, Butler County, home, Martlin had been in business for nearly four years when it applied for the permit to build 735 Midland. It estimated that the 18,800-square-foot project would cost $3.5 million.
Another firm, Dynamic Building Corp., was later hired to construct the building. Correspondence in Midland's file related to the building indicates that Mr. Dorsch was involved in managing the project into 2008. Mr. Dorsch declined to comment, citing the investigation.
From mid-2006 through mid-2007, tax filings show, NNDS paid Martlin Management $476,640. Neither PA Cyber nor NNDS would say whether that amount was solely for work on 735 Midland. If it was, then it represents more than 13 percent of the estimated cost of the project.
"That's a lot of money," Mr. Weiss said. Schools typically pay "maybe 3 percent of the project" cost to construction managers.
Father and son
When 735 Midland was complete, NNDS leased it to PA Cyber. The school agreed to pay rent of $375,675 a year to NNDS. Then in 2010, PA Cyber paid NNDS $3.27 million to buy the property outright.
Documents describing those transactions show that even after the state told PA Cyber and NNDS to sever their direct ties, they remained, as Mr. Weiss put it, "alter egos."
The lease, for instance, was signed by George Pacinda for NNDS and Edward Elder for PA Cyber.
Edward Elder, a longtime PA Cyber board member who was board president in 2007 and '08, is the father of Mark Elder, NNDS's director of operations. Mr. Pacinda, NNDS's general manager, is the son-in-law of Robert Masters, who is PA Cyber's longtime solicitor.
PA Cyber has, since 2005, had a conflict of interest policy barring its employees from influencing a decision "that might result in a personal gain for you or for one of your relatives." In 2008, PA Cyber revised and expanded its ethics policies barring board members from voting on "transactions that relate to another entity that employs the board member or a member of the board member's immediate family."
Edward Elder said he "abstained from everything" related to NNDS because of his son's employment there. Why was his signature on the lease? "I have to sign the paper being the board president," he said.
Mark Elder declined comment, citing advice from his attorney. Mr. Pacinda and Mr. Masters could not be reached.
For help outfitting 735 Midland with videoconferencing technology, PA Cyber turned to Sharpsburg-based RoData Inc. That company's president is Joseph Rodella, who reported having a 40 percent interest in the firm on his financial disclosures filed with PA Cyber. Mr. Rodella was a PA Cyber board member from 2008 to 2011.
Purchase orders provided by PA Cyber in response to the Post-Gazette's right-to-know request include four in which the charter school hired RoData to equip 735 Midland with videoconferencing technology, for a total of $92,733. That's a fraction of the $4 million in work RoData did for PA Cyber from 2005 through this year.
No effort was made to conceal Mr. Rodella's involvement. Purchase orders from 2007, 2008, 2009 and 2011 list him as the contact person the school should call with any questions.
"That's a pretty in-your-face approach," Mr. Weiss said.
Traditional public schools must buy equipment through competitive bidding, but charters are exempt from that requirement. PA Cyber bought RoData's products through a state system called Costars -- which, according to state law, qualifies as competitive purchasing. In Costars, vendors submit their products and prices to the state Department of General Services, and municipalities and schools can select from their quotes in lieu of formal sealed bidding.
Using Costars is legal, Mr. Weiss said, but buying from RoData while Mr. Rodella was on the board "could not happen in a regular school district," he said. "Clearly, this is a problem, I think, under the Ethics Act."
The state Ethics Act bars public officials, including charter school board members, from using their offices to financially benefit themselves, immediate family or businesses with which they are associated.
Mr. Stewart, PA Cyber's attorney, spoke on Mr. Rodella's behalf.
Mr. Rodella "received no advantage or special treatment with regard to the contract, and he abstained from the voting" to buy RoData products, Mr. Stewart said.
"Was it a fair price? And did he provide good quality work?" Mr. Stewart said. "The answer is 'yes' to both."
Sign of the times
Walk by 735 Midland and it is hard to miss the colorful sign for Prima Learning Center, a licensed day care. Even that sign reflects the way business opportunities generated by PA Cyber have gone to former executives of the school.
Prima Learning Center, three blocks from PA Cyber's headquarters, was founded in early 2010 by Brett Geibel. His career path exemplifies the evolution of the cyber learning business model locally.
He was PA Cyber's director of technology through 2006, later served as a senior vice president of NNDS, and is now CEO of Avanti Management Group, a consulting firm that is paid millions of dollars annually by NNDS. He also founded Palatine Development, which rents Ohio property to NNDS and Avanti.
Mr. Geibel could not be reached for comment. PA Cyber declined to tell the Post-Gazette why the sign for the private day care was in the window of the building owned by the public school.
Some schools allow paid advertising in their facilities, while others don't.
"We do not allow private businesses to rent or lease our space for the purposes of them making a profit," Mr. Castagna said.
He said of the constellation of Mr. Trombetta's friends and allies around the 735 Midland project: "It's obvious, it's blatant and it's arrogant.
"Our job is not to provide work for our friends and relatives. Our job is to provide the education to our district at the best price available."