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May 10, 2010

Wall Street Hearts Charter Schools, Gets Rich Off Them

Posted in: Uncategorized

This is an interesting article about the intersection of charter schools and hedge fund managers:

Wall Street has always put its money where its interests and beliefs lie. But it is far less common that so many financial heavyweights would adopt a social cause like charter schools and advance it with a laserlike focus in the political realm.

Hedge fund executives are thus emerging as perhaps the first significant political counterweight to the powerful teachers unions, which strongly oppose expanding charter schools in their current form [...]

They have been contributing generously to lawmakers in hopes of creating a friendlier climate for charter schools. More immediately, they have raised a multimillion-dollar war chest to lobby this month for a bill to raise the maximum number of charter schools statewide to 460 from 200.

The money has paid for television and radio advertisements, phone banks and some 40 neighborhood canvassers in New York City and Buffalo — all urging voters to put pressure on their lawmakers.

Why, exactly, are hedge fund managers, primarily concerned with their own net worth, bankrolling an advocacy campaign for increasing the number of charter schools in New York? You won’t get much of an answer to that from this article, which mainly restricts their answers to: 1) Mike Bloomberg likes them, 2) hey, free market! But if you go outside the New York Times, you’ll find that there’s more going on here:

On Friday, NY Daily News columnist Juan Gonzalez wrote a column about how big investors can double their money in seven years using a special tax credit to invest in charter schools, and he also discussed what he uncovered in a brief segment on Democracy Now! which he co-hosts with Amy Goodman. Here’s how he summarized it on the air:

There’s a lot of money to be made in charter schools, and I’m not talking just about the for-profit management companies that run a lot of these charter schools. It turns out that at the tail end of the Clinton administration in 2000, Congress passed a new kind of tax credit called a New Markets tax credit. What this allows is it gives enormous federal tax credit to banks and equity funds that invest in community projects in underserved communities and it’s been used heavily now for the last several years for charter schools. I have focused on Albany, New York, which in New York state, is the district with the highest percentage of children in charter schools, twenty percent of the schoolchildren in Albany attend are now attending charter schools. I discovered that quite a few of the charter schools there have been built using these New Markets tax credits.

What happens is the investors who put up the money to build charter schools get to basically or virtually double their money in seven years through a thirty-nine percent tax credit from the federal government. In addition, this is a tax credit on money that they’re lending, so they’re also collecting interest on the loans as well as getting the thirty-nine percent tax credit. They piggy-back the tax credit on other kinds of federal tax credits like historic preservation or job creation or brownfields credits.

The result is, you can put in ten million dollars and in seven years double your money.

I have been told once or twice, when expressing skepticism about charter schools, that they are the product of the most dedicated teachers in America, who are tired of watching public schools fail children and have sought an alternative model to provide the best space for underprivileged kids to learn. I wonder if they’ll just use the same rhetoric when faced with this reality, that charters are just another investor playground for easy money passed from taxpayers to the wealthy.

Read Juan Gonzalez’ column for more, including how the hedge funds and top investors are getting rewarded as rents rise on charter school buildings.


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