Evil Ed, inc: the Wall Street-charter school connection

by: Paul Rosenberg

Sun May 09, 2010 at 11:00

If you thought that Wall Street couldn't get more destructive, think again.  And if you that the charter school movement couldn't get even more removed from serving the public good, you also need to think again. 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:

One of the things I've been trying now for a couple of years is to try to figure out why is it that so many hedge fund managers, wealthy Americans, and big banks, Wall Street banks, executives of Wall Street banks, have all lined-up supporting and getting involved in the development of charter schools. I think I may have come across one of the reasons. 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. The problem is, that the charter schools end up paying in rents, the debt service on these loans and so now, a lot of the charter schools in Albany are straining paying their debt service--their rent has gone up from $170,000 to $500,000 in a year or--huge increases in their rents as they strain to pay off these loans, these construction loans. The rents are eating-up huge portions of their total cost. And, of course, the money is coming from the state.

I've written before about the larger phenomena of which this is a part--the conservative's re-purposing of the welfare state for conservative ends once they realized the impossibility of destroying it outright, because of its popularity.  "What's wrong with the third 'Third Way'" provides an historical overview, and I've described examples in "Student Loan Debt--A Symptom of the Conservative Welfare State Shift", "Superbowl Sunday highlights conservative welfare state in action", and "Green grow the oil wells--oh!" (published just yesterday).  So here is yet another one.  More details from Juan's column on the flip.

In Albany, which boasts the state's highest percentage of charter school enrollments, a nonprofit called the Brighter Choice Foundation has employed the New Markets Tax Credit to arrange private financing for five of the city's nine charter schools.

But many of those same schools are now straining to pay escalating rents, which are going toward the debt service that Brighter Choice incurred during construction.

The Henry Johnson Charter School, for example, saw the rent for its 31,000-square-foot building skyrocket from $170,000 in 2008 to $560,000 last year.

The Albany Community School's rent jumped from $195,000 to $350,000.

Green Tech High Charter School rents went from $443,000 to $487,000.

Meanwhile, all the Albany charter schools haven't achieved the enrollment levels their founders expected, even after recruiting hundreds of students from suburban school districts to fill their seats.

The result has been less money in per-pupil state aid to pay operating costs, including those big rent bills.

Several charters have fallen into additional debt to the Brighter Choice Foundation.

You'd think these financial problems would raise eyebrows among state regulators - or at least worry those charter school boards.

But the powerful charter lobby has so far successfully battled to prevent independent government audits of how its schools spend their state aid.

And key officers of Albany's charter school boards are themselves board members, employees or former employees of the Brighter Choice Foundation or its affiliates.

This is obviously a very bad deal for the public.  It's even a bad deal for those who are true believers in the charter school sham. But it can be difficult to really understand what's going on--and what's fundamentally wrong with it--if you don't stand back to see the larger picture.  So, here's a quick run-down.

When Otto von Bismark created the first conservative welfare state, it was designed to co-opt the Social Democrat's most popular idea, while strengthening German industry internationally and strengthening the power of its elites internally by placing them in charge of caring for social needs.  In America, the pattern is a little messier, as it represents a convergence of different conservative interests, all the while being disavowed as conservatives repeatedly claim to be against the "nanny state".  But here we can see at least five different conservative ends being served at once:  (1) The attack on public education itself is a prime example of the attack on social democratic ideas and institutions, paralleling Bismark's co-opting of the Social Democratic Party's most popular idea. This serves to discredit public education, take money away from the public education system, and take money and jobs away from public employees and their unions.  (2) The siphoning off of certain students into separate learning environments is part of the conservative agenda for inscribing hierarchical differences in society. (3) The creation of lucrative money-making opportunities funnels public money to more wealthy members of society. (4) The creation of private governance structures further strengthens the power of unaccountable conservative elites, weakening democratic control.  (5) The private governance structures in turn empower crony networks that can also serve as organizing foundations for further consolidation of conservative power.

There is no way to effectively deal with these problems (conservative goals) in isolation.  They need to be seen and combatted as a whole.  If not, then one bad conservative idea will just be replaced by another, and another.

Of course this is easier said than done.  But doing it begins with recognizing the nature of what needs to be done.