It is obvious how private charter schools can turn a profit by spending less on salaries, maintenance, supplies and services than they take in from local and state taxes and donations from wealthy philanthropists. What has been flying under the radar is what hedge fund managers, big banks and foundations hope to get out of their investments in charter schools. In a recent report on Democracy Now, Juan Gonzalez turned up an obscure tax credit that was passed by Congress at the end of the Clinton administration in 2000, called a New Markets tax credit. It provides an enormous federal tax credit to banks and equity funds that invest in community projects in underserved communities. The credit has been heavily used in recent years for charter schools.
Gonzalez says that when investors put up the money to build charter schools, they can double their money in seven years through this 39% tax credit. Because it is a tax credit on money that they’re lending, they also get to collect interest on the loans. So it is immensely profitable to invest in charter schools. Investors can also piggyback the credit on top of other tax credits, like the historic building preservation credit. In a New York Daily News piece, Gonzalez reported that JPMorgan Chase is planning to take advantage of the New Markets Tax Credit by creating a new $325 million pool to invest in charter schools.
Charter School Bubble
One problem is that the charter schools must pay back their loans, plus interest, at a huge cost to the state. Gonzalez says that many charter schools in Albany, NY, which has the state’s highest percentage of charter schools, have seen their rent increase from $170,000 to $500,000, as a result. Because many charter schools have avoided audits, local and state governments are often unaware of the problem, let alone who is reaping the huge profits from this scam.
Ultimately, a lot of these charter schools are going to collapse under the weight of their debts or from the mass exodus of board members and executives who can no longer earn a profit, once their debts escalates beyond their income. The question is: Will the states bail them out, or will they tell the creditors to F-off and take back the facilities and convert them to traditional public schools?
I think we all have a pretty good idea how this one will play out.