Corporate Reformer Motivations

Again: I hope I don't upset Matt Yglesias by bringing up such disturbing topics. But don't you find it a little unusual, Matt, that so many hedge fund managers are so passionate about charter schools?

After hearing from Mr. Cuomo, Mr. Williams arranged an 8 a.m. meeting last month at the Regency Hotel, that favorite spot for power breakfasts, between Mr. Cuomo and supporters of his committee, Democrats for Education Reform, who include the founders of funds like Anchorage Capital Partners, with $8 billion under management;Greenlight Capital, with $6.8 billion; and Pershing Square Capital Management, with $5.5 billion.

Although the April 9 breakfast with Mr. Cuomo was not a formal fund-raiser, the hedge fund managers have been wielding their money to influence educational policy in Albany, particularly among Democrats, who control both the Senate and the Assembly but have historically been aligned with the teachers unions.

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.

Now, it may well be that all these Wall Street types love and support charters the way blue-bloods love and support the opera.

Or it could be something else...

Wealthy investors and major banks have been making windfall profits by using a little-known federal tax break to finance new charter-school construction.

The program, the New Markets Tax Credit, is so lucrative that a lender who uses it can almost double his money in seven years.

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.

Under the New Markets program, a bank or private equity firm that lends money to a nonprofit to build a charter school can receive a 39% federal tax credit over seven years.  

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 credit can even be piggybacked on other tax breaks for historic preservation or job creation.

By combining the various credits with the interest from the loan itself, a lender can almost double his investment over the seven-year period.

No wonder JPMorgan Chase announced this week it was creating a new $325 million pool to invest in charter schools and take advantage of the New Markets Tax Credit.

Again: I'm just a snarky old music teacher with a small 403(b). I don't know much about the hallowed ground in TriBeCa where the Masters of the Universe tread. But it seems that altruism isn't all that's in play here.

Juan Gonzalez, can you try explaining this again?

And what happens is, the investors who put up the money to build the charter schools get to basically virtually double their money in seven years through a 39 percent tax credit from the federal government. In addition, this is a tax credit on money that they’re lending, so they’re collecting interest on the loans, as well as getting the 39 percent tax credit. They piggyback 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 $10 million and in seven years double your money.  

And the problem is that the charter schools end up paying in rents the debt service on these loans. And so, now a lot fo the charter schools in Albany are straining paying their debt — 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. And the rents are eating up huge portions of their total cost. And, of course, the money is coming from the state. 

OK, let's stop right there! I don't want to "... create a generalized presumption that people who care about education have a hidden agenda," do I? There is obviously some explanation for this. We all know wealthy investors only want the best for America's poor children. I mean, they have a such a history of showing care for the poorest among us, right?

George, you know these people have always cared about the least of us, right?



ADDING: Robert in the comments steers us toward this passage from the great Jonathan Kozol:

Some years ago, a friend who works on Wall Street handed me a stock-market prospectus in which a group of analysts at an investment-banking firm known as Montgomery Securities~described the financial benefits to be derived from privatizing our public schools. "The education industry", according to these analysts, "represents, in our opinion, the final frontier of a number of sectors once under public control" that "have either voluntarily opened" or, they note in pointed terms, have "been forced" to open up to private enterprise. Indeed, they write, "the education industry represents the largest market opportunity" since health-care services were privatized during the 1970s. Referring to private education companies as "EMOs" ("Education Management Organizations"), they note that college education also offers some "attractive investment returns" for corporations, but then come back to what they see as the much greater profits to be gained by moving into public elementary and secondary schools. "The larger developing opportunity is in the K-12 EMO market, led by private elementary school providers", which, they emphasize, "are well positioned to exploit potential political reforms such as school vouchers". From the point of view of private profit, one of these analysts enthusiastically observes, "the K-12 market is the Big Enchilada". [emphasis mine]

Chris Cerf, the Acting Commissioner of Education for the State of New Jersey and former President of Edison Learning, describes public education thusly: "This is a $650 billion sector, second only to health care."


A "sector." Oh, gosh, I'm sorry - hope I didn't imply anything but the best of intentions by bringing that up...