There's Always More Money for Charter Schools

For years, Camden's schools have suffered from a dilapidated infrastructure. The poorest city in New Jersey, if not the nation, has had to send its children to crumbling, disgusting schools. Chris Christie finally got around to finding some money this month to upgrade Camden High (even as he is gutting the citywide system).

Of course, it's a good thing that Christie is finally sending some funds Camden's way after years of neglect.* But why the wait? Especially when there always seems to be plenty of money available for charter schools in Camden (behind a paywall):

An extended rally in municipal bonds is helping Gloria Bonilla-Santiago grow the Camden, N.J., charter-school network she founded in 1997.

Although charter schools are among the riskiest municipal borrowers, and the city of Camden struggles with poverty and crime, Dr. Bonilla-Santiago was able to raise $10 million in a September bond sale. The money will enable her LEAP Academy University Charter School to expand its campus into the Wilson Building, a 12-story downtown landmark, adding a new cafeteria, fitness center, science labs and a health clinic.

“It’s a big responsibility, but there was an opportunity in the market to be able to sell bonds at a good rate,” Dr. Bonilla-Santiago said. [emphasis mine]

If you know anything about Camden and its schools, you'll know that this is quite a story -- a story that shows, once again, that charter schools play by a completely different set of rules, often to the detriment of public schools.

Let's start with some background: I spent a lot of time last year telling the story of Camden's LEAP Academy University Charter School and its founder, Gloria Bonilla-Santiago. The tale is long and twisted, but let me give the quick highlights:

• Despite a track record of regularly missing Adequate Yearly Progress (and academic outcomes that even today lag compared to schools across New Jersey), LEAP was always a favorite of then-Acting Education Commissioner and school privatizing guru Chris Cerf:

Far left: NJDOE Commissioner Chris Cerf. Immediately to his left: Gloria Bonilla-Santiago.

• Cerf was happy to tout LEAP even though employees within his own his own department classified the school as underperforming.

• LEAP actually lost its tax-exempt status for a while in 2013 because it failed to file its tax returns. This was serious because $8.5 million in bonds had been issued from the Delaware River Port Authority for the school's expansion. LEAP eventually got its tax-exempt status back, but not before blaming the debacle on the IRS.
• But the failure to file taxes for three years was the least of the questionable behaviors surrounding LEAP. The school illegally recruited athletes back in 2005, leading to a severe sanction from the NJISAA. The school engaged in unfair labor practices, leading to extraordinary levels of teacher turnover. LEAP had to repay the NJDOE when it used federal funds for non-allowable expenses. A LEAP employee filed a lawsuit, claiming he had been forced to do personal work for Bonilla-Santiago at her home (I can't find any follow-up reporting on the status of this suit).
• But perhaps the biggest scandal coming from LEAP came from the Philadelphia Inquirer's reporting on Bonilla-Santiago's live-in boyfriend, Michele Pastorello:

When Camden's LEAP Academy University Charter School compelled its new food-service management company to retain the school's executive chef and give him a $24,000 raise, LEAP also had to pay a $151,428 penalty to its previous vendor, documents show.

Including Michele Pastorello's new $95,000 salary, LEAP has spent nearly $250,000 this school year to keep him employed as executive chef. The position typically pays about $40,000, according to industry experts.

Pastorello is the live-in boyfriend of LEAP founder and board chairwoman Gloria Bonilla-Santiago. His raise, as well as the fee paid to the previous management company, Aramark, now are under review by the school's board of trustees. [emphasis mine]

• Not surprisingly, a subcommittee of LEAP's board found that nothing was wrong with this deal. 

One thing to understand about Bonilla-Santiago: in addition to her extensive connections at Rutgers-Camden, she is in tight with the South Jersey Democratic Machine of George Norcross. When the NJEA went after Norcross on public employee benefits "reform," Bonilla-Santiago stood at his side.

In return, LEAP has been the subject of much adulation from the reformy types across New Jersey. Bonilla-Santiago herself is quite shameless in wagging her finger at others while promoting herself, going so far as to publish a book this summer, The Miracle on Cooper Street. Yet she never quite seems to get around to acknowledging things like this:

The scatterplot here shows Grade 8 proficiency in English Language Arts for Camden's schools, plotted against the percentage of special education students the school serves. Yes, LEAP gets good test scores, but it also serves far fewer students with special education needs than the Camden Public Schools. You'll notice the charter schools, in red, all serve smaller proportions of students classified with special education needs.

That extends to other student characteristics. Here are some graphs from my report with Julia Sass Rubin on NJ's charter schools:

Without question, LEAP serves many more children who qualify for free lunch than the more affluent suburbs. But compared to the rest of Camden, LEAP's FL population is relatively small -- the fourth smallest in the city.

These are the aggregate demographics for Camden's charter versus public school populations. Notice Limited English Proficiency (LEP): LEAP's student body is 4 percent LEP, while Camden's is 9 percent.

LEAP serves a substantially different student body than the Camden Public Schools. We can argue about whether that's acceptable or not, certainly acknowledging that LEAP's student body has far more children in economic disadvantage than its suburban neighbors. But let's get back to those bonds...

Because what I don't understand is why there is plenty of money ready and available for charter schools like LEAP -- which serves fewer children with special needs -- to expand, while its neighboring public schools in Camden have to wait years just to get enough funding to keep from falling apart.

Why is Wall Street so eager to give a school like LEAP -- a school with a history of not filing taxes, engaging in unfair labor practices, and paying favored employees far more than market wages -- money with which to expand? So eager that, according to this Wall Street Journal story, LEAP is getting a remarkably good deal?

The school is paying a rate of 6.3% on longer-term debt. Comparable borrowing costs in 2009 were about 7.6%, according to the Local Initiatives Support Corp., which advises charter schools on finances.

Do you think that maybe the street came to a conclusion about LEAP? That maybe it doesn't need to jack up interest rates for their bonds, because -- as the school's history shows time and again -- it simply can do no wrong? That there is absolutely no chance the school will default on its obligations, because its plugged-in founder has many powerful friends who will be sure to protect bond sellers' investments, no matter what happens?

Investors’ rising appetite for muni bonds is a boost for charters, which are typically nonprofit, publicly funded and run independently from local school districts. Charter schools, which educate about 2.6 million students in the U.S., issued about $1.64 billion of debt this year through Oct. 5, more than the record volumes from all of last year and the year before, according to a report by Charter School Advisors and the LISC.

The ramp-up in charter schools’ debt sales comes as mainstay municipal issuers cut back amid postrecession belt-tightening by public officials. They are attracting yield-hungry investors who have pushed into riskier debt in search of better returns amid low interest rates.

Investors consider charter-school bonds to be riskier than conventional school-district debt because charter schools’ primary funding is per-student payments from the state rather than local property taxes. That makes it hard for charters to finance buildings or renovations without tapping outside sources like donors or the bond market.

Oh, puh-leeze -- what a load of malarky! There is no practical risk in selling bonds to charter schools like LEAP, which is politically connected and guaranteed a steady stream of students whose families don't want to send their children to crumbling, dangerous, underfunded schools. 

So long as investors are willing to stay away from the real skunks in the charter sector, they are going to do very well investing in charter school growth:

John Miller, co-head of fixed income at Nuveen Asset Management LLC, said he has been “pretty aggressive” about adding charter-school bonds, and now holds about $1.4 billion, the majority of which are in the Nuveen High Yield Municipal Bond Fund, which has returned more than 18% this year. Safely investing in the sector requires analysis and legwork, even visiting the schools, he said. That means the market doesn’t necessarily price the bonds efficiently, creating an opportunity to find bargains.

“I’ve heard people say ‘I can’t get my arms around the idiosyncratic risk here,’” Mr. Miller said. “But there are returns to be had for actually doing that.”

No doubt. And if the consequences for these "returns" are screwing the students who aren't enrolled in charters -- and just happen to have more special needs -- well, that's the way the public school crumbles:

Meanwhile, the growth of charters poses an increasing risk for public school systems in cities such as Philadelphia, Cleveland and St. Louis that compete with them for students and state money, according to a report by Moody’s.

Students’ flight to charters has helped reduce the Philadelphia district’s underlying credit rating to junk, which is defined as below BBB- or the equivalent, though investors are protected by a state program that can withhold district funds for bondholders, Moody’s said.

Well, thank the lord we can withhold funds for schools so bondholders won't ever have to take a haircut...

This is the plan, and it's being enacted in Camden, and Philadelphia, and Newark, and Texas, and Florida, and New York, and Chicago, and many other places across the country:

1. Starve the urban public schools so their infrastructure begins to crumble and they become increasingly dysfunctional.
2. Create a charter school escape hatch for some families -- families that have children with fewer special education needs and can adhere to a strict "no excuses" school culture that would never be tolerated in the suburbs.
3. Suck up taxpayer funds, all while cutting expenses by making teaching a temporary "profession" through constantly churning staff (I'm going to have much to say about this later, but for now, read this).
4. Use this rock-solid stream of taxpayer revenues to guarantee investors substantial returns on bonds used to build new charter facilitates.
5. Put a tax credit cherry on top of the whole scheme.
6. Protect your investments by making the right political connections.

Now, I know I'm just stupid teacher-blogger who don't know nothin' 'bout no high finance and such. I'm sure there's some right-wing rationale for all this that I missed seeing on Fox News. But here's what I keep coming back to:

Instead of enriching Wall Street plutocrats by giving them taxpayer funds to build new charter schools that don't educate all children...

Why don't we, instead, tax these people more and use the money to fix the existing public schools that serve every child?

That would be a real miracle on Cooper Street, wouldn't it?

Tom Moran says:

"I challenge you: Point to the hedge fund guy who is getting rich off Jersey’s charter movement."

* ADDING: SOSNJ points out:

Governor Christie's held a press conference today to announce $50 million to rehabilitate and renovate Camden High School.

The Governor did not mention that this is less than half of the $110 million that Camden High was slated to receive for renovations in 2011, but that Governor Christie cut.

The political lesson? 

Cut funding. Wait a couple of years. Give a small part of the money you cut back. Claim to be doing something really great for the community you have shorted.

PS: The President of the Camden High Alumni Association and a Camden community activist were forcibly removed from the press conference by the Camden County Police, on the instructions of Novella Henson, Camden Mayor Redd's Chief of Staff, before the Governor arrived. They were told the event was by invitation only. They had not said or done anything to provoke being removed.

The press in attendance at the event was not allowed to ask any questions, only to take photos of the Governor and Camden children in the same room.

The Ministry of Truth does not tolerate having its press conferences interrupted...