The huge tax credits provided investors by the feds run out in seven years, so many charter schools will see their rents suddenly inflate; possibly leading to the high default rate experienced by so many homeowners recently with “subprime” or adjustable rate mortgages:
AMY GOODMAN: Juan, before we move on to the Gulf, you have a very interesting column in the “New York Daily News” today, an exposé around big banks and charter schools.
JUAN GONZALEZ: Yes, Amy, 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 their 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. One of the big issues is that so many of these charter schools are not being audited. No one knows who are the people making these huge windfall profits as the investors. Often, there are interlocking relationships between the charter school boards and the nonprofit groups that organize and syndicate the loans. There needs to be some light on this whole issue and the state legislature right now is considering expanding charter school caps, but one of the things I press for my column, there has to be the power of the government to independently audit all of these charter schools or we’re not going to know how public dollars are ending up in the coffers of Wall Street investors.
AMY GOODMAN: Congratulations on doing this and we’ll continue to expose it as you do.
Albany charter cash cow: Big banks making a bundle on new construction as schools bear the cost
Friday, May 7th 2010, 4:00 AM
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.
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-
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.
Christian Bender, for example, executive director of the foundation, is chairman or vice chairman of four of the Albany charters.
Tom Carroll, the foundation's vice chairman and one of the authors of the state's charter law when he was in the Pataki administration, was a founding board member of Albany Community Charter School and is currently chairman of two other charters, Brighter Choice School for Boys and Brighter Choice School for Girls.
Carroll also sits on the board of directors of NCB Capital Impact, a Virginia organization that used New Market Credits to pull together investors for all the Albany building loans.
A Brighter Choice official confirmed Thursday that the Virginia organization gets "a 3% originating and management fee" for all school construction deals that Brighter Choice arranges.
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.
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.
So does Carroll see any problem with being simultaneously part of the landlord, tenant and lending bodies for Albany charter-school construction?
"I sit on the nonprofit NCB Capital Impact board as a volunteer," he said this week. "On that board, I have never voted on any of the deals that Brighter Choice Foundation has been a party to."
Albany is exhibit A in the web of potential conflicts that keep popping up in the charter school movement. It's one reason the state Legislature should refuse to lift the current cap on charter schools unless it also adopts stringent new government auditing rules.
If wealthy investors and banks can double their money simply by building charter schools, taxpayers deserve to know exactly who arranged those deals, who will benefit and what they will ultimately cost each school.
Read more: http://www.nydailyn