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Who Is Profiting From Charters? The Big Bucks Behind Charter School Secrecy, Financial Scandal and Corruption

What we know about the financial incentives offered by charter schools.

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But they do provide wealthy investors with a 39 percent tax credit that more than doubles returns on these investments within just seven years. As NY Daily News reporter Juan Gonzalez reported for Democracy Now!, “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.” And that’s not all. As Gonzalez explained, the federal government “piggyback[s] the tax credit on other kinds of federal tax credits, like historic preservation or job creation or Brownfield’s credits. The result is, you can put in $10 million and in seven years double your money.” So, if you put in a couple million dollars, you’ll have double that amount within just seven years.

Until recently, most of this money has been filtered through large non-profit organizations like the Gates Foundation, but it can also be done through for-profit companies. In order for donors to be eligible for the tax breaks, they must give to something classified as a Community Development Entity. The federal website explains this can be either a “ domestic corporation or partnership.” And it must have “a primary mission of serving LICs [Low Income Communities].”

Maybe this helps explain why, in 2011, former tennis champion Andre Agassi helped set up a $500 million startup fund for his Canyon-Agassi Charter School Facilities Fund, the first for-profit organization of its kind. In addition to any profits to be made from this for-profit CDE, how much did Agassi himself contribute? How much will he see doubled on the taxpayers’ dime within about seven years? He’s never said. The credit may also explain why Facebook CEO Mark Zuckerberg donated $500 million in stocks to a variety of organizations that distribute charter school funding in 2012, or why he opened his own foundation, called Startup: Education, to build new charter schools.

Then there’s David Brain, head of large real-estate investment firm Entertainment Properties Trust, who appeared on CNBC in 2012 to tell audiences just how profitable charter school investment has become. He explained, “Well I think it’s a very stable business, very recession-resistant. It’s a very high-demand product.” Asked about the most profitable sector in real estate investment, Brain said, “Well, probably the charter school business. We said it’s our highest growth and most appealing sector right now of the portfolio. It’s the most high in demand, it’s the most recession-resistant. And a great opportunity set with 500 schools starting every year. It’s a two and a half billion dollar opportunity set in rough measure annually.”

Real-estate developers have a particularly interesting stake in the business of charter school development. Yes, they receive the standard huge tax breaks. But they can also help charter schools acquire properties in large cities like Philadelphia, Chicago or New York, where prices are high and there isn’t much room for new buildings. In places where acquiring space can involve fierce bidding wars and eminent domain conflicts, well-off real-estate developers profit from charter school growth since they will help new schools get established for a price. Eminent Properties Trust boasts, “Our investment portfolio of nearly $3 billion includes megaplex movie theatres and adjacent retail, public charter schools, and other destination recreational and specialty investments. This portfolio includes over 160 locations spread across 34 states with over 200 tenants.” When real estate developers acquire these charter school properties, they charge charter schools for rent payments, which are not price-capped.

Charter management group Charter Schools USA recommended that rental costs should not exceed 20 percent of a school’s budget, but a 2011 investigation by the Miami Herald found that 19 schools in Miami-Dade and Broward alone spent more than 20 percent of their budgets on rent; one in Miami Gardens 43 percent.

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