The big money and profits behind the push for charter schools

By David Sirota , written on June 19, 2014

From The News Desk

At this point, it should be fairly obvious why the technology industry is so high on so-called education "reform." More computer-based standardized tests and online learning means more opportunity for the industry to sell its wares to school districts.

What has been less clear is why the corporate sector's Masters of the Universe have involved themselves in the crusade to specifically promote publicly funded, privately administered charter schools - and "involved" is putting it mildly. Indeed, as various news outlets have documented, business heavyweights are dumping millions into the nationwide campaign to promote charter schools as a replacement for public education. That includes, most recently, Facebook's Mark Zuckerberg.

One theory is that business mavens love numbers and data, and simply believe charter schools deliver better empirical educational results than public schools. Except, on the whole, data show those charter schools do not typically perform any better - and often perform worse - than traditional public schools. Charters also seem to contribute to racial segregation in the education system.

Another theory is that while Wall Streeters spend their days making bank off stuff like foreclosures, rapacious fees, job-killing buyouts and other forms of pillage, in the off time these barbarians supposedly devote to public service, they are really just warm cuddly altruists who deeply care about the kids. You tend to see this kind of hagiography in the financial press (see the recent Forbes profile of Paul Tudor Jones).  If you believe it, I'm sure these Gordon Gekkos have a subprime mortgage to sell you.

Of course, if the simplest explanation is most often the correct one, then it stands to reason that at least some corporate titans promote charter schools to do what they do best: make money. And as Hofstra University's Alan Singer points out in a new Huffington Post essay, there's evidence that's exactly what's happening.

Singer reports on a provision slipped into the 2000 Community Renewal Tax Relief Act that provides "tax incentives for seven years to businesses that locate and hire residents in economically depressed urban and rural areas." He notes:

According to one analyst, the credit allows (charter school investors) to double the money they invested in seven years...

The tax credit may also explain why Facebook CEO Mark Zuckerberg partnered with the former mayor of Newark, New Jersey to promote charter schools, donated a half a million dollars worth of stock to organizations that distribute charter school funding, and opened his own foundation, Startup: Education, to build new charter schools.

The real estate industry, which already receives huge tax breaks as it gentrifies communities, also stands to benefit by promoting charter schools and helping them buy up property, or rent, in inner city communities...The Miami Herald called south Florida charter schools a "$400-million-a-year powerhouse backed by real-estate developers and promoted by politicians, but with little oversight." Its report found charters paying exorbitant fees to management companies and that many of the highest rents were paid to landlords with ties to the management companies running the schools.

Tax benefits and real estate investment may also explain why Wall Street is so hot on raising money for charter schools. On Monday night, April 28, 2014, hundreds of Wall Streeters gathered at Cipriani in Midtown Manhattan to raise funds for Success Academy Charter Schools. Former Florida Governor and GOP presidential contender Jeb Bush gave the keynote address. The dinner was chaired by hedge fund manager Daniel Loeb. Loeb is the founder of Third Point LLC and chairman of the board for Success Academy. The gala raised at least $7.75 million for Success Academy. Also attending were Kyle Bass of Hayman Capital Management, Joel Greenblatt of Gotham Asset Management, Boaz Weinstein of Saba Capital, John Paulson of Paulson & Co. and Erik Prince, the founder of Blackwater USA. Back in 2010, the New York Daily News' Juan Gonzalez explained some of the returns that these schemes can generate:

Wealthy investors and major banks have been making windfall profits by using a little-known federal tax break (called the New Markets Tax Credit) to finance new charter-school construction...

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 Chaseannounced this week it was creating a new $325 million pool to invest in charter schools and take advantage of the New Markets Tax Credit. Noting this isn't to allege that every business titan bankrolling the campaign for more charter schools is in it for their own personal financial interests. As just one example, take Zuckerberg. The New Yorker reports that in his scandal-plagued $100 million campaign to charter-ize Newark, New Jersey's school district, "more than twenty million dollars of Zuckerberg’s gift and matching donations went to consulting firms with various specialties: public relations, human resources, communications, data analysis, teacher evaluation." Yet, no evidence has emerged proving that he personally was trying to profit off the campaign.

But, of course, a lot of corporate execs working for the firms who got Zuckerberg's money did indeed personally profit off the pro-charter-school campaign. Additionally, in states where charter schools are for-profit enterprises, there are even more business interests with personal financial stakes in undermining traditional public education. And, again, there are all the profits inherent in the aforementioned tax credits. Meanwhile, there's the whole anti-union element to the charter school movement. As any political consultant for a business group knows, if you get union-free charter schools to replace traditional public education, you damage the public sector unions - aka one of the few political forces with any resources to challenge Corporate America's broader legislative agenda.

Of course, this is the kind of thing you almost never hear about in the ongoing debate about education. Most often, that debate pretends the fight pits greedy self-interested teachers' unions against purely altruistic corporate types who are so rich they couldn't possibly have a financial motive in their education policy advocacy. Somehow, we are to believe that in the midst of their careers making as much money as possible in their chosen careers, every philanthrocapitalist suddenly is selflessly spending gobs of money with no desire to get any return on investment. Worse, we are asked to believe this even though there are myriad ways to engineer such a return on investment through the campaign to promote charter schools.

Again, that doesn't mean everyone supporting charter schools is doing so to make a quick buck. But it does mean that we cannot have an honest or reasoned debate if everyone pretends the profit motive is somehow completely absent from education politics and policy.