The Charter School Scam

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.

Open Left links to a column from Juan Gonzalez (with more at Democracy Now) explaining how a Clinton-era tax credit makes investment in charter schools a guaranteed return for big banks and hedge funds—which may be part of the reason we’ve seen such a big policy push in that direction in recent years, with predictable results:

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.

The Henry Johnson Charter School, for example, saw the rent for its 31,000-square-foot building skyrocket from $170,000 in 2008 to $560,000 last year.

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.