Albany Charter Group Wants to Raid City Cookie Jar

by Michael Hirsch

They said charters would offer needed competition to community schools, but they didn’t say the competition would be about public dollars.  Last week Albany Times Union reported on the city’s Albany Leadership Charter High School for Girls “asking for $15 million in tax-free public financing to buy the brand-new charter high school for girls built by the Brighter Choice Foundation.”

Here’s the cute part. The nonprofit Brighter Choice Foundation, which runs all 11 charter schools in Albany and  erected the building at a cost of some $10.1 million, is directing its Charter Facilities Finance Fund to ask the city to back its selling tax-exempt bonds to investors so it can  buy the school building and — are you ready for this? — lease it back to Brighter Choice.

Forget about whether the deal sounds dodgy, because it does. If the deal also sounds a bit familiar, it may be because Thomas Carroll, the prime mover behind the Brighter Choice charter schools, has been profiting from a similarly questionable real estate tax loophole for the past several years, a story exposed earlier this year by Juan Gonzalez in the Daily News.

Critics say Carroll’s latest charter real estate trick runs counter to the purpose of the city providing tax free bonds, which is to jump-start job creation and promote economic development. No jobs will be created here; the school is already up and running. Where’s the public benefit in financing a project that’s already completed?

The paper cites Brighter Choice Chairman Chris Bender’s bright expectation that the high school’s sale would “replenish the revolving line of credit” it holds with the Walton Family Foundation, the charity run by the family that owns the nonpareil union-busting Wal-Mart.

As the paper notes, that cozy arrangement “could create another potentially controversial scenario in which Brighter Choice is essentially using the proceeds from the sale of tax-free bonds to bolster the account from which it builds new schools to compete with the city school district.”

Supporters say the school does create jobs —some two dozen new ones — but that’s denied by an Albany schools spokesperson who says it’s more a case of job shifting than job creation, given that 200 public school staff members, including 100 teachers, were laid off in the last two school years.

We should note that Carroll, the little man on the charter school stair, is the honcho behind School Performance Inc., which in turn runs the  Charter Facilities Finance Fund that wants to make deal for the city.

His adventures in education aren’t restricted to the state’s snow belt.  President of the charter-flacking Foundation for Education Reform & Accountability, Carroll is also president of the Empire Foundation and CHANGE-NY, both far-right-of-center organizations that mask conservative ideology as fiscal prudence. Ripping off Albany’s tax base must be the new style in protecting the public’s dollars.

On paper, charter schools can be useful experimental nonprofit projects offering urban students small classes and intimate surroundings in schools run by teachers, parents and community leaders — and in schools covered by a union contract. Successes, especially in the charter school industry’s claim to closing the shameful achievement gap between white students and children of color– could then be imported into community public school curricula and pedagogy. Fine in theory. That’s not how it works in practice. Charters are frequently run by for-profit operators who cream students out of district- or municipally run schools and either refuse to admit special education and English language learners or steer them away in the case of school lottery winners — all in order to boost their statewide test scores — while keeping unions out and teachers as at-will employees (though fresh organizing successes are changing that union-free picture, at least incrementally). Actually existing charter schools don’t as a rule militate to increase the public pot of dollars going to education. In too many cases, they instead drain money from the community schools and –devilishly– serve sizably as investment opportunities in land and in various for-profit urban redevelopment schemes by hedge fund managers and other Wall Street speculators. The attacks on public sector unions that are ongoing in every state and territory, which are sold as budget-tightening measures and common-sense economies, are all about privatizing education and other public services, and the bulk of vocal charter school supporters are union haters. These attacks are first-rank union issues.

Michael Hirsch is a staff reporter for New York Teacher newspaper. This originally appeared in a different form on the Edwize blog.

One Response

  1. Michael,

    This all is a lot less complicated and sinister than your post suggests. I understand that the world of finance can be complicated, so let me attempt to explain what actually is going on. It might be helpful for you and your readers.

    1. Charter schools do not receive state building aid, unlike district schools. Thus, charter schools need to eat their real-estate costs out of their operating aid. Outside of NYC, charter schools are not given co-location opportunities in district school buildings.

    2. Charter schools cannot directly issue tax-exempt bonds, unlike school districts. Thus, in New York State, in the past, charter schools have issued tax-exempt bonds through local industrial development agencies, called IDAs. In Albany, tax-exempt bonds presently are issued through an Albany City public agency called Capital Resource Corporation.

    3. Because of #1 (lack of building aid) and #2 (the lack of an ability to issue tax-exempt bonds directly), the Brighter Choice Foundation set up a revolving loan fund to provide short-term financing for the construction phase of building charter-school facilities. In Albany, unlike NYC, we do not co-locate with district schools.

    4. Yes, the Walton Family Foundation loaned the Brighter Choice Foundation money to fund the revolving loan fund. As you know, this foundation is one of the largest grant-makers for charter schools in the nation.

    5. Once a charter facility in Albany is constructed, the Brighter Choice Foundation secures intermediate- or long-term financing for each school building. At that point, with each transaction, the construction-financing loan is paid back to the Brighter Choice Foundation loan fund. BCF has charged zero interest for these construction loans.

    6. For many of Albany’s new charter schools, they do not have a long enough track record to issue long-term bonds at a reasonable interest rate. Thus, they have secured intermediate-term 7-year loans from non-profit lenders.

    7. Because it is difficult to get commercial banks to loan money for facilities in economically disadvantaged neighborhoods at reasonable rates, the Brighter Choice Foundation — like many nonprofits doing work in the education, health care, and affordable housing fields — is structuring loans that tap the incentives provided by the federal New Market Tax Credit program.

    8. The New Market Tax Credit program, which has received bipartisan Congressional approval under the Bush and Obama administrations, gives a 35 percent tax credit (cumulatively over 7 years) to investors who put money into projects serving economically disadvantaged neighborhoods. To be clear, the nonprofit Brighter Choice Foundation is not getting the tax break, the investor is. On most of the Brighter Choice deals, the “equity investor” has been US Bank. No one affiliated with the Brighter Choice Foundation has any relationship with US Bank or personally benefits from the New Market Tax Credit.

    9. The Brighter Choice Foundation does not recruit the equity investor. That is the job of the nonprofit lenders who are providing the 7-year loans.

    10. For some charter schools that either have a long track record or unusually strong finances, they are able to skip the intermediate financing and go straight to the tax-exempt bond market. This allows them to borrow money from the private capital markets. Charter schools, like district schools, and various nonprofits (including health care, low-income housing, etc.) are entitled to issue tax-exempt bonds rather than taxable bonds (which a private corporation would issue).

    11. So, there is nothing unusual about a nonprofit charter school using tax-exempt bonds to provide permanent financing for its facilities.

    12. Whether the charter school ends up securing intermediate New Market Tax Credit loans or issuing a long-term (25- to 30-year) tax-exempt bond, it pays back the Brighter Choice Foundation for the construction loan it made up front. As indicated, thus far, such construction loans have been offered at zero-percent interest. So, what the school is paying back is the actual construction costs.

    13. In the future, the nonprofit Charter Facility Finance Fund will be handling the bond transactions for Albany’s charter schools. The reason for doing this is because a pooled approach to issuing bonds — rather than having each school issue its own bonds — will result in a higher credit rating and lower borrowing costs.

    14. By the way, the proposed tax-exempt bond transactions do not raid the city “cookie jar.” In fact, the City of Albany will make money off of the transaction because they charge a transaction fee on each bond transaction they do.

    15. Let me clear up some organizational issues that were confused in your post. The Empire Foundation and CHANGE-NY no longer exist, and haven’t for years. As for the Brighter Choice Foundation, I founded the organization but no longer hold any position with that organization.

    16. Lastly, all of the charter schools in Albany are nonprofit organizations. None of them contract with for-profit management organizations. The only school in Albany that contracted with a for-profit management organization — New Covenant Charter School — was a unionized charter school that was closed due to low performance earlier this year.

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