Why do hedge funds ADORE charters?

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If we are to believe Jonathan Alter and others, hedge funds like loaning to charters because it is just the right thing to do and they have big hearts. I took issue with this off-stage at MSNBC’s Education Nation and Alter was dumfounded that hedge fund managers might actually be investing in charters because they can make some serious $. On camera, he said he was concerned about “the profit motive,” but off-camera he still disputed that hedge fund managers have a vested interested in fleecing the public (again!) in the education sector.

In a meeting with the Texas Charter School Association this morning, they related that the average rate that charters in Texas are paying for bonds is about 8% compared to about 3% for traditional public schools. That can mean the difference between debt service of $19 million and $29 million dollars over a 20-year term— ~$10 million. Now if you were a hedge fund manager, would you find that level of return inviting?

The New York Times further underscored this concern:

Wall Street has always put its money where its interests and beliefs lie. But it is far less common that so many financial heavyweights would adopt a social cause like charter schools and advance it with a laserlike focus in the political realm, The New York Times’s Trip Gabriel and Jennifer Medina write.

Hedge fund executives are thus emerging as perhaps the first significant political counterweight to the powerful teachers unions, which strongly oppose expanding charter schools in their current form.

Is it just me or does that second line eerily align to Alter’s comment right before I spoke about charters on the MHP show?

Here is what the Huffington Post had to say about Wall Street “profiteering” and charter schools:

There is clearly money to be made here. And where there is money to be made, we can be sure that there will be money to finance political campaigns, to support career ladders that move between government and business and to bribe the media into ignoring the data. So the war on public education will continue. All of course “for the sake of the children.”

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Categories: Charter Schools, School Finance

Author:Julian Vasquez Heilig

Julian Vasquez Heilig is currently an Associate Professor of Educational Policy and Planning and African and African Diaspora Studies (by courtesy) at the University of Texas at Austin.

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11 Comments on “Why do hedge funds ADORE charters?”

  1. November 7, 2012 at 2:05 pm #

    Julian, what about the use of New Markets Tax Credits?

    http://articles.nydailynews.com/2010-05-07/local/29438011_1_charter-law-albany-charter-state-aid

    This has been one of the most underreported parts of the story.

    • November 7, 2012 at 3:56 pm #

      Excellent point, check out this book by Professor Kevin Welner on tuition tax credits (Edit): http://www.greatlakescenter.org/neo_vouchers.php

      • November 7, 2012 at 7:40 pm #

        NMTC is a tax mechanism that allows lenders to claim a credit of 39% over seven years for lending to a non-profit. According to Gonzalez, JPM Chase created a pool of $325 million to take advantage of this tax loophole.

        This is a direct subsidy to Wall Street for opening charters.

  2. Al
    November 7, 2012 at 2:31 pm #

    Public education is a cash cow. Hedge funds need to do very little since everything is funded by the public. Just look at Pearson Education 7 million for tests being developed for the city of New York. Give me a break

    • December 2, 2012 at 12:24 pm #

      Al,
      You say public education is a cash cow, and that justifies hedge funds’ profit-seeking behavior in exploiting an opportunity, “there for the taking”, as it is? And “Give me a break” you say. No, YOU give ME a break.

      Hedge funds have more than enough territory to exploit as capital markets speculators. (What’s going on in that venue is worrisome and potentially destabilizing to our financial system as is). Now, however, Bill Gates, the Waltons and the hedge fund crowd are apparently looking toward our nation’s public education system, to exploit inefficiencies there as well! Yes, there are tax loopholes, but that doesn’t mean that they should be systematically exploited. Instead, if one were fabulously wealthy due to hedge funding activity, and socially progressive/ responsible-like, one could work toward changing law and close such loopholes.

      Yes, education and related social programs intended for the benefit of children and youth have been well-funded historically. It was money well-spent. Is there any question that the U.S.A.’s public education system (not a privatized, private or charter type system) has resulted in a highly productive, happy, healthy successful nation for most of the 20th century? I realize that correlation is not causality, but the model of public education that the USA has used prior to charter schools has been nothing less than wildly successful, as evidenced by our accomplishments as a nation. Public education requires adequate funding, though. And respect (by society) for teachers, as well as decent compensation and thorough training, for both teachers and administrators.

      Finally, regarding that figure you cite, re Pearson Education and $7 million of standardized testing for the City of New York: I don’t know the details, nor did you provide any. Standardized testing is something that charter school advocates have an inordinate fondness for, or so I hear. Perhaps that $7 million (project? contract?) deal with Pearson was initiated by and/ or intended for New York’s privatized cum charter schools, not the public school system? I would check into that first, before using it as an example to justify profit-taking of the U.S. Dept of Education by hedge funds and well-established billionaires… who already have MORE than enough money, one would think…

  3. November 8, 2012 at 12:30 am #

    Here are a few reasons why hedge fund managers like charter schools.

    http://www.occ.gov/static/community-affairs/community-developments-investments/spring11/articles/financing/cde11spring06.htm

  4. November 12, 2012 at 3:01 am #

    Things like that are so well hidden by vested interests, or so aptly disguised under suggestive words such as “Parents Choice,” that Hispanic teachers, school counselors, and Hispanic parents do not realize it is happening, therefore can’t react to it.

Trackbacks/Pingbacks

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