Why do hedge funds ADORE charters? Pt. II: 39%+ Return


With nearly 1,000 hits and counting, my post “Why do hedge fund ADORE charters?” was surprisingly popular. One of the issues raised by commenters on the post was the New Markets Tax Credit. It has been discussed elsewhere (here and here). We thought we would add more hard numbers to the discussion. This post was written in collaboration with Lindsay Butterfield, an EPP masters student at UT-Austin. The post is based on her final presentation in my Fall 2012 School Law and Policy course. Disclosure: As I have mentioned previously, I was an instructor at Aspire’s East Palo Alto charter and I currently sit on the board of the UT-Austin charter school. This insider view on charters has inspired research that shows that not all is well in the direction of the choice movement.

Show Me the Money: Sample of Private Investment, Advocacy Groups, and Charters

In 2010, JPMorgan Chase publicized that it will provide $325 million in financing assistance to aid charter schools with facilities development, including $50 million in grants of permanent equity to community development financial institutions working with charters.

Texas based Harmony Public Schools made headlines in 2010 for a bond issued at $90 million underwritten by Morgan Keegan and Jefferies & Company.

The Democrats for Education Reform (huge proponents of charters) are heavily supported by wealthy management firms such as Anchorage Capital Partners and Greenlight Capital.

Education Reform Now, an advocacy group has also received millions of dollars in generous support from philanthropic Wall Street organizations.

The Financial Risk Gap: Traditional Public Schools vs. Charters

Default Rate: 3.91 percent of charter school bonds versus 0.03 percent of traditional school districts

National data from the Center for Education Reform reveals information on charter school closures: 6,700 charter schools that have opened since 1992 and 15% have closed.

Texas Data show that between 1998 and 2011- the Texas Education Agency closed 52 charters (Center for Education Reform, 2011)

Higher rates of closure = higher risk = higher bond rates. Charter Schools: Approximately 8% Traditional Public Schools: 3% Cloaking Inequity discussed here. Wall Street Journal discussed here (subscription).

Incentives to Invest in Charter Schools?: New Markets Tax Credit

New Markets Tax Credit that was a part of the Community Renewal Tax Relief Act of 2000

Expected to result in the creation of jobs and material improvement in the lives of residents of low-income communities.

Section 45D of the Internal Revenue Code: “permits individual and corporate taxpayers to receive a credit against federal income taxes for making Qualified Equity Investments (QEIs) in qualified community development entities (CDEs)” (Internal Revenue Service, 2010, p. 1).

More from the IRS:


irs II
At a 39% return, plus the interest collected on the debt (averaging 8% in Texas), there is no wonder that that hedge fund financiers are such big “cheerleaders” of charter schools. Charters offer financiers, emperors of benevolence, a whole new era of opportunity, a new and improved way to tap the billions of dollars spent on public education— with the potential to create a brand new Wall Street blown bubble at the expense of our children. Current paradigm: Pressure to close public schools=more money. See more on charters here.

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Categories: Charter Schools, School Finance

Author:Julian Vasquez Heilig

Julian Vasquez Heilig is an award-winning researcher and teacher. He is currently a Professor of Educational Leadership and Policy Studies and the Director of the Doctorate in Educational Leadership at California State Sacramento.

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8 Comments on “Why do hedge funds ADORE charters? Pt. II: 39%+ Return”

  1. George Buzzetti
    December 10, 2012 at 5:03 pm #

    As the Hedge Funds are quoted “We learned that there is a lot of money in education and also We can double our money in 7 years instead of 12 by using government money.” What more is there to say except are charter schools also writing those crazy bonds in which you do not begin to pay them off for 20 years? Over 200 school districts in California have done so and there are only a little over 1,000 school districts in California. We are going to another financial cliff thanks to Wall Street again. What does it take for the public to wake up to the danger of an unregulated and unenforced Wall Street to all of our financial and other healths.

  2. December 10, 2012 at 7:16 pm #

    Does the New Markets Tax Credits apply to vouchers, as well?

  3. December 10, 2012 at 9:27 pm #

    Reblogged this on ipledgeafallegiance and commented:
    A must read and just another example of how and why the rich keep getting richer. Money, not benevolence, makes money and with the help of the government it’s practically guaranteed.

  4. December 12, 2012 at 11:17 pm #

    Pressure to close public schools and increase Charters !!!!!!!!!!


  1. Why Do Hedge Fund Managers Adore Charters? « Diane Ravitch's blog - December 10, 2012

    […] Julian Vasquez Heilig explains it here. […]

  2. Pawns of Industrialists and Financiers: Anti-Democracy Movement Gripping Education? | Cloaking Inequity - June 10, 2013

    […] and handed over to politically appointed board? See Why do hedge funds ADORE charters? and Why do hedge funds ADORE charters? Pt. II: 39%+ Return…pawns of industrialists and […]

  3. Will you stink up the privatization garden party with me? | Cloaking Inequity - April 12, 2015

    […] offer new opportunities to profit from sweetheart construction, land and lease deals. They also typically offer double and triple the rate of returns on bonds compared to traditional public school…. For profit charters are also able to skim dollars from the education of every child. Some charters […]

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