Time to End Tax Breaks for Charter Schools and The Ultra-Rich

Image for post
Image for post

Originally published on Diane Ravitch’s Blog

Joe Biden’s recent nomination of Miguel Cardona as a relatively lesser-known, less controversial selection for Secretary of Education was telling. It shows the incoming administration’s reticence to take a side in the ongoing battle over school choice and standardized testing, just like most members of Congress and the major U.S. media.

On the campaign trail, Biden drew cheers from teachers for his promise to end standardized testing, but he noticeably never added any such policy to his website. As was well known by teachers in those audiences, federally mandated tests provide no educational benefit but are the fuel in the engine driving charter school expansion.

President-Elect Biden did vow to cut federal funding to for-profit charter schools, however this affects only about 12% of charters (who could easily change their model while still enriching their for-profit management arms). Biden has acknowledged charter schools siphon money away from public schools, agreeing to new language in the (non-binding) DNC platform to discourage charters from discriminating against high-need students but as we know well, Democrats for many years have bent to pressure from deep-pocketed industrialists seeking ever more charter schools.

Not much has changed since the same billionaires threatened to fund other candidates if Hillary Clinton didn’t continue to signal support for charters. Remember Eli Broad’s explicit ultimatum to withhold campaign cash if Hillary sided with teachers against charter schools? We do.

But Broad also donated money to then-senator Kamala Harris, and like many ultra-wealthy education reformers, Broad made good use of the “revolving door”, hiring Biden’s former chief of staff Bruce Reed (2011–2013) to run his foundation.

AS THE DOOR REVOLVES: The same day he revealed Cardona as his education nominee, it was announced Biden rehired Reed as deputy chief of staff, despite pre-emptive protest from progressives like Alexandria Ocasio-Cortez and the Squad who objected to Reed’s past hostility to safety net programs like Social Security. A former top advisor to President Bill Clinton, Reed’s own bio touts his oversight of the 1996 welfare reform law, the 1994 crime bill, and the Clinton education agenda.

Starting in 2015, Reed was a senior advisor for Emerson Collective, the “social change” LLC founded by billionaire Laurene Powell Jobs who is also close to Vice President-Elect Harris. Though it’s not clear how Reed might influence Biden’s decision-making on K-12 education, he is expected to have a “major role” as Biden’s Deputy Chief of Staff particularly shaping technology and data privacy policy. And echoing Trump, Reed calls for the elimination of Section 230 which protects internet companies from lawsuits over user postings.

In 2014, while serving as CEO of the Broad Foundation, Reed made worrisome comments to Hillary’s education advisors, suggesting in private that whole cities could be mass-charterized in the wake of natural disasters, calling New Orleans an “amazing story”. Reed also voiced support for personalized digital learning using the Summit Charters model.

TAX BREAKS LINKED TO CHARTERS: It’s great to see watchdog groups expose significant waste and fraud in the charter school industry, but because U.S. media is so silent about the political influence of pro-charter billionaires, hardly any attention is paid to the generous federal tax credits enriching investors through “nonprofit” charter school construction and financing as public schools struggle for resources. One such program, the New Markets Tax Credit (NMTC), did make it onto Biden’s web page, showing he wants to expand the credit to $5 billion per year and make it permanent.

It might not be controversial to use a seven year, 39% tax refund to incentivize wealthy investors to start caring about economically disadvantaged neighborhoods in dire need of manufacturing plants and low-income housing, but why does the NMTC favor charter schools over traditional public schools which are literally crumbling on our heads?

I tried to find whose idea it was to include charter school construction, financing and leasing deals in the NMTC.

The program itself traces back to 1998 when a “membership organization” called NMTC Coalition, comprised mostly of banks, investment funds, developers, LLPs and LLCs came together under the management of Rapoza Associates, a large DC lobbying and government relations firm who supplies policy briefs and “comprehensive legislative and support services to community development organizations, associations and public agencies”. Sound a lot like ALEC?

Legislation was championed by then-Speaker Denny Hastert and Texas Rep. William Archer, both Republicans. The program was signed into law by President Clinton and went live as past of the Community Renewal Tax Relief Act of 2000, but it appears charter schools weren’t included until 2004. The California charter nonprofit ExEd claims to have “pioneered” NMTC charter financing deals, boasting of dozens under their belt. By 2017, more than $2.2 billion in NMTC allocations were deployed to expand charter schools nationally.

The contention was that although charter schools receive operational funding for enrolled students, they must procure and finance their own space, thus they needed a helping hand from Uncle Sam. Today however, 27 states have enacted legislation granting some level of access to district facilities, suggesting some re-examination is in order.

Operators also contended that their charter renewal terms, usually five years, are shorter than typical mortgage terms which range from 10 to 30 years. Thus the need for charters to quickly show results introduced a perverse incentive, driving all-out obsession for good scores on standardized tests so the school can not only guarantee their charter renewal, but demonstrate to lenders they are a safe bet (or attract even more expansion capital).

STAKES RAISED FOR TEST SCORES: Because the NMTC tax credit and a host of other federal programs give charters significant fundraising advantages over public schools, it provides financial impetus to target nearby public schools for closure. Anything that can be done to raise scores — or lower the competition’s scores — will help their chances. This not only gives rise to round-the-clock test prep, but the notorious practice of cherrypicking students.

The shiny new facilities help attract the best test-takers, while rigid “zero tolerance” discipline policies are employed to dump “troublesome” kids back on the public schools. Even though the deck is stacked, superior test scores create the “secret sauce” narrative used to sell politicians on charters and drum up support for more tax breaks.

Over the decades, poverty-stricken areas have been repeatedly carved up and designated as “Enterprise Communities”, “Empowerment Zones”, “Renewal Communities” or “Promise Neighborhoods”. In 2004, President Bush announced the “Opportunity Zones” program which Donald Trump renewed in his 2017 tax reform law, with support from Democrats like Cory Booker. This program could potentially dwarf the NMTC because it allows tax credits and deferments for trillions in untapped capital gains income.

Although Opportunity Zone deals are available to public schools, they would need to first sign over their property to investors. But it’s not clear these programs even work. Besides being rife with cases of abuse like the Steven Mnuchin or Rick Scott front-page patronage scandals, a University of Iowa study of 75 enterprise zones in 13 states found little to no economic benefit and noted other harmful impacts such as displacement, gentrification, or giveaways for development in up-and-coming areas that would have happened anyway.

As chronicled by Network for Public Education and noted by Congress, the array of creative charter school flim-flams has been incalculable — from exorbitant CEO salaries, predatory leases and consulting fees to management firms charging taxpayers to buy out a school’s name and logo. Even school districts got into the act, authorizing charter schools so as to generate oversight fees that help plug budget gaps. But there’s a marked difference between sketchy charter operators and multi-billion dollar programs designed to help charters replace existing schools.

SWEETENING THE POT: The tax credits, designed by the rich for the rich, are only the first layer of the subsidy onion for charter schools though. Linked to the tax breaks are tax-exempt charter school financing bonds traded in investment markets, and then even more inducement via a secondary tranche of bonds leveraged by government subsidies to backstop the first set of bonds against default. One such program, administered through the infamous No Child Left Behind Act is the Credit Enhancement for Charter School Facilities Program, which not only assumes downside risk, it artificially buoys bond ratings and lowers interest rates for the borrower.

These credit enhancements can be backed by federal or state funds, banks or private investors but again, the guarantees may be tied to academic performance benchmarks which precipitate discrimination against high-need students.

To lure developers into distressed neighborhoods, enormous bond guarantee and credit enhancement funds (starting at $100 million) were created under the Community Development Financial Institutions (CDFI) program, enacted as part of the 2010 Small Business Jobs Act. Charter school developers were among those offered access to long-term credit at below-market rates. In 2012, twelve of these CDFI fund management groups came together to form the Charter School Lenders Coalition, underwritten by usual suspects the Gates and Walton Foundations. The collaborative melded together ALL of the aforementioned programs with a stated goal of lobbying congressional reps to support more charters.

Earlier this year, high-profile Democrats including Senators Bernie Sanders, Elizabeth Warren and Chris Van Hollen co-sponsored legislation that would automatically deploy CDFIs in areas impacted by natural disasters or economic crises.

If all these financial instruments are starting to sound complicated, it’s no accident — I’ve spared readers most of the dizzying acronyms like CDEs, CMOs, UDAGs and QALICBs, but the less everyday people understand, the greater the chance this all flies under the radar. Even the developers — be they charter operators or wealthy financial backers — require a lot of hand-holding by intermediaries to guide them through the maze of policy intricacies and applications.

This is where yet another funding stream comes in, namely the federal Charter Schools Program, or CSP, which since 1994 has grown to into a $440 million annual slush fund for discretionary grants found to be so wasteful a third of 2006–2014 grantees never opened or quickly folded. Other recipients were found to be buying skyboxes or private jets, or unscrupulously charging themselves rent in cities and towns where local authorities are ill-equipped for oversight.

PULLING OUT THE STOPS: By the time Betsy DeVos took the helm, the U.S. Dept. of Education wasn’t just awarding start-up money to school-level charter developers but to all manner of other financial intermediaries including charter associations, nonprofits, state educational agencies, charter authorizers, and credit enhancement funds. The DeVoses know well that raining money on these entities will enrich real estate and banking interests, trickling down onto pro-charter candidates, local PACs and friendly media outlets.

A week before the 2020 election, DeVos shamelessly announced the Trump Administration will start ignoring the crystal-clear prohibition on federal funds for charters affiliated with religious organizations, rupturing the separation of church and state.

The NMTC technically expires on Dec. 31, 2020 but proposals for renewal have been very popular — the 2019 bill in the Senate had 37 bipartisan co-sponsors including Minority Leader Schumer, Amy Klobuchar and center-left Senators Jeff Merkeley and Sherrod Brown. The House version had 130 co-sponsors including Karen Bass and 22 other members of the Progressive Caucus.

If there was an amendment to remove the exclusive carve-out for charter schools from the NMTC, it would allow the community investment to continue (for better or worse) but take the finger off the scale in the competition for educational resources.

Such an amendment may not deter anti-union oligarchs like the Koch family bent on undermining public education. It may not deter data-mining tech billionaires seeking lucrative contracts or access to captive student audiences. It may not deter neoliberal social engineers who think their wealth ordains them to rejigger education as they see fit. It may not deter Betsy DeVos and her ilk from crusading for taxpayer-funding of religious schools.

But it could deter the garden-variety investor just looking to turn a buck, and it could bring attention to the little-understood giveaways to charter school investors. Also, it will flush out members of Congress afraid to go on record either for-or-against charters. As the battles over public education funding rage on, we hope incoming House members will infuse new energy into the fight, showing Biden, Harris and other policymakers the real-world harms and inequity built into charter school tax credits.

UPDATE: Turns out the NMTC program was already renewed through 2025, as well as the Empowerment Zone program, as part of H.R. 133, the Consolidated Appropriations Act of 2021.

In addition, the legislation quietly passed by Congress on Dec. 21 and signed into law by President Trump on Dec. 27 includes an unprecedented $12 billion set-aside for Community Development Financial Institutions (CDFIs)

https://www.novoco.com/news/trump-signs-bills-including-4-lihtc-floor-nmtc-extension-emergency-rental-assistance

Jake Jacobs is a middle school teacher in NYC and an advocate for public schools.

NYC Art Teacher, Education Reporter for The Progressive. Podcast at NYupdate.org

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store