2010-06-25 / Columnists

The Rockaway Beat

Making Money On Charter Schools: Bundles For Politicians And Educational Partners
Commentary By Howard Schwach

Wealthy investors and major banks are making a fortune on the charter school movement, but they do it so far below the radar that most people, even charter supporters, don’t understand what’s going on.

The investors and banks use a littleknown tax credit to make big profits, perhaps doubling their money in seven years. That credit, the New Markets Tax Credit was detailed recently by Juan Gonzalez, writing in his Daily News column.

Gonzalez says that an Albany group has employed that tax credit to arrange private financing for five of the city’s charter schools. Under the tax credit, a bank or private equity firm that lends money to a non-profit to build a charter school can receive a 39 percent federal tax credit over seven years. That credit, Gonzalez says, can be piggybacked on other tax breaks created for historic preservation or job creation.

JPMorgan Chase recently created a new $325 million pool that will be used exclusively to invest in charter schools that allow them to take advantage of the tax credit.

If wealth investors and banks can make a fortune on charter schools, they will. We deserve, however, to know just who is making the deals and how much they are making.

The ownership and control of charter schools is still a murky area, even in Rockaway.

State Senator Malcolm Smith founded two charter schools – the Peninsula Preparatory Academy in Rockaway, which will soon move into the former Stella Maris High School building and the Merrick Boulevard Academy in Jamaica.

I know that Smith considers the Rockaway school his own. He told a crowd outside Far Rockaway High School on the day the mayor put that school on the city’s “Most Dangerous Schools List” that he was so upset with local schools that he was going to start his own. He did. Now, however, he says that he has nothing further to do with the school, and certainly does not get any money from the school.

Records show, however, that he has steered tens of thousands of dollars in public money to the school and has received a like amount of money in campaign contributions from its board; from the developers of Arverne By the Sea, where the school will one day stand and from officials at Victory Schools, PPA’s educational partner.

If you want to talk about making money from charter schools, even nonprofit charter schools, take a look at their educational partners.

Victory Schools, a for-profit educational company, charges between $2,000 and $2,700 per student for educational advice and back-office support. It also consults with the school about hiring and curriculum.

That total amounts to about 18 percent of what the taxpayers pay for each student. In 2009, that amounted to nearly $900,000.

According to its website, Victory Schools is the educational partner for eight charter schools in New York State alone. It has others in Chicago, Illinois and in other states.

Think of the money it takes in each year for providing back office support and advice on curriculum and hiring for those New York schools.

Think $900,000 times eight and you get about $7 million.

Talk about making money on a nonprofit educational process.

Do you want your kids being educated by people who want only profits and political power? I sure don’t.

A recent report in the Daily News says that Victory Schools charges what many would consider as usurious fees for those schools that cannot come up with timely payment for its services.

For example, the story says, the company charged more than $100,000 in interest payments to three of its partner schools last year alone, using rates that ranged from six percent to about fifteen percent. Merrick Academy, one of the schools founded by Smith, paid Victory Schools more than $85,000 in interest, using public funds to pay off the loan.

“No school should be using tax dollars to cover interest payments,” said newly-elected Public Advocate Bill de Blasio. It is not clear from the records whether or not the PPA has paid fees to Victory Schools, and the school did not respond to requests for that information.

Victory Schools is also the educational partner with The New York City Charter High School for Architecture, Engineering and Construction Industries (AECI). Last June, a Manhattan grand jury charged its founder and chairman with stealing more than $200,000 from a local housing organization that he founded. This year, the remaining teachers at the school asked for United Federation of Teachers representation, claiming that Victory Schools was charging an exorbitant management fee and draining the school of valuable resources.

Then, we come to Eva Moskowitz, the former Education Committee Chair for the City Council.

After Moskowitz left the council, she founded four charter schools in Harlem. The schools have a total of 1,300 students and Moskowitz reportedly earns $500,000 a year as their CEO.

Records show that schools Chancellor Joel Klein attended 13 fundraisers for her schools. He also reportedly assisted her in raising a $1 million donation from a private Los Angeles foundation and intervened for her in clearing space in public schools for her charters, sometimes forcing local students out of the building to make room for her schools.

In one email, obtained by the Daily News,Moskowitz wrote to Klein, “We really could use your intervention. We really need to quickly and decisively distinguish between the good guys and the bad guys. And, yes, take away resources from institutions that are harming children and give them to those who are truly putting children first.”

Not long afterward, records show, her plea was answered and room was made for her at a public school.

That is what charters are all about.

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