They said charters would offer needed competition to community schools, but they didn’t say the competition would be about public dollars. Today’s Albany Times Union reports 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 bulding 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.
6 Comments:
1 Thomas W. Carroll
· Nov 22, 2010 at 1:29 pm
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.
2 Michael Hirsch
· Nov 23, 2010 at 3:51 pm
Thomas,
The key issue here isn’t your Beginner’s Guide to tax regulation, but the viability and wisdom of using public dollars for private purposes—specifically this private purpose. At the end of the protracted process that you claim is unavoidable, Brighter Choice Foundation will own the building and use it as it sees fit, possibly as a school but just as likely as commercial rental property or for sale in what could be a much more attractive urban market. No public entity or authority will oversee your efforts, nor will any be in a position to deny the owner that use or sale.
Contrast that with public monies going to community schools. These schools may rent out their space for community-related activities, but the properties are still in the hands of the school district, municipality or other public interest. Schools, whether charter schools or community schools, should not be landlords. If a public authority were instead the purchaser, developer or property holder, there would be oversight of — and accountability for — its use. The property wouldn’t become an as-of-right commodity for investment or sale. If you were interested in advocating for the establishment of such an authority, you would—in my view—be on the side of the angels. Absent that, every incidence of private investing in education carries at least the taint and too often the sulfurous reality of self-serving. It’s a taint we don’t need on the schools.
Note that I’m not necessarily challenging your or any other charter school founder’s veracity. No one is questioning the motives of the Brighter Choice Foundation board when it says it wants to improve schooling for at-risk children and aid in refurbishing neighborhoods for its residents. It’s about a future business climate that could make unloading a property highly attractive. And without public oversight, the attraction could prove irresistible.
As to your saying that the Walton Family Foundation loan to Brighter Choice is above suspicion: surely not! Yes, it’s “one of the largest grant-makers for charter schools in the nation,” but that speaks poorly of Brighter Choices’s choices in grant makers. Some donations constitute dirty money, and the Walton family fortune is among the dirtiest. It comes from Wal-Mart’s ill-gotten monopoly position in the retail market, gained through destroying Main Street businesses nationwide, waging a decades’ long jihad against union organizing efforts, and systematically ripping off of its own employees. Wal-Mart is the leading violator of child-labor laws in the United States. It is a bad employer and a bad neighbor. Even politicians return money coming from notorious sources. Brighter Choice could have stepped up and refused the foundation’s largesse as the product of ill-gotten gain, but it didn’t.
On some of the other filigree in your reply:
You say that, even as the founder of Brighter Choice Foundation, you “no longer hold any position with that organization.” Interesting, because the web site of your own Foundation for Education Reform & Accountability (FERA), of which you are president, lists you as “chairman of the Brighter Choice Foundation in Albany, New York.” I’ve heard of absentee landlords, but absentee chairmen?
And you have no relation to the defunct CHANGE-NY? Why the modesty? You were its director. It was your bread and butter. You left this right-wing business lobby—a group The New York Times generously described in 1992 as comprising “anti-tax, anti-spending conservatives” — to serve as a key Pataki administration official whose charge was tearing up state regulatory practices. The group faded because its mischievous job was done, and the state is—in my mind—the poorer for that job. FERA is a carbon copy of CHANGE-NY’s every scheme for education, and you regularly tout your connection to CHANGE-NY in your C.V.s. You even make its boilerplate points in your numerous tabloid op-eds. Presumably you didn’t leave the group because you saw the error of your ways, but because CHANGE-NY and its backers had captured the hearts, minds and purse strings of the state GOP and its three-term governor. There’s been a “Mission Accomplished,” but now it’s time to undo the harm that privatization and unregulated markets have caused.
3 Albany Charter Group Wants to Raid City Cookie Jar « Talking Union
· Nov 23, 2010 at 8:03 pm
[...] Michael Hirsch is a staff reporter for New York Teacher newspaper. This originally appeared in a different form on the Edwize blog. [...]
4 Thomas W. Carroll
· Nov 24, 2010 at 11:04 am
Michael,
1. You and I disagree that allowing a nonprofit to issue tax-exempt bond constitutes an expenditure of public money. Philosophically, you believe that any failure to tax equals subsidy. I don’t. But regardless, a charter school like a district school is a tax-exempt entity.
2. On your broader issues about Wal-Mart, that’s not my fight. Yes, we accepted a loan from the Walton Family Foundation. I sleep soundly at night. You think I shouldn’t but nonetheless I do.
3. On CHANGE-NY and Empire Foundation, I did not deny I founded and was president of both. You indicated I still was. I was just pointing out that you got your facts wrong. Both organizations haven’t existed for years. Just admit you made a mistake.
4. In the spirit of admitting mistakes, the FERA website needs to be updated to reflect that I no longer hold a position with the Brighter Choice Foundation. I will get that done.
5. After the issuance of the proposed tax-exempt bonds, the Charter Facility Finance Fund will be the owner of the school facilities. The Fund is a nonprofit organization and has no intention of selling the properties for use as a commercial rental property. At the pace charter schools are growing in Albany, we will need the space for schools. You need not worry.
5 Michael Hirsch
· Nov 24, 2010 at 12:06 pm
Tom,
I accept that you are no longer part of a group that has expired. That should have been clear in my last post, because it was clear enough in yours. My bad. And yes, web sites are never as accurate as are current letterheads in determining who now leads an organization, but then web sites are far more ubiquitous. Please don’t fire your web manager.
But why you continue to put your past association with CHANGE-NY front and center in your extended bios is peculiar to me. You must be proud of the connection. To me, being proud of a past life as CHANGE-NY’s agent-in-charge is not unlike someone else waxing nostalgic about an expired stake in a dog-fighting ring. Taking money from the Wal-Mart dynasty? Your choice, and I won’t ask what drugs you take to sleep at night, but I do believe that legitimizing that outfit by taking their coin is no different from the many charitable organizations of the antebellum period—North and South —who accepted contributions from slave owners. The abolitionists didn’t. Others did. But then that’s not your fight, either.
On my not worrying about the schools being turned into disposable property: as my sainted grandmother said, “From your lips to God’s ears,” and good luck to you. To me, though, a public agency that developed properties for community and charter schools alike would be a fail-safe against speculation, not to mention a more rational way of providing facilities for all schoolchildren.
6 Thomas W. Carroll
· Nov 24, 2010 at 12:49 pm
Michael,
The UFT endorsed Hillary Clinton for the U.S. Senate even though she previously sat on the Wal-Mart board as a paid board member for six years.
I can only hope you will extend me the same forgiveness for accepting a charitable loan from the Walton Family Foundation.
Have a Happy Thanksgiving.