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2010-05-07

Juan Gonzalez: Big Banks Making a Bundle on New Construction as Schools Bear the Cost

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"Wealthy investors and major banks have been making windfall profits by using a little-known federal tax break to finance new charter-school construction," Democracy Now! co-host Juan Gonzalez write in the New York Daily News. "The program, the New Markets Tax Credit, is so lucrative that a lender who uses it can almost double his money in seven years." [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: Juan, before we move on to the Gulf, you have a very interesting column in the New York Daily News today, an exposé around big banks and charter schools.

JUAN GONZALEZ: Yes, Amy, one of the things I’ve been trying now for a couple of years is to try to figure out why is it that so many hedge fund managers, wealthy Americans and big banks, Wall Street banks, have — executives of Wall Street banks, have all lined up supporting and getting involved in the development of charter schools. And I think I may have come across one of the reasons: there’s a lot of money to be made in charter schools. And I’m not talking just about the for-profit management companies that run a lot of these charter schools.

It turns out that at the tail end of the Clinton administration in 2000, Congress passed a new kind of tax credit called a New Markets Tax Credit. And what this allows is it gives an enormous federal tax credit to banks and equity funds that invest in community projects in underserved communities, and it’s been used heavily now for the last several years for charter schools. And I focused on Albany, New York, which in New York state is the district with the highest percentage of children in charter schools. Twenty percent of the schoolchildren in Albany are now attending charter schools. And I discovered that quite a few of the charter schools there have been built using these New Markets Tax Credits.

And what happens is, the investors who put up the money to build the charter schools get to basically virtually double their money in seven years through a 39 percent tax credit from the federal government. In addition, this is a tax credit on money that they’re lending, so they’re collecting interest on the loans, as well as getting the 39 percent tax credit. They piggyback the tax credit on other kinds of federal tax credits, like historic preservation or job creation or Brownfields credits. The result is, you can put in $10 million and in seven years double your money.

And the problem is that the charter schools end up paying in rents the debt service on these loans. And so, now a lot fo the charter schools in Albany are straining paying their debt — their rent has gone up from $170,000 to $500,000 in a year, or huge increases in their rents, as they strain to pay off these loans, these construction loans. And the rents are eating up huge portions of their total cost. And, of course, the money is coming from the state.

So, one of the big issues is that so many of these charter schools are not being audited. No one knows who are the people making these huge windfall profits as the investors. And often there are interlocking relationships between the charter school boards and the nonprofit groups that organize and syndicate the loans. And so, there needs to be sunlight on this whole issue. And the state legislature right now is considering expanding charter school caps, but one of the things I press for in my column, there has to be the power of the government to independently audit all of these charter schools, or we’re not going to know how public dollars are ending up in the coffers of Wall Street investors.

AMY GOODMAN: Well, congratulations on doing this, and we’ll continue to expose it as you do.

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