Private Equity and Charter Schools

truthout has recently published an investigative article by Yves Smith that explains why private equity firms have been investing heavily in corporate charter schools.

Drawing on articles published by the Philadelphia Inquirer, the article provides an extended explanation of how these multi-layered scams have been implemented by some of that city’s charter school operators.

But, since just about every major newspaper in Ohio has reported on similar scams uncovered across our state, it seems a safe bet that these scams are not isolated abuses but, instead, commonplace practices.

The following two paragraphs provide a fairly succinct general overview of how the scams work:

“Eileen Appelbaum, co-author of the important book Private Equity at Work, flagged an important article in Philly.com on how a secretive consulting firm that was previously investigated for corruption and a local law firm are engaged in complex, high cost bond deals to implement an asset stripping strategy that Appelbaum and her co-author Rosemary Batt have called out as a private equity enrichment scheme that impairs operating businesses. It’s bad enough to see this sort of thing take place in the dog-eat-dog world of Corporate America. It’s even worse to see it take place in charter schools, where the losers are students, by virtue of unjustifiably large portions of charter fees go to unproductive rental payments and financing fees, as opposed to education, and to taxpayers, who over time face inflated costs to fund profiteering masquerading as education. . . .

“The nub of the looting strategy is the acquisition and leaseback of lavish buildings to house charter schools. Because charters are correctly perceived to be risky tenants, bond financings for these purchases are at junk bond rates, meaning high financing costs are heaped on top of what would already be unjustifiably high rental charges, by virtue of putting schools in educationally unproductive glamorous digs. And of course, in an environment where it’s business as usual to lard up bond deals that could be done on a plain-vanilla basis with far more complicated deals that lower interest rates a smidge in return for allowing consultants to charge hefty fees and the financiers to dump risks worth more than the cost savings on the hapless borrower through derivatives, the financial rent extraction can occur at an even greater scale on a high-cost financing. . . .”

 

The complete article, titled “Private Equity Asset-Stripping Strategy Meets Charter Schools to Produce Even Better Looting,” is available at: http://www.truth-out.org/news/item/32921-private-equity-asset-stripping-strategy-meets-charter-schools-to-produce-even-better-looting. It is well worth reading, and truthout is well worth following [http://www.truth-out.org/]

 

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