There are many ways in which nonprofit charters make a profit. Most involve complex real estate transactions and such things as “triple net leases” which are hard for the public to understand. Such deals often involve a charter operator owning or leasing the real estate and renting it to the charter school at exorbitant rates, with the public footing the bill.
Michael Kohlhaas has discovered another ingenious way that allegedly nonprofit charter operators extract money from their operations.
He describes the case of a charter operator in Los Angeles who sold his “receivables” soon after getting his charter.
Kohlhaas writes:
The idea is very simple. A charter school has guaranteed future income in the form of payments from the state. They sell those payments to a finance company at a discount.
The finance company also charges a transaction fee. So for instance, if a charter has enrollment worth $1,000,000 they might sell those future payments for $980,000 now, which is less 2%. That means that $20,000 of public money, meant to educate children, has just evaporated into some zillionaire’s pocket for no reason, with no social benefit, nothing.2
This is usury. Payday loans for putatively public institutions. It’s textbook predatory lending with the unique distinction that both the borrower and the lender are teaming up to prey on a third party, which is the public. And, as I said, none of this is theoretical. Excelencia Charter Academy actually did this last year, which was their first year in operation.
It was obviously part of the plan all along, because founder Ruben Alonzo began arranging the sale within six weeks of receiving his approval from LAUSD. Read the details in this email chain. And keep this story in mind next time some charter minion starts burbling on about putting kids first and the putative efficiency of the private sector. Their financial model includes skimming a percentage of public money for no reason other than to enrich their cronies. This, friends, is not what efficiency looks like.
The company that handled the transaction for Excelencia is called Charter Asset Management, and this is only one of the incredibly shady sounding services that they offer to charter schools. They’re also not alone in this business. Another such company, which also buys receivables, is Charter School Capital. This one is even shadier than the other, founded as it was by an actual charter school operator who then used it to buy the receivables from his own school, thus pocketing the transaction fees himself.
Kohlhaas used the state’s public records act to obtain a huge trove of emails sent by charter operators, and he has mined them for posts like this one.
This is a big difference between a public school and a charter school. Would it be legal for a public school principal to sell the “receivables” for his or her school? Of course not. She would be charged with a crime and sent to jail.
Diane Ravitch's blog 
This particular charter School, Excelencia (in Los Angeles), as with all charters, operates on a business model.
Hence, unlike traditional public schools, they view the government funding for that school as “income” or “guaranteed receivables.” Once the charter is approved, they can immediately further characterize their government funding as “guaranteed income” and “guaranteed receivables.”, since the funds will be deposited in Excelencia’s bank account.
Thus, the less spent on the school’s staff and other expenses, the more … yes … “profit” the school will generate, and the more the bosses can pay themselves.
Hence, the charter operators cheap out hiring teachers who are totally uncredentialed and inexperienced, as again, the less they pay out for the budget line item of salary, the greater the “profit” on that “guaranteed income” for the charter operators.
One enterprising protestor of Excelencia (also a teacher at the public school that Excelencia has forcibly invaded that school), obtained the names and photos of these bargain-basement teachers, and made fliers with their pictures, and which contained total lack of experience and credentialing, then passed them out to the parents.
Students placed in those students’ classes were at risk because none of them had taken classes in emergency lock-down drills (fire, earthquake, active gunfire out the school, etc.) — trainings that are mandated as part of credentialing and employment.
She even wall-papered her van with these fliers, then parked it in front of the school …
… which provoked one of Excelencia’s bosses to enlist the police to tow that van, so no parents or media would read the fliers.
The police refused, perhaps because down the road, they don’t want their own jobs privatized and replaced by Ronco Rent-a-cops, or Acme Police Services, with equally untrained and unlicensed replacements for our boys in black. (L.A.P.D. has those classic Adam-12 black uniforms.)
I had a conversation this morning with an experienced teacher in a suburban district where substitute teachers, barely able to speak English are being hired as substitutes. She reported that there was an unannounced fire drill. The sub, earning about $10 and hour, had no idea what the noise was, had not “taken classes in emergency lock-down drills (fire, earthquake, active gunfire out the school, etc.)” She also did not know how to assist students in the complex and time-sensitive rituals of loading school busses.
The banks and hedgefunds have been allowed to run roughshod for long enough. They caused the recession in 2008 and thousands of families lost their homes and jobs. The Obama administration gave them a slap on the wrist and let them continue the predatory practices. We will learn the hard way….in the way of a Depression…..if our politicians don’t act NOW!!!
Reblogged this on Crazy Normal – the Classroom Exposé and commented:
Discover the SCAM: how faux non-profit, publicly funded private sector charter schools make a profit while claiming to be a non-profit.
A real public school principal would never get away with selling the “receivables” for his or her school because real public schools are transparent and the elected school board would fire him or her before he or she had a chance to sell those “receivables” and pocketing what’s really a con-game kick-back.
I imagine these kick-back schemes will soon be marketed as a “financial product” and “value-added” measure for investing in a charter school. In fact, the “asset management” and “charter capital” labels in the original post suggest that market this financial product is already being scaled up for profit-seekers.
yes; the language always validates profiteering
Exactly right, Lloyd. I’ve never heard of a public school principal selling or mortgaging her “receivables.”