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.