Following up on our “Master Class” story about hedge funders and the “education sector”: Two years ago, New York Daily News reporter Juan Gonzalez exposed a little known federal tax break, new market tax credits, in which wealthy investors and major banks have been making windfall profits, nearly doubling their investment in seven years.
Numerous charter companies as well as banks have participated in this lucrative deal including Imagine Schools, Green Dot, Brighter Choice, KIPP and Andre Agassi schools. See also “Cashing in on Charters.”
Imagine Schools finance subsidiary, Schoolhouse Finance, sold some charters to Real Estate Investment Trusts, including Entertainment Properties (EPR) and then entered into a triple net lease arrangement, quite profitable for investors, but costly for the charter schools.
Schools were deprived of operating revenue due to the high cost of leases (nearly 40% of total revenue in Las Vegas) and principals were fired for questioning the terms of the leases.
The new markets tax credits expired in 2011, but were extended this month as part of the fiscal cliff bill, HR 8. So, Wall Street investors are poised to take advantage of this opportunity, which appears to impact urban neighborhoods and their schools the most.