Two Bronx legislators want the city to pay even more for charter rent!

 Assemblymember John Zaccaro Jr. and Senator Luis Sepulveda

The Bronx Times reports  a new bill that would supposedly provide more "equity" by making NYC DOE cover the rental costs for all NYC charter schools.

A law passed the Legislature in 2014 required NYC to provide space in DOE schools for all new or expanding charter schools or help pay for their rent, while getting 60% reimbursement from the state. NYC is the ONLY district in the state and even the country with this unfair obligation, where we have some of the highest rental costs in the nation.  Even with state reimbursement, charter rent is costing DOE more than $100M this year, with this amount expanding annually.  The DOE estimates the cumulative cost of charter leases to their budget at nearly a billion dollars since the law was passed.

Now Senator Luis Sepulveda & Assemblymember John Zaccaro Jr. have submitted a bill that would make DOE pay rent for ALL NYC charters.  Meanwhile, Bronx charter schools are springing up in new developments throughout the borough, subsidized by DOE and thus taxpayer funds.

How much would this new bill cost the DOE budget- $1B or more per year? The reporter doesn’t say; nor does she point out that NYC is the only district in the state or nation with this financial obligation.  Nor does she quote any opponents to this new bill.

Why do these two Bronx legislators advocate for more funding for charter school facilities, while not mentioning that not a single new Bronx public school is specified to be built in new five-year SCA capital plan? Could it be because of the deep pockets of charter lobbyists perhaps?

According to Follow the Money, and the NY State Board of Elections, Dan Loeb, billionaire charter school supporter gave Sepulveda $11,800 in 2020 and $11,000 in 2018, with his wife Margaret Loeb matching both donations, along with another $15,000 from John Petry, another billionaire charter school supporter.   

Sepulveda also received $7,000 from DFER and $37,300 from Students First, both charter lobbying organizations, plus a lot of real estate money, which is not surprising as developers profit off charter expansion, as DOE’s rental payments guarantee them a steady source of income when they finance buildings with charter schools as anchor tenants.

John Zaccaro’s three biggest contributors in 2023 were charter school supporters Joel Greenblatt ($6000) Greenblatt’s wife Julie (another $6000), plus Students First NY (yet another $6000). Greenblatt, Loeb and Petry are also on the board of Success Academy charter schools.

In our report on charter rent, we pointed out that some charter management organizations that own or sublease the space for their own charter schools like Success Academy have sharply raised these rents, apparently to gouge more funding out of DOE. 

After we released our report, Senators Liu and Jackson and City Council Education chair Rita Joseph wrote a letter to NYC Controller two years ago, asking for an audit; but we haven’t yet heard that there is any such audit yet in process.

Instead of this awful new bill, public school parents and advocates should support Sen. Liu’s bill, S2137, and A5672, sponsored by AM Benedetto,  that would remove the unfair, expensive and onerous obligation for DOE of having to pay charter rent.

How investors make money from NYC Charter Schools despite purported ban on for-profit charters by Gavin Healy

The following post is by Gavin Healy, a public school parent and a newly-elected member of CEC2.  Though ostensibly, all new for-profit charter schools are banned from opening in NYC, there are still ways to make a buck off the proliferation of charters, especially as NY State law requires the city to reimburse charter schools for the cost of its leases at a very generous rate, one that it appears many charter schools including those whose management organizations own their own buildings have used to their advantage in many cases to inflate their own rent.  See the Class Size Matters 2019 and 2021 reports on this issue, and the letter from Senators John Liu, Robert Jackson and CM Rita Joseph asking the City Comptroller to audit these payments.  

Now that some charter schools are closing due to falling enrollment, such Harlem Hebrew Language Academy, they can sell off their buildings or rent them back to DOE,  and garner even higher profits, despite the fact that the city has already spent nearly nine million dollars on lease payments in the case of HHLA over the years.

Here Gavin reports on how Barone Management, which is in the process of building and managing a portfolio of 10 charter school buildings throughout the city, mostly in the Bronx, promises a steady rate of 22.5% internal rate of return (IRR) to its investors. What Barone explained below is that the per student amount set by the state and received from the city in rent doesn't align with the actual cost of the land, construction or maintenance; thus building charter schools in less expensive areas of the city like the Bronx guarantees a higher profit to investors. 

Thanks to Tanesha Grant, who first noticed this ad on Facebook.

Recently, I came across an ad seeking “investors” for the Bronx Charter School for Children, and immediately the question popped into my head: How can a NYC charter school have “investors” when for-profit charter schools are now prohibited under New York State law? 

Nationally, approximately 12% of charter schools are run by for-profit management companies. In New York State, charter schools had once been permitted to contract with for-profit operators, but the state legislature closed that loophole in 2010, and now only six for-profit charter schools remain in New York (four of them in NYC), grandfathered under the previous version of the law. Bronx Charter School for Children is not one of them.

So how can a “non-profit” NYC charter school be sold to investors? The answer to that question lies in what drives much of NYC politics: real estate.

The developer of this real estate project is a firm called Barone Management. Barone boasts of an “educational portfolio” of a dozen charter schools in NYC with close to 6,000 students, plus several more schools in development. For the Bronx Charter School for Children, Barone is renovating an existing building into a 28,000 square foot school. 

To partially finance the ground lease and renovation of the building, Barone is seeking investors through a “crowdfunding” platform called RealtyMogul, which hosted a webinar to answer questions about the project. RealtyMogul and Barone structured this project as a private placement of shares in a limited liability company established to lease the building to the (non-profit) charter school operator. As a private placement, shares can be sold to “accredited investors” (generally, people with a net worth of $1 million or more) without registration with the Securities and Exchange Commission. The Bronx Charter School for Children is Barone’s second “crowdfunded” charter school project in NYC, following one it completed for the Renaissance Charter School in Elmhurst, Queens in 2020.

In its webinar for potential investors, Barone offered a primer on the economics of what’s driving charter school demand in NYC. As Barone’s chief executive put it, “the NOI [net operating income] only grows as more students are enrolled.” Unlike payments under a more traditional commercial lease, which might be calculated on a simple dollars per square foot basis, total lease payments for this charter school depend on overall student enrollment. NYC is the only school district in the nation obligated to provide charter schools with rental subsidies, and this fact is a key element in Barone’s marketing pitch to investors. 

In the words of Barone Management CEO Scott Barone: 

“How does per pupil funding translate to real estate? Per New York City State and City charter regulations, 30% of an individual charter school’s per pupil funding is permitted to be spent on its real estate and facility needs. For the ‘23-24 school year, this equated to $5,502 per child per year. So, the short answer is that the more students you have enrolled in a particular school, the more robust its overall budget is, including its real estate budget, which is referred to as rental assistance in New York City.”

“Rental assistance” refers to payments NYC is required to make to charter schools established after 2014, or charter schools operating before that time that have since expanded, if such schools are located in buildings not owned by the NYC Department of Education. When the NYS legislature amended the charter law in 2014, it imposed the requirement to pay rental assistance only in respect of charter schools located in NYC and in no other school district in the state. As Barone notes, the amount NYC is required to pay to charter schools for rental assistance is $5,502 per student for the upcoming school year, a per student amount that has more than doubled since 2014. 

The Bronx Charter School for Children, established before the 2014 amendment, had not been able to take advantage of rental assistance until it expanded from a K-5 to a K-8 school starting from the 2020-2021 school year. The new location for the school will house these expanded middle school grades.

The amount of “rental assistance” due under the law is the “actual rental cost” of the charter school’s lease or 30% of per pupil funding, whichever is lower. In its pitch to investors, Barone is clearly setting the expectation that the amount of rent they will charge the charter school is the highest amount possible - 30% of per pupil funding - regardless of the actual rental cost. As the private placement memorandum provides, the base rent due under the charter school lease will initially be an amount equal to “(A) the greater of: (i) 30% of the Tenant School’s per pupil funding from New York State for the first Lease Year” and “(ii) $5,284.69; multiplied by (B) the Student Count.” 

The lease terms provide that the rent will increase by a minimum of 2.25% per year, plus a corresponding increase in that amount as student enrollment increases. Since “Student Count” is defined under the lease as the greater of the school’s actual enrollment and minimum enrollment numbers of 189 students in the first year, 200 students in the second, 213 students in the third, and 225 students in the fourth, the profits of Barone and its investors will rise as enrollment rises. The charter school also has a clear financial incentive to maintain its enrollment numbers, since if enrollment drops below those minimums, its rental payment obligations will not decrease. 

“Rental assistance” also explains why investors push for new charter school development in some neighborhoods rather than others. Responding to questions about crime and security around the school, Barone emphasized the presence of NYPD school safety officers, but ultimately turned the answer back to real estate economics, saying: “from a real estate perspective, for real estate dollars associated with a charter school, we get $5,500 per kid per year in rent. … I get that same $5,500 in the South Bronx that I would on Park Avenue. Obviously, the cost of my real estate is far cheaper in the South Bronx.”

Barone’s investment sales pitch is indicative of how charter schools can blur the line between the non-profit and for-profit education sectors. Barone’s chief financial officer projected total returns on a $100,000 investment in the school to be over $219,000 over the course of four years, and hinted at the potential for selling the project in its entirety to other investors at a later point. As an example, he cited how in 2019 “a large package of charter schools was sold … for over $450 million,” referring to the sale by a real estate investment trust of a portfolio of close to 50 facilities leased to a charter school operator. In that case, as with the Bronx Charter School for Children, it was buildings being sold rather than schools, but that distinction gets lost in the sales pitch to investors. In the real estate economics of the charter sector, schools are assets and greater student enrollment equates to a higher return on investment. NYC rental assistance guarantees these returns, and it also drives investor demand for charters in the South Bronx rather than on Park Avenue.

 

Parents and advocates comment on today's charter school march

For immediate release:  Tuesday, October 8, 2013

Arthur Z. Schwartz, Advocates for Justice: aschwartz@advocatesny.com; 917- 923-8136

Leonie Haimson, Class Size Matters: leonie@classsizematters.org ; 917-435-9329

Sam Pirozollo, NYC Parents Union: sam@nycparentsunion.org ; 917-533-3437 

Today, Eva Moskowitz and other charter school operators have closed their schools and are holding a political rally of students, parents and teachers, to try to pressure Bill de Blasio, Democratic candidate and frontrunner for Mayor, to go back on his campaign pledge that if elected, he will call for a moratorium on charter co-locations and charge charter schools rent.  What she and others in the charter lobby have ignored is that while Section 2853(4)(c) of the NY State Education Law allows districts to lease public school “buildings and grounds” to charters and to “contract for the operation and maintenance thereof,” it also requires that “any such contract shall provide such services or facilities at cost.” 

Arthur Schwartz, attorney with Advocates for Justice, who first filed a lawsuit on behalf of public school and charter school parents on this issue in 2011, says: “New York State Education Law requires that when a district provides space or services to a charter school it shall do so at cost.  Yet the DOE provides free space and services for more than 100 co-located charter schools.  Using figures from the NYC Independent Budget Office, we estimate that the space and services these charter schools currently receive is worth more than $100 million a year. A large chunk of that unfair subsidy goes to Success charters, which operates 22 schools across New York City, all of them co-located, with plans for seven more schools in 2014. Yet Success had an operating surplus of more than $23 million in 2012, and probably enjoys an even larger surplus this year.” 

“We have now been instructed by Justice Barbara Jaffe to take the issue to the State Education Commissioner. But in light of a recent ruling in a related case, we are asking the judge to reconsider. If she sends us to the Commissioner again we will appeal, in time to face off with a new Mayor. Success Charter Schools, which has organized the upcoming rally, is trying to exert political muscle. It will not succeed, in the public arena or in the courts. That $100 million will go back to our public schools, starved for resources, and hopefully allow them to reduce class sizes, which are now the largest in 15 years.” 

"This 'protest march' is yet another example of separate and unequal treatment afforded to charters, especially Eva Moskowitz's Success Charters," says Noah Gotbaum, a public school parent of three and a Vice President of Community Education Council District 3 on the Upper West Side and Harlem. "Success claims its schools are public, but what other public school could close their doors and demand that its parents and students attend a political rally? What other public school could sue the State Comptroller to avoid the transparency of a state audit?  And what other public school could use our tax dollars to pay its CEO almost $500,000 per year?" 

As Leonie Haimson, Executive Director of Class Size Matters points out, “A 2011 study from the Independent Budget Office showed that co-located charters in NYC receive more in public dollars per student than regular public schools, and city spending on charters is expected to exceed one billion dollars next year.  A report released by the charter lobby attempts to contradict the IBO analysis but has little credibility, especially since its author, Harry Wilson, is personally close to many in the charter school movement , according to Whitney Tilson, prominent board member of Democrats for Education Reform.  Indeed, Wilson promised not to 'harass' charters by auditing their books when he ran for NY State Comptroller in 2010.” 

Karen Sprowal, whose own son was pushed out of a Success charter in Kindergarten, observes:  “Over the last few months we have learned of even more cases of troubling disciplinary and push-out policies in charter schools, in a series of investigative reports from Juan Gonzalez of the Daily News.  There needs to be an immediate moratorium on expanding charters as well as co-locations, so that these abusive and potentially illegal practices can be carefully examined by authorities before any new charters are allowed to open in New York City.” 

Mona Davids, President, NYC Parents Union, said:  "As a former charter parent who spearheaded the charter reforms in 2010, I'm disgusted that Eva Moskowitz and other charter leaders are using parents and students as political pawns while continuing to violate the law by not serving their fair share of students with disabilities and English Language Learners, by not establishing Parent Associations and by refusing to be audited by the State Comptroller.  This march is an abuse of power by Eva Moskowitz and other charter leaders because no public school would be allowed to shut down for an entire morning to have their students engage in political activities." 

According to Sam Pirozzolo, president of the Community Education Council in District 31, Staten Island: “I find it ironic that Ms. Moskowitz, a leader who has been given the task of eliminating the achievement gap has done little more than increase the divide between the haves and have nots.  It is unfortunate that Eva Moskowitz has chosen to intimidate mayoral candidates by closing her schools for a day. She is hiding behind parents and children for the sake of profits and a paycheck. Since their inception, charter schools have been creaming only the best students from our public schools.” 

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