It is well understood that zillionaires are making tons of money from charter schools, even and maybe especially the putatively non-profit ones. And until recently I at least had assumed that this involved esoteric financial schemes that normal human beings like me don’t have a hope of understanding. This is roughly the impression given by various exposes, like this one in Forbes from last year.
But some records I recently obtained from that creepy little conspiracy known as Excelencia Charter Academy via the California Public Records Act show that, at least in some cases, the grift is very straightforward.1 Easy even for humans to comprehend. It’s called “selling receivables.” 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.
And finally, among the documents that Alonzo had to submit to the finance company as part of his application was this spreadsheet, showing monthly projected cash flows for the first year of his school’s existence. Also here it is as a PDF if that’s useful to you. This seems important. It’s not something I remember having seen before for a charter school, and certainly not for one in its first year. But I don’t feel able to interpret it. Maybe you can? Let me know if there’s something worth looking at.
Image of Ruben Alonzo pointing at the little darling of his heart is ©2019 MichaelKohlhaas.Org and there’s always one of these, one in every crowd.
- These records are part of a vast release of almost 3 GB of emails, which you can obtain here in MBOX format. If you need help accessing the files in that format please get in touch with me at email@example.com. It’s going to be a while before I prep the whole vast set for publication as PDFs or some other more familiar format.
- Note that I don’t have the exact fee charged by the financeers. I have a request in for it but the company’s website doesn’t provide a rate since they base it on an individualized analysis of the school’s credit.