Trouble, trouble, charter bubble…

Student MarchTiming is everything in life. On the very same day that thousands of Boston public school students walked out of school to go to the Massachusetts State House to advocate for their schools, the Joint Committee on Education held a hearing on various bills related to charter school expansion. Occasionally the stars are truly aligned. Some of the students in the photo above made their way into the hearing room and gave powerful testimony on the connection between charter  school expansion and budget cuts at their schools. Some members of the committee fidgeted, others paid close attention. Then, a non-student gave the following testimony, made available to the Parent Imperfect by a special exclusive arrangement. Since time wouldn’t allow him to say the whole thing in the hearing, we share it here.
There are all sorts of arguments for and against charter schools, but I want to share one today that has not gotten a lot of attention. It’s based on a recent article by four highly-respected academics that appeared in the University of Richmond Law Review. The article is called, “Are We Heading Toward A Charter School Bubble?: Lessons From the Sub-Prime Mortgage Crisis.”  The basic argument is quite simple.
 
charter bubbleGovernment at all levels did a lot of things to make it easier for people to get mortgages in the run-up to the subprime crisis. The so-called market was more than happen to oblige. A key factor in the creation of the bubble was that the people approving the mortgages (the originators) had no skin in the game. They could care less if the borrowers could pay back the loans: Their job was to write mortgages.
 
The explosive growth of charter schools has some disturbing things in common with the subprime mortgage mess. Those who are authorizing more charter schools and more seats in existing schools have little or nothing to lose, personally, if the schools fail our children. They also have little understanding of the pressures present in the charter market.
 
Now the subprime mortgage market was a license to print money, until it wasn’t. Then the bubble popped. What forces might put charter schools in the same sort of vulnerable position as subprime mortgage holders?
 
The charter school business model depends on many things going right for them, but three stand out:
 
Public funds for public schools1. They need a steady stream of public money, approved by public office holders and delivered by state bureaucracies. Are you sure that you will have the funds to grow charter schools at even the reduced rate of growth proposed by my dear mayor…let alone what the governor is talking about? I don’t need to remind you that the foundation budget for education in the Commonwealth is in the process of being re-evaluated for the first time in decades and that Massachusetts Law requires Chapter 42 reimbursement of some of the funds going to charters. The price tag contains many hidden costs. Will you  have the political will (not to mention the cash money) to continue to divert ever larger amounts of public money to charter schools as public schools disintegrate before your eyes? If not, the charter experiment is in trouble, especially if the numbers of charters continue to expand.
Gates2. But the charter business model doesn’t run on your money, alone. Charters schools also require a lot of private philanthropy to function. Until now, the Gates’s, the Waltons, the Broads and the Barrs (not to mention our own beloved Boston Foundation) have been ready to step up. Are you ready to make a bet that the private money will be available to float this bubble when there are two or three times as many charter schools? If the bloom on the charter rose even begins to fade, the monied few will drop charters like a bad habit. You’ve seen it happen before…many times.

3. But that’s not all. Charters are schools and schools need buildings. This is, perhaps, their biggest vulnerability. In Boston, our Mayor seems ready to turn public buildings over to charters at fire sale prices, which will give the bubble a new lease on life. Even if that new lease happens (lots of people will try to prevent it), charters will continue to need capital financing. Today, that financing happens only because the Federal government provides tens of millions of dollars annually in tax credits to encourage investors to put big money into charters, and then it guarantees payment of those loans so the risk to the investor in close to zero. No wonder the hedge funds are flocking to charters! A 39% tax credit? You know the fiscal environment in Washington better than I do. Are you sure that this cumbersome and costly mechanism will be able to provide capital financing for existing charters and all the new ones that could be coming on line? I’m not
 
Big shortThe sky is not falling, but four very smart analysts have concluded that there is reason to believe that we have a charter school bubble in our future. Are you clear enough about the endgame in the current charter mania to bet against these guys? If you do, you may secure yourself a place in the charter short version of The Big Short, coming to a theater near you. The futures of tens of thousands of school children across Massachusetts depend on you getting this right. Don’t pump up the charter bubble!
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8 Comments

Filed under Boston Public Schools, Charter Schools

8 responses to “Trouble, trouble, charter bubble…

  1. Reblogged this on Marvels Agents Of Ed and commented:
    Other State Government’s have taken the steps that Oklahoma seems bent on following. What they have found for the most part are dismal results. Oklahoma only needs to look at these areas such as Boston where the students are taking matters into their own hands and walking out and protesting at their capitol. Why….because their policy leaders let them down, turned their back and thumbed their noses at them. Are Oklahoma legislators willing to do the same thing? Some of them are but many still have a since of responsibility to the masses and not to corporate sponsors. Selfish attitudes and overblown egos rule the office for some leaders. When the majority of their constituents are opposed to ESAs/vouchers they willfully ignore them and do what they want. They fabricate statements to make it look like they are getting thousands of calls in support of their measures when in reality they are not, but you could not tell it by the way they speak about such things. No they use numbers such as I knocked on 35K doors and they support me. When asked immediately, so you knocked on 35K doors they answer comes back from the Senator…..well you guessed it…..he LIED! Some in the Oklahoma legislature will say and do whatever is needed to get their agendas through. Why….not because they believe in them so much but because they are beholding! Beholding to a group of people who have a big influence on them. They do not care about your child or mine they just care about how they look to a group of businesses. Do they have a financial stake…….My personal opinion…..Yes absolutely some do. And that is wrong and unacceptable for anyone who is in charge of making policy that concerns are kids. When ego and money get in the way, it is time for you to vacate the office in which you reside. Like the students in Boston we must stand up in the name of every child, teacher and staff member in Public Education! I applaud the students in Boston but I am sorry it had to come to this. Agents of Education we must continue to fight for our students! We Are United As ONE! Engaged on Behalf of those Who Look UP to US!

    • Thanks for the comment and the re-blog. This is certainly the first comment I have received from a Marvel Agent!

      I am sorry to hear that the legislature in OK is headed down this same ed reform path. It’s a national affliction! If there is anything that those of us in Boston can do to support your work, let us know! If you are part of a parents’ advocacy group, I hope you are in contact with Parents Across America!

      • Keep up the great work! If you stand up for the children then you are one of Marvels Agents of Education! Also I welcome any help you may give us. I will announce to the other Agents of Education to check out your Twitter feed and I invite yours as well. Together we can get the message out that the students come first. Great Job Agent Parent Imperfect! United As ONE!

  2. Several people have pointed out that my bubble post leaves out something very important. Aware of the bubble danger, Mayor Walsh has actually proposed that laws be changed so that Massachusetts charter schools can get access to school capital financing made available through the bonding done by the Massachusetts School Building Authority. I have no idea how they would twist the laws to make this possible, but it would create one more way in which financing for public schools was being diverted to charter school purposes. This wouldn’t eliminate the bubble, but it would make charter schools much less vulnerable, financially. Since the MSBA funds are not limitless, this would increase the vulnerability of public school districts. Bad policy, bad politics, bad precedent.

  3. Pingback: Deflected attention | MAStewartMA

  4. Read and “liked” this post initially – so glad you were able to acquire full testimony, it’s a compelling thesis. I’m new to wordpress (recently merged and migrated two blogs from blogger), which is to say that I hadn’t noticed the pingback to my post and that I (embarrassingly) wasn’t sure about the reblogging feature! I will remedy that and reblog next. Keep up the good writing – see you on twitter.

    • Thanks. I’m not new to WordPress, but I’m still not sure what you’re apologizing about. I very much appreciate all the work you do for public ed in the state, and, especially, the way you communicate your perspective. !Adelante!

      • Just saying that I would’ve reblogged your post sooner if I’d understood how easy it is to do…! Thank you very much for the compliments.

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