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Charter schools: Moneymakers for hedge funds

CYRIL JOSH BARKER Amsterdam News Staff | 7/7/2011, 11:02 a.m.
Charter schools: Moneymakers for hedge funds

As the controversy about the co-location of charter schools continues to rage throughout the city, another issue has been raised: Hedge funds are making tremendous profits off charter schools while public school students lose already-scarce dollars because of the presence of the schools.

The charter school movement represents only a tiny fraction of the more than one million students in the New York public school system. But because of the charter school presence, hundreds of thousands of regular New York City kids are getting fewer dollars.

In a recent report by the New York City Independent Budget Office (IBO), it was revealed that money being spent on charter schools is being diverted away from regular schools. As more charter schools are created, more money is pumped into the charter school movement.

Many charter schools are also getting private sector money that public schools cannot access.

According to George Sweeting of the IBO, money for charter schools is calculated on a per capita basis. A fixed formula is set by the state and the number doesn't change.

"The reason for the charter schools' flow of dollars is because the number of schools and enrollment is increasing," Sweeting said. "However, it's not going up for the coming year."

He added that $13,000-$14,000 is spent per child in charter schools. He also pointed out that charter schools often open with only one or two grades and add more later on. As the schools get larger, more money from the Department of Education is transferred to the charter school.

However, a well-placed source in the hedge fund industry explained the real deal to the Amsterdam News. They said that charter schools have historically been for-profit enterprises backed by private sources, and that hedge funds are playing a key role in moving money.

Hedge funds have gained popularity among investors in recent years because they offer a better return on investment than traditional investments.

"The same people who invest in companies to make money are the same people who invest in charter schools," the source said.

The way it works is this: The money the state uses to build public schools can also be used to build charter schools. The hedge fund folks build schools for less money than the government would. For example, a public school might cost $5 million to build, while a charter school could take that same amount of money and only use $3 million to build. What's left over, according to the source, goes into the hedge funds and their investors.

"Hedge funds are the new source of capital. People who want to make money off charter schools hedge funds because they can't get the money from anywhere else," the source said.

The state pays for charter schools on a per-student basis. Investors who put up the initial funds can double their money after several years.