How To Profit from Your Non-Profit Charter School

Occasionally politicians and policy leaders will try to thread the needle on charter schools by saying that they support nonprofit charters, but not those for-profit ones. Candidate Clinton tried that trick for keeping both sides happy back in 2016. But it's a distinction without a difference. Running a nonprofit charter school can still be a highly lucrative undertaking-- all financed with taxpayer dollars.

Here's how to make a bundle with your nonprofit charter school.

The Real Estate Business

There is such a thing as a business that specializes in charter schools and real estate. In some states, the government will help finance a real estate development if it's a charter school, and in general developers have noted an abundance of cash. Though, as one charter real estate loan bond financier told the Wall Street Journal, "There's a ton of capital coming into the industry. The question is: Does it know what it's doing?" Many states have found a problem with charters that lease their buildings from their own owners as well.

Why such interest in charter real estate? One reason: the Clinton-era Community Tax Relief Act of 2000 made it possible for funds that invested in charter schools to double their money in seven years. And the finance side can become so convoluted that, as Bruce Baker lays out here, the taxpayers can end up paying for a building twice-- and the building still ends up belonging to the charter company.

Management Companies

Once you've set up your nonprofit charter school, hire yourself as a for-profit charter management organization. Over the last decade, there have been numerous examples of this arrangement, sometimes called a "sweeps contract," where the charter school hands as much as 95% of its revenue off to a for-profit management organization. As with real estate, there have been instances where the school's assets (books, furniture, computers, etc) have been ruled to be the property of the management company-- so even if the school tanks, the organizers walk away with assets they can cash in.

Not every CMO is run by the same folks who own the charter school, but it's not an uncommon arrangement. Eagle Arts Academy in Florida not only paid its founder to develop a curriculum, but paid him for the rights to the school's name and logo.

Depending on your state, some of this is legal and some of it might not be. If we get into the grey areas, then we start seeing some really crazy stuff, like the Gulen charters. One of the largest chains in the US, the Gulen charters are connected to Fethullah Gulen, a Turkish religious opposition leader. The schools have been dogged by controversy, including allegations that their mostly-Turkish immigrant faculty are required to kick a portion of their salaries back to the movement. The Gulen schools are potentially using US taxpayer money to finance a government-in-exile. These schools are mostly nonprofit charters.

Charter schools, whether nominally for-profit or nonprofit, face the same basic problem-- they are businesses that do not control how much they charge for the service they provide. This means that every dollar spent on students is one dollar less to go into the bank account of the business; the interests of the students and the interests of the businesses involved in the school are in opposition to each other.

Nor can you assume that the laws protect taxpayer dollars in any meaningful way. In some states, the laws against self-dealing are strong and well-enforced. In other states, not so much. Eagle Arts Academy is a disaster by any measure, and local school authorities know it-- but state law does not give them, or anyone else, the clear authority to shut it down.

There are charter schools out there that are neither directly nor indirectly attempting to profit from the taxpayers via the students they are supposed to serve. But if you are shopping for a charter school for your child, knowing that it's nonprofit is not enough. Ask if there is a for-profit business operating the school, and if there is, think twice. If that for-profit business is operated by the same people that run the school, don't think twice-- just walk away.

Originally posted at Forbes.