Crony Capitalism

Deregulation in education has led to cronyism, corruption and conflicts of interest. Dr. Preston Green sees a familiar pattern and a cautionary tale…

Jennifer Berkshire: Our Secretary of Education is visiting a Florida charter school that is best known for being started by rap-u-preneur, Pitbull. But a lesser known true fact is that the school’s powerful and politically connected management company, Academica, ran afoul of the feds for a little something something called *related-party transactions.* What is a related-party transaction? And why do I have the feeling that Betsy DeVos didn’t drop by to, um, continue the investigation?

Preston Green: Related-party transactions occur when you have two entities that have a pre-existing relationship. For example, if two entities have common management, or in the charter sector context, you could have an EMO that also has a real estate arm, which then leases property back to the charter school at a greatly inflated rate. In the case of Academica, which is the management company that runs the school Secretary DeVos visited, it’s *all of the above.* You see different entities sharing the same board of directors, conflicts of interest and questionable real estate dealings, including charter schools paying rents that are well above the market rate to companies that Academica owns.     Continue reading →

Are Charter Schools the New Subprime Mortgages?

A new study warns that we may be headed towards a charter school *bubble*…

sad bubbleEduShyster: It’s unusual to see the words *hair-raising* and *academic study* in tandem, but your new study merits that marriage. You and your co-authors make the case that, just as with subprime mortgages, the federal government is encouraging the expansion of charter schools with little oversight, and the result could be a charter school *bubble* that blows up in urban communities. Do I have it right?

Preston GreenThe problem of subprime mortgages began in part because the government tried to increase homeownership for poor people and minorities by enabling private entities to offer more mortgages without assuming the risk. Under the old system, the mortgage originator was still at risk if the mortgage went into default. With subprime, they were able to spread that risk by selling the mortgages on the secondary market. You had all these mortgage originators that could issue more mortgages without careful screening because they no longer had skin in the game. Now how are charter schools similar to subprime? In the charter school context, charter school authorizers are like mortgage originators. Continue reading →