How Hedge Funds Will Profit from School Privatization

12/26/2016 06:51 am ET Updated Dec 27, 2017

In the News: A number of news items in recent weeks show how powerful money-brokers work inside and outside the law in their war on public education in the United States.

(1) In the State of Washington, a State Supreme Court Judge up for reelection sided with a 6-to-3 court majority in a ruling that declared a state law directing tax dollars to independently run charter schools unconstitutional. To remake the court in their image hundreds of thousands of pro-charter Bill Gates and Paul Allen "Microsoft money" was donated to support his opponents campaign. Fortunately Washington voters rejected the charter judge, this time.

(2) Federal authorities charged seven leaders of the Platinum Partners hedge fund with fraud for operating what was alleged to be a "Ponzi scheme." They kept the fund afloat by continually using money from new investors to pay off older investors who wanted out. Mark Nordlicht, founder and the chief investment officer for Platinum, also dabbles in operating low-cost religious schools that would benefit from the Trump-Amway DeVos voucher give-away

(3) The New York Times Business pages featured Bill Ackman of Pershing Square Holdings in an article they called "Hedge Fund Math: Heads or Tails, They Win." It seems that even when his hedge fund performs poorly, Ackman always takes a profitable slice of the pie. According to the Los Angeles Times, Ackman's Pershing Square Foundation has poured millions of dollars into promoting charter schools in their city. Ackman, through his foundation, is also a major donor to private schools and to Teach for America.

(4) Old friends at New York's Success Academy Charter Network are under investigation by the city's Comptroller for lax financial oversight, poor record keeping, understating administrative costs, and for billing the Department of Education for special education services they did not provide to students. The charter schools transferred money earmarked for the education of the students to the governing charter network and could not adequately account for what happened to $25 million worth of computers, desks, whiteboards, and other supplies.

(5) Carol Burris, Executive Director of the Network for Public Education, writing in the Washington Post, documented the salaries charter school magnets pat themselves. KIPP co-founder David Levin received a compensation package of nearly $475,000 from the KIPP Foundation in 2014. Co-founder Mike Feinberg received $219,596 from KIPP Inc., and another $221,461 from the KIPP Foundation. Success Academy's Eva Moskowitz paid herself $600,000 in 2014 as the CEO of forty-one charter schools. The online for-profit charter company K12 paid its CEO $650,000 in salary plus a series of bonuses that brought his total compensation package to over a million dollars.

According to the National Center for Education Statistics the "total expenditures for public elementary and secondary schools in the United States amounted to $620 billion in 2012-13, or $12,296 per public school student." If American schools were an independent country, they would have the 21st largest economy in the world. This is a very big financial pie, certainly big enough to make hedge fund managers drool.

The question is, how would hedge funds profit from the Trump-"Amway" DeVos voucher plan if school dollars follow each student?

The two biggest expenses in running a school are teacher salaries and benefits and the cost of building and maintaining school buildings. The key to making a profit is hiring low-paid poorly trained non-union transient teachers who follow scripted test-aligned lessons, finagling free space in existing schools so the public picks up the cost of the facility, and attracting public dollars.

Let's take a hypothetical small school in an average American community with a hundred students. Each of those kids is worth about $15,000, so the hundred students would be worth $1.5 million. Not a large amount for hedge funds, but not an insignificant amount for normal human beings.

The average beginning teacher's salary in the United States is about $40,000 a year. With benefits figured at an additional 50% it would bring their cost to $60,000 per teacher. More experienced and better educated teachers cost significantly more. Average salary is about $60,000 a year and the benefits package would bring cost closer to $100,000 because it now includes higher pension payments.

If our hypothetical school had five beginning teachers for their 100 kids, the cost for teachers would be about $300,000, but if they had a very experienced staff the cost would be closer $500,000. Hiring inexperienced transient teachers alone frees up $200,000 to pay corporate administrators and investors.

But if our charter network operated ten small schools with a thousand students, its gross would be $15 million and the benefit of hiring inexperienced transient teachers alone would be $2 million.

Now if our charter network operated a hundred small schools with ten thousand students we are starting to talk about real money. Its gross would be $150 million and the benefit of hiring inexperienced transient teachers alone would be $20 million.

Michigan, Betsy DeVos' home state, has 1.5 million children attending public elementary and secondary schools and spends about $11,000 per student. If charter networks operated all of Michigan's schools, we are talking about $16.5 billion. Now that is real money! The charter network could stash away profits of $5.5 billion just my having high teacher turnover.

But that's not the only way the hedge fund charter networks and private schools will make money. Inexperienced teachers need scripted lessons, staff development, and supervision, so the hedge fund schools can outsource these activities to subsidiary companies. They can also buy books, tests, supplies, computer software and hardware, and guidance services from their own companies and award maintenance contracts to themselves.

This is how the great philanthropists that run the hedge funds can make money if they succeed in privatizing education in the United States.

Follow Alan Singer on Twitter: https://twitter.com/ReecesPieces8