Hinz: Proposed Building Selloff

Crain's Greg Hinz has a column about "a proposal by financier Bruce Rauner [education chair at the Civic Committee] to raise $800 million from investors and bank borrowing, and then use the money to buy surplus buildings from Chicago Pubic Schools and perhaps parochial school operators."  Seems like a crazy, unlikely deal to me, but money talks and these are desperate times.  What do you think?  Try not to write something predictable or naive.  Does this stand a chance of happening?  Who would oppose it (that has any power to block it)?  What's the fate of the unused buildings otherwise?  

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  • I'm not sure I understand where the net public benefit would be. If CPS sells a public asset to private investors and then those private investors make money by leasing the assets to charter schools, isn't it the Board of Education that pays the lease. It seems like the Board of Education could cut out the middle man (private investors) and just lease the buildings to charter schools directly.

  • Mr. Hinz is probably only getting part of the story in relation to CPS "sell[ing] empty and near-empty academic buildings to a privately capitalized venture fund that he and perhaps some other well-connected types like the Gates Foundation would put together."

    Having looked at charter school debt issuance for facilities very often the Illinois Facilities Fund (IFF) provides below-market rate financing specifically for charter schools through the use of U.S. Department of Education credit enhancement grants to finance charter school projects. Right now credit for charter schools is hard to come by so my impression is that GTCR Golder Rauner LLC would probably some how utilize IFF in this process. In general the bonds for charters that IFF has arranged pay interest to bond holders that are tax exempt.

    The interest rates on these bonds are much higher than those for traditional school districts, because the charters to no have access to property taxes and the bond buyers have a lean on very little other than future tution paid by CPS to the charters. It looks to me as it Mr. Rauner is thinking about becoming some type of bridge to a variant on these tax exempt bonds for charter capital projects. If the economy continues as it is and CPS cuts its tution rate to charters for several years running this deal could prove to be a very bad one for any group Rauner is putting together, unless ofcourse the CPS property is on the northside east of western ave, then the deals could be golden even if charter schools can not afford to rent the schools.

    Rod Estvan

  • In reply to Rodestvan:

    Great points. Big profits aren't assured but there is more potential than immediately apparent.

    The fund could call itself a "social enterprise," lease out at a low margin above their own costs, and protect itself from criticism. Meanwhile, the potential windfalls would be in the tax breaks for the banks financing the fund, or in the property assets if bought cheap or values rise.

    Add in political connections and interconnected boards of directors, and you have a dubious mix that's already generated big ethical questions in OH and NY just recently.

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