This is part 5 of a series on String Theory. See the other parts here!
Instead of a relevant image or graph, please enjoy this water color done by my aunt Donna. She’s a great painter.
We’ve come a long way in this series on String Theory and we deserve some good colors, calm scenes, and feeling.
In this final post, I want to talk about exemptions and wrap things up.
Exemption!
Like I said in a previous post, the bond issuance from 2020 is repetitive. Another thing is repeats a lot is that the borrowers (in this case, the DeMedicis)operate exclusively for charitable and educational purposes including making distributions to organizations that qualify as exempt organizations under Section 501(c)(3) of the Code. This includes providing facilities, land, and improvements for the benefit of Philadelphia Performing Arts: A String Theory Charter School.
They’re super clear: this real estate development scheme is done by and for charitable and educational purposes only. Everyone on the school side is non-profit. This is super important because it means everything in the deal is exempt from all kinds of taxes at the local, state, and federal levels. Ballard Spahr put their seal of approval on this.
What’s exempt from what?
Importantly, the interest payments on this bond—the payments that the borrowers send to the lenders, who are lending this money and get it back with interest—are:
- excludable from gross income for purposes of federal income tax, assuming continuing compliance with the requirements of the federal tax law.
- exempt from Pennsylvania personal income tax
- exempt from Pennsylvania corporate net income tax
The buildings themselves are currently “exempt from real property taxation” at the local level also, and the DMs are required to maintain federal tax exempt status as educational/charitable organizations. If they don’t keep this status then it “might trigger a challenge to its Commonwealth income tax exemption,” which means the lenders would have to pay taxes on the interest payments and String Theory would have to pay some taxes on the real estate.
One thing they’re trying to avoid here is the situation where “the assets of either to inure to the benefit of private individuals.” In other words, Javier Kuehnle running away with $65 million of Philly real estate. There’s a little treasure trove of legal protections in place to make sure this doesn’t happen. None of this illegal technically (though it should be), and it might be sort of unlikely, but it’s a really bad look.
Plus, it gives Javier Kuehnle a lot of power locally, whether or not he actually can or does cash in on it.
It’s this whole business, combined with the fact that they take from existing district revenues and treat teachers like crap and a lot of other things, that make charters so reprehensible. But how to sum all this stuff up?
Whew
For now, I hope I’ve shown that String Theory is a real estate development corporation. But it’s also kind of a tax haven. Bondholders can park their money in the charter and get tax-exempt interest payments from it. But also private individuals can control sizable real estate development projects in other tax exempt ways, sending all kinds of money to all kinds of consultants and other capitalists.
The thing is, a lot of school districts are tax havens also. It doesn’t distinguish String Theory from traditional school districts to call it a tax haven. What does distinguish it is what kind of tax haven it is.
Whereas most wealthy districts exploit resources through property taxes and inequalities in their regions, String Theory exploits the school district itself, from within the school district.
Whereas traditional school districts are a very sturdy state apparatus (they’ve been around since the Puritans!), the String Theory is new and fragile. It could very well go under like many other charters.
And this brings us to maybe the most important feature of this tax haven. Whereas school districts are led by elected and appointed officials firmly embedded in municipal government, as well as state and federal government, the String Theory Development Corporation is run by a very particular set of individuals. These individuals, namely Javier Kuehnle, control a lot of real estate. There’s only cloud of legal designations and shady entities between Kuehnle and the $65 million of property he controls. To unseat him and the other board members is quite difficult.
In traditional school districts, elected school boards, superintendents, mayors, and assessors distribute their power when controlling school district finance. This ruling class bloc tends to be more diverse, though this guarantees very little. The structure is overall a pretty good thing, since school districts are so intimately wrapped up with property and family.
I don’t like this traditional school district structure (which is not without corruption), but at least it’s tough and includes some democratic accountability. I can’t abide the apparatus of charter finance. It’s absurdly complex, as this series of posts has shown. And I don’t think this group of ruling class people are especially trustworthy when it comes to running schools.
One question I’m left with after all this is dialectical. What’s the dialectic pointing towards here? I don’t think the old school district is going to survive and frankly I’m not sure it should. The charter structure isn’t nearly as sturdy, meaning that’s it’s a transitional apparatus itself. So what comes next? What can we dream of? What can we push for as socialists at this moment in the conjuncture?
david (isaac) backer 