Corruption in Education: Hedge Funds and the Takeover of New York’s Schools

by , under Legislative Issues, Local Activism, Member To Member, Professional Issues

The following report was recently released by the Washington Park Project.  This shocking and detailed look at what is happening to public education in New York and around the country needs to be shared wide and far with the public.  Please read the entire report.  You’ll be glad you did.

Introduction: Wall Street Hedge Funders’ Takeover of Albany Education Policy

New York State is plagued by legal corruption: campaign contributions and outside spending explicitly designed to buy policy outcomes. In 2014, a tiny group of powerful hedge fund executives, representing an extreme version of this corruption, spent historic amounts of money in order to take over education policy.

This paper details this fast-paced purchase of political power, and the threat it poses to democracy and public education in New York State.

A small cadre of men, including Carl Icahn, Paul Tudor Jones, and Dan Loeb, poured more than $10 million into state lobbying and election campaigns since the beginning of 2014, with electrifying results.i Their campaign bears the signature components of the corporate takeover world which they occupy: rapid action on multiple fronts; highly secretive activity shielded from the public view; high stakes, big spending; and top-down power plays that are not accountable to the public.

First, in a span of 10 weeks they spent $6 million on lobbying that won unprecedented public funding to pay for charter school rent. ii

This was done as part of a campaign orchestrated with Governor Cuomo, designed to frustrate Mayor Bill de Blasio’s efforts to win universal full-day pre-K, paid for entirely through expanded taxation of New York City millionaires.

Phase two of the attack came in the fall elections.

Twelve individuals spent $4.3 million on a PAC apparently designed to purchase control of State Senate education policy.iii

Their effort depended on misleading voters about the actual intentions of the PAC. Rather than honestly advocating for more public funding for privately-run charter schools, and explaining who was behind it, the TV ads, mailers and radio spots paid for by the PAC attacked Senate Democrats for doing the bidding of New York City and Mayor de Blasio.iv

Ironically, the PAC’s priority was actually to win more money for charter schools located in New York City. The PAC also attacked candidates for supporting the vital anti-corruption measure of publicly funded elections.v

These Wall Street titans cemented their power play by securing the political allegiance of Governor Andrew Cuomo through campaign donations and outside spending.

They worked together with Governor Cuomo during the state budget process to orchestrate the lobbying campaign that undermined Mayor de Blasio and secured the charter rent deal. Immediately after the pro-charter pro-millionaires tax budget was passed, the Governor was rewarded by his charter school supporters by being the “honorary chairman” at a political strategy retreat they held in the Adirondacks.vi

Their partnership was just as tight on the electoral front. Just one week before the November election, Governor Cuomo described public schools as a “monopoly” he intended to “break” up by expanding privately run charter schools and increasing their public funding.vii His remarks matched the agenda of the PAC funding the Senate Republicans at a time when he had committed that he himself would be campaigning for Senate Democrats.

The Governor and the legislature are negotiating now on a potential special session for December, 2014. Some members of the Senate have threatened to radically overhaul the fundamentals of the public education system in New York State.

This week the New York Daily News reported that Governor Cuomo is pushing to use a December special session to raise the charter cap, perhaps in exchange for a long-awaited pay increase for legislators.viii

The 2014 effort, a kind of lightning war on public education, is important for many reasons: it is hasty and secretive, depending on huge speed and big money, and driven by unaccountable private individuals. It represents a new form of political power, and therefore requires a new kind of political oversight.

Because these hedge fund managers directly involved themselves in New York politics, we should examine them like politicians, attempting to understand their policies and their sources of authority, asking them daily questions about their activities and reasons. They are not mere contributors.

Like the Koch brothers, these hedge fund managers are openly seeking to influence policy in a massive and comprehensive way. The degree of their attempted power grab could make them — if they are successful — an invisible, unelected, unaccountable government.

Faced with legal corruption on a grand scale, the public must respond. Together, we should bring accountability and scrutiny to the aristocracy that would establish itself as the authority on education public policy in New York State.

At stake is public school funding, attention to the crisis in our public schools, and the very nature of our public commitment to public education.

I. A Lightning War to Privatize Public Education

Since 2008, big banks and big finance have wielded outsized political power in Washington, DC. They have used direct methods, like campaign contributionsix and lobbyingx, and indirect methods, like placing bankers with similar ideologies in positions of power.xi They are political actors as well as market actors.

Here in New York, the financial capital of the country, Wall Street firms and associated individuals have been accumulating influence over state and local government.xii With some of the most lax campaign finance laws in the country, Wall Street is able to spend millions of dollars per campaign cycle to influence legislation and action in New York.

But this year’s hedge fund effort to take over education policy represents one of the fastest and biggest efforts to privatize public policy processes in recent history.

Phase One: Lobbying

In early 2014, a new hedge-fund-financed lobbying group made a rapid-fire power play in Albany.

The lobbying campaign, done in the name of Families for Excellent Schools, included a massive $5.95 million in spending, mostly on television ads.xiii Families for Excellent Schools has refused to disclose its donors, but major hedge fund moguls have been publicly associated with its campaigns.xiv

This explosion of lobbying and money power led to a dramatic revision of state law to require New York City to turn public school building space over to privately-run charter schools for the first time. As an alternative, New York City and New York State would be required to pay rent for these privately run charter schools to occupy private space.xv

From a legal and policy perspective, this dramatic change was unprecedented. Politically, the outcome was the rapid emergence of hedge fund managers as a powerful force in Albany, with an education agenda focused on privatization and testing as the leading, public face of their agenda.

Phase Two: Elections

In two months before the 2014 general election, twelve individual hedge fund managers banded together to finance a takeover of the State Senate.

These twelve set up a new PAC, New Yorkers for a Balanced Albany, …..

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