On April 20 Success Academy Charter Schools held a fundraising gala at Cipriani 42nd Street in Manhattan, drawing about 800 elite donors, including politicians, Wall Street titans and celebrities. New York’s largest charter school network raked in $9.3 million that night to support the launch of six new schools. Meanwhile, a few dozen protesters paraded around outside chanting, “Keep your charity! Pay your taxes!”
The same protesters, known as the Hedge Clippers and funded in part by the New York State United Teachers (NYSUT) union, staged demonstrations outside the apartment of Daniel Loeb, founder and CEO of Manhattan-based hedge fund Third Point and chair of Success Academy’s board of directors. “The politicians and union leaders seem to rationalize that in their fight to maintain centralized power and monopoly control, there is collateral damage to actual children,” Loeb told the audience at Cipriani.
Over the past few years and election cycles, millions of dollars have been shed in a heated political battle over charter schools — privately run school systems receiving public funding — raging across New York State. In light of recently loosened campaign finance laws, the New York State election last fall saw unprecedented levels of outside spending as a small group of pro–charter school hedge fund managers went toe to toe with NYSUT. In general, charter schools are nonunion institutions, and unsurprisingly the most vocal opponents of charter schools have been teachers’ unions and the activist organizations they sponsor, like the Strong Economy for All Coalition, highlighted in the first article of this series as one of the ringleaders of the Hedge Clippers protests.
Last fall the Republican Party won a majority in the New York State senate with the help of a new political action committee called New Yorkers for a Balanced Albany, which was created by pro–charter school lobbying organization StudentsFirstNY. Funded almost entirely by hedge fund managers, the PAC pumped more than $4 million into advertising campaigns supporting Republican candidates in tight races. The group included Loeb, Maverick Capital’s Lee Ainslie III, Moore Capital Management’s Louis Bacon, Gotham Asset Management’s Joel Greenblatt, Baupost Group’s Seth Klarman, Glenview Capital Management’s Larry Robbins, Tiger Management Corp.’s Julian Robertson Jr., Elliott Management Corp.’s Paul Singer and Tudor Investment Corp.’s Paul Tudor Jones. Jones and Loeb both sit on the board of StudentsFirstNY.
The high-profile support of hedge fund managers for charter schools prompted a union-backed coalition of labor and community groups, rallying under the name Hedge Clippers, to stage demonstrations at the homes and offices of Jones, Loeb and Singer as well as outside the recent Success Academy gala. “I don’t think in any other sector where hedge funders or wealthy individuals donate to museums or hospitals there’s this kind of attention and scrutiny, and it’s because there isn’t a union trying to protect the status quo,” says Jenny Sedlis, executive director at StudentsFirstNY and also a co-founder of Success Academy, in 2006. “There’s nothing nefarious about what these philanthropic individuals are doing. They’re helping to catalyze change in an ossified system.”
Timothy Selby, president and director of the New York Hedge Fund Roundtable, a nonpartisan group that serves as a forum for educating investors about the alternatives industry, believes the protests stem from a misguided fear of Wall Street and particularly hedge funds. “I think the activist-related protests that have been going on right now underscore the greater need for education so people can understand the industry,” says Selby. “There’s too many misnomers and misperceptions about the industry: that it’s a highly volatile, high-risk and greedy industry. People don’t realize the level of stability it introduces into the marketplace and the exposure that the average person has to alternative investments.”
From the standpoint of the teachers’ union, the problem isn’t that these hedge fund managers support charters. Rather, it’s how they do it — by pouring millions into political campaigns and lobbying efforts as well as the schools themselves. “The big difference between the hedge funds and other charter school backers is that hedge fund managers are aggressive,” says Randi Weingarten, president of the American Federation of Teachers, NYSUT’s nationwide counterpart. “They’re aggressively fighting against more equity for schools; they’re aggressively fighting against a progressive income tax that would create more funding for public schools.”
Teachers’ unions have long been among the largest sources of lobbying and campaign spending in New York. Whereas New Yorkers for a Balanced Albany sank millions into independent advertising campaigns, NYSUT’s political action committee, VOTE-COPE, matched the hedge fund–backed group’s spending almost dollar for dollar throughout the course of last fall’s campaign season. However, a recent analysis by Capital New York found that education reform groups and their hedge fund supporters outpaced the unions in lobbying and political donations by more than $4 million last year. Both sides of the education battle collectively spent more than $30 million.
The sudden influx of campaign spending by these super PACs — which are unlimited in the amounts they can raise or spend on state and national elections, provided they do not coordinate with any candidate’s campaigns — arose out of the U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission. The ruling was extended to New York State in the fall of 2013 during New York City’s mayoral election through New York Progress and Protection PAC v. Walsh, et al.
“Citizens United has had an impact,” says Blair Horner, legislative director at New York Public Interest Research Group. “But it may not have the same kind of impact as in a state that has lower contribution limits, fewer loopholes and real enforcement.” In Horner’s view, individuals or groups seeking to influence policy through comparably sized donations could have done so through loopholes prior to Citizens United, but now donors, like pro–charter school hedge fund managers, can combine their efforts through super PACs and support their chosen causes in a more public way.
Although the Citizens United ruling made super PACs possible, Bill de Blasio’s victory in the 2013 New York City mayoral election and the departure of former mayor Michael Bloomberg likely sparked the sudden boom in outside spending on behalf of charter schools. During his campaign, de Blasio openly criticized charter schools, which had flourished under Bloomberg, for draining resources from traditional public schools. In New York charter schools receive about $13,500 a year per student from taxpayers. Meanwhile, charter school networks have expanded rapidly. In New York City’s five boroughs, 210 charter schools have been approved for operation in the 2015–’16 school year serving more than 80,000 students, up from 183 serving 70,000 students in 2013.
On the campaign trail, one of de Blasio’s common talking points was reversing a policy of the Bloomberg administration that allowed charters schools to occupy space inside traditional public school facilities without charge. “There is no way in hell that Eva Moskowitz should get free rent,” he said at a forum, referencing the founder and CEO of Success Academy. Within two months of taking office, the de Blasio administration prevented the opening of three Success Academy charter schools in public school buildings, a plan that had been approved under Bloomberg.
In March Families for Excellent Schools, a lobbying group in favor of charter schools, launched a three-week-long advertising campaign that slammed de Blasio over his education policies. The New York Times reported that Paul Tudor Jones was among the sources of funding for the more than $3.5 million media blitz. Although hedge fund managers are among FES’s donors, a Jones spokesman disputes the Times account and says that the Tudor Investment Corp. founder was not involved in paying for the ads.
At the end of March, Albany legislators responded to de Blasio’s efforts to stonewall the growing charter sector. With the passage of the annual budget, Governor Andrew Cuomo unveiled a new law mandating that charters be allowed to occupy space in public schools rent-free or else the city must pay the school’s rent in another building. Leading up to the budget’s approval, Strong Economy for All Coalition, Citizen Action of New York and the other groups involved in the current Hedge Clippers project were outside the capitol protesting under the banner of their previous campaign, #NYInequality.
Since establishing significant protections for charter networks through the Cuomo administration, New York’s education reform advocates have increasingly set their sights on policies regarding public schoolteacher accountability and failing school systems. The state budget passed earlier this month included a series of contentious education reforms, spearheaded by Governor Cuomo, regarding the evaluation of teachers and new rules for tenure. The state education department must now devise a new system for evaluating teachers’ performance based on some combination of students’ scores on standardized state tests and classroom visits from independent evaluators. Moreover, tenure is contingent on maintaining high marks under the new evaluation system, and routinely poor-performing schools will be taken over by third parties, such as outside school districts or individuals.
Despite these recent wins for education reform advocates, the battle is far from over. With both the teachers’ unions and pro–charter groups flush with cash and embedded in New York’s political landscape, the battle seen last fall is likely to be repeated throughout elections in years to come. StudentsFirstNY’s Sedlis suggests hedge fund donors won’t back down anytime soon. “All New Yorkers should be deeply concerned about the failure of our education system to serve its highest-need students,” she says. “There are people with the means to make a difference, and they’re choosing to do something about it.”
