Charter Schools, Education, Education Policy, Families for Excellent Schools, Joint Commission on Public Ethics, New Yorkers for Putting Students First (NYPSF), Privatization of Public Schools, Public Education
The usual participants [in legislative debates about education] have been school boards, parents, unions, the education establishment and the occasional adventurous elected official. Starting a few years ago, and more so now, there are new players in New York. The brawny and outspoken new kid is the hedge fund community.
Say what? Well, there are millions in hedge fund dollars now floating around. Generalities are a little dangerous, but it’s fair to say that a lot of it is from conservative, big money, Wall Street hedge fund types like Home Depot’s Ken Langone, head of Republicans for Cuomo, who says, “Every time I am with the governor, I talk to him about charter schools. He gets it.” The newest entry is something called “Families for Excellent Schools.” While there certainly are “families” involved, the organization is led and funded by hedge fund managers and assorted right-wing billionaires. They’re very anti-union, anti-tenure, pro-test and pro-charter school.
When the state Legislature revamped New York’s Lobbying Laws in 2011, the reforms were meant to shine a brighter light on mega-donors seeking to influence the government. Yet this year’s biggest lobbying spender—a pro-charter-school group that reported almost $6 million in New York state lobbying expenditures through August—hasn’t had to reveal a single benefactor.
Mayor Bill de Blasio, the leading adversary of Manhattan-based nonprofit Families for Excellent Schools, recently called for the group to release its donor list so “the public can judge what interests are at play.” The group’s spending this spring helped foil the mayor’s plans in a high-profile fight over charter schools’ funding and sharing space with traditional public schools.
Lobbying records, however, show how Families for Excellent Schools was able to shield its donors’ names. Even its critics acknowledge the group has found a way around the 2011 law.
“These guys have invented the ‘hedge-fund loophole’ in the dark-money world of [Gov.] Andrew Cuomo’s Albany,” charged Billy Easton, executive director of the Alliance for Quality Education, a nonprofit backed by the statewide teachers’ union, which has been warring with charter-school proponents and the governor.
Mr. Easton’s comment referred to hedge-fund executives who have donated to the governor’s campaign and to charter-school causes. A Cuomo official once griped that Mr. Easton’s group does not disclose its donors, either, but it does now, per the 2011 law.
David Grandeau, an attorney for Families for Excellent Schools, said, “FES has correctly disclosed its spending in New York state, and we are confident that our activity is within the limitations allowable.”
Despite the group’s extensive lobbying as defined by state law, and Internal Revenue Service restrictions on how much money tax-exempt organizations can spend on lobbying, donations to it have been potentially tax-deductible, according to Mr. Grandeau, who was once New York’s top lobbying regulator.
Founded several years ago by business executives including four Wall Street players, Families for Excellent Schools has two components: an apolitical 501(c)(3) tax-exempt nonprofit and a politics-focused 501(c)(4). The group’s 2012 tax returns reflect a heavy overlap between the staffs of the two entities, which share an office suite. It’s a common arrangement for interest groups, such as environmental or reproductive-rights organizations.
New York’s 2011 ethics law requires issue-oriented nonprofits that spend more than $50,000 a year on lobbying to disclose sources of funds of more than $5,000. After the Supreme Court’s Citizens United decision allowing unlimited expenditures by independent groups, the law was intended to make public the names of big donors seeking to influence state government.
But the bulk of Families for Excellent Schools’ spending is not by its political arm but rather its 501(c)(3)—which does not have to disclose donors under state law. Authors of the law might have assumed such disclosure was not necessary because the IRS restricts what apolitical nonprofits can spend on lobbying.
The IRS, however, has a far narrower definition of what constitutes lobbying than New York does, said Mr. Grandeau. Even though Families for Excellent Schools has reported $6 million in lobbying expenses this year through August to the state’s lobbying oversight agency, the number reported on the group’s federal tax return will be vastly lower. A spokesman for the group said urging Mr. de Blasio not to roll back charter-school co-locations is considered lobbying by the state but not by the IRS.
Mr. Grandeau, who formerly directed the Temporary Commission on Lobbying, which was shut down when the 2011 law created the Joint Commission on Public Ethics to oversee lobbying in New York, is well equipped to navigate clients through the many complexities of compliance.
Somewhat amorphous rules
In tax filings, Families for Excellent Schools opted to subject its lobbying spending to what’s known as the “substantial part test”—a somewhat amorphous set of IRS regulations determining whether lobbying makes up a major part of an entity’s activities. In past cases, the IRS has considered such factors as what percentage of an organization’s spending is meant to influence legislation. A group that devotes too much of its annual budget to lobbying can lose its tax-exempt status.
It’s not clear what Families for Excellent Schools, a major ally of charter-school leader Eva Moskowitz, will spend this year. Its 2012 tax return shows that its 501(c)(3) spent $1.3 million—and not a penny on lobbying. The $6 million in lobbying reported this year to the state was the first time the group registered such activity in New York. It continues to hold large rallies and recently opened a Boston office.
Jeffrey S. Tenenbaum, an expert on nonprofit lobbying regulations at Washington, D.C., law firm Venable, agreed with Mr. Grandeau that state laws define lobbying much more expansively than the IRS does. States can cast a wide net to capture attempts to influence government, he explained, while the IRS is tasked with ensuring that tax exemptions are being used appropriately.
Most of Families for Excellent Schools’ spending went to television advertising. In one commercial showing a huge Albany rally organized by the nonprofit, the narrator states, “Now we need the Assembly to act. Hear our voices.” Other ads posted on the nonprofit’s YouTube page, however, have nothing to do with legislation.
Sometimes organizations have very sophisticated nonprofit lawyers who are able to guide them through this,” said Mr. Tenenbaum. “Other times, organizations are well intentioned, but just ill informed. These are very complicated rules.