Elementary and Secondary Education Act (ESEA)

SHOCKER: Senate Bill Permits Diversion of School Funds to Financial Consultants

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Investigative journalists David Sirota and Matthew Cunningham discovered that an amendment attached to the Senate bill reauthorizing the Elementary and Secondary Education Act contains a fat juicy plum for financial consultants.

The amendment will permit school districts to use federal school aid to hire financial advisors. This is money supposed to be targeted to the neediest children.

They write:

“As budget-strapped Chicago follows a mass school closure with a new plan to layoff more than 1,400 teachers, one set of transactions sticks out: the city’s moves to refinance $1 billion in debt through complex financial instruments called swaps. The deals were spearheaded over the last few years by financial advisory firms brought in by the city to help find money saving efficiencies. Instead of saving money, though, the Windy City took a big hit: The school system has lost more than $100 million on the transactions and has paid millions in fees to its financial consultants.

“Chicago is not alone. School districts across the country have been increasingly relying on high-priced consultants and Wall Street firms for financial and management advice. While proponents say many of the ensuing consultant-driven initiatives have resulted in cost savings, critics note that other initiatives have resulted in investment losses, layoffs and school closures. What is clear is that school districts’ reliance on outside advisers has created business opportunities for the financial industry. And now, thanks to an amendment to federal education legislation moving through Congress, that lucrative market for financial and consulting could become even more flush with cash — specifically, with federal money meant for impoverished children.”

“The legislation was tucked into the Senate version of a massive K-12 education funding bill currently up for congressional reauthorization. The amendment from Sens. Mark Warner, D-Va., and John Cornyn, R-Texas, would allow local officials to divert money from the federal government’s multibillion-dollar fund for low-income school districts and use the cash to hire financial consulting firms. Both lawmakers are among the U.S. Senate’s top 10 recipients of campaign money from the financial industry, and Warner is a former venture capital executive…

“Public education advocates questioned the benefit of spending education dollars on consultants.

“Outside consultants rarely have their clients’ best interests at heart,” said Jeannie Kaplan, a former school board member in Denver, where outside consultants helped oversee an interest-rate swap deal that ended up costing the school system more than $177 million. “Their usual driving force is the bottom line. Let’s not forget that every dollar going to outside consultants is a dollar out of the classroom.”

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