Paying to Play: How Financial Institutions Rip Off School Districts

Huck/Konopacki Labor Cartoons

The left has criticized attempts to privatize public education for years now, especially since No Child Left Behind took privatization to new heights. (See my own No Capitalist Left Behind and NCLB’s Biggest Winners).

During the last 10 years, we’ve seen an escalation in the number of for-profit charter schools. Obama’s Race to the Top required states to transfer billions of tax dollars to textbook publishers and open their doors to more charter schools. Cafeteria services are now dominated by just a few large corporations like Sodexo that rip off school districts and abuse their workers (see here, here and here).

No Capitalist Left Behind (The Prequel)

Yet corporate raiders have had their eyes on the public trough well before NCLB and they had numerous tricks up their sleeves for obtaining public education tax dollars. One of these has been to constantly lobby for lower taxes for the wealthy and their corporations, which keeps money in the pockets of the ruling elite and decreases revenues available for schools.

In addition to the direct benefit to the wealthy, this also provides lucrative opportunities for financial institutions to take advantage of school districts as they increasingly rely on bonds to finance their operations. According to a California Watch report (covered in the San Francisco Chronicle), financial firms donated $1.8 million to school bond measures in California over the past five years. In nearly every case, school district officials turned around and hired those same underwriters to sell the bonds for a profit.

The practice occurs nationwide and probably occurred well before the current financial crisis and even before the passage of NCLB. However, it is especially distinct in California, where underwriters gave 155 political contributions since 2007 to successful school bond campaigns. They have been so successful that only 5 donors (out of 111 successful bond measures) failed to receive a bond-selling contract from the school district (and in 4 of these cases, a competitor that also donated to the campaign did win the contract).

This is a clear cut case of “paying to play.” You donate a modest amount of money to get the bond measure passed and a virtual guarantee of being able to profit handsomely from it once it does pass. However, it is legal and all parties seem to be content with the arrangement.

School districts are forbidden from using their own resources to promote a bond measure, so they rely heavily on outsiders (including unions, parents, developers and construction companies) to do the promotion for them. Since they are almost always desperate for the funds provided by the bond, any help getting it passed is considered a blessing. Yet having prearranged contracts with underwriters eliminates competitive bidding and makes it unlikely that districts are getting the best deal available.