Archives for category: Pensions

The Wall Street Journal reports that Randi Weingarten is taking union pension funds away from hedge funds that attack teachers’ pensions. Leading hedge funds have contributed to organizations that want to eliminate defined-benefit pensions and substitute 401k plans for them. The hedge fund billionaires have also taken the lead in funding nonunion charter schools.

Randi has pushed the investment committees of unions to withdraw their pension funds away from hedge funds that are subsidizing attacks on teachers’ pensions.

Defenders of the hedge funds say that the unions should seek the best return on their funds, without regard to the politics of the hedge fund.

Randi has the better side of this dispute. Why should teachers invest their pension funds in a company that wants to take away their pensions?


Daniel Loeb, Paul Singer and dozens of other hedge-fund managers have poured millions of dollars into promoting charter schools in New York City and into groups that want to revamp pension plans for government workers, including teachers.

The leader of the American Federation of Teachers, Randi Weingarten, sees some of the proposals, in particular the pension issue, as an attack on teachers. She also has influence over more than $1 trillion in public-teacher pension plans, many of which traditionally invest in hedge funds.

It is a recipe for a battle for the ages.

Ms. Weingarten started by targeting hedge-fund managers she deemed a threat to teachers and urged unions to yank money from their funds. Then she moved to Wall Street as a whole.

Her union federation is funding a lobbying campaign to eliminate the “carried-interest” tax rate on investment income earned by many money managers. It is trying to defeat legislation that would increase the charitable deduction in New York state for donations to private schools. And it has filed a class-action lawsuit accusing 25 Wall Street firms of violating antitrust law and manipulating Treasury bond prices.

‘Given your strong support…for an organization which is leading the attack on defined benefit (DB) pension funds around the country, I was surprised to learn of your interest in working with public pension plan investors.’
—Randi Weingarten, in March 15, 2013, letter to hedge-fund manager Daniel Loeb

Some pension funds have withdrawn money from hedge-fund managers criticized by the teachers union. And some hedge-fund managers stopped making donations to advocacy groups targeted by Ms. Weingarten.

Hedge funds, reluctant to buckle to the pressure, say Ms. Weingarten is doing a disservice to the teachers she represents, because funds should aim solely to earn the highest possible return on their assets. The personal beliefs or donations of hedge-fund managers, they argue, shouldn’t be a factor in that decision. At least one manager, Mr. Loeb of Third Point LLC, has increased his donations to a charter-school group, citing Ms. Weingarten.

Sander Read, chief executive officer of Lyons Wealth Management, which hasn’t been targeted, likened what Ms. Weingarten is doing to “hiring a dentist because of their political beliefs. You may see eye to eye on politics, but you may not have great, straight teeth.” None of the hedge funds targeted by the teachers unions would discuss the matter publicly, a sign of how sensitive the battle has become.

Ms. Weingarten said in an interview: “Why would you put your money with someone who wants to destroy you?”

The battles are rooted in a political fight over how to improve public education. Republicans have long sought major changes, such as creating new competition for public schools, including charter schools. Democrats largely have supported solutions backed by the unions, particularly increased spending for existing schools.

About a decade ago, some liberals joined conservatives in pushing to expand charter schools. Those efforts received financial support from hedge-fund managers including Mr. Loeb, Mr. Singer of Elliott Management Corp. and Paul Tudor Jones of Tudor Investment Corp., who together kicked in millions of dollars.

Some of those involved in the effort cast public-school teachers and their unions as obstacles to improving education. The reputation of the teachers union took a beating.

When Ms. Weingarten was elected president of the American Federation of Teachers in 2008, she aimed to restore public trust in public-school teachers and their unions.

As she rose in the union, she got close to Bill and Hillary Clinton. Last summer, the federation became the first union group to endorse Mrs. Clinton’s presidential campaign. Ms. Weingarten sits on the board of the super PAC supporting her candidacy, and the American Federation of Teachers has donated $1.6 million to the Bill, Hillary and Chelsea Clinton Foundation.

Ms. Weingarten’s federation represents about two dozen teachers unions whose retirement funds have a total of $630 billion in assets, a big chunk of the more than $1 trillion controlled by all teachers unions. The federation doesn’t control where that money is invested; the unions themselves do. But Ms. Weingarten can make recommendations.

She instructed investment advisers at the federation’s Washington headquarters to sift through financial reports and examine the personal charitable donations of hedge-fund managers. She says she focuses on groups that want to end defined-benefit pensions. Many of the same entities also back charter schools and overhauling public schools.

In early 2013, the union federation published a list of roughly three-dozen Wall Street asset managers it says donated to organizations that support causes opposed by the union. It wanted union pension funds to use the list to decide where to invest their money.

The Manhattan Institute for Policy Research, a think tank that supports increasing school choice and replacing defined-benefit pension plans with 401(k)-type plans for future government employees, is one of the groups to which donations were viewed unfavorably.

Lawrence Mone, its president, says the tactics amount to intimidation. “I don’t think that it’s beneficial to the functioning of a democratic society,” he says.

After KKR & Co. President Henry Kravitz made the list in 2013, Ms. Weingarten got a call from Ken Mehlman, an executive at the private-equity firm and former chairman of the Republican National Committee.
Mr. Mehlman said KKR had a record of supporting public pension plans, according to Ms. Weingarten.

Ms. Weingarten agreed, removed Mr. Kravitz’s name from the list and invited Mr. Mehlman to talk about the firm’s commitment to public pensions at a meeting in Washington with 30 pension-fund trustees representing 20 plans that control $630 billion in teachers’ retirement money.

When Cliff Asness of hedge fund AQR Capital Management LLC found out Mr. Kravitz had gotten off the list, he called Mr. Mehlman, a friend. Mr. Asness also hired a friend of Ms. Weingarten’s: Donna Brazile, a vice chairwoman of the Democratic National Committee who has been a paid consultant to the American Federation of Teachers.

Ms. Brazile arranged a lunch meeting between Mr. Asness and Ms. Weingarten, where they discussed ways to work together. Not long after, Mr. Asness’s firm paid $25,000 to be a founding member of a group that KKR’s Mr. Mehlman was starting with Ms. Weingarten to promote retirement security.

Mr. Asness was removed from the list. A year later, when Ms. Weingarten noticed he continued to serve on the Manhattan Institute board, she considered putting him back on.

In September of last year, when the California State Teachers’ Retirement System, or Calstrs, considered increasing its hedge-fund investments, Ms. Weingarten saw another chance to apply pressure.

Dan Pedrotty, an aide to Ms. Weingarten who runs the hedge-fund effort, spoke to a Calstrs official about Mr. Asness’s continued service on the Manhattan Institute’s board. The Calstrs official then called Mr. Asness.

In December, Mr. Asness said he would step down from the Manhattan Institute board. His spokesman says he already had made the decision at the time of the call, after reassessing time spent on the boards of several nonprofit groups.

“Randi is committed to helping hard working employees achieve the secure retirement they deserve,” Mr. Asness said in a written statement.

Mr. Loeb, founder of the $16-billion Third Point fund, has been more combative. He is a donor to the Manhattan Institute and chairman of the Success Academy, which operates a network of charter schools in New York City.

‘I can appreciate that it may be frustrating for the certain plan sponsors to invest with managers who have different political views or party affiliations, an issue they must come to terms with due to their fiduciary responsibilities.’
—Daniel Loeb, in March 22, 2013, email to union leader Randi Weingarten

In a March 2013 letter to Mr. Loeb, Ms. Weingarten noted his support of a group “leading the attack on defined benefit pension funds” and said she was “surprised to learn of your interest in working with public pension plan investors.” Seeking business from union pension funds while donating to the group, she wrote, “seem to us perhaps inconsistent.”

The two agreed to meet.

Mr. Loeb emailed Ms. Weingarten, noting his fund’s average annual return of 21% over 18 years. “I completely respect the political considerations you may have and understand if other factors dictate how funds are allocated,” he wrote.

A week later, Ms. Weingarten wrote back to reiterate that unions were wary of investing with Mr. Loeb “given the political attack on defined benefit funds.”

In response, Mr. Loeb asserted that it must be “frustrating” for unions to invest with funds that “have different political views or party affiliations.” He added: “At least we can rejoice in knowing that as Americans we share fundamental values that elevate individual opportunity, accountability, freedom, fairness and prosperity.”

The meeting was called off, and Mr. Loeb was added to the list.

At a fundraising dinner that May for his charter-school group, Mr. Loeb stood up and said: “Some of you in this room have come under attack for supporting charter-school education reform and freedom in general.” He called Ms. Weingarten the “leader of the attack” and pledged an additional $1 million in her name.

“Both Randi and I believe America’s children deserve a 21st century education, and I hope the day comes when she embraces the positive change created by public charter schools,” Mr. Loeb said recently in a written statement.

In late 2013, state union officials pressed a Rhode Island pension fund to fire Third Point. The following January, the pension fund did just that, pulling about $75 million from Mr. Loeb’s fund. A spokeswoman for the state treasurer said at the time that Mr. Loeb’s fund was too risky.

Roger Boudreau, a member of the teachers union and an elected adviser of the Rhode Island fund at the time, says the donations played a role. “It’s fair to say that those kinds of donations are going to be looked at very critically,” he says.

Around that time, a giant billboard appeared above Times Square. “Randi Weingarten’s Union Protects Bad Teachers,” it read above a picture of her scowling face.

Ms. Weingarten immediately assumed the hedge-funders were behind the attack. The entity listed as the billboard’s sponsor is the Center for Union Facts, a Washington-based advocacy group. The group declines to disclose who paid for the billboard.

“We all guessed it had to be people like Dan Loeb,” Ms. Weingarten says. Mr. Loeb declined to comment.

The billboard kicked off a campaign against Ms. Weingarten by the Center for Union Facts, including radio and newspaper advertisements. “She’s the head of the snake, so it was appropriate to go after her personally,” says the group’s president, Richard Berman.

The ads directed people to a website that said she oversaw a “crusade to stymie school reforms and protect the jobs of incompetent teachers.” It listed her salary and called her a “member of the elite.”

In September 2014, Mr. Berman sent a 10-page letter to lawmakers, union officials and opinion leaders charging that Ms. Weingarten‘s “ineptitude is a threat against America, against hard-working teachers, and especially against our nation’s children.”

Lorretta Johnson, secretary-treasurer of the American Federation of Teachers, responded in a letter to union leaders that Mr. Berman represented a “front group whose mission is to vilify and destroy unions.”

The Center for Union Facts, led by Richard Berman, is a rightwing, virulently anti-union public relations firm that specializes in demonizing unions; it has also defended the tobacco industry against critics.

New York magazine reports that activists are succeeding in persuading public pension funds to drop out of hedge fund investments.

The pension fund trustees have included that these investments are a bad risk. Their decision making was influenced by an activist group called the Hedge Clippers, which was created by the AFT to embarrass the hedge fund managers.

Part of the anger towards the hedge funds results from their heavy investment in Puerto Rico bonds and their public relations campaign to stop Congress from allowing Puerto Rico to get bankruptcy protection. Certain hedge funds bought Puerto Rico’s bonds at a deep discount and now hope to make billions by getting paid in full. They have been running slick commercials on television featuring a Puerto Rican woman who says she will lose her life savings if Congress allows Puerto Rico to find a solution other than paying the bondholders in full.

Paying the bondholders in full will mean bankrupting the Puerto Rican economy, closing its schools and social services, but paying the hedge funds the face value of the bonds they bought at a deep discount.

 

 

Just five days before New Yorkers went to the polls in bitterly contested presidential primaries defined by the widespread sense among voters that Wall Street is indeed “rigged,” the New York City Employees’ Retirement System, or NYCERS, where Garrido is a trustee, voted to pull its money out of all hedge funds. That amounts to about $1.5 billion, or 3 percent, of a $50 billion pension fund.

 

The perception that hedge funds are a raw deal for everyone but their fee-fattened managers has not only become mainstream with astonishing speed, it has begun to pose a threat to an industry that pretty recently seemed to be on top of the world. The move by the pension for the largest municipal employees union in the U.S., representing 100,000 New Yorkers, to get out of hedge funds is the latest sign that the near $3 trillion hedge-fund industry has peaked, with global assets now slightly lower than they were in 2014, as investor redemptions hit $15 billion after last year’s poor performance. NYCERS was following the lead of another bellwether entity, the $300 billion California Public Employees Retirement System, which exited hedge funds more than a year ago.

 

But NYCERS pulling its money out of hedge funds is perhaps best read as the biggest victory yet for a burgeoning anti-hedge-fund movement that is fueled by widespread anger at economic inequality and argues for divestment on a wide variety of grounds — most notably right now that prominent hedge funds are squeezing Puerto Rico for debt payments, even as the island spirals deeper into economic depression. At the forefront of that protest effort is a group called Hedge Clippers. About a year ago, the American Federation of Teachers created the organization in response to anti-union efforts and other conservative political actions by various hedge-fund titans. For months the group has been lobbying public pension funds — including NYCERS — to get out of the investment vehicles. Last November, Hedge Clippers published an AFT report showing that 11 big public pension funds that have invested in hedge funds would have done better elsewhere. New York City public advocate Tish James, a NYCERS trustee, gives some credit to Hedge Clippers for the decision to divest. The group’s arguments reached “the minds of a number of individuals who want to be conscious about our public investments,” she says, and likens its efforts to the 1980s campaign to pull money out of apartheid South Africa.

 

Following on the heels of New York’s move, Hedge Clippers met with Ohio public-pension-fund execs to make its case, and it plans to take its battle to college campuses next, where it hopes to win over liberal-leaning universities, which have invested a huge chunk of their endowments in hedge funds, including those run by the moguls who are their alumni. “We feel confident that more pension funds are going to divest,” says Stephen Lerner, a former organizer with the Service Employees International Union and one of the key architects of Hedge Clippers.

 
This all comes at a time when many hedge funds have experienced their worst year since the crash of 2008, following a string of disappointing ones. Last spring, New York City Comptroller Scott Stringer (also a NYCERS trustee) released the devastating report that made Garrido so angry: He found that private equity, real-estate, and hedge-fund assets had cost the city’s pension system $2.6 billion in lost value over the prior ten years, in large part due to the hefty fees they charged. Then, in 2015, NYCERS’s hedge-fund portfolio lost 1.88 percent, lagging behind both the S&P 500 and key bond indexes.

 

The explosive growth of hedge funds — they had one-sixth as much money under management at the turn of the century as they do today — was fueled in no small part by public pensions like NYCERS handing them huge sums of money. Those billions helped transform what previously had been a boutique investment for the Über-rich into an institutional asset class where management fees of 2 percent of the money under management and 20 percent of the investment returns created a slew of hedge-fund billionaires. Even in years their funds lost money or barely broke even, some managers earned hundreds of millions off management fees alone. Castles sprouted up on the Connecticut shore. World-class art collections were assembled. Historic fortunes were made.

 

Financed largely by the AFT and a few philanthropic foundations, Hedge Clippers has quickly morphed into a coalition of more than a dozen labor, civil-rights, environmental, and progressive community groups expanding to ten states and Puerto Rico with a stated mission of “unmasking the dark money schemes and strategies that the billionaire elite uses to expand their wealth, consolidate power and obscure accountability for their misdeeds.” The group’s top dozen organizers work out of the offices of their respective organizations, primarily in Washington, D.C. and New York, mobilizing through a Google listserv. The group protests a variety of issues, some more comprehensible than others: They interrupted investment conferences in New York City, alternately demanding Starboard Value’s Jeff Smith institute a $15-per-hour minimum wage for his fast-food workers at the Olive Garden and blaming Larry Robbins of Glenview Capital for causing cancer by investing in Monsanto. Still, the group knows it’s riding the zeitgeist.

 

To some extent, the anti-hedge fund movement has its roots in Occupy Wall Street. Lerner, who has been a leading labor political strategist for decades and is now a fellow at Georgetown University, was also involved in that movement. He says the new, laserlike focus on hedge funds grew from seeing billionaires like GOP donors Paul Singer and Dan Loeb battle unions on public education and taxes. When Hedge Clippers shone a light on investments by billionaires Julian Robertson and Steve Cohen in drug company Gilead, which has priced a hepatitis-C-virus drug out of reach for many, that brought AIDS activists and civil-rights groups into the anti-hedge-fund cause.

 

In New York state, the anti-hedge-fund activists have also hooked up with a group called “Patriotic Millionaires” — which includes some hedge-fund and private-equity managers — in an effort to kill a tax break that allows these managers to pay a lower tax rate on income they earn from managing other people’s money. A bill to abolish the so-called “carried interest” loophole is currently working its way through the New York Senate.

 

To be sure, hedge funds aren’t going away. The biggest fund, $104 billion Westport, Connecticut–based Bridgewater Associates, which runs an opaque black-box strategy, grew 16 percent last year despite lackluster returns, according to a recent survey by data provider Hedge Fund Intelligence. Funds that are $5 billion or greater in size continue to dominate the industry, and those tend to have fee structures that allow them to survive sizeable redemptions. Moreover, the decade-long boom has made it possible for many hedge-fund billionaires to keep the doors open with just their own wealth if it comes down to that.

 

But the industry can’t ignore the winds of change. “The pressure on institutional investors to reduce, or abandon, their exposure to hedge funds is growing,” placing the industry at a “tipping point,” says HFI managing editor Nick Evans. Hedge funds will have to deliver results for investors that are not achievable elsewhere to justify their high fees, he says. Between 1990 and 2000, hedge funds had average annualized returns of almost 20 percent, but those days are long gone. “Out of maybe 10,000 hedge funds, only 1 percent are worth their fees on a net basis,” says Michael Hennessy, managing director of Morgan Creek Capital Management, which invests in hedge funds. “There are a lot who are not worthy and should go away.”

 
To survive, hedge funds will also have to confront the new political reality that has taken hold, as their politics and their investments become more closely scrutinized, thanks in no small part to Hedge Clippers. Nowhere is this clearer than in the case of NYCERS, whose divestment was partly motivated by its hedge funds’ role in the Puerto Rican debt disaster that is still unfolding. Last year, the pension fund learned that at least three of the hedge funds in its portfolio (D.E. Shaw, Brigade Capital Management, and Fir Tree Partners) were among the many that own about 30 percent of Puerto Rico’s outstanding debt. Hedge funds bought into a $3.5 billion junk bond offering in 2014 and swooped in to buy more as prices sank last year.

 

When Puerto Rico said it might default on its $72 billion debt last summer, Hedge Clippers hammered on the hedge fund connection and staged a protest in front of the office of one of the biggest hedge-fund owners of the debt, BlueMountain Capital. The crisis hit home for the NYCERS retirees as hedge funds pushed Puerto Rico to cut public services and lay off government workers to avoid default. Thousands of those workers are members of AFSCME (American Federation of State, County and Municipal Employees) — the same union that represents NYCERS retirees.

 

Puerto Rico, now facing a 45 percent unemployment rate, has since devolved into a humanitarian crisis, with power outages and shuttered hospitals as the Island Commonwealth has been unable to push bankruptcy legislation or debt relief through the U.S. Congress. Instead, the bondholders have launched a massive lobbying and advertising campaign accusing Puerto Rico of profligacy and demanding it pay up. The developments nudged NYCERS toward pulling its money. “A significant number of NYCERS retirees are Puerto Rican, and if they were to know we were investing in hedge funds that had a [negative] financial impact on Puerto Rico, they would support the divesting from those hedge funds,” says Tish James.
Last November NYCERS appealed to the hedge funds to help solve the Puerto Rican crisis. When that failed, trustee Garrido — who had previously complained that hedge funds’ high fees combined with lousy returns were a “rigged system” — went on the attack at a December 3 press conference on Capitol Hill. As Latino political activists pressed Congress for help, he criticized hedge funds for profiting from the economic crisis while demanding austerity policies that hurt the island’s working class. Four months later, NYCERS voted to dump its hedge-fund investments.

 

 

Howard Blume reports that charters in Los Angeles are trying to avoid the cost of paying pensions by advising teachers who near retirement age to go to work for the public school system.

 

His fascinating story begins:

 

 

“A Woodland Hills charter school recently made an unusual offer to its veteran teachers: We’ll give you $30,000 if you return to the Los Angeles Unified School District before you retire.

 

“It wasn’t the teachers that El Camino Real Charter High School wanted to get rid of. It was the cost of their retirement benefits.

 
“The school’s cost-shifting strategy is one of many flashpoints between traditional public schools and the independent charters they compete with for students and money.

 

“In this case, it’s a battle over who should pay for an employee’s health benefits after retirement — the charter school or the larger school district.

 
“Financial challenges are all-but-universal in the education world, and retiree benefits are particularly costly. L.A. Unified’s unfunded liability for employee benefits has escalated to $13.6 billion.

 

“The El Camino plan would add from $2.5 million to $4.2 million to that deficit, based on district estimates. The idea is that teachers would spend their careers in the charter school, but later transfer to LAUSD to qualify for the huge institution’s retirement benefits.

 

“Except the district has decided not to play ball.

 

“Teachers who return to the district, simply to retire, are not entitled to district retirement benefits, general counsel David Holmquist said.

 

“This would be an obligation that in my view would be the charter’s responsibility,” Holmquist said.”

 

Blume points out that this decision raises interesting questions about Eli Broad’s plan to open 260 new charter schools, which will require some rethinking when they can’t dump their pension obligations on the public schools.

 

Guess Eli’s charters will have to stick with Teach for America, whose teachers are usually long gone before qualifying for a pension.

 

 

 

 

Pasi Sahlberg, author of “Finnish Lessons,” teacher, scholar, and defender of childhood, won the LEGO prize for his work in fighting the global effort to standardize children and crush the joy of learning. The award comes with a gift of $100,000.

Please watch Pasi’s presentation after winning the award.

He certainly belongs on the honor roll of this blog for his tireless efforts to present a vision of what real education is and how to make it happen.

“Former schoolteacher and current scholar and author, Finnish Pasi Sahlberg, wins the LEGO Prize 2016 for his work to improve the quality of children’s education worldwide. Hanne Rasmussen, CEO of the LEGO Foundation, presented the prize at the annual LEGO Idea Conference. The prize is accompanied by a cash award of USD 100,000 to support further development of quality in children’s learning.

The LEGO Foundation has taken on the ambition of re-defining what we mean with play and its role in learning, and of re-imagining how we best stimulate children to learn. This ambition is shared by Pasi Sahlberg, who believes that testing alone is the wrong way to quality education.

“Today, curiosity, creativity and ultimately genuine learning are at risk anywhere high-stakes testing, Big Data and punitive accountability are the dominant drivers of what teachers and students do in schools. This is a direct consequence of the current global education reform movement. Schools around the world have become places of standardized routines that aim at predetermined attainment targets in the name of improving competitiveness. Our children are therefore subjects of frequent assessments and tests that measure and divide them based solely on how they perform on these external expectations,” says Pasi Sahlberg.

Society needs creative and lifelong learners

These days, the LEGO Idea Conference hosts 300 academics, practitioners and representatives from educational organizations, who will discuss what quality learning is and how it can be put into action. According to Hanne Rasmussen, CEO of the LEGO Foundation, Pasi Sahlberg is a forerunner when it comes to improving the quality of children’s education worldwide.

The LEGO Foundation said in its announcement:

“Pasi Sahlberg wins the LEGO Prize 2016 for his enormously dedicated work to improve the quality of children’s education globally. Pasi Sahlberg is a forerunner in the efforts to ensure quality in children’s learning, which he believes must build on the natural curiosity and collaboration between children. The LEGO Foundation shares this view. A child’s inherent ability to play is paramount in the early years and a catalyst for learning competencies that prepare the child for formal education, creativity and learning. Quality learning supports a respect for children’s playfulness and does not only focus on curriculum that mirrors later educational experiences.,” says Hanne Rasmussen.

“The LEGO Foundation believes that learning through play is essential in children’s learning and development. The LEGO Foundation has taken on the task of re-defining what we mean with play and its role in learning, and of re-imagining how we can stimulate children to learn. Skills like problem solving, creativity, empathy, communication and teamwork are all rooted in play, which involves a constant process of “try, fail and try again” – helping children to develop and fine-tune the creative and critical thinking skills.

“The mission of the LEGO Foundation is to inspire and develop the builders of tomorrow. The aim is to build a future where learning through play empowers children to become creative, engaged lifelong learners.

“The LEGO Foundation focuses on children aged 0-12 with a special emphasis on early childhood. This is the period when children develop most rapidly and when play is instrumental in building skills essential for the rest of their lives. As documented by several studies, investing in early childhood provides exceptional returns for the individual child and for the society, as it will lead to less crime, higher high school graduation rates and higher incomes.”

Superstar principal Troy La Raviere in Chicago steps back to assess the deadlock between the mayor and the Chicago Teachers Union.

 

He recalls a recent conversation with Paul Vallas. He writes:

 

“I’m not an admirer of his education policy, but Vallas was the last Chicago Public Schools CEO to leave the district with a structurally balanced long-term budget. He also left CPS with a fully funded pension system, and over $1 billion in reserves. When Vallas returned to Chicago this past August, I was fortunate enough to have an hour-long conversation with him a few days before we both participated in a panel at the City Club of Chicago. During our conversation—and during the panel—Vallas outlined the financial rules that kept CPS budgets balanced during his tenure. Those practices included the following:

 

“He did not add programs without identifying additional revenue to pay for them.

 
“He did not borrow for operational expenses.

 
“He did not spend on new schools when there was declining enrollment. Building new schools should be based on demographics, not school reform ideology.

 
“He did not redirect funding for pension payments toward other spending projects.

 
“After Vallas’ departure, the mayor’s appointees to CPS lost all fiscal discipline and consistently violated every one of these sound budgeting practices. As a result of their mismanagement, CPS now claims they need “shared sacrifice” from teachers. Teachers union officials don’t seem to have the kind of consistent and concise messaging the Mayor’s office has, so the average news consumer may not notice that within CTU’s response are the keys to solving CPS’ fiscal crisis. I will take the liberty of fine-tuning CTU’s message and speaking as the Chicago public school teacher and union member I once was, before becoming an administrator nearly a decade ago.”

 

LaRaviere then describes what is necessary to fix the budget. And he identifies who must share in sacrificing to put the system in a sound financial footing.

 

Here is a hero. Dr. Randy Weick, a high school history teacher in Kentucky with a degree from the London School of Economics, has filed a class action suit against some of the nation’s largest investment firms for the danger they have inflicted on the pensions of Kentucky teachers.

A columnist in Forbes writes that Wieck has taken on “the titans of private equity”:

Wieck has filed a class action lawsuit in the United States District Court of the Western District of Kentucky claiming that mismanagement of the investments of the Kentucky Teachers Retirement Systems (KTRS) has resulted in the worst-funded state teacher plan in the U.S—forcing teachers to contribute more of their salaries (up from 9% to 13%).

Wieck has no lawyer—he’s representing himself—in a Herculean effort to save his own and other Kentucky teachers’ retirement.

You might expect that powerful, well-funded national and local public unions would rally behind Wieck to hold Wall Street accountable for undermining teachers’ retirement security. To date, in Kentucky and nationally, public sector labor organizations have been mighty reluctant—even when pressed—to recognize that how the money in a pension is managed is at least as important as how much goes into it and is paid out in benefits.

Labor should be embracing a new role—providing meaningful independent oversight of pension investments. Every public pension needs an outside Inspector General, in my opinion. Organized labor could and should make it happen.

Private Equity firms mentioned in the Wieck complaint include Blackstone, Carlyle and KKR. Excerpts from the case referring to Private Equity investments include:

“As late as 2007 KTRS had no alternative investment managers listed in their Comprehensive Annual Financial Report; by 2013 there were 31 alternative managers listed and KTRS continued to add alternative investments in 2014 and 2015—despite the filing of a lawsuit against another Kentucky State Pension plan challenging the legality of purchasing alternatives.”


“KTRS has failed in their fiduciary duty by selecting investments and investment managers not permitted by statute of the Commonwealth of Kentucky. KTRS has invested in high-risk alternative investments not appropriate for fiduciaries under the common law. Many of these alternative investment entities have not documented in their contracts that they adhere to investment ethics and disclosure rules as required by statute. KTRS Trustees have allowed numerous alternative investment managers to violate Kentucky state law on ethics and disclosure – which also constitutes violations of the Investment Advisers Act of 1940. KTRS (in Fiscal Year 2014) admitted to paying $9.2 million to alternative investment managers in secret no-bid contracts. KTRS managers who have hired lobbyists in Frankfort include KKR, JP Morgan (Highbridge) and Blackstone – which has 16 listings on the executive branch lobbyist list (all affiliates and placement agents combined).”

Dr. Randy Weick joins this blog’s honor roll, fighting for all teachers in Kentucky.

Troy LaRaviere is principal of Blaine Elementary School in Chicago. He was invited to speak on a problem at the Chicago Civic Club, where civic and business leaders convene. The topic was bankruptcy and the schools. Troy was the only school-based educator on the panel.

Here is the link to the event (you might want to hear Paul Vallas on the topic).

And here is Troy’s presentation:

“I recommend watching the last few minutes of Paul Vallas’ presentation in which he lays out the basic rules CPS operated by before the financial crisis. This part of his talk begins at the 36:00 time segment. I think all of Chuck Burbridge’s presentation is worth listening to, and that George Panagakis’ presentation on the intricacies of bankruptcy was eye-opening. This panel represents the first time I’ve prepared all of my remarks beforehand, so I’ve included those remarks below. I learned a lot from my participation on the panel and I hope you learn from it as well.

“Prepared Remarks

“Thank you to the City Club for inviting me to this panel and luncheon. Unfortunately I could not take advantage of the lunch as I am fasting today in solidarity with the 12 parents and community members who are in their 9th Day of a Hunger Strike to save Dyett School as the only open enrollment neighborhood high school left in their community (I mistakenly said “city” in my remarks). This gesture on my part is relatively insignificant when compared to the sacrifice they are making on behalf of their children. But I make it nonetheless before I begin my remarks.

“As residents and taxpayers we have to do more than identify problems. We have to identify and understand the source of those problems. If we don’t neutralize that source then we might be able to solve this problem today but that source will rear its head a few years down the line to re-create the same havoc that it’s wreaking on us today.

“We’re being told that pensions are the problem. We have a problem with pensions but pension are not the source of our problem. This administration consistently misappropriated pension funds, and then attempts to convince us that pensions themselves are the problem. That’s like a thief stealing your rent money and then attempting to convince you that the landlord is the problem.

“The source of our problem is city and school officials who spend and borrow money in a manner that is reckless and corrupt; the parasitic private sector banks and investors who are always looking for creative ways to rip off taxpayers, and the state legislators who enabled this irresponsible fiscal behavior in the first place.

“For the sake of time, I’m going to focus my comments on this administration’s reckless borrowing and the bank that benefit from it. When the Tribune attempted to look into the cost of this borrowing their reporters and attorneys were forced by CPS to spend a year getting the details about how much it spends in interest on its massive debts. So not only are they putting us in debt but they tried to prevent us from finding out just how much debt they put us in.

“Interestingly enough, CPS recently hired Ernst and Young to do an analysis of their structural deficit. That analysis shows that pension costs are projected to rise only 32% over seven years, while debt service is projected to rise 350% from $119 million to $421 million. THIS is the debt that’s driving up costs. This debt is not owed to teachers. This debt is owed to financial institutions like the Pritzker Group, Goldman Sachs and Northern trust—all Emanuel Campaign contributors; and his administration wants to ensure they get paid what they’re owed.

“This debt is also owed to banks and investors who virtually swindled CPS out of $100 million. Financial institutions like Bank of America and the Royal Bank of Canada. They have documented evidence that these banks knew that the auction rate securities market was about to collapse while they were preparing to underwrite a massive auction rate bond issue for CPS.

“That’s illegal. You can sue them and get those millions back. But the Emmanuel administration refuses. They want them to get what’s owed to them even though they got it in through corrupt and deceptive practices.

“This administration wants to pay your tax dollars to EVERYONE they owe, except one group. The only people the Emanuel administration doesn’t want to pay what they’re owed are teachers.

“Let me say it again another way.

“The only group of people the Emanuel administration doesn’t want to pay, just happen to be the only group of people who actually worked for what CPS owes them–spent their entire careers working and sacrificing for what CPS owes them.

“PNC Bank didn’t sacrifice a more lucrative career to dedicate itself to teaching science and mathematics. Chicago’s teachers do that.

“Goldman Sachs didn’t sacrifice time with their own families to stay after school to tutor struggling readers. Chicago teachers do that.

“None of these institutions spent consecutive years of his career working with four struggling students in hopes that that sacrifice and investment of time would pay off on their graduation day …. only to have those hopes destroyed when the news reaches you that you’ll be preparing instead for their funerals—in part, as a result of the neglect of their communities by many of the same people responsible for the neglect of their schools. Their names: Miguel. Tyray. Roberto. Candace. Those are the names I carry with me, but teachers all across Chicago have names of their own etched in their memories forever.

“As our teachers feel this district coming in to take what little they do get in return for their sacrifice, this administration’s hollow, empty, and hypocritical use of the term “shared sacrifice” to justify this encroachment must seem profoundly disrespectful and painfully ironic.

“To reiterate. The source of our problem is:

(1) city and school officials who spend and borrow money in a manner that is reckless and corrupt;

(2) the parasitic private sector banks and investors who are always looking for creative ways to rip off taxpayers, and

(3) the state legislators who are all too eager to create a legislative environment in which this legalized theft can occur.

“If anyone is made to sacrifice, it has to be members of these three groups, because the behavior of teachers did not cause this problem. The behavior of these three groups caused this problem. Teachers have already made their sacrifice a thousand times over, and those whose behavior caused this crisis have no right to ask them for more.”

Fred Klonsky reports on his blog that Thereis a dangerous bill in the legislature that would wipe out all school funding and pensions and appoint acommission of legislators to start from scratch.

Since this is apparently Governor Bruce Rauner’s idea, you can be sure whatever happens will hurt the state’s public schools and benefit charters.

The bill has passed the State Senate and awaits action in the House.

Get involved. Speak out.

Over the past generation, Detroit has suffered from de-industrialization, middle-class flight, high poverty, joblessness, and abandonment by the state and civic elites. One reform after another has failed to “save” its schools, because reformers ignored the root causes of poor academic performance.

 

Now, conservative Michigan Governor Rick Snyder plans to get rid of public education and turn Detroit into an all-charter district like Néw Orleans. This is now public officials’ favorite way of getting rid of their responsibility, by handing it off to the private sector.

 

Here is one analysis of the continuing abandonment of the children of Detroit. I don’t usually cite partisan sources but this is as good an in-depth a review as I have seen. If you spot any errors, let me know.

 

It is a sad story. Our nation can’t afford to educate its poorest children. Actually, it can afford to but chooses not to. They need small classes; arts programs; experienced teachers; stability. None of that is part of the plan. We lack the will to help those who most need a good education.

A comment from a reader who signs as M:

 

Contracts are sacred…unless they’re made to a teacher.

 

What is perhaps the most disheartening is that the deformers have identified every crutch that we leaned on for determining education policy and worked in earnest to commandeer them or dismantle them.

 

Education research – let’s hire a bunch of researchers to generate what we want to say

 

Standards – Let’s govern what’s taught in classrooms whether it’s reasonable or not, educationally sound or not (this leads into all the VAMish nonsense)

 

School boards – let’s buy the races or have control seized from them, or both (buy the board then have it turn over power).

 

Money – Let’s find every end run through taxes and otherwise that will take money out of the schools from the students we’re trying to save, and blame that on teachers for being so greedy that they need to accept less – let’s take their money spend it elsewhere then blame them for their bloated pensions too.

 

Purpose of Education – Rather than being student centered it is now job market centered with schools being responsible for generating appropriate human capital (the student matters so much as they need to be come the chattel for said market)

 

I went into teaching to help students and make a living to help support my family. Pretty simple. If you look at the lens of effectiveness through all of these elements and how they’ve shifted over the last 20 years, it’s pretty disheartening.

 

They are succeeding (right now anyway) in turning school from a place of wonder, fun, community, and learning, into a hellish individualistic market centered hell hole focused on prepping each individual student for the test they must pass to be deemed “good product” – that takes away from so much of developing students into the types of neighbors we’d want in society. The message is insanely cynical.

Follow

Get every new post delivered to your Inbox.

Join 175,162 other followers