Senate Passes Bill Letting Schools Give Education Money To Financial Consulting Firms
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.
When he was Virginia's governor, Warner pushed to subject schools to “efficiency reviews” that he says identified nearly $45 million in annual cost savings. On Wednesday, he touted his Senate measure as an initiative designed to generate similar cost savings and ultimately help school children.
“Too many districts don’t have the ability to assess whether they are spending operational funds in the smartest way,” he said in a press release. “I’m pleased that the Senate voted to approve my bipartisan Senate Passes Bill Letting Schools Give Education Money To Financial Consulting Firms:
