When the biggest backer of Massachusetts’s recent ballot initiative, which would have effectively eliminated the cap on charter schools, was slapped, this month, with a $426,466 fine for violating campaign finance laws—the biggest such violation in state history—the legal settlement offered a rare look at how dark money operates in political campaigns.
Readers of this blog may recall a post, just before the November 2016 election, that looked at the dark money flowing into Massachusetts, in advance of the referendum, which made Question 2 the most expensive charter-school ballot initiative in the country, ever. The post was written by Peggy Wiesenberg, a Massachusetts attorney and parent of three public-school graduates. At the top of her list was Families for Excellent Schools-Advocacy (FESA,) a New York-based group whose contribution to Question 2 equaled well over a third of the $45.9 million spent on the referendum by pro-charter ballot committees, according to the Massachusetts Office of Campaign and Political Finance. (Save Our Public Schools, the ballot committee opposing the referendum, spent just $15.4 million, according to the OCPF.)
Voters defeated the ballot initiative, known as Question 2, by a stunning 62-to-38 margin–an endorsement of Massachusetts public schools, which are rated number one in the nation. But not for lack of efforts by organizations like FESA, which allowed a slew of wealthy contributors to hide their identities and their sizeable contributions in support of the referendum. In some cases individuals contributed twice: Once through a ballot committee that was required, by law, to publish names of contributors, and a second substantially greater contribution, in some cases millions more, via FESA.
At the top of the list of FESA’s secret donors were public officials in the Massachusetts government. Governor Charlie Baker was a leading proponent of Question 2 and backed efforts to impose charter schools in towns, like Brockton, where there was widespread local opposition.
Normally, nonprofits organized under IRS Code 501(3), such as Families for Excellent Schools (FES), don’t have to reveal the names of donors so long as they are not engaging in political activity. And ordinarily, their affiliated social-welfare nonprofits, organized under IRS Code 501(c)(4), such as FESA, can have some political involvement in electoral politics and keep donors secret, so long as this is not their primary activity. However, if the organization is a vehicle for receiving contributions for a ballot campaign, then the voting public is entitled to know the names of each contributor and the amount donated before the election.
Wiesenberg noted, in her earlier post, that a number of the contributors to Question 2 had backed an earlier 2009 charter-school ballot measure. She wondered why other donors to that initiative did not appear on the Question 2 list of ballot-campaign contributors. Wrote Wiesenberg about the Question 2 funders: “The above lists are almost surely a small number of the deep-pocketed contributors to Question 2. At least a dozen individuals and organizations that contributed to the 2009 initiative do not show up as contributors to the five main Question-2 ballot committees, which are required to disclose donors. Many are likely contributing ‘dark money’ to organizations like DFER and Families for Excellent Schools, instead.”
Massachusetts campaign-finance officials grew suspicious, just as Wiesenberg did, after looking at the required filings of contributions and expenditures of Great Schools Massachusetts (GSM), one of five registered ballot committees organized to get out the vote for Question 2. In the six months leading up to the vote, GSM received close to $17 million from FESA and Families for Excellent Schools, an unusually large stream of funding from a single donor, according to OCPF.
“A review of bank records showed that FESA’s transfers to the ballot question committee closely followed FESA’s receipts from individuals,” the OCPF said in a press release, on September 11, announcing the legal settlement and fine. “Additionally, the money received by FESA significantly increased during the four months before the Nov. 8 election, and then dropped significantly afterward, further suggesting that FESA solicited or received contributions with the intent to give the money to the ballot question committee.”
Officials concluded that FESA was functioning as a ballot committee in all but name, and was, thus, violating campaign finance law by failing to register with state officials and disclose its donors in advance of the vote. Therefore, in addition to the monetary fine, campaign officials required FESA to reveal its donor lists, which included two officials in the administration of Governor Charlie Baker, as well as several wealthy Massachusetts business people and some of the nation’s leading education reform philanthropists and charter-school funders.
In her November 2016 post, Wiesenberg speculated: “The Fisher family’s absence is particularly noteworthy as John Fisher co-chairs the board of the Charter Growth Fund and chairs the board of the Knowledge Is Power Program (KIPP Foundation,) the largest charter organization in the nation […] Another KIPP Foundation board member who does not appear on official Question 2 ballot committee filings with OCPF is Mark Nunnelly, the executive director of the Massachusetts Office of Information Technology who reports directly to Governor Charlie Baker, a major supporter of the ballot initiative.”
Peggy Wiesenberg has kept digging; the remainder of this post details what she found via the records disclosed under FESA’s legal settlement.
Last week FESA revealed that Nunnelly donated $275,000 in two installments within two months of the November referendum. Nunnelly’s wife, Denise Dupre, contributed $275,000. This was in addition to relatively minor $10,000 contributions to ballot committees that required public disclosure. John and Doris Fisher made a combined contribution of $500,000 to FESA in July of 2016.
The campaign-finance disposition agreement has revealed other backers of Question 2 who used FESA contributions to hide the full value of their donations in support of the charter-school referendum including:
- Paul Sagan, Chair of the Massachusetts Board of Elementary and Secondary Education, who contributed $496,000 on August 4 and 5 in addition to his previously disclosed contribution of $100,000 on August 10, 2016.
- Seth Klarman, Investment Manager of the Baupost Group LLC, contributed $3 million within six months of the election in addition to his previously disclosed contribution of $40,000 in September 2015.
- Jonathan Jacobson, Managing Director Highfields Capital Management LP, contributed $2 million in August and October. That’s in addition to the previously disclosed contribution of $40,000 in September 2015 by his wife Joanna, Managing Partner of Strategic Grant Partners, another dark money vehicle, according to Professor Maurice Cunningham of UMass Boston. See here and here.
- Josh Bekenstein, a Bain Capital investor, and his wife Anita, a private philanthropist, each contributed $750,000 in August and $500,000 on October 2016 for a combined total of $1.5 million, in addition to Josh’s previously disclosed contribution of $40,000 in September 2015.
- Chuck L. Longfield, Founder of Target Analytics and Chief Scientist at Blackbaud, funneled $650,000 to FESA under the name “Chuck Longfield,” in addition to a previously disclosed contribution of $100,000 under the name “Charles Longfield” on August 2016 and $1,000 in November 2015. [The OCPF filings have a discrepancy in the house number associated with Longfield’s contributions—in all likelihood a typographical error.] Longfield went on WBUR radio on October 31, 2016 to explain why he gave $100,000 in support of raising the cap on charter schools, never mentioning the exponentially larger contribution that he made through FESA to lift the cap.
- Martin Mannion, Managing Director of Summit Partners, contributed $100,000 to FESA between August and October 2016 in addition to a disclosed campaign contribution of $30,000 in October 2016.
- Alice Walton contributed $750,000 to FESA on November 2016 in addition to her previously disclosed contribution of $710,000 to Yes On 2, another campaign committee, in July.
The Boston Globe reports that in addition to paying the fine, and revealing its donors, the group also “agreed with the IRS to dissolve itself, and Families for Excellent Schools, its umbrella group, and agreed not to fund-raise or engage in any election-related activity in Massachusetts for four years.”
The FESA revelations have proven a major embarrassment for Gov. Baker who lobbied hard for Question 2. The Boston Globe reports multiple efforts to have the governor remove Sagan from the Massachusetts Board of Elementary and Secondary Education. However, two new board members sworn in today–Martin West and Amanda Fernandez–are both charter advocates. Fernandez also sits on the board of KIPP Mass, which has expansion requests before the BESE board.
In addition, among the secret donors to FESA was $2,025,000 from Amos Hostetter, Jr., a former cable entrepreneur who, with his wife, founded the Barr Foundation (the largest family foundation in Massachusetts, one legendary for its secrecy.) His contribution coincided with an effort to lobby the Baker administration to block the construction of a hotel next to Hostetter’s offices. Hostetter, who also had donated to the 2009 charter referendum, insists his donation to FESA was “entirely coincidental.”
Maybe so. In any event, Baker vetoed the construction project.
The FESA fine could reverberate outside the state. In New York, where Families for Excellent Schools, is based, Attorney General Eric Schneiderman, who “has made clean campaigns a centerpiece of his agenda,” is being pressured to look into the group’s campaign activities.