How a Democratic PAC Is Channeling Out-Of-State Dark Money to Enshrine Corporate Education Reform

March 21, 2016--At first glance, "Democrats for Education Reform" (DFER) may sound like a generic advocacy group, but a closer review of its financial filings and activities shows how it uses local branding to help throw the voice of huge Wall Street players and other corporate interests from out-of-state.

What  DFER, Really? Hedge Funders for "Education Reform"

DFER is a PAC, a Political Action Committee, which means it can (and does) play a direct role in state and local elections. Public school advocates like Diane Ravitch have been spotlighting concerns about DFER since its beginning.

Because DFER is not a charity, money given to it does not result in a tax write-off but--if successful in changing laws--that money could get the hedge funders who back it a return on investment through politicians and policies that redirect tax dollars from truly public schools to "education reforms."

Ed reform is fueling non-profit corporations paying lucrative for-profit style salaries to their executives and for-profit firms, such as the controversial K-12 Inc., which has made hundreds of millions while traditional public schools have faced budget cuts.

The Center for Media and Democracy has calculated that the federal government alone has spent more than $3.7 billion in U.S. tax dollars propping up the charter school industry, in addition to enormous amounts spent by states.

DFER has supported a number of Democrats in elections but its name could have been "Hedge Funders for Education Reform" (HFFER)--in much the same way that David Koch's Americans for Prosperity could have been called "Billionaires for Prosperity," or Americans for Greed, names with less popular appeal.

That's because DFER is backed by billionaires and millionaires representing well over $20 billion, at least, in investor money.

It was co-founded by hedge fund managers, even though DFER's board has been chosen to show the faces of a diverse group--of former or failed Democratic politicians. In fact, "former" is the first word in each of their bios on the DFER site.

(For example, DFER Board Member Adrian Fenty lost his bid for second term as DC mayor; Ken Chavous lost his bid for re-election to the DC Council; Craig Johnson lost his bid for re-election to the New York state senate; Maureen Stapleton lost her bid for re-election to the Michigan state house; Mary Ann Sullivan lost her bid for the state senate; and the others left their elected positions.)

DFER's new national president is Shavar Jeffries, a former and failed DFER-backed candidate for Mayor of Newark, New Jersey. He is the leader of the "national staff" of DFER, which is located in Washington, DC, and he is also a partner at a big law firm, Lowenstein Sandler, which has offices in Rosewood, NJ, as well as DC and four other cities.

Not only is DFER led by Democrats who have failed to win their last elections, a number of DFER-backed candidates have lost in recent elections, as with the Colorado school board races in 2015.

On the other hand, DFER spent more than $4 million on TV ads in 2010 that attempted to blame New York teachers' unions for problems caused by the disastrous federal "Race to the Top" program. Among other things, DFER also spent $1 million on ads attacking the Chicago Teachers Union and supporting Rahm Emanuel in 2012.

Who Funds DFER? "Education Reform Now Advocacy" and Its (Hedge) Funders

DFER is actually the more well known PAC arm of Education Reform Now, Inc. (ERN), a 501(c)(3) charitable nonprofit, and Education Reform Now Advocacy, Inc. (ERNA), a 501(c)(4) social welfare group. Their acronym not only sounds like the word "earn," but also it has the backing of some really huge earners.

DFER co-founder (and founder of the T2 Partners hedge fund) Whitney Tilson explained the hedge funders interest in education noting that "Hedge funds are always looking for ways to turn a small amount of capital into a large amount of capital."

The Board of Directors for ERN consists almost entirely of Wall Streeters who made their fortunes through financial groups and hedge funds, such as Sessa Capital, Gotham Capital, Covey Capital, Charter Bridge Capital, Maverick Capital, Cubist Systematic Strategies, and Sanford C. Bernstein.

As the New York Timesreported: DFER's supporters have included "the founders of funds like Anchorage Capital Partners, with $8 billion under management; Greenlight Capital, with $6.8 billion; and Pershing Square Capital Management, with $5.5 billion."

However, ERN and ERNA do not disclose who its major donors are and how much those big donors give to fund its operations and ambitions.

It is known, though, that FOX's Rupert Murdoch gave at least $1 million to ERN. Murdoch has expressed his desire to get in on education "reforms," stating "When it comes to K through 12 education, we see a $500 billion sector in the U.S. alone...."

The most recent federal tax filings of ERN/ERNA show that it had more than $12 million available to push education reform ($7.4 million for ERN and $5 million for ERNA) in 2013. Its non-profit filings from the most recent major election year, the 2014 mid-terms, or last year are not available.

What is known from the 2013 is filings is that, in that year, ERNA disclosed that it spent $1.7 million in political expenditures, nearly all of which went to DFER. These funds were used for expenditures, like mass mailings or ads supporting particular politicians but that were "independent" and not to be coordinated with the candidates' campaigns.

ERN/ERNA's leader Joe Williams has been paid a for-profit like salary as its executive, with $398,500 in total annual compensation in 2013. He's also listed as "Executive Director Emeritus" for DFER and on DFER's board. Williams stepped down from his staff position at DFER in 2015 and also became a director at the Walton Education Coalition that year. That's Walton as in Walmart's Walton family.

Because non-profits like ERN/ERNA do not have to disclose their major donors to the public, even when ERNA is active in supporting electoral activities the public is left in the dark about which hedge funder is actually helping to fund state and local ads and mailers during the election.

Even though privately held corporations and hedge funders do not have to disclose their donations to operations like ERN/ERNA, a CEO's charitable foundations do have to disclose whom they give grants to.

That's how it is known that the Walton family, of Walmart fame or infamy, has backed such efforts. In 2011, for example, ERN/ERNA received $1.1 million from the Walton Family Foundation. The total amount from all such CEO-controlled foundations given to ERN/ERNA to date is not known.

As Matthew Fleischer noted in the Frying Pan News (reprinted by the Huffington Post) that hedge funder Tilson has followed the Waltons' lead: "in a 2010 documentary, A Right Denied, Tilson suggested that DFER was created because of Walmart patriarch John Walton's support of vouchers and "school choice.'"

It has been investigative journalists who have helped expose the billionaire network behind ERN/ERNA/DFER, despite the opacity on the surface, as noted by George Joseph in the Nation:

"[A]ccording to Steven Brill in his book Class Warfare, around this time [in 2010] the hedge-fund alliance for education reform really began to take off. That April, for instance, Education Reform Now's Joe Williams and Bradley Tusk schmoozed over drinks with Paul Tudor Jones II and other hedge-fund billionaires at Home Depot founder Kenneth Langone's Five Avenue apartment, where they planned a successful campaign to secretly spend millions through a 501(c)(4) political action fund and win the charter cap increase [in New York]. As with Families for Excellent Schools' mostly secret financing today, Brill notes that Education Reform Now's donations never became public, and that in May a room full of eager billionaires was able to push the legislature to authorize increased charter-school expansion."

(The Nation's exposé on ERN/ERNA/DFER in New York includes emails and a slide deck about the billionaires and foundations behind such efforts that were leaked to the magazine.)

Despite or perhaps because of this reality, the DFER arm in a state where ads are run merely discloses to the state authority that it received contributions from ERNA, not the hedge funders.

So, the ERN/ERNA/DFER operation is like a shell game when it comes to the public being able to pierce through the layers of non-profits to find the name of a particular billionaire or uber-rich hedge funder whose money is propping up a particular electoral candidate being backed by DFER.

Similarly, DFER in the states has been known to partner with other groups that have similarly murky or occluded funding sources.

Take California and Colorado, for example.

DFER's Gloria Romero Joined with Koch-Connected Groups to Attack Unions

In the last presidential election year, DFER's state leader got heavily involved in pushing a California state proposition that would have undermined the power of workers' voices in elections, Proposition 32.

DFER's California arm was led by Gloria Romero, a former state legislator from Los Angeles, who was termed out from running for re-election after leading the state senate.

Romero failed in her bid to become the state Superintendent of Public Instruction in 2010, and then, like so many other failed politicians, she was welcomed as a leader for DFER.

DFER began filing election disclosure forms in California in 2012. Some of its most high-profile activities under Romero were in partnership with other secretive groups.

Ultimately, it turned out that Romero was not just fronting for the ERN/ERNA/DFER hedge funders but also for non-profits closely tied to the controversial billionaire Koch brothers. And as the Center for Media and Democracy has documented, Charles and David Koch's antipathy toward public schools and unions runs deep and is part of their multi-decade agenda to re-shape America.

To try to win Prop 32, DFER's Romero worked with a group called "Americans for Responsible Leadership" (ARL), which received more than 97% of its $24 million in funding from another group called the "Center for Protect Patient Rights" (CPPR).

As noted by Open Secrets, ARL:

"spent nearly $9.8 million in the 2012 elections, including $3.2 million against President Obama's re-election bid, according to reports it filed with the Federal Election Commission. The rest was spent supporting Obama's rival, GOP nominee Mitt Romney, and 20 other Republican candidates, most of whom were running for Senate seats ... ARL also gave $11 million to a group working on a California ballot measure and nearly $1.4 million to organizations fighting two Arizona ballot initiatives," including one on redistricting.

So, a major Republican-backing operation spent millions aiding the objectives of a group with the word "Democrats" in its name to thwart unions? No wonder some in labor created "Democrats in Name Only for Education Reform" or dferdinos.com.

At the time of the election in 2012, the full extent of the connections to the Koch network's CPPR was not known to the public.

As Open Secrets stated, "the state of California ... demanded to know, under state law, who donated the $11 million that ARL sent to the Small Business Action Committee, a group that was fighting a tax-hike initiative and supporting a measure to cut the influence of labor unions. Under order from a state judge ARL eventually revealed that it received the funds from CPPR; CPPR in turn got the money from Americans for Job Security, another dark money group."

As Open Secrets detailed: "The state of California wound up fining ARL and CPPR a total of $1 million and requiring the Small Business Action Committee to disgorge the $11 million to the state."

(The Kochs denied any wrongdoing and were not themselves fined. It is not clear, however, whose funds actually paid the fines; it was paid b certified check. Meanwhile, the Kochs' Americans for Prosperity is now hotly contesting long-standing state requirements that major donors of non-profits that are exempt from paying taxes be disclosed to the state, which AFP is claiming could chill its seven-figure donors.)

Even before that historic fine after the election, however, some in California had traced at least some of the money fueling the fight for Prop 32 to the network of Koch front groups--before the voting started. (During the investigation, the state was able to identify only some of the direct donors and the Kochs have said they did not write a check to fund the proposition fight. But there is zero doubt that the Kochs' Freedom Partners directed $115 million to CPPR in 2011-2012; the Kochs told the press that they did not indirectly support Prop 32. That's how the shell corporations and non-profits operate to allow secret donors to deny any responsibility for how their funds are used. The amount the Kochs gave to their Freedom Partners group remains hidden, but it was their operatives who redirected the funds raised to select non-profits aligned with their agenda in that election cycle.)

DFER's Gloria Romero appeared in ads backing both of the Koch network-backed propositions.

So she was asked by Matthew Fleischer, before the election, "about her political alliance with the Koch brothers and other wealthy supporters of Proposition 32, and she conspicuously avoids bringing up their names."

As he noted, "I have sat in the belly of the beast," she says. "I have seen the realities of money and its influence."

Fleischer also reported: "'Money is the mother's milk of politics,' Gloria Romero tells me on the phone. 'It's flowing to both sides. Government isn't about drawing lines. It's not about saying you're on that side and you can't come over.'"

Operatives funded or directly employed by the Kochs have made similar claims in their efforts to destroy clean election law limits on corporate influence and the coordination of election groups funded by dark money tied to corporations or CEOs.

Romero's comments echo the Team Koch mantra.

As Pro Publica noted, the key Koch operative in that election was Sean Noble:

"Plucked from obscurity by libertarian billionaire brothers Charles and David Koch, Noble was tasked with distributing a torrent of political money raised by the Koch network, a complex web of nonprofits nicknamed the Kochtopus, into conservative causes in the 2010 and 2012 elections. Noble handed out almost $137 million in 2012 alone-- all of it so-called dark money from unnamed donors--from his perch atop the Center to Protect Patient Rights, a group run out of an Arizona post office box...."

That story also highlighted this telling excerpt: "I must tell you that Sean Noble from your group has been immensely helpful in our efforts,' a California multimillionaire wrote to Charles Koch in October 2012 about Noble's help for Prop 32 in an email to Charles Koch" asking for him personally to write a check for more money. That email surfaced after the election.

In fact, it was not until nearly a year after the 2012 elections that the general public learned that the Koch brothers and their operatives had created a behemoth that injected more than $200 million into the 2012 elections, called the "Freedom Partners Chamber of Commerce." CMD detailed the Freedom Partners' shell game here.

Noble's group, CPPR, received money from Freedom Partners and TC4 Trust, which was disclosed in IRS filings made public well after the election was over. (Those Freedom Partners' documents also reveal that TC4 funded "PRDIST," which are the David Koch operations that go by the name "Americans for Prosperity" for the public.)

For those keeping score, that's like at least four layers of Koch-hood: Freedom Partners to TC4 to CPPR to ARL to Prop 32. That proposition--the proposition these very special interests tied to the billionaire Koch brothers and their network of billionaires were underwriting--was actually branded the "Stop Special Interest Money Now" proposition.

And it was DFER's Romero who appeared in ads for Prop 32 that were paid for by the special interest money behind that proposition.

In the meantime, the Los Angeles County Democratic Party asked DFER to stop using the word "Democrats" in its name, and the state Democratic Party passed a similar resolution of condemnation.

Even More Koch Ties

So, to recap, DFER routinely funnels out-of-state hedge fund money into state political fights and, in 2012, the leader of DFER-California was working with another murky group funded by yet another group--one operating out of an Arizona mail drop box--funded by still other groups that were part of the Koch network of big secret money in elections.

To be clear, Romero was not working for the Kochs technically; she was working with the Koch network on the DFER effort that appears to have taken much of her time in 2012.

But that may be a distinction without a difference when it comes to sharing a political agenda--even though Romero and the Kochs failed in their 2012 quest in California.

DFER's California leader, its public face, was the public face of key components of that joint but unsuccessful proposition campaign.

In 2013, Romero left DFER's employ to create the "California Center for Parent Empowerment," named after the bill she gained fame pushing into law: the "Parent Empowerment Act," which is better known as "Parent Trigger."<

Romero spearheaded that controversial bill when she was in the state legislature but, as CMD has noted:

* "[T]hat California law was based on a proposal from Ben Austin, a policy consultant for a small non-profit education organization called Green Dot Public Schools, which manages charter schools for the city of Los Angeles."

* "Austin subsequently formed Parent Revolution, which promotes these laws across the country. But this is not your local PTA. Parent Revolution is backed by big money, including receiving funding from the conservative Walton Family Foundation (think Wal-Mart), which has spent over a billion to promote school privatization."

* "The rabid pro-privatization Heartland Institute quickly took up the Parent Trigger idea in 2010. The Heartland version of the bill (PDF) went a step further and gave parents the authority to trigger a school's restructuring regardless of whether it is 'failing' or not."

The Heartland Institute has spent untold sums promoting "education reforms" that undermine public schools in America, though it is more infamous for its extremism in climate change denial--even equating those who recognize that climate change is happening with the Unabomber, Ted Kaczynski.

Heartland took the California parent trigger bill to the 2010 meeting of the American Legislative Exchange Council, whose biggest funder is the Koch fortune in myriad ways. The corporate-backed ALEC adopted the bill as a national model for other states. (The Heartland Institute has also received funding from the Koch family foundations.)

In 2013, Romero began collaborating with the state affiliate of ALEC's sibling group, the State Policy Network (SPN), and also helped it pull the trigger in other communities.

That SPN affiliate, the California Policy Center (CPC), has promoted Romero's help with Parent Trigger. SPN has also touted Romero its publications. Romero has also been a featured speaker for another SPN affiliate, the Cascade Policy Institute in Oregon.

SPN has received funding from the Koch family foundations. Although SPN distributes some of the funding it receives to its 60+ state affiliates, it is not known if the CPC has directly received any Koch cash.

Meanwhile, Romero's new group, whose website is parentempowerment.org, was granted non-profit status in 2015, but because it is so new, any tax filings about its revenues and expenses are not public. However, its donors would not be revealed in such filings, so it is not known who is now funding Romero or what she is paying herself for education reform.

And just last year, SPN's CPC--the California Policy Center--announced that Romero had joined it as its "Director of Education Reform," in addition to her work at her own organization. CPC advances the ALEC/SPN agenda and opposes a progressive Democratic agenda in almost every way.

Democrats for Education Reform-California, meanwhile, continues on without Romero, with Steve Barr of Green Dot as board chair.

DFER's Jen Walmer Used Out-of-State Cash for Election Materials Dubbed "Raising Colorado"

Colorado provides another example of how DFER's leaders operate in a state to advance the agenda of big out-of-state financial interests.

Jennifer (Jen) Walmer, a Colorado native, describes herself on LinkedIn as the "Colorado State Director" for DFER and lists this as her only job for the past two years.

Like many DFERs, she's a former public servant who has taken the revolving door out of public service to help corporate interests influence public policy to their advantage. She used to be the Chief of Staff for the Denver Public Schools and used to be a staffer under the golden dome at the capitol.

DFER-Colorado's actual address is the KIPP headquarters for its Denver charters, "1390 Lawrence Street, Suite 200." KIPP is a chain of non-profit charters that operate like a franchise that is spreading nationwide. KIPP-CO's board includes reps from for-profit firms.

Also sharing that address is another "education reform" group called "America Succeeds." Its locally-denominated affiliate, called "Colorado Succeeds," describes itself as a coalition of business leaders pushing "education reform."

Interestingly, the national DFER's website notes that donations to it for "reform" candidates in Colorado are managed in the state by a group called the "Democrats for Education Reform Small Donor Committee" (DFER-SDC). That group is registered as a state PAC that describes itself as devoted to the effort to "fundamentally reform public education."

Financial disclosure filings with the State of Colorado show that DFER-SDC has raised only about $14,000 over the course of five years from small donors located in Colorado, each of whom is identified. The vast majority of money spent by DFER-CO is emphatically not money from grassroots people in Colorado; it's from ERNA's big secret donors.

DFER-SDC's address is listed as "1576 Sherman St., Ste 300," in Denver.

That's actually the address of the "Capstone Group," a PR and lobbying firm. It bragged: "the Capstone team launched Democrats for Education Reform - Colorado."

Although Walmer joined DFER in August 2013, none of DFER's disclosed expenditures indicate that she received any salary from DFER itself, according to state and federal disclosures since then and through this year.

(On ERN/ERNA filings prior to her hiring by the DFER PAC, other state directors of ERN operations were paid around $140K per year in total compensation, as of 2013. How much Walmer has made advancing ERN/ERNA's agenda through working for the DFER PAC is not known.)

DFER is the only recent gig listed on Walmer's LinkedIn account, which does not mention working for the non-profits ERN or ERNA. Notably, DFER's federal PAC in Colorado was terminated in April 2014, according to the Colorado Secretary of State. It reported having only about $7,800 in the bank during 2013, and no expenditures. Notably, when Walmer has worked for other entities required to file election disclosure forms expenditures for her work were publicly reported.

(There is no indication she herself has failed to make required reports about expenditures for her work for the DFER PAC; there is simply no information indicating that DFER is paying her anything or who is paying her salary for working for DFER or if she received any renumeration for her work on Raising Colorado, described below.)

DFER's other entity registered with the state, the DFER-Colorado Political Committee, similarly reports no expenditures for staff expenses and very little in contributions or expenditures. (There's also another ERNA group called "Students for Education Reform," active in DFER states, like Colorado, which operates similarly to DFER/Raising Colorado, which is detailed below.)

Raising Colorado? From Brooklyn by Way of K Street?

Meanwhile Walmer has been the point person for another ed reform group called "Raising Colorado." That group is what's known as an "independent expenditure" committee, which has been required to disclose its donors and its expenditures. As with DFER, no expenditure for her salary is listed in the balance of accounts for Raising Colorado.

What are listed on Raising Colorado's filings are huge checks from ERNA.

In the 2015 election cycle, Raising Colorado received funding totaling $375,000 and spent $361,343.03. A substantial amount of this funding was spent on the eve of the 2015 elections.

Since registering in 2014, Raising Colorado raised and spent nearly a million dollars to influence Colorado elections.

The address listed for Raising Colorado is a residence in Littleton, but none of the major vendors in this electoral effort focused on electoral races in Colorado was actually from Colorado.

That is, the money for Raising Colorado in the most recent election came from ERNA and was deposited into checking accounts in Colorado managed by Walmer from Littleton, but the money spent on backing Colorado "education reform" candidates was spent on activities of out-of-state firms which were basically throwing the voice of out-of-state hedge funders seeking to influence the local races in Colorado designated by DFER's Walmer.

A small amount, such as $397 to a Littleton firm for web design to support the candidates, was spent on in-state vendors, as noted by Todd Engdahl of Chalkbeat.CO, but the overwhelming amount of expenditures went to out-of-state vendors--despite the localized name "Raising Colorado."

Here are the details from last year:

* $375,000 to Raising Colorado from ERNA, which is located at 325 Gold Street in Brooklyn, NY.

* $361,343.03 spent in 2015 in Colorado races almost entirely through out-of-state firms, which did these campaign activities:

** Phone banking of Coloradans to back DFER/Raising Colorado candidates, by Brushfire Strategies, which is located at 3000 K St. NW, Suite, 320, in Washington, DC;

** Direct mail to Coloradans to back DFER/Raising Colorado candidates, by Greenlight Media Strategies, which is located in Brooklyn, NY, like ERN/ERNA;

** Digital ads targeting Coloradans to back DFER/Raising Colorado candidates, by Three Point Media, which is located at the same K Street lobbying street address as Brushfire.

That's a classic front group operation.

With the big sums ERNA/Raising Colorado injected from out of state into local school board races, they were successful in the Denver Public School and Aurora Public School races. But other education "reform" candidates lost big in 2015 in Colorado, including candidates aided by the Koch Brothers' American for Prosperity operations in the state.

As Chalkbeat noted immediately following the close of the 2015 elections: "In Jefferson County [JeffCo], a hotel ballroom exploded with chants and tears as three conservatives elected as a slate in 2013 were recalled in a rout. In Douglas County, six years of dominance by a boundary-pushing board finally showed cracks as three opponents broke through, forming a solid minority promising a more open and diverse board. In the Loveland-based Thompson district, animus over a teacher contract dispute propelled union-backed candidates into power. Elsewhere, a conservative attempt to take over a moderate board in Colorado Springs was repelled...."

Jeff Bryant of the Campaign for America's Future detailed how parents, teachers, and kids organized together to defeat the big money-backed education "reformers," noting: "The success of this recall has been a true testament to what grassroots can accomplish," Jeffco parent activist Jonna Levine tells me in an email. "We sent a strong message that community can win over big corporate machines like the Koch Brothers."

That's just one more snapshot of the ERNA/DFER/Raising Colorado operation, and its defeat, in the last election cycle in just one state.

ERN/ERNA/DFER has targeted more than a dozen states, and their "ERNA"/hedge-funded activities in the 2016 elections loom on the horizon.

CMD's Zachary Peters contributed to this article, which has been updated.