Most people know Carl Icahn as a real-life Gordon Gekko — the investor who helped drive Trans World Airlines to bankruptcy, selling the company’s prime routes and saddling it with debt, while pocketing millions for himself. Today, Icahn is once again in the national spotlight with Donald Trump, his former business associate, floating the possibility of making him Treasury Secretary.
Like Trump, Carl Icahn has also named a school after himself — seven charter schools in New York City to be exact (Icahn Charter School 1, Icahn Charter School 2, Icahn Charter School 3, etc.). And as with Trump University, the money trail suggests the organization running these schools may have served to enrich its billionaire founder, Icahn, at the expense of its own students. An AlterNet investigation finds that Carl Icahn appears to have treated his charity like a personal piggy bank, using it to make potentially tens of millions for himself while benefiting from tens of millions in tax deductions.
In 1997, Carl Icahn made a $100 million tax-deductible “contribution” to his public charity, the Foundation for a Greater Opportunity, scoring about a $45 million income tax reduction, according to an estimate by Gregg Polsky, a law professor at UNC. In January 2006, Icahn’s foundation suddenly sold back the stock gift to an Icahn corporation, Modal LLC. The $100 million gift in American Railcar Industries Inc. shares was conspicuously sold three days before the company was to go public, a process that often sparks a short-term hike in share value. The convenient date of the sale strongly suggests Icahn knew his limited liability corporation, rather than his educational charity, would make a killing off the public offering.
Three days after the sale was inked, American Railcar Industries went public, opening at $23.60 a share and jumping up almost 40 percent in a month. As of 2016, Icahn holds a majority stake in ARII and the company’s shares are up nearly 70 percent more than when Icahn reacquired them. Thus, even if his LLC held onto his foundation’s former shares, rather than selling in the initial surge, Icahn would be in line for tens of millions in profit.
“When he donates the $100 million, it’s not his asset anymore,” explains Marc Owens, a tax expert with the law firm Loeb & Loeb. “It can’t be transferred back other than as a sale at true fair market value. So Icahn basically induced the charity, presumably ignorant of the impending company’s public sale, into selling him the stock at an artificially low value.”
Since the profits off the IPO surge went to Icahn, rather than his educational charity, Icahn was liable for a 25 percent “excess benefit” tax for that profit, potentially another 10 percent because of his role as director of the charity, and a “correction” to make “the charity whole by repaying the full excess benefit amount, plus interest,” according to Owens.
Yet on its 2006 tax forms, Icahn’s charity did not check the box indicating that it was aware of the existence of an excess benefit transaction, and almost a decade later Icahn has still not paid back $90 million owed to the charity (at least according to the foundation’s latest publicly available filings from 2014). “Because the note remains outstanding,” concludes Owens, “the tax law treats the transaction as a continuing event, despite the passage of time, a situation that has the makings of first class tax problem for Mr. Icahn. That’s all I can say.”
To summarize, Icahn’s initial $100 million gift to the charity in 1997 reduced his overall income tax bill by around $45 million. Then nine years later, just before the charitable “contribution” was about to surge in value, Icahn’s charity, operating “exclusively” for the good of low-income families, sold back the stock to Icahn, giving away tens of millions in potential post-IPO earnings to the billionaire. Since then, Icahn appears not to have paid an excess benefits tax for those earnings, or given the earnings back to the charity. As of 2014 records, the charity still lacks the $90 million in principal originally lost in the deal.
Icahn did not respond to AlterNet’s requests for comment.
Self-serving deals, like Icahn’s, are not an outlier in the scandal-plagued charter school industry. A 2015 Center for Media and Democracy study of charter schools in 15 states found over $200 million in criminally misused public funds, and estimated that deficiencies in charter regulation nationwide would cost federal, state and local governments more than $1.4 billion in 2015 alone.
According to Diane Ravitch, an education historian at NYU and former U.S. Assistant Secretary of Education, “The charter industry is flourishing and attracting investors and entrepreneurs because it is almost completely unregulated, allowing non-educators to open schools with little financial accountability or transparency and a secure source of funding from the government.”
Since Trump has put out no formal policy papers on education, charter school supporters close to Trump, like Carl Icahn and Chris Christie, may play a significant role in helping shape the GOP nominee’s proposed education policy. Some experts fear this potential influence would only feed into the charter school sector’s rampant self-dealing and profit-making.
“Trump put his name on a ‘university’ which is in the midst of litigation for alleged fraudulent activities,” points out Julian Vasquez Heilig, a professor of educational leadership and policy at California State University. “Unlike any presidential candidate in recent memory, he has a record of profit taking in education… it is reasonable to ascertain that charters, testing and other profit-taking education reforms would find a staunch ally in the White House with Donald Trump, even more so than Barack Obama.”
Proxy War Between Hedge Fund Billionaires and Teachers Unions
In terms of political power, pro-labor analysts argue the financial benefits of charter schools are far less important to billionaires like Icahn than the tactical ones.
Charter school supporters are “deeply invested in the idea of ‘magic schools’ that can cure the impacts of poverty,” argues Michael Kink, executive director of the labor-backed Strong Economy For All Coalition. As Paul Tudor Jones II, a hedge fund billionaire in Icahn’s pro-charter political network, argued, “We proved with the charter school that the achievement gap was a myth, that with the right schools, kids from the poorest neighborhoods could do every bit as well as kids from the richest ones.”
According to several teachers’ union sources, who requested anonymity, this “magic school” conclusion makes the charter school project a useful proxy, allowing elites an acceptable way to identify and bankroll business-friendly political forces. “When you have a legislator supporting charters, it’s sort of like a dog whistle signaling to everyone else that they’re not going to actually mess with the big issues, like taxes and public services, that could actually improve education outcomes,” explained one source.
Education reform, in the form of charter schools, becomes the new minimum of what socially responsible billionaires need to help pay for, according to Lois Weiner, an education professor at New Jersey City University. “What we have seen is the convergence of liberal and neoliberal economic policy, ‘free’ markets, deregulation, etc…” notes Weiner. “The consensus to make education the ‘one true path out of poverty’ is part of the agreement in both parties that the government should not create good jobs.”
Icahn’s campaign finance records demonstrate how billionaire investors’ anti-tax pushes are often quietly behind pro-charter school efforts, and other proxy campaigns such as anti-immigrant attacks.
Between 2014 and 2016 alone, according to state campaign data, Icahn and eight hedge fund managers, all billionaires, gave over $8.5 million to New York state campaigns, super PACs, and other political funds. Over half of this spending, $4.6 million, has gone to a single PAC, New Yorkers for a Balanced Albany, a super PAC managed by the pro-charter school group StudentsFirst NY.
While StudentsFirst publicly campaigned for charter school expansion, the super PAC’s money flowed to much different causes, backing Republican committees and other passthroughs that funded ad campaigns across upstate New York, fueling racial resentment about college aid to undocumented immigrants.
Thanks to these tactics, New Yorkers for a Balanced Albany, to which Icahn gave $250,000, helped flip the state senate Republican, immediately facilitating charter school expansion and pushes for business tax cuts and private school donation tax credits.
These legislative pushes are far more financially beneficial to hedge fund managers in New York City than to the many white, middle-class voters upstate, who voted the Republicans into office and who now largely back Trump, based in part on these nativist appeals. “It’s interesting to see that their million-dollar super PACs don’t spend money arguing for low taxes on billionaires or special tax benefits for donors to elite private schools,” says Kink, commenting on the GOP’s legislative track record.
For hedge fund managers and other politically savvy billionaires, charter school promotion is also an effective attack on teachers’ unions, one of the last major institutions left tethering Democratic Party leadership to labor. As Justin Miller detailed in the American Prospect, over the last decade hedge fund managers, affiliated with the group Democrats for Education Reform, have waged a concerted campaign “to break the teacher unions’ stranglehold over the Democratic Party.”
Charter school proponents openly acknowledge that rapid, concentrated charter school expansion bleeds school districts dry, losing them pupil revenues while maintaining school district’s administration, personnel, and facility costs. As Andy Smarnick, a former officer with the National Alliance for Public Charter Schools, laid out in 2008:
“As chartering increases its market share in a city, the district will come under growing financial pressure. The district, despite educating fewer and fewer students, will still require a large administrative staff to process payroll and benefits, administer federal programs, and oversee special education. With a lopsided adult-to-student ratio, the district’s per-pupil costs will skyrocket. At some point along the district’s path from monopoly provider to financially unsustainable marginal player, the city’s investors and stakeholders — taxpayers, foundations, business leaders, elected officials, and editorial boards — are likely to demand fundamental change. That is, eventually the financial crisis will become a political crisis.”
The expansion, more or less, forces districts into a “shock doctrine” style crisis, concluding eventually in mass neighborhood school closures and teacher layoffs, often without the public’s consent, as has been seen in New Orleans, Chicago and Philadelphia. Teachers’ union locals in turn lose thousands of members, forced to reapply for jobs in charter schools, often staffed by the education reform movement’s “human capital” partners, like Teach for America and the New Teacher Project. After the crisis, the subsequent loss in member dues enervates teachers’ unions’ political muscle, making efforts to organize the new charter schools, frequently anti-union, all the more difficult.
Trump’s support for charter school boosters, like Icahn, highlights his increasingly public ties to Wall Street and the hedge fund community, despite his populist image. In addition to Icahn, Trump has received support from other pro-charter school billionaires like tech mogul Peter Thiel, a Trump delegate in California, and Julian Robertson, a former hedge fund manager who, like Icahn, gave to New Yorkers for a Balanced Albany.
“Carl Icahn is part of a group of billionaires that have dedicated themselves to avoiding taxes and getting rich at the expenses of workers in this country,” says Stephen Lerner, a fellow at Georgetown’s Kalmanovitz Initiative and a pro-labor charter school critic. “It’s absurd that Donald Trump has surrounded himself with these people and can claim he’s on anybody’s side but that of rich Wall Street billionaires.”
Trump’s Business Ideology and the Future of Charter Schools
Though Icahn has benefited financially and politically from the charter school movement, it would be a mistake to conclude his interest in charter schools is not also ideologically motivated. As with most political issues, in their public writings, Icahn and Trump frame education through their values (or at least self-presentations) as hard-nosed businessmen.
Comparing his philanthropic approach to his corporate one, Icahn claims his work in schools is intended to bolster the “competitiveness” of the American educational system. Icahn’s charity, from scholarships to charter schools, seeks to get the most of poor students, who are “undervalued assets” much like the undervalued (and “poorly managed”) companies he took control of throughout his career.
Similarly, Trump argues that the “competition” brought on by school choice would drastically improve school quality, breaking up the public sector’s educational monopoly and allowing the best providers, like private charter school management organizations, to rise and fall in the marketplace.
As Trump wrote in his book The America We Deserve, “If you look at public education as a business — and with nearly $300 billion spent each year on K-through-12 education in the United States, it’s a very big business indeed — it would set off every antitrust alarm bell at the Department of Justice and the Federal Trade Commission… Who’s better off? The kids who use vouchers to go to the school of their choice, or the ones who choose to stay in public school? All of them. That’s the way it works in a competitive system.”
Heilig dismisses Trump and Icahn’s faith in the power of competition, pointing out that the vast majority of independent, peer-reviewed academic work does not give charter schools an edge. “In fact,” Heilig argues, “peer-reviewed scholarship for a decade has highlighted that charters actually limit access and equity.”
Jose Luis Vilson, a New York City public school teacher and author of the recent book This Is Not a Test, echoes this point. “Often markets do not make sure the healthiest possible options are available,” says Vilson. “We see this in neighborhoods, where poorer people can’t get as high quality produce as those in richer areas. It’s the same with education. We should collaborate to find solutions on how to teach our students better.”
Trump’s ideological affinities with Icahn nonetheless suggest that a Trump administration would continue, if not accelerate, the unprecedented financial support the charter school sector received under President Obama. Progressive critics worry such a move would open the door to even more questionable charter school dealings, despite Trump’s recent rhetoric opposing “giveaways” to “the corporate patrons who run both parties.”
According to a Center for Media and Democracy estimate, between 2008 and 2016, the Department of Education is projected to have handed over $2.3 billion in grant dollars to support and expand charter school, following up on the $1.7 billion handed over during the Bush administration from 2000 to 2007. Icahn’s charter school chain, for example, has received over $2.9 million in federal grants alone, despite his profitable charity dealings, according to Department of Education data.
“The people in the top 0.1 percent always get the benefits from public services,” notes Vilson, commenting on Trump’s and Icahn’s records of opposing progressive taxation. “When working-class people have public transportation to get to good jobs and be healthy, that’s good for everybody. But when we don’t pay for things like education, which we’ve never actually done, it’s because people at the top like Carl Icahn and Donald Trump, are never held accountable, despite being the spokespeople of ‘accountability’ in schools.”