When Massachusetts public school teachers pay into their pension fund each month, they may not realize where the money goes. Wall Street titans are using some of the profits from managing that money to finance an education ballot initiative that many teachers say will harm traditional public schools.

An International Business Times/MapLight investigation has found that executives at eight financial firms with contracts to manage Massachusetts state pension assets have bypassed anti-corruption rules and funneled at least $778,000 to groups backing Question 2, which would expand the number of charter schools in the state. Millions more dollars have flowed from the executives to nonprofit groups supporting the charter school movement in the lead-up to the November vote. Republican Gov. Charlie Baker, himself a former financial executive, is leading the fight to increase the number of publicly funded, privately run charter schools in Massachusetts — and he appoints trustees to the board that directs state pension investments.

“This is a morally bankrupt situation,” said Randi Weingarten, president of the American Federation of Teachers, which opposes the ballot measure. “These managers are using money they’ve earned from teacher pensions to try to destroy the same public education system that teachers have worked in mightily to help children.”

“It’s the most insulting f___ing thing, and it makes me so angry,” said Laura Henderson, an 11-year veteran of Massachusetts public schools, who now teaches English and special education in Newton. She spends many of her weekends going door to door, trying to persuade voters to oppose Question 2. For Henderson, more charters means fewer unionized teaching jobs and the erosion of public education standards. In her view, the money behind Question 2 is motivated by a desire to ultimately privatize public education.

Baker’s office did not respond to IBT/MapLight questions about campaign donations from executives at firms that manage state pension money.

This report is the latest in an IBT/MapLight series examining how anti-corruption laws are circumvented or unenforced. The cash flowing to the Massachusetts school initiative spotlights more than just a fight over education policy: It exemplifies one of the ways in which the securities and investment industry can get around a federal rule that was designed to restrict financial executives from giving campaign cash to governors with the power to influence state pension business.

In the case of Massachusetts, since the federal rule does not cover money donated to governors’ policy initiatives, executives banned from donating directly to Gov. Baker are able to give to a constellation of groups that are pushing his pet cause — and that in some cases are advised by Baker’s political associates. Meanwhile, Baker’s appointees at the state pension board are permitted to continue delivering investment deals and fees to those same donors’ firms.

Former securities regulator Ernesto Lanza told IBT/MapLight that donors to the Baker-backed ballot measure found “a version of a workaround” to circumvent pay-to-play strictures.

“It’s one of several ways to curry favor with a political official that doesn’t involve direct contributions that are not prohibited under securities law,” he said. “Just because a politician likes a contribution and might get the glow of a favorite nonprofit being well funded, that’s not enough to trigger the rules.”

‘This Is His Baby’

For years, charter proponents have argued that the privately run schools provide more choice and competition in the public education system and have shown promise in delivering better educational results. Public charter schools “have demonstrated that they are closing the achievement gap,” Eileen O’Connor, a spokeswoman for Great Schools Massachusetts, told WBZ this month. “Charters do not drain funding from traditional public schools.”

Baker’s election in 2014 was an inflection point for the education policy debate. He had been the executive director of the Pioneer Institute, a conservative think tank that supports the charter school movement. During his election campaign, he touted his support for an increase in the number of charters. (Currently, a little more than 4 percent of public school students attend 78 active charter schools in the state). One of Baker’s first personnel moves as governor was his decision to install a charter school advocate and former Pioneer Institute official as Massachusetts’ secretary of education.

A year after Baker took office, a coalition of pro-charter groups said it was willing to spend up to $18 million to lift the state’s cap on the number of charter schools. Even with Baker’s support, though, the proposal stalled in the Democrat-controlled legislature. Charter advocates began collecting signatures for a ballot measure, and funnelling money into the state to prepare for a major fight.

Baker’s ties to the ballot measure run deep: He has appeared at rallies and in an ad supporting the measure and has publicly canvassed for it. Two of his former aides have worked for groups supporting the measure, and emails obtained this week by the Boston Globe show that the governor’s office has been working behind the scenes to coordinate campaign strategy.

Though they don’t agree on the merits of charter schools, operatives on both sides say Gov. Baker’s political future could hinge on the success of Question 2.

“This is his baby,” said Barbara Madeloni, president of the Massachusetts Teachers Association, one of the major groups opposed to the charter expansion. “He’s profoundly identified with this issue.”

“He’s been very vocal about his position in Question 2,” agreed Steve Koczela, president of The MassINC Polling Group, which has worked on behalf of pro-charter groups. “It’s a test … of his political power.”

‘Not Aware Of Any Successful Attempts To Enforce’

To help finance the ballot campaign, pro-charter groups tapped donors linked to financial firms that do business with the Massachusetts Pension Reserves Investment Management Board (MassPRIM), which invests around $61 billion for the state’s retirement system. Roughly 41 percent of those assets are for the pensions of more than 150,000 current and retired Massachusetts teachers and their dependents.

Donors to groups supporting the ballot measure include executives linked to eight firms doing business with MassPRIM: Fidelity, Summit Partners, Highfields Capital, Berkshire Partners, State Street, Bain Capital, Apollo Global Management, and Charles River Ventures. Together with Charlesbank Capital Partners and Centerbridge — which have other connections to the ballot initiative — the firms have secured $1.275 billion in commitments from the state, according to data provided by MassPRIM spokesman Eric Convey.

Based on standard fees for money-managers, those commitments could translate into tens of millions in direct revenue each year.

None of the donors responded to IBT/MapLight requests for comment.

Federal and state pay-to-play rules are designed to prevent campaign donations from influencing pension investment decisions. Gov. Baker is no stranger to those strictures: He was the subject of a 2014 state ethics investigation after documents surfaced showing that his investment firm received a New Jersey pension investment after he gave $10,000 to Gov. Chris Christie’s local party. Christie administration officials sold off New Jersey’s holdings in Baker’s firm amid the scandal, but said Baker’s donations did not violate the state’s pay-to-play rule.

Photo: REUTERS/Shannon Stapleton

Because he appoints three of the nine members of the MassPRIM board that directs investments, Baker is covered by the federal pay-to-play rule. But the cash flooding into Massachusetts to support Question 2 has flowed around that prohibition.

Pay-to-play rules apply only to candidates’ own campaign committees and state parties — not to nonprofit organizations, ballot committees and “dark money” groups that promote governors’ policy agendas. (Dark money is cash spent on elections by social welfare organizations, trade associations and limited liability corporations that are not required to reveal their donors.)

Even if such efforts propel an official’s political career and electoral prospects, the donations are legal. Consequently, at both the state and federal level, the gap in the rules has long been exploited by corporations that are officially barred from giving directly to government officials who oversee their business.

Lanza, now an attorney at Clark Hill, said that regulators have periodically considered whether donations to nonprofits and ballot measures violate the rules. Pay-to-play regulations do include anti-circumvention provisions that say “you can’t do indirectly what you’re not allowed to do directly,” he said. But, he added, “I’m not aware of any successful attempts to enforce them.”

Money From Executives Whose Firms Manage Teachers Pension Savings

The major financial muscle behind Question 2 comes from four ballot committees: Expanding Educational Opportunities, Great Schools Massachusetts, Yes on Two and Campaign for Fair Access to Quality Public Schools. Among them, they’ve amassed more than $20 million.

The first connection between a firm handling Massachusetts pension funds and advocacy for Question 2 came in September 2015, when investor Charles Ledley of Highfields (fictionalized as Charlie Geller in the movie “The Big Short”) wrote a check for $40,000 to help kick off Public Charter Schools of Massachusetts, a group that’s since been rolled into Great Schools Massachusetts. The same day, Joanna Jacobson — the wife of Highfields’ co-founder Jonathan Jacobson — also gave $40,000 to the group. Over the next two months, $80,000 came in from Joshua Bekenstein and Paul Edgerly of Bain Capital. Martin Mannion, with Summit Partners, kicked in another $30,000. Highfields, Bain and Summit are all listed as financial managers for MassPRIM.

As the campaign heated up over the following year, more financial firms doing business with MassPRIM funneled money to Great Schools Massachusetts, Public Charter Schools for Massachusetts, and an expanding network of other groups formed to push Question 2.

“This is an irony that I find very frustrating,” said Dennis Naughton, a retired teacher who serves on the MassPRIM board, about pension managers who profit from teachers’ retirement money and then donate to Question 2.

In December, Richard Burnes of Charles River Ventures donated $10,000 to Public Charter Schools for Massachusetts. Fidelity CEO Abigail Johnson gave $40,000 to the group that month. The next year, the company owned by Robert Kraft — who is listed as a director of Apollo — gave $100,000 to another pro-Question 2 group, Expanding Educational Opportunities.

Charles River and Apollo are contracted to manage money for MassPRIM.

The largest injection of money from donors linked to a MassPRIM money manager came from Berkshire Partners executives Bradley Bloom, David Peeler, Robert Small and Ross Jones. Together they have given a quarter-million dollars to Great Schools Massachusetts. Their 2016 donations came only months after the MassPRIM board committed $175 million to a Berkshire-managed fund. Assuming standard fee rates, that deal could generate more than $3 million in annual management fees for the firm.

Other firms whose executives are linked to the push for more charter schools have seen an increase in state business amid the Baker-backed ballot fight.

Jonathan Lewinsohn, Centerbridge’s senior managing director, is on the board of both the nonprofit Families for Excellent Schools and its advocacy arm -- the latter of which has donated to Question 2. Just before Gov. Baker took office, Centerbridge received a $200 million commitment from MassPRIM.

In August 2016, State Street VP James Phelan donated $10,000 to Great Schools Massachusetts, and his firm the next month made a $100,000 corporate donation to Expanding Educational Opportunities. State Street is an equities manager for MassPRIM — and brokerage fees paid by the pension fund to the firm jumped from $52,966 in 2014 before Baker took office to $666,663 in 2015, according to public records.

‘Just The Tip Of The Iceberg’

In total, the groups pushing Question 2 raised over $20 million — more money than any other measure on Massachusetts' ballots this year. The cash that can be linked through public records to firms doing business with MassPRIM is “ just the tip of the iceberg,” said Maurice Cunningham, a political scientist at the University of Massachusetts, Boston, who’s keeping track of Question 2 donations.

“The amount of money — especially dark money — is unprecedented,” he told IBT/MapLight.

The bulk of the dark money behind Question 2 is coming through Families for Excellent Schools Advocacy, which has given $13.6 million to Great Schools Massachusetts. The group is a social welfare organization and not required to publicly disclose its donors.

There are some circumstantial clues, however, to the source of the group's money. One of the major funders for Families For Excellent Schools is another non-profit: Strategic Grant Partners (SGP), a group whose no-frills website announces a mission to “incubate promising ideas in Massachusetts.” It was founded by Joanna Jacobson, the wife of Jonathon Jacobson, a money manager at Highfields Capital. That fund has $80 million in commitments from MassPRIM.

In the two years before Question 2, SGP gave more than $2 million to Families for Excellent Schools, earmarked to help launch operations in Massachusetts. Between mid-2014 and mid-2015, SGP pulled in $4.7 million in donations from the family foundations of executives at financial firms doing business with MassPRIM. Highfields co-founder Jacobson’s family foundation gave roughly $3 million; Charlesbank CEO Michael Eisenson’s family foundation gave $219,485; Bain Capital’s Paul Edgerley family foundation donated $360,125; and the family foundation of Summit Partners' Martin Mannion kicked in $285,293.

SGP and Families for Excellent Schools are nonprofits and are prohibited from conducting election-related activities. Families for Excellent Schools’ advocacy wing is not subject to those strictures, though, and IRS filings show that it has the same board and a financial relationship with its sister organization.

An SGP representative told IBT/MapLight that the organization, as a matter of policy, does not discuss its donations with the press.

With less than two weeks left in the voting on Question 2, Jamie Rinaldi, a history teacher at Newton South high school, has been canvassing and working at a phone bank to sway voters still on the fence. "We knew monied interests saw this as a real key battle," he said. "But our grassroots efforts will show that here, money cannot buy policy.”

This story is a collaboration between International Business Times and MapLight, a nonpartisan nonprofit that reports on money in politics. The article is the second in a series on how companies are circumventing pay-to-play laws designed to restrict their political spending and influence.