Posted by Peter Byrne on 08/12/10
As documented in a previous investigation, a series of conflicts of interest appear to existbetween the University of California and some members of the UC Regents. Among the most notable are UC’s $53 million investment in ITT Educational Services and Career Education Corporation, two for-profit educational corporations that are largely owned by Blum Capital Partners, a company run by Richard C. Blum, a regent who sits on the UC investment committee.
Watchdog organizations have characterized the overlapping investments between UC and Blum Capital Partners as conflicts of interest. But Mr. Blum’s conflicting interests extend beyond California higher education institutions to the legislative floor of the U.S. Congress, where Mr. Blum’s spouse, Sen. Dianne Feinstein (D-California), has taken legislative actionthat has financially benefited Blum Capital Partners.
In a bill that continues to have positive financial impacts for Mr. Blum, Sen. Feinstein introduced legislation that has directly benefited her husband’s investments in ITT Educational Services and Career Education Corporation. In February 2007, Sen. Feinstein and Sen. Barbara Boxer (D-California) called for an increase in federal tuition aid by $20 billion over five years via Pell Grants to low-income students attending community and for-profit colleges. This measure, which became part of the College Cost Reduction and Access Act, became law in September 2007.
The increase in federal funding to Pell Grants impacted hundreds of thousands of students attending community colleges and so-called “low-cost institutions,” such as for-profit colleges. But it was also a boon to the educational corporations such as ITT Educational Services and Career Education Corporation, whose students pay tuition by relying on federal grants and loans that are guaranteed by taxpayers.
After the announcement of the Pell Grant increase, the stock price of the two for-profit college corporations controlled by Blum Capital Partners began to rise. ITT Educational Services stock increased from $79 per share to $127 shortly after the legislation passed. The stock of Career Education Corporation increased from $29 per share to $34.
In the same quarter that the bill passed, Blum Capital Partners increased its holdings in Career Education Corporation by 25 percent. (The privately-owned investment firm’s holdings in Career Education Corporation reached $508 million as of early 2010.) In its annual report for 2007, Career Education acknowledged the positive effect that the College Cost Reduction and Access Act had on its revenue.
Blum Capital Partners also traded heavily in ITT Educational Services stock after the announcement of the Feinstein-Boxer measure. In its annual report for 2007, ITT noted that the College Cost Reduction and Access Act “significantly” increased the amount that individual students could receive in Pell Grants, which “positively impact[ed] our student’s ability to fund their educational expenses.” (As of early 2010, Blum Capital Partners held $415 million in ITT, which, like Career Education Corporation, draws the majority of its revenue from federal financial aid to its students.)
In addition to ushering in legislation that has directly benefited her husband’s investments, Sen. Feinstein’s official Senate website currently advertises a link to an online application for Pell Grants that provide funding to pay the tuition of for-profit colleges, including those owned by Career Education Corporation and ITT Educational Services.
This is not the first time that Sen. Feinstein has used her official position in ways that have enriched her husband. In her role of the Senate Appropriations Committee, she oversaw $1.5 billion in projects that were contracted to Mr. Blum’s military construction companies. Through her press office, Sen. Feinstein declined to comment for this story.
But ethics experts find her actions troubling. "While increasing the number of Pell Grants may be good policy in the abstract, it certainly seems to be a blatant conflict of interest for Sen. Feinstein to introduce legislation that so clearly benefits her husband's business,” says John M. Simpson of Consumer Watchdog in Santa Monica, California. “She should have stayed away from this issue and let others introduce the legislation if they were so inclined.”Posted by Peter Byrne on 08/12/10
Thank You Spot.us and Mr Byrne