Uproar over private school funding

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Students feel cheated, the state auditor general is upset, the Parliament has called a disciplinary hearing and Norway’s education minister, Torbjørn Røe Isaksen, is now fighting for his political life. Reaction has been swift after newspaper Dagens Næringsliv (DN) broke the news last week that two brothers from one of Norway’s most prominent families had enriched themselves and some key advisers through ownership of private high schools.

The controversy has evolved from regulations that allow private schools in Norway to also qualify for state funding, and lots of it. Isaksen is now accused of failing to monitor the financial acrobatics of the owners of schools including Westerdals Oslo School of Arts, Communication and Technology, the Treider and Bjørknes private high schools and colleges, and the online school NKI.

Noble family behind questionable transactions
The schools are owned by what once was a well-regarded trading and real estate firm, Anthon B Nilsen, best known for the headquarters building bearing its name on Oslo’s city hall plaza (Rådhusplassen). By revealing a series of what have been described as “fancy” and “illogical” internal business transactions, DN could report how top advisers to brothers Peder and Nicolai Løvenskiold avoided laws forbidding payment of dividends from operations of private schools. The top advisers include a former stock brokerage boss and the former head of a state commission who had proposed the law allowing state funding for private schools.

DN detailed how the Løvenskiold brothers, heirs to a family that represents the closest Norway can come to nobility, and their colleagues ended up taking around NOK 105 million out of the operations since gaining control over Anthon B Nilsen nearly 15 years ago. Their ailing private school venture called B+W Learning Systems (for Bjørknes + Westerdals) had been merged with Anthon B Nilsen, all the shares of which were  owned by a charitable foundation called Reidar og Gunnar Holsts legat.

“It suited very well to double our balance statement by merging with Anthon B Nilsen,” Peder Løvenskiold told DN. Anthon B Nilsen was seen as being able to secure the private school operations’ future through its solid values and stable income from one of Oslo’s most prime real estate locations (the building at Rådhusgaten 27).

Tangled web of companies
What followed were years of school acquisitions and more questionable mergers, with the tuition fees paid by students or their parents, plus the state support, placed into Anthon B Nilsen’s bank account that in turn could serve as collateral to back new loans. In a lengthy story last weekend, and several follow-up stories, DN documented how the Anton B Nilsen concern evolved into a tangled web of companies characterized by internal transactions that made it difficult for state authorities to track how its funds were allocated. Peder Løvenskiold clarified himself that the various transactions “were a means of liberating capital we had earlier invested in the companies.” He and his advisers insist no laws were broken. The biggest question of all, though, was whether the funds provided by the state and those paying tuition were used for the benefit of the schools’ students or the schools’ owners.

When DN could document that tens of millions from the increasingly complicated ownership structure of the schools were paid out to the Løvenskiold brothers themselves, along with their advisers, the political reaction was enormous. Students had already been complaining about cramped facilities, large hikes in tuition fees, the loss of qualification for student loans and questionable school curricula and diplomas. Some teachers and the former rector of Westerdals had questioned why some of the school mergers were necessary, calling them illogical. Several began asking questions about how their tuition fees, which could amount to NOK 80,000 a year, were being spent. They didn’t get answers. “It was a parody,” one student, Benjamin Blatch, told DN.

Things got worse when Westerdals moved into a new building at Vulkan in Oslo that already had been quietly sold at a large gain even before it was even finished. DN reported that Anthon B Nilsen had committed the school to a long-term lease contract at rates much higher than those in the local market area. That made it the building attractive to investors. The gain was registered by a real estate firm in Anthon B Nilsen’s web of companies, not the school operations firm responsible for paying the rent.

More questions of political conflict of interest
In the fall of 2013, shortly after the current Conservatives-led government coalition assumed power, Norway’s state auditor general discovered the many internal transactions within Anthon B Nilsen and what DN reported had been “overwhelming profitability” of the Løvenskiold brothers’ private school empire. The auditor general’s office was concerned that the education ministry had lost control over how the state’s funds (NOK 123 million in the prior year alone) were used by Anthon B Nilsen. A critical letter was sent to the ministry, now led by Education Minister Thorbjørn Røe Isaksen, and the ministry responded that it would look into the matter.

Two years later, no action had been taken and Isaksen admitted to DN that “the ministry believed the concerns were addressed through the ordinary follow-up of private schools” Isaksen, meanwhile, had felt compelled to have his own impartiality in the case evaluated, because the Conservatives have received financial support for years from the Løvenskiold family (whose eldest brother Carl Otto inherited the vast landholdings in Nordmarka, timber operations and the Løvenskiold Vækero industrial and retail operations). Peder Løvenskiold has been actively involved in the party, and Nicolai Løvenskiold has donated money to the conservative magazine Minerva, which Isaksen edited for seven years until becoming education minister.

Isaksen insists he had no conflict of interest in the case, and that his impartiality had been confirmed by state lawyers.

Auditors, politicians, others ‘not satisfied’
The DN articles, which also have been followed up in other media, have unleashed a torrent of reaction from the state auditors, who are “not satisfied” with the response from the ministry over their concerns. The leaders of several political parties demanded an investigation and the Parliament’s disciplinary committee responded by calling a hearing where Isaksen will be grilled. The close ties between the Conservatives, the Løvenskiolds and Isaksen himself are also being questioned anew.

A professor at business school NHH has flatly stated that all the internal business transactions within Anthon B Nilsen were motivated purely by efforts to avoid the law against taking out dividends from private school operations, which are supposed to be run as non-profits, benefiting only their students, not their owners. “I can’t see any another reason to move all this money (among the new entities set up within Anthon B Nilsen),” NHH professor of finance Thore Johnsen told DN. “It was all quite fancy.”

Union leaders are also furious over the financial acrobatics conducted by the Løvenskiolds, and along with opposition politicians, they claim it shows the dangers of mixing public and private interests. “When taxpayers’ money earmarked for public service enriches private individuals, it’s wrong,” declared Mette Nord, the powerful leader of trade union federation Fagborbundet, which has more than 330,000 members in the public and private sector. “Commercial players are always creative enough to find ways of enriching themselves off welfare services.”

Angry students feel ‘cheated’
Students at Anthon B Nilsen’s schools packed meetings held by pressured school administrators last week, and were angry that neither of the Løvenskiold brothers showed up to answer questions. “That was cowardly, like an ostrich putting its head in the sand,” student Iver Syverud Thorsen told DN. Anthon B Nilsen’s communications director, who mostly has refused comment, responded that the company had set up a commission with representatives from the students and teachers where “all questions tied to the (internal) transactions would be answered.”

The students aren’t satisifed and the situation has united the various studentbodies involved to challenge their schools’ owners. “It feels like we’ve been cheated,” student Annika Sander told DN, not least in regards to how capital was withdrawn from three schools including Westerdals were merged in 2013. Its new rector after the merger, Bjørn Jarle Hanssen, has been on the defensive for days, and claimed repeatedly that the merger “has already given and will continue to give positive effects” in the form of new intercurricular programs, better access to “the best” lecturers, higher interest from business, more cooperation with international players and access to new facilities.”

Sudden reimbursement
As Education Minister Isaksen tried to defend himself on a nationwide NRK radio debate program Monday morning, and Prime Minister Erna Solberg claimed she was glad DN had raised criticial questions about how the state monitors the private schools it helps fund, Anthon B Nilsen made a surprise announcement. Its private school-owning entity Anthon B Nilsen Skoledrift has suddenly decided to refund money and excuse debt to the newly merged Westerdals Oslo School of Arts, Communication and Technology in the amont of NOK 105 million. Company officials deny any dividends to the owners were illegal.

Instead, the owners of Anthon B Nilsen simply were said to be “deeply worried” over the “uneasiness” created around the company among students and employees of Westerdals Oslo ACT. The company already has criticized DN’s stories, calling them “biased” and “slanted” and akin to “tabloid journalism” that does “not reflect reality.”

The company has “therefore decided to erase any doubt … about Westerdal’s financial foundation … by eliminating the capital effect of the merger of three schools.” More internal transactions would mobilize refunds of NOK 20 million and elimination of NOK 85 million the debt the formerly profitably Westerdal’s was saddled with.

Rector Hanssen called it “a good solution.” It’s unclear whether the Parliament, the state auditor general, the students, academic professionals and a long list of upset top politicians will agree. Late last week, investigators at the Norwegian police white-collar crime unit Økokrim also summoned ministry personnel for a meeting. Isaksen insisted that he was renewing the ministry’s effort “to get all the facts on the table.”

newsinenglish.no/Nina Berglund