Opposition blasts state attempt to assist major haredi school system in financial trouble

The coordinator of the opposition in Israel’s Knesset Finance Committee, MK Vladimir Beliak (Yesh Atid), criticized on Thursday reports that Prime Minister Benjamin Netanyahu had promised to assist a major haredi school system affiliated with United Torah Judaism MK and Knesset Finance Committee chairman, MK Moshe Gafni, that is currently under legal scrutiny for financial mismanagement.

In a post on X, Beliak wrote that he had received “more and more reports” that Netanyahu had promised to find funding to aid the private haredi school system known as the Hinuch Ha’atzmai (literally “Independent Education”) pay its employees’ salaries and social security benefits for the month of July.

The school system has been in financial trouble since a report in February by the Finance Ministry’s Accountant General Yahali Rotenberg laid out a series of financial irregularities. Beliak accused the prime minister of attempting to unlawfully assist the school system in order to prevent a political rupture with his political ally, at least until the end of the Knesset summer session on July 28.

Beliak warned the “prime minister’s office, the head of the Knesset Finance Committee (Gafni) and all those who are involved in the matter – we are following closely. We will scour with an iron comb every relevant transfer (of funds) that arrives at the finance committee. We will conduct an uncompromising professional, parliamentary, and legal struggle, we will reflect the reality, and we will update regularly,” Beliak wrote.

Gafni threatened a number of weeks ago to quit his position as Knesset Finance Committee chair if a solution was not found to save the school system from bankruptcy, and the inability to do so could lead to a political rupture in the coalition. This could happen irrespective of another crisis regarding the end of the haredi exemption from IDF service.

Financial mismanagement led schools unable to pay salaries

Despite being privately run, the Hinuch Atzmai and its Shas-run counterpart, Bnei Yosef, enjoy special legal status and receive full state funding. The two systems have received over NIS three billion annually in state funding during the past few years, and they share characteristics with government bodies – they are directly connected to the government’s MERKAVA funding system, and they employ a finance-ministry-appointed accountant to run their finances. However, these school systems are not prone to the same level of oversight as public schools. The presence of the publicly appointed accountant has enabled the systems to avoid effective financial scrutiny, as they have argued that their finances are state-run and therefore not their responsibility.

However, the February report found that the Hinuch Haatzmai had bypassed its accountant and amassed a tax debt of over NIS 80 million, and another report found that the school system had accrued additional operational debts of over NIS 300m. The Hinuch Haatzmai is also facing dozens of challenges in court, including six class actions suits against alleged violations of employees’ rights, including unexplained salary deductions, unpaid work hours, and more. These legal challenges could lead to hundreds of millions of additional shekels of debt.

As a result, the Hinuch Haatzmai in May suffered a bank account foreclosure, and at first was unable to pay its employees’ salaries in June. The Finance Ministry agreed to loan the necessary funds for June, but the system now faces the same challenge for July.

Rotenberg in February threatened that if a solution was not found by July 1, the Hinuch Atzmai and Bnei Yosef school systems would be disconnected from the government’s MERKAVA funding system, and the finance ministry would remove its accountant. This would force the systems to employ independent financial management, and bear full responsibility if it failed to meet tax requirements and financial commitments.

However, Finance Minister Bezalel Smotrich, Minister in the Education Ministry Haim Biton (Shas), and representatives from the Justice Ministry have attempted in recent weeks to come up with an arrangement that would lead to closer oversight of the systems, while keeping them afloat financially by continuing full state funding.

Members of the opposition opposed such an arrangement, as did the Movement for Quality Government in Israel (MQG). In a letter dated July 2 to Rotenberg, Biton, Finance Ministry legal adviser Asi Messing, Attorney-General Gali Baharav-Miara, and State Comptroller Matanyahu Englman, MQG called on the Finance Ministry to “publish clarifications to the arrangement that was made, the alternatives that were examined, and the implications on state coffers.”

In an accompanying statement MQG said, “The new arrangement, the details of which have not yet been officially published, which is supposed to include the disconnection of the educational networks from the government’s Merkava system, the opening of separate bank accounts, and the hiring of accountants to supervise budgetary management, may even make the situation worse.”

MQG listed what it viewed as five problems in the arrangement:

First was “absence of substantive reform.” According to MQG, “The arrangement does not include significant structural or financial changes in the conduct of the networks.”

Second was “continued unlimited funding.” MQG argued that “despite the repeated warnings of the accountant-general and the attorney-general, the arrangement continues to allow funding of the private party-political educational networks, without a complete disconnection from the government budgets and without a plan to repay their debts.”

MQG described the third problem as “increasing the state’s responsibility without compensation.” According to MQG, under the new arrangement, “The state takes on additional responsibility for the conduct of the networks, without requiring them to act in accordance with the rules of proper administration and the curricula of the ministry of education.”

The fourth problem, according to MQG, was a “lack of transparency,” as “the details of the arrangement and its consequences for the public have not been officially published, which raises serious concerns about the integrity of the process.”

Finally, MQG pointed out that Biton himself was the former manager of Bnei Yosef, and therefore was caught in a conflict of interest and should not have been involved in the negotiations.

MQG proposed the following steps:

“1. Full and transparent publication of the details of the arrangement that is being drawn up; 2. The establishment of a government inquiry committee to examine the set of relations between the state and the party-political education networks; 3. Re-examination of the funding model, incorporating the principles of transparency, equality and good governance; 4. Preventing the involvement of those who have a conflict of interest in the decision-making process; and 5. Creating a long-term plan to put the networks on a proper footing and to implement uniform standards throughout the education system.”

Gafni’s office said in response to a Jerusalem Post query that it “did not know” about the issue. The prime minister’s office did not respond.