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For-Profit Management of Public Schools

National Education Association
July 8th, 1998

Can for-profit companies solve the problems facing public education by running America's public schools? A handful of entrepreneurs and a few Wall Street investors think so. The entrepreneurs are managing public schools -- either as charter schools or under contract to school districts. The Wall Streeters are promoting education companies as hot new investments for the 1990s.

The number of public schools run by for-profit companies remains relatively small -- about 60 in the 1997-98 school year. That number includes 14 schools operated under contract to school districts; the rest are charter schools. While the number is small, it's growing -- especially in the charter arena -- and these public for-profit schools could have a major impact on the push to privatize public education.

The Edison Project is the leading for-profit public school management company. Edison opened its first four schools two years ago, this year the company runs 25 schools in 13 school districts. Edison's first four schools opened for the 1995-96 school year. Thirteen of the current Edison schools -- in Miami, Florida; in Flint, Lansing, and Mount Clemens, Michigan; in Sherman and San Antonio, Texas; and in Wichita, Kansas -- are operated under contracts with the school district. The other 12 are chartered by either the school district or the state.

The only other company with a contract to manage a public school is Beacon Management (formerly Alternative Public Schools), which runs Turner Elementary School for the Wilkinsburg, Pa., school district. A state court has ordered the district to terminate the school management agreement at the close of the 1997-98 school year.

The For-Profit Management -- Charter Connection

The charter school laws of at least 12 states (Arizona, California, Colorado, Connecticut, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, New Jersey, and North Carolina) allow for-profit companies to operate publicly funded charter schools. In several of these states, charters have become the point of entry for school management companies. Arizona, Massachusetts, and Michigan are the leaders in for-profit charter school management, each with from 12 to 17 charter schools being run by for-profit companies in the 1997-98 school year.

The Massachusetts charter school law not only allows companies to open charter schools, it provides them with additional funding. Not surprisingly, the state is becoming a magnet for school management companies. The Edison Project runs two charter schools in Boston, and Beacon Management (formerly APS) runs one in Chelmsford. Sabis International, the for-profit owner/operator of seven private schools in Europe and the Middle East, also runs two Massachusetts charter schools, as well as one in Chicago.

Additional for-profit charters have already been approved for 1998 and beyond. Arizona has granted EAI a 15-year charter for 12 schools in the Phoenix area, two or three of which were scheduled to open in 1997. Other companies that operate multiple for-profit charter school sites include: Excel Education Centers (7 schools in Arizona), Heritage Academy (2 schools in Arizona), and Horizon Charter (2 schools in Arizona), Charter School Administration (5 schools in Michigan), Education Development Corporation (4 schools in Michigan), and the Leona Group (4 schools in Michigan).

The companies claim they'll improve student learning -- and make a profit. Experience doesn't support their claim. Education Alternatives, Inc. (EAI), was the pioneer school management company. EAI went from managing one school in Miami, Florida, nine schools in Baltimore, Maryland, and the entire Hartford, Connecticut school district in 1995 to not having a single public school contract last year. Baltimore canceled the EAI contract when student learning in the nine EAI-run schools didn't improve despite the fact that the company received $20 million more than the city would have normally spent on those schools. The Hartford contract was canceled in continuing disputes over finances. And the Miami contract wasn't renewed when students in the EAI school showed no academic improvement compared to similar students at a publicly run Miami school.

The students at Wilkinsburg, Pennsylvania's Turner Elementary, run by Beacon Management/APS for two years, have slipped academically under for-profit management. On the state standardized tests, Turner students scored lower than they had the year before the company took over and lower than students in the other Wilkinsburg elementary schools, where scores increased substantially.

The only school management company that has shown any positive result in student learning is Edison -- and Edison's results are mixed and not as good as the company portrays them. According to the Edison Project, student achievement at its schools has risen dramatically. A more objective analysis of the available data shows that student achievement in a couple of the Edison schools is quite good, in most it is average, and in a couple very disappointing.

Edison's school management raises another issue in corporate takeovers of public schools -- profit. Here too, despite the Wall Street hype, the record is not encouraging. By its own account, Edison puts between $1 and $1.5 million of company money into each school the first year. But this is a for-profit company that cannot and will not continue to operate at a loss. When it's time for Edison to begin making money will the company cut back the program in its schools -- or demand more money from school districts?

Because Edison and most of the other school management companies are privately held, their finances can remain secret. Not so EAI, a publicly traded company that must file detailed financial reports with the SEC. Those reports show that EAI never made a profit managing schools, despite receiving additional money in both Baltimore and Miami. Some years the company was profitable and a few people made a lot of money -- from investments and stocks, not school management.

Why, since for-profit management has produced lower student achievement for more money, do some still see it as a viable option? Entrepreneurs and investors see money to be made -- probably not in running schools, but like EAI, through taking the company public, trading its stock, and investing its assets. Some school boards and superintendents think they've found a silver bullet -- someone who will come riding into town, improve their schools, and solve their problems.

Of course there is no silver bullet, no outsider who can solve the problems of schools and children. In the end, school improvement is accomplished through the hard work of school staff, with administrative and parent support. Everything the for-profit companies say they'll do has already been done in publicly run public schools. Every curriculum and program they use is available for every school in America to implement on its own -- without adding corporate managers and without subtracting corporate profit.