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You Must Take Care of Your Customer

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Public services are being privatized everywhere. Mayor Richard Daley of Chicago has already privatized 40 services formerly performed by public workers, moves he says have improved services, reduced costs, and, in the case of towing abandoned cars, turned a $6 million profit while taking more than 186,000 cars off the streets. The Mayor receives high marks for attending to the city's business while keeping an eye on improving services and reducing costs.

Gov. John Engler of Michigan has eliminated property taxes as the primary method of funding public schools, and he has privatized services to make state government responsive to the current economic climate of his state. Although criticized by the Michigan Education Association, Mr. Engler's efforts to improve government's inefficiency have been praised by the public and have brought him national attention as one of America's most innovative governors.

New Jersey's newly elected Governor, Christine Todd Whitman, took the state by storm--reducing income taxes her first day on the job. She has made bold moves to encourage governmental innovation and efficiency at all levels, including schools, local government, state government, and state commissions and agencies. Her approval rating by the citizens of New Jersey's citizens is high.

Mayor Michael White of Cleveland won re-election with 85 percent of the vote. He compares cities to dinosaurs: In both cases, "they either evolve or die." At a recent Reason Foundation conference in Chicago, Mayor White argued that change in the way cities do business is inevitable. Why? "Because the public won't pay." His recommendations for change? "Spend the government's money as you would your own." In other words, no more business as usual.

In each of these cases where public officials have sought innovative solutions from the private sector, you don't hear people claim that the government sold out to private companies. You don't hear, "Government for the public, not for the profit." So why the outcry when public school boards try the same innovations to reduce the cost of their educational systems and to reallocate tax dollars to education rather than to noneducational expenses?

Private management of public schools results in a partnership between the private-sector management firm and the public school system to reduce costs and meet higher educational standards.

Private management is the primary way that public schools can improve both educationally and financially and still remain public schools. Although vouchers will create competition, they will also siphon off limited resources to private and parochial schools, making it even more difficult for public schools to renew themselves. Reinventing public education doesn't mean replacing it with another system of private or parochial schools. Instead, it means reallocating dollars to maximize educational opportunities and reduce the cost to the taxpayer.

How can a private management company do things that public school administrators can't? In most cases, it's not a matter of "can't"; instead, it's a matter of "don't" or "won't." Could school administrators make some of the operational improvements? Sure. But, in most cases, they haven't taken the steps to reduce the operational costs. Instead, they seek additional tax dollars. The usual drill is: "Let's keep what we have and spend more funds so we can do some other new things."

Private management moves funds from noninstructional areas into instruction. The private management company has the vision, perseverance, and willingness to take the "heat" that comes with changing the status quo.

Of course, some of the improvements private management companies make cannot be done by school systems alone. For example, a for-profit management company like ours has access to capital that public schools don't. Education Alternatives Inc. enters into millions of dollars worth of capital commitments up front to make real change early in the process.

Not-for-profit companies and "mom and pop" educational consulting firms lack this ability to raise the millions needed for major instructional enhancements or improvements in physical plants. The for-profit companies amortize over several years the costs of this capital infusion, permitting them to spend now and recapture the funds over the life of the contract.

Exactly how does this partnership of the public and private sector work?

  • The school board and the private management company establish mutually agreeable financial and educational performance objectives.
  • A contract formalizes the understandings, the performance objectives, and the authority of each party to make the partnership work.
  • The school board maintains its statutory authority to oversee the management of the school system, including the hiring and firing of personnel.
  • The school board continues to audit the school finances through an independent auditing firm of its choosing.
  • The school district's superintendent remains the chief executive officer of the schools and works with the private management firm to meet the goals set forth by the board. (After all, the objectives the board establishes are for everyone.)
  • The management company offers to provide additional financial incentives to the superintendent for meeting the performance goals set forth in the contract. If approved by the school board, a bonus, stock options, or stock itself become possible additional perquisites for the entrepreneurial superintendent of schools, in cases where the management company manages the entire district.
  • The management firm institutes its educational and financial plan with the assistance of other affiliated vendors. E.A.I. has formed an alliance with three other companies: KPMG Peat Marwick, Johnson Controls World Services Inc., and Computer Curriculum Corporation (a Paramount Communications company). This alliance enables us to enhance educational programming, financial accountability, physical-plant operations, food services, maintenance and custodial care, technological applications, and professional development.
  • School funds are reallocated from noninstructional services to instructional services whenever possible.
  • Shared savings, not fees, become the source of corporate revenue to pay for the new management services. No new funds need to be allocated to pay for the private management services.
  • The school board and the management company evaluate annual progress toward performance goals. Typically, a contract with E.A.I. gives a school board the right to terminate the five-year contract with just 90 days' notice if the board does not think the agreement is working. There is no tenure here.
  • During the term of the contract, the management company amortizes major improvements to the school system. These include the installation of advanced technological systems to enhance the instructional programs and assess student learning styles, learning speeds, and previous levels of student achievement. At the end of the contract, the newly acquired technology belongs to the school system.
  • The school board and the school personnel focus their attention on their "core business" of educating children. They let experts in other areas fully manage the peripheral businesses that drain resources and administrative time and attention, such as food services, transportation, and cleaning and maintenance.

One thing American business has learned is that you must take care of your customer. In the case of America's schools, that customer includes the community, the child, the family, and the taxpayer. The only way private management companies will stay in business is to be responsive to the needs of their customers.

Profit will be necessary to stay in business, of course. However, a focus on improving the education of children and a high degree of financial accountability will assure that private management remains a viable solution.

Do public-private partnerships really work? You bet they do.

Despite the false criticisms repeatedly leveled against our projects by the American Federation of Teachers, in every school we have managed, we have transformed buildings, school grounds, and classrooms into clean, safe places in which children can learn. We have provided state-of-the-art technology and ample educational supplies to motivate and inspire children to learn. We have given teachers and noninstructional staff members the excellent professional development they want and need. And, always, we have shared our vision of active, self-confident children who have good skills, strong ethical values, and high expectations.

The public and private sectors can now join hands to help the children who need us so much. We can act creatively, responsibly, and efficiently so that our children will be fully prepared to meet the challenges of a diverse and changing world.

See the next article in this special report,

John A. Cairns, June 22, 1994.

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