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Profiting From Experience

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For years, proprietary schools have gone about their business without much notice. But the allure of privatization in the education marketplace--with its emphasis on customer satisfaction and managerial autonomy--may have raised the stock of for-profit schools while offering educators and entrepreneurs a lesson of their own.

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Long before media tycoon Christopher Whittle envisioned a country speckled with esteemed--and lucrative--private schools, long before the company Education Alternatives Inc. sharpened its nose for business on nine ailing Baltimore schools, Perry Kittredge had spotted his own niche in the education marketplace.

It didn't make many headlines. But in 1944, the physical-education coordinator for the San Francisco city school system was taking low-performing students from the district and turning their grades around--for a profit.

The idea was to give an academic shot in the arm to public school student-athletes failing to make the C average the district required for sports participation. Students brought in enough tuition for Kittredge to make the rent and hire a teacher, and most stayed at his school until they felt ready to go back and earn a spot on their old playing fields.

Today, the mission of the Kittredge School has changed, but not its income-tax status or its success in taking students to higher places.

In fact, before privatization became one of American education's favorite buzzwords, and decades before our current fixation on the entrepreneurial experiments being played out in Baltimore, Connecticut, Michigan, and elsewhere, the verdict on for-profit schools was in--if scarcely looked at.

So as educators and policymakers alike await the ultimate fate of Whittle's drastically scaled-back schools venture and the controversial plans of other fortune seekers, the answer may already be close at hand. Mixing the public goal of quality education with the private pursuit of profit--what some would call a conflict of interest--can work and has been working, albeit quietly, for the better part of a century in hundreds of schools across the country.

And even though these predominantly family-run schools may suffer the stigma of being "for profit" (hence, in the eyes of some, "against quality"), they may offer the best example of what schools could look like--without the red tape. Relieved of virtually all district, state, and federal mandates and freed from a complicated chain of command spiraling from a school board or a private board of trustees, these schools, say their owners, are accountable only to those who truly matter: students and parents.

There are failures. Schools with quirky, perhaps shady missions. Schools run by people who have no business running a school. Schools that skimp on teacher quality and other basics to save a dime.

But unlike public schools, proprietors say, when these schools fail, they quickly become extinct. "You really won't find them," says Steven Nossal, the owner of the for-profit Fairfax Collegiate School in Falls Church, Va. "They just don't succeed, and they go away."

Although it remains unclear how much room there is in the education marketplace for such schools to multiply, they have been growing. And as entrepreneurs and big-money investors continue to eye for-profit schools, their prosperity begins to signal a future far beyond their family trees.

Even as the Arizona sun edges over the horizon, it is blinding. And WilliamJ. Barton Jr. is already getting his first dose of what he affectionately refers to as a "Zackattack."

A small boy by that name is perched on the edge of a floral sofa that could fit six of him, his words just a string of peeps above the noisy office air conditioner. The only words that can be heard come from the lanky man sitting cross-legged on the floor in front of him.

"And who laughed at you? The entire school? All 234 of us or just a few people?" Barton asks, his hands clasped together as a propfor his chin, his elbows resting on his knees.

It is a comfortable posture for a school director, but then again, the Camelback Desert Schools are homey places.

Barton continues: "Maybe they don't feel good about themselves, to do something like that, because that isn't right, is it? Well, how are you going to change your day? And you're not having any problems at home? Like what kind of problems?"

The conversation ends with a deal and handshake. Barton will talk to the alleged troublemakers, and Zack will try to take control of his day and make it better.

Sliding into his chair behind a large mahogany desk moments later, the 40-year-old Barton looks as though he's just gotten home from a long day at the office. But it's only 8:30 a.m., and the well-seasoned administrator knows this will only be the first glitch of the day.

As a proprietor, director, financial-aid officer, guidance counselor, and maintenance man of the Camelback Desert Schools, Barton is used to the nitty-gritty of school life--and he likes it. Quickly, he's on the phone to his secretary, alerting her to Zack's situation, soliciting her help in reaching his parents, then to the boy's teacher, then to some other informant of Zack's well-being. "It's all part of the business," he says when the chain-calling stops.

And he should know. When Barton was just 7 and his father was the principal of a local public school, his dad would sit him on top of the industrial buffer used to clean the lunch room because his 60 pounds added a little extra shine to the floors. At 15, Barton himself was scrubbing toilets, washing windows, and mowing the lawns of his father's newly purchased Camelback Desert School. By the time he was 19, he was the school's football, basketball, soccer, and volleyball coach and a counselor at the school's summer camps.

To hear him tell it, Barton pretty much grew up on school grounds. He ate, drank, slept education. He couldn't get away from it even as it somehow landed in his lap.

Now, as he pokes his head into classrooms and weaves his way through children on the playground, it is clear why his family chose the for-profit route: The Bartons like to run their own show.

Call them control freaks, but ask school proprietors why they are for-profit, and you won't hear much about the profit. What you will hear about is control.

"I am absolutely and totally sold on proprietary, and I'm not talking dollars and cents," says William J. Barton Sr. "There's nobody out there with power who can influence our decision. The only people who we're controlled by are the people we deal with. So we're going to do what's right by them, and we're going to do it well, or we're not going to be here."

At this campus in Paradise Valley, the Bartons' domain includes 234 students in pre-K through 8th grade, 21 teachers, and 14 additional staff members (two maintenance men, three secretaries, two other directors, one preschool aide, two snack-bar attendants, and four janitors). Four years ago, the Bartons opened a second campus in Scottsdale, which now has 86 students in pre-K through 1st grade, eight teachers, and six other staff members.

Tuition varies by grade level but idles around the lowest in the area for the private schools the Bartons compete with. Camelback Desert charges $2,120 a year for two-day pre-kindergarten, $5,287 for full-day kindergarten through 5th grade, and $5,828 for 6th through 8th grade.

It is a family business. William Sr. bought Camelback Desert from two retired schoolteachers in 1970, 20 years after they founded it. At 76, he is still the owner and the official executive director, even as most responsibilities have shifted to William Jr., his middle son. William Jr.'s mother runs the snack bar here in Paradise Valley, a job his sister-in-law handles at the Scottsdale campus. His ex-wife, Julie Barton, even teaches 6th grade.

As a corporation, Camelback Desert is required to have a board of directors. But unlike public or nonprofit school boards that are composed of outside members, theirs looks more like the cast of "My Three Sons."

And clearly, if the Bartons have a phobia, it's of school boards. Citing a local nonprofit school, William Sr. says: "They make up a board of the people who donate the money, and then they keep passing vacancies on to the same kind of people. So you've got undue pressure, bad pressure, pressure coming for the wrong reasons. If we have any pressure, it's from some mother who's unhappy that her kid flunked an algebra test, and she'll come directly in here, and the buck stops here."

For their part, nonprofit private school officials say their boards keep them in check. "It's good to be accountable to an outside group. It just keeps you honest," says Selby Holmberg, the vice president for promoting independent education at the National Association of Independent Schools, which represents nonprofit schools. "Not that for-profit schools aren't honest. But the traditional arguments against them have to do with the fact that a sole owner does not have to report to a board of directors and does not have to disclose financial operations."

But proprietors say they could not be held any more accountable. Nonprofit schools may share their reliance on tuition and, consequently, on customer satisfaction, but proprietors say parents tend to choose a nonprofit school for ulterior reasons, such as a religious preference or a desire to be part of an elite group. (About 25 percent of America's schools are private, serving one in 10 schoolchildren. Of those, about 80 percent are religiously affiliated nonprofits. Most of the remaining are nonsectarian nonprofits. Few private schools--probably about 3 percent to 5 percent--fall into the for-profit category.)

To the contrary, school owners say quality is the only compelling reason for parents to pick a for-profit school, where what their children get is just a good, solid, no-frills education.

Indeed, Camelback Desert's only notable amenity is notably down-to-earth: A small petting zoo for the young clientele in Scottsdale is home to a couple of pigs, a handful of chickens, a few sheep, and one unusually tame deer.

Walking onto the Paradise Valley campus, you might think you'd arrived at a summer camp rather than a school. Aqua-painted walls surround a small swimming pool. A playground marks the center of campus. A snack bar is open for business nearby. Modest but cheery classrooms--along with the hump of Camelback Mountain--frame the schoolyard.

Over the past 25 years, the Bartons have stuck to a philosophy that has fueled their enrollment thus far: Hire well-trained, enthusiastic teachers, and stick to the basics.

Simple as it might be, the philosophy has translated into a steady flow of positive feedback. The Camelback Desert Schools have had few problems attracting parents whose children may have fallen through the cracks in public school or who just prefer a more personal touch to education. Most students come from medium- to high-income families, but some less-affluent ones receive school scholarships.

And Camelback Desert boasts competitive achievement-test scores and high acceptance rates into two of Arizona's cream-of-the-crop private high schools, Brophy College Preparatory School and Xavier College Preparatory School, both in Phoenix.

"It's not too big, it's not ostentatious, and the atmosphere is very family-oriented," says Tina McEown, a mother of two children at the school. Because the Bartons operate the school as a business, she says, "I think they have a more vested interest. They seem to have more of a pulse on what's happening on their campus at all times."

Teachers here don't seem to recognize the school's for-profit status. Sure, they would like to be making more than the school's standard salary of $17,000--with no medical benefits. But they're quick to add, "If we were in it for the money, we wouldn't be here." Instead of money, the teachers talk about how much they like the atmosphere, how little paperwork they have to do, and how long they end up staying. As of last year, the average teacher tenure was 13 years.

"If I can impress upon you anything about being for-profit," Barton sums up, "it's that it's a different mind-set more than anything else. It's about pride in ownership. About having something that's yours. I mean, isn't this what the American dream is all about?"

Better silent than scathed,proprietary schools used to figure. One reason the education establishment has taken little notice of small for-profits is that they have only recently emerged from the closet.

"It really wasn't until the privatization of hospitals, when people decided it was OK for doctors to make money off sick people, that proprietary schools became more accepted," says Lois Gerber, an original owner of Bradenton Academy in Bradenton, Fla., and the president of the National Independent Private Schools Association, which represents and accredits proprietary schools.

That was about a decade ago, around the same time that one of the Kittredge School's former owners, Charles Lavaroni, created NIPSA as a forum for owners to collaborate on common problems and as a base of lobbying power. Since then, association membership has steadily grown. It now includes 64 owners representing 120 schools--twice the number of owners from six years ago. The member schools, most of which are family operations, serve 25,000 children in 12 states, employ more than 14,000 staff members, and give out some $3 million in student scholarships every year.

Although no one knows exactly how many more academic, for-profit schools there are out there, Gerber puts it at around 1,500. (Her estimate doesn't include trade schools or those that target the special-education market.)

Some champions of for-profit schools are hoping that the growing acceptance of entrepreneurship in education will push more owners toward the association. They say that with accreditation, for-profit schools will toughen their own standards and gain credence as a viable education alternative.

A NIPSA school must be academic in nature, and it must communicate to the public that it does not discriminate on the basis of race, creed, color, or gender. It must also have been in operation for two years under the current owner and abide by its state's compulsory-education laws.

Last summer, NIPSA received an added boost from the Washington-based National Council for Private School Accreditation, an umbrella organization that accredits private school groups. After several years of preparation, the association gained membership into the national council and received affirmation that its own accreditation standards stood for quality education.

Despite the yes-vote, however, NIPSA's attempts to find friends on Capitol Hill--for one place--have been slow-going.

"They have been somewhat stung by the image that they're making money off of kids," says Janet Beales, the director of the education-studies program for the Los Angeles-based Reason Foundation, a free-market think tank.

Their not so well-received lobbying agenda includes a change in the tax code that would encourage charitable giving to for-profit schools by granting donors a tax break on contributions made specifically to a scholarship fund. As it is now, donations to for-profit schools are non-tax-deductible--a stipulation Barton attests promptly sends a parent's check back into the pocketbook.

One success came about three years ago, when NIPSA schools became eligible for the U.S. Department of Education's Blue Ribbon Schools program for educational excellence. Since then, the award has gone to three member schools, including the highly acclaimed 1,750-student Gulliver Academy/Gulliver Preparatory School in Miami. Now, the association is fighting along with others to keep the program off the government's chopping block.

The association's lobbyists are also alerting Congress to their concerns with the Americans With Disabilities Act, which some proprietors fear could put them out of business.

Proprietary-school owners tend to be a little touchy when it comes to money. Not only do they feel disadvantaged by their for-profit title (they prefer their schools to be called "tax paying"), they insist the label is ironic.

According to the latest figures available from the National Association of Independent Schools, it costs an average of $9,234 each year to finance a student's nonprofit elementary school private education. Meanwhile, the average tuition for these schools during the 1993-94 school year was $7,721--covering only about 84 percent of the total cost. Nonprofits typically recover most of the 16 percent gap with a combination of gifts, grants, endowment income, and small amounts of public aid.

But for-profit schools, their owners charge, can't rely on such supplemental income. Moreover, proprietary schools have to pay taxes, and they tend to charge lower tuitions, widening their income gap even further.

Proprietors also claim a disadvantage to public schools. Although the average per-pupil cost for a public school education is only about $5,100, proprietors still point to their heavy tax burden and lament their ineligibility for special government programs and price breaks suppliers often offer public schools shopping for materials.

"Everyone has their cross to bear," Barton says. "The public schools, they're inundated in red tape. The nonprofits have the boards that control them. Ours is that we don't have any funding."

To compensate, 83 percent of NIPSA schools offer summer programs. Barton, for example, runs two summer camps that feed revenue into his winter program, serving roughly 1,100 children for $400 to $550 per four- to five-week session. All in all, he yields two to three times as much profit in the summer as he does during the regular school year.

Nonprofit schools, as well, have discovered that summer programs can be a lucrative business in the days of two-parent working families. But where they generally see this income as supplemental, schools like Camelback Desert see it as their bread and butter. "Without our summer programs, we'd be dead," Barton says.

Nevertheless, as businesspeople, school owners are not required to disclose their financial operations, and most of them won't--making it difficult to defend their stake on hardship.

But even without such data, a few conclusions can be made. First, for-profit school directors are more than likely making a decent salary--comparable to or somewhat better than their counterparts at nonprofit private schools. Second, running a school is not cheap, and anyone envisioning big dollar signs behind schoolhouse doors better have an airtight plan. (Think Whittle.)

Third, it is possible to run a school, make a buck, and deliver a quality education. And it is in this accomplishment that the for-profit sector has something to offer both public and nonprofit educators alike.

The bottom line is "you have to be results-oriented, and you have to be efficient," says Udo E. Schulz, a vice president of Sabis Educational Systems Inc., an international school-management company that owns a for-profit school overseas dating back to the late 1800s. "When it comes down to survival, there are some awesome pressures that drive you to some pretty awesome performances."

Schulz's group is well aware of the costs of owning a for-profit school, and so it has taken a kind of three-pronged approach to education management. Sabis is affiliated with 13 schools: The company owns three of them, manages and partially owns nine, and manages one as a charter school.

From a financial standpoint, Schulz says, the best of these options is a charter school, then a partially owned school, then the proprietary school. But from a control standpoint, the preference is clearly reverse.

Over the past century, Sabis has built a system that emphasizes core academics, stresses fluency in at least one foreign language, and uses its own computerized academic-monitoring system to record the progress of each student and identify and correct learning gaps. "Of course, we prefer to own the school outright," Schulz says. "We have a hard time if [our system] gets contaminated" by other investors' educational philosophies.

Steven Nossal of the Fairfax Collegiate School has a refreshingly candid approach to running a business. To the 29-year-old Yale graduate, people making money off a viable business--even off children--have nothing to be ashamed of. "To me, and to most people who believe in capitalism, that means they're doing a good job."

Two years ago, the entrepreneur with an economics background invested $80,000 in Fairfax Collegiate, which opened with seven students paying $6,250 each in tuition. This year, enrollment reached 29 students--five short of what Nossal figures he needs to break even. But last year, with additional income coming from summer enrichment programs, the school was already in the black with only 18 students.

"We're not making a lot of money now," he says, "but I think in the long run, the school will pay off."

Before starting Fairfax Collegiate, Nossal spent several months collecting data on private schools in the Washington area. He discovered that the geographic distribution of private schools still reflected the demographics of the turn of the century, when wealthy families were clustered in Northwest Washington and Maryland's lower Montgomery County. Not surprisingly, then, he found few private schools in Northern Virginia, and even fewer nonsectarian schools across the whole metropolitan area with tuitions of less than $10,000.

Nossal wanted to offer an alternative to students who couldn't afford the area's pricey private schools. So he located his school in an underrepresented area, undercut the costs of neighboring schools, and created a program for students with already strong track records.

Nossal's program for 5th through 8th graders accelerates students through two years of high school Spanish and offers individually paced math classes. "If you take basically bright students, and the focus is very clearly on academics, they will do fairly well," he says.

Some might argue that it is no great feat for a school to succeed when it can select its students. But Nossal says he is responding to and fulfilling a need. Back in their public schools, many of his students say, teachers just couldn't meet their needs because they were so busy trying to do so many different things for so many students.

And many proprietary schools are not selective. The key, Nossal emphasizes, is being responsive to the marketplace--whether you're a folksy, traditional school like Camelback Desert or a selective school like Kittredge has become or a school like the Gerbers' Bradenton Academy that has drawn students such as Andre Agassi and Monica Seles from a nearby tennis-training center.

"Some schools out there might seem idiosyncratic to your eye, but if parents are willing to send their kids there, you have to ask why," Nossal says. "By no means would I send my kids to all the for-profit schools out there. The schools reflect the philosophies of the people who started them, and to the extent that you agree with that vision, you send your kids to that school."

Proponents of the privatization of education agree that the idea is not so far out on the capitalist fringe. "Individuals have a real role to play in some niche markets and some mainstream markets," says John M. McLaughlin, the editor of The Education Industry Report newsletter and a professor of education at St. Cloud State University in St. Cloud, Minn.

What the prosperity of small for-profit schools over the past century shows us is that "there are people out there who are willing to stake their name, their reputation, and their economic well-being on the quality of their educational service," McLaughlin says. "And there is a market of families that will seek that option."

In as much as these schools predict an expansion of privatization, however, they may also be catalyzing a whole new host of competitors.

Secretaries at Rancho Solano Private School in Scottsdale say it happened like this all summer long:

Call No. 1:

"Are you a charter school?"

"No."

"Click."

Call No. 2:

"Are you a charter school?"

"No."

"Click."

It became a little frightening, one school administrator says, these calls from parents looking to get out of the public schools and into private ones--at the state's expense.

While proprietors predict that private school choice programs, in which parents receive money from the state to send their children to private schools, would almost certainly mean a boon to business, most doubt they will become a widespread reality anytime soon.

Charter schools, on the other hand, could become a threat to owners who are already bending over backward to jockey for position with each other and other neighboring schools. Barton, for instance, had to start his Scottsdale campus to avoid "getting cut off at the jugular vein" by Rancho Solano--another NIPSA school, one with a fancier fa‡ade and an established reputation. By building the new site, Barton was able to intercept children from that area, enroll them in his preschool through 1st-grade program there, and increase the chances that they would continue at Camelback Desert for the later grades here in Paradise Valley.

But with 46 new charter schools in Arizona this year, proprietors may be forced to make even bigger adjustments in the future.

Of course, that's what proprietors are good at.

Where change can become an interminable battle with bureaucracy in the public school system and a hard-to-swallow shift in image at private nonprofit schools, for-profit schools have always evolved, seemingly in tandem with market pressures.

Some of the first for-profit schools, for example, began as small tutoring businesses started by teachers who had been laid off during the Depression and who were trying to make ends meet. As the economy grew, so did their business ventures.

Others geared up in the 1950s and early '60s, either in anticipation of or in response to desegregation. Still others opened their doors in the '70s to accommodate the growing number of mothers joining the workforce. Half-day preschools turned into full-day preschools that grew into elementary schools.

Now, as privatization in education truly comes into fashion for the first time, many proprietors see this as their opportunity to flourish.

"Even without vouchers," McLaughlin says, "we're seeing education cast in more consumer terms."

Some are simply concentrating on building their enrollment and the quality of the programs they already have. Barton, for one, hopes his Scottsdale campus will eventually extend through 6th grade. Others are taking the proprietary model to a larger scale and running chains of schools or looking for outside investors to expand.

Nossal says he is not sure how far the future will take him.

"Forty or 50 years from now, you will see an education system where for-profit schools are much more important than they are now. But I don't know what the optimal size for a school chain is, whether that's five schools, 10 schools, or 100 schools."

"People haven't heard much about us because we serve a minuscule percentageof students in the U.S.," Nossal continues."But if you ever want to understand where change comes from, it always comes from the margins."

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