Hartford Dumps EAI
The nation's most extensive experiment in private management of public schools sputtered to an end in January, when the Hartford, Conn., school board voted to end its partnership with Education Alternatives Inc. in a dispute over finances.
Three pivotal school board members, who were elected less than three months earlier on a platform of keeping the Minneapolis-based company in Hartford, said their support for the experiment had withered during more than two months of negotiations over how much money EAI should receive from the district. "When push came to shove, we realized our interests were so far apart, and it was impossible to change the contract in a way that was mutually acceptable," said Ted Carroll, vice president of the board and a former leading backer of the EAI deal.
The end of the Hartford experiment is the second major blow to EAI in recent months. In late November, the Baltimore school board voted to end its three-and-a-half-year-old experiment with EAI. The firm had been put in charge of nine city schools. [See "Bullish on Schools," April 1993.]
In response to the Hartford action, frustrated EAI executives charged that the district was breaching its contract and threatened to close the computer labs the company had installed in five schools and remove equipment unless it was paid $3.6 million it says it is due. "The board has failed to act in good faith and to deal fairly and honestly with EAI," the company charged in a letter faxed to the district one day after the board's 7-2 vote.
EAI was hired in October 1994 to run all 32 schools in the 25,000-student district, a groundbreaking deal that attracted nationwide attention. The arrangement later was altered so that the company would initially control the district's budget and make improvements in just six schools.
John Golle, chairman and chief executive officer of EAI, said in a written statement following the board's vote that the company had spent more than $11 million on technology and other improvements for schools in Hartford but had been reimbursed for only a "token" $343,000. "Despite having funds in the budget to cover specific operating expenses, the board has failed to reimburse us for those same services they requested," Golle said. "Per the contract, our profits were to be derived through savings, but budgeted expenses must be paid monthly, and we have not been reimbursed since the beginning of the contract."
In an unusual arrangement, EAI agreed to introduce more efficient management and budgetary practices to the Hartford district, then keep any savings it found in the budget as its profit. Board members and critics of EAI say the company essentially had offered Hartford a no-lose proposition but later tried to alter the arrangement to ensure that it would profit. "We had a contract that essentially put most of the risks on EAI," Carroll said. "Now they wanted to shift the equation so that they would be guaranteed payment. What EAI has learned is that they couldn't deliver on all the promises they made in Hartford, and it has cost them millions of dollars, and it has tarnished their reputation."
Cheryl Daniels, president of the Hartford Federation of Teachers, a fierce opponent of EAI and other private-management ventures in public education, said the company's efforts to wring savings from the school budget consisted of an attempt to slash teaching positions and "stuff more kids into classrooms."
"From the very beginning, we thought EAI would self-destruct," she said. "They were basically a dog-and-pony show."
But longtime EAI supporter Thelma Dickerson, one of the two school board members who voted against ending the partnership, said the experiment was undermined by union opposition and political maneuvering. "The political scene here is so rotten," she said. "I don't doubt that there were problems with the way the contract was written. But something of this magnitude should be open for review and reassessment."
As in Baltimore, the Hartford district's purse strings are largely controlled by the municipal government. News reports in Hartford suggested that a majority of the City Council opposed the contract with EAI and that city officials had blocked any proposal under which EAI would have been paid other than by the formula in the contract. EAI officials had told the district that unless it was paid soon, it would suspend services.
"We've learned some lessons in this process," said Phillip Geiger, EAI's president. "Even a board like Hartford that indicates a commitment to reform tires easily."
John McLaughlin, editor of the newsletter Education Industry Report, said the lesson EAI learned from the Hartford experience is that it had a "lousy" contract. "The company clearly has to demonstrate how it is going to make these contracts work," said McLaughlin. "They have to develop contracts that are not cancelable at a political whim."
The loss of the Hartford deal leaves EAI with no other contracts to operate schools. In December, Golle told the publicly held company's shareholders that EAI's future would not be in urban education but with "less political and less volatile" suburban districts. EAI's stock, which once traded for $48 a share, went as low as $3 after the Hartford board acted. In early February, the stock was trading on the Nasdaq market at around $4.12.
After EAI's bruising experiences with Baltimore and Hartford, some wonder whether any district will be willing to hire the company. "I think the answer is, some will," McLaughlin said. "The problems and politics of major school districts are so bad that when a private company comes in with its resources and business attitude and they fail due to mistrust and miscommunication, then it's very sad. It's sadder for public education than for the private companies."