Firms Hoping To Turn Profit From Charters

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Barbara J. Hamann has learned firsthand how tough it can be to create a charter school from scratch.

The mother of three helped run the Northlane Math and Science Academy in Freeland, Mich., which opened in 1995 as one of the state's first charter schools. Despite parents' high hopes for the 30-student school, it was plagued by budget constraints from the start. Classes were held in the founder's home, and board members like Ms. Hamann--who held full-time jobs as lawyers and business people--were working overtime to keep it afloat.

"It was a real burnout situation," Ms. Hamann recalled.

Which is why, after Northlane closed in June, she and other like-minded parents hired Mosaica Education Inc., a private, for-profit education-management company, to run a new charter school.

In September, the Mosaica Academy of Saginaw opened its doors to 280 students in grades K-5. The San Rafael, Calif.-based company brought expertise in curriculum and management, as well as the financial backing that enabled the school to hold classes in a newly renovated building.

Mosaica represents what some are calling the second wave of charter schools: public schools run by private, for-profit management companies. Not surprisingly, given the heated debate over school privatization, it's a trend some welcome and others shun.

A Booming Market

Charter schools operate free from many government restrictions in exchange for being held accountable for student achievement. Though laws vary from state to state, such schools receive roughly the same per-pupil funding as other public schools. Some receive state or federal start-up dollars; others do not.

Nationwide, more than 700 charter schools are operating in 23 states and the District of Columbia. They make up one of the fastest-growing sectors of an estimated $310 billion public K-12 education market, according to John M. McLaughlin, who heads the Education Industry Group, based in Sioux Falls, S.D., which tracks private-sector activity in public education.

Some analysts estimate that roughly a dozen private, for-profit companies are running 10 percent of the existing charter schools.

They are doing business in Arizona, California, Colorado, Michigan, Minnesota, Massachusetts, and North Carolina. And they are looking closely at charter schools in states like Illinois, New Jersey, and Pennsylvania, as well as the District of Columbia.

While some of the more established companies, such as the Edison Project in New York City and Education Alternatives Inc. in Minneapolis, are using charter schools to expand their existing portfolios of public and private schools, other, lesser-known companies were created more recently specifically to enter the nascent charter school market.

Among them are Educational Development Corp. Established in 1995 in Grand Rapids, Mich., the company runs eight charter schools in the state. Another is Boston-based Advantage Schools Inc., whose 1996 founders include a former Edison official and a former special assistant to then-Gov. William F. Weld who helped draft Massachusetts' charter school law. Advantage has contracts for three charter schools in three states.

Mosaica, formed less than a year ago, is the brainchild of an educator and entrepreneur who used to run a company that developed and operated child-care centers. Mosaica Academy of Saginaw is the company's first charter school, but in the next two years, Mosaica aims to manage 20 charter and other public schools.

"We want to position ourselves as a choice in the community and raise the standards for everyone," said Dawn D. Eidelman, Mosaica's president. "And charter schools seemed like the perfect way to do this. They're about results. That's our bottom line: student achievement. That's what will win us further business."

Profiting From Schools

The entry of for-profit management companies into the charter school movement raises tough questions. Will such companies crowd out "mom and pop" schools that have less expertise in marketing and managing a budget? Should taxpayer dollars intended for schools be permitted to generate a private profit, even if the company produces positive student results? Does the involvement of private companies defy the traditionally grassroots nature of charter schools?

"I'm not prepared to say their entry is absolutely awful or that it's great," said Joe Nathan, a well-known charter school proponent based in Minnesota, which in 1991 passed the nation's first law allowing such schools. "What I say to policymakers is that this is not central to the charter concept, which first and foremost is to improve student achievement and encourage school districts to rethink what they're doing. But this [trend] was not unforeseen."

These management companies run the gamut in what they pledge to deliver to the charter schools they manage. Some offer bountiful classroom technology, an extended school day or year, and enriched curricula. And many have attracted private financing to get their charter schools off the ground quickly.

They typically offer to provide a top-quality education and better manage the taxpayer dollars charter schools receive so the schools are more cost-effective and, eventually, turn a profit.

"And if people aren't satisfied, then profitability isn't possible," Mr. McLaughlin of the Education Industry Group said. "Quality is the bottom line. And it's the ultimate accountability."

But critics say private companies should not be allowed to make a buck from running charter schools.

"If a school can figure out how to cut costs, then plow the savings into more schooling for kids, not into a profit for some company," argued Carol Ascher, a senior research associate at New York University's Institute for Education and Social Policy and the author of a 1996 book that was critical of school privatization.

Others say the companies' presence is positive because they offer yet another choice to parents and they embody charter schools' free market spirit.

Larry Pieratt, the director of the nonprofit Horizon Charter School in Arizona, isn't quite sure what to make of his for-profit competition.

"It's more choice, which is good. But my concern is that they then become cookie-cutter schools with the main office sitting out somewhere in the East," he said. "I think they are here to make money. And to me, that's scary."

For now, however, that point may be moot. No one interviewed for this article could cite a company that has yet turned a profit managing a charter school.

Savvy Marketing

In places like Minnesota and New Jersey, some policymakers have tried to restrict the role of for-profits in the charter movement. And some states ban their involvement in managing charter schools outright.

But in most states, the private companies do not hold the charter themselves. Instead, they negotiate a contract with a local nonprofit group that was awarded the charter from a charter-granting entity, such as a university or state school board.

The companies are becoming increasingly savvy and aggressive in recruiting those local nonprofit partners, Mr. McLaughlin said. In fact, it's a full-time job for Mosaica's director of partnership development, Sidney L. Faucette, a former district superintendent in Virginia Beach, Va. It was through Mr. Faucette that Ms. Hamann said she and her Michigan colleagues found out about the California company.

But concerns about Mosaica have surfaced in at least one North Carolina school district. After Gaston County district officials found out that Mr. Faucette had been criticized in a 1996 grand jury report that capped an investigation of a $12 million deficit in the Virginia Beach school system, leaders of the nearly 30,000-student Gaston County district last week decided to delay a vote on whether to approve the company's charter application.

"We want to be sure we enter into this with a lot of caution," Superintendent Edward D. Sadler said. "And they have no real track record in our state."

Ms. Eidelman of Mosaica said last week that Mr. Faucette has no role in the company's finances. She added that there is still "tremendous interest" in Gaston County for Mosaica's proposal.

In Ms. Hamann's view, meanwhile, the arrangement with Mosaica has worked out well so far. The Michigan school's waiting list has 150 names.

"To me, the wonderful part is if parents aren't happy, they're going to walk," she said. "And nobody's going to make any money."

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