Report Card on For-Profit Industry Still Incomplete

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As the education industry grows, will the bottom line be about learning or earnings? Raising student achievement or making a profit? Can it be about both?

Those are the fundamental questions surrounding the expanding role of for-profit companies in public school instruction.

Some educators worry that concerns about profits may take precedence over boosting students' educational outcomes.

"The bottom line for public education has to be student achievement, not profit for private entities," said Bob Chase, the president of the National Education Association. "When you look at the corporate world, obviously it is involved to make a profit, which is understandable. A corporation's allegiances are to its stockholders."

About This Series
Part 1:
"Ka-Ching! Businesses Cashing in on Learning,"
Nov. 24, 1999.
An overview of the new "education industry"
Part 2:
"Entrepreneurs Hoping To Do Good, Make Money,"
Dec. 1, 1999.
The industry's players: from M.B.A.s and CEOs to teachers turned entrepreneurs
Part 3:
"Seeking a Competitive Advantage,"
Dec. 8, 1999.
Inside a public school that's run for profit
Part 4: Dec. 15, 1999.
The bottom line: Is this trend good for students?
Funding for this series is provided in part by the Ford Foundation, which helps underwrite coverage of the changing definition of public schooling.

Executives of education companies and their philosophical allies respond that running good schools and improving student performance are perfectly compatible with bringing new efficiencies to education. They note that if the companies don't perform, they'll lose their contracts and any chance to earn profits.

"These new arrangements are pegged to educational accountability," said Jeanne Allen, the president of the Center for Education Reform, based in Washington.

An estimated $70 billion is spent each year in the United States on all sectors of for-profit education, from textbooks and corporate training to child-care centers and postsecondary schools. While companies have been pursuing many of those markets for decades, only recently have they tried to make money on actual instruction of K-12 students.

Some of the concern over this new phenomenon is based on the growing market for supplemental education—tutoring, enrichment, test preparation, and counseling for college admissions—in schools as well as among parents. Critics fear that such services help society's haves keep a leg up on the have- nots who can't afford them.

But it is the rise of a relatively small sector of the industry—private management of public schools—that has fueled the fiercest debate over for-profit education.

Looking Back

At least three major experiments involving private companies' management of public schools have been evaluated closely by educational researchers and others. They are: Education Alternatives Inc., from 1992 to 1995; Alternative Public Schools Inc., from 1995 to 1998; and Edison Schools Inc., starting in 1995.

EAI, now known as Tesseract Group Inc., had a contract to run nine public schools in Baltimore. The company introduced its own instructional program, took over custodial and food services, and, in a move that raised the hackles of the Baltimore Teachers Union, replaced the school system's paraprofessionals with its own, less experienced interns.

The evaluation of the experiment was a battle in itself, with EAI at one point admitting to having released inflated test scores. The official, district-financed evaluation of the arrangement found that the company-run schools showed some modest achievement gains over comparable city schools. That finding only fueled the critics' view that the effort was a failure because it did not produce dramatic improvements.

In November 1995, as the city of Baltimore was coping with financial difficulties, the school board there terminated the contract with EAI, ostensibly because the company would not accept a $7 million cut in its annual contract.

Independent reports about the experiment were critical.

"In Baltimore, after three years of private-sector management, the overall results more closely resembled the outcomes of other efforts at public school reform than they did some profoundly new conception of education," said a 1996 report from the Twentieth Century Fund, titled Hard Lessons: Public Schools and Privatization.

That report said EAI's contract with Baltimore had failed to spell out exactly how much test scores, attendance, or other results were to improve each year.

"No one—not EAI, nor the union, nor [Baltimore school] personnel, nor city officials, nor the evaluators—had clear benchmarks to assess progress and contract compliance," the report said.

The company painted a much rosier picture of the Baltimore experience in a booklet published after its contract was terminated.

"The EAI-Baltimore story is about three years of uninterrupted success," said the booklet, titled "Promises Delivered: How Education Alternatives Inc. Transformed Baltimore's Troubled Schools."

"EAI and Baltimore school leaders would have preferred forging their partnership without the scrutiny of media attention," it added. "They were traveling on uncharted terrain, and thus, frequently subjected to unfair and unfounded criticism."

The terrain was just as rocky in 1995 when the Wilkinsburg, Pa., school district hired Alternative Public Schools to run one of its three elementary schools. The company replaced all the schools' teachers with its own workforce and promised a transformation. What it got was a frontal assault from the teachers' union, an NEA affiliate.

Shared Blame

APS, now known as Beacon Education Management, ran Turner Elementary School in Wilkinsburg for three years before a state court ruled that state law did not permit districts to contract with for-profit concerns to operate schools.

In an evaluation of the Wilkinsburg experience released earlier this year, researchers concluded that students at Turner Elementary did not improve academically and that the management contract had "left no lasting legacy."

In a related paper, researchers Patricia Patrizi and Bernard J. McMullan of the OMG Center for Collaborative Learning in Philadelphia attributed some of the blame to the district.

"The leaders in the Wilkinsburg district, in effect, 'handed off' management of Turner to APS without maintaining their own stake in the success of the school," said the report backed by the Grable Foundation and the Heinz Endowments.

Bill Bickel, an education professor at the University of Pittsburgh who oversaw the evaluation of the Wilkinsburg contract, said Alternative Public Schools had "a very difficult implementation experience."

The failure of the experiment "was a total team effort," he said, meaning all sides shared in the blame.

In contrast to the experiences of Education Alternatives and Alternative Public Schools, Edison Schools has had a relatively smooth ride in its five years of managing public schools for districts and charter groups. Though not without its critics, Edison has tried to work with teachers' unions in its district-contract schools and has a moderately higher pay scale because of its longer school days and year.

Edison has yet to be fired as a school manager, although its first five-year contracts are coming up for renewal and are generating debate in its original cities. In Mount Clemens, Mich., where the school board was the first to sign a formal contract in 1995 with what was then called the Edison Project, board members recently voted 4-3 to seek a renewal of the contract.

Edison has been quick to tout what it says have been significant achievement gains by students in most of the schools it operates. The New York City-based company operates 79 schools this year, serving some 38,000 students.

In a report last spring about the performance of the 25 schools it opened from 1995 to 1997, the company said "student achievement in Edison schools has been heading steadily upward."

Students were gaining an average of five percentiles a year against state and national standards, the report said. And of 17 schools that had sufficient trend data, 14 had strongly positive or positive data.

In 1998, after Edison released its first annual school performance report, the American Federation of Teachers issued a lengthy dissection of the report concluding that academic results were more mixed than the company suggested.

"We have looked at the track record of most of the for-profit education management organizations, and to date, we are fairly unimpressed with the educational programs they are offering," said Nancy Van Meter, an associate director in the AFT's department of organization and field services.

"Thoughtful people who may be comfortable with charter schools and for-profits will understand that, in education, we need more than just the market to hold schools accountable,'' she added.

Spurred To Change

All those private-management efforts have generated intense scrutiny. But the jury is still out on their success or failure, partly because few of the jurors approach the task free of preconceived ideas about the value of such arrangements.

Companies contracting with districts and charter school organizers have an obvious interest in demonstrating achievement results within a year or two, so they seize on even modest gains as proof their methods work. And opponents are just as eager to brand anything less than an academic revolution as reason enough to end private contracts.

At this point, some observers believe, there simply aren't enough privately managed public schools, and they haven't been around long enough, to draw any final conclusions about for-profit instruction.

It isn't even clear that the success of a contracting experiment should be measured by seeing whether the privately managed group of schools outperforms a control group or the rest of the district at large. As Edison points out in its most recent achievement report, a district's goal in hiring a private management firm might reasonably be to improve all the community's schools "through healthy competition and the diffusion of innovations."

And that seems to be happening, not only when for-profit managers take control of some schools in a district, but also when there is the mere prospect of their entry.

Last spring, Edison proposed a 600-student charter school in Toledo, Ohio. Like all the company's schools, it would have offered a relatively long academic day and year, foreign-language instruction beginning in the early grades, and the Success for All reading program. For a variety of reasons, the school never opened.

But rather than sit by while an independent charter school drained a chunk of its enrollment, the 38,000-student Toledo district teamed up with the Toledo Federation of Teachers and came up with its own innovative school, the Grove Patterson Academy.

The K- 4 academy, which enrolls 220 pupils and has a waiting list of 400, offers Success for All, instruction in Spanish or German for all grades, and heavy use of technology. As with Edison schools, families of 3rd graders and older students will be provided with home computers.

"We realize the education arena is becoming a competitive marketplace," said Merrill A. Grant, the Toledo superintendent. "We decided to enter that marketplace."

"Why [hire] a for-profit when we can do it in the public sector?" he added. "We felt we could do a better job."

Thomas Toch, a guest scholar at the Brookings Institution in Washington who has followed the industry closely, said many educators talk about adopting elements of for-profit school designs, such as Edison's.

But only when districts "feel a real threat to enrollment and the loss of funding that comes with that" do they respond, he said. "Change doesn't happen in very many districts where there isn't an outside catalyst."

Open to All?

Test scores and school district reactions aren't the only important measures in evaluating the impact of for-profit education providers. Some observers raise questions about whether companies have disincentives to serve students with disabilities or special needs.

A study released this fall by researchers at Michigan State University found that charter schools in Michigan were targeting niche markets of parents interested in specific academic programs and were making efforts to shape their enrollments by requiring applications and admissions interviews. The study didn't single out for-profit charter school providers for criticism, but most of Michigan's charter schools are run by companies.

The study found that most charters "enroll only elementary students, who are substantially less costly to educate than secondary students." And most "provide fewer and less costly special education services than neighboring public school districts."

In fact, while for-profit education management organizations profess their willingness to serve all students, just as the public schools must, some providers allegedly have sought to limit the enrollment of students with disabilities, who are more costly to serve.

In 1997, the U.S. Department of Education's office for civil rights concluded that the Boston Renaissance Charter School, which is run by Edison Schools, discriminated against a disabled kindergartner by shortening his school day, failing to provide him with needed classroom help, and placing him in a class without appropriately trained teachers. The school signed an agreement with the OCR pledging to bring its special education program into compliance with federal law.

Blurring the Lines

The for-profit education industry appears to be at a critical juncture. More K-12 schools than ever are being run by private, for-profit companies. The popularity of the charter school movement seems to be secure, and most management firms are seeking their opportunities there. But the profitability of the companies is uncertain.

Business analysts agree that the education industry will grow, but they disagree about the prospects for privately managed public schools. Some are more bullish on traditional for-profit areas, such as publishing and supplies, and on supplemental- and electronic-learning opportunities.

What happens, educators and others have wondered, when a private education provider falls on tough economic times? What if it faces a push from shareholders to improve quarterly earnings by cutting costs? Will it cut teachers, or salaries, or supplemental materials, to improve financial results?

"What kind of accountability are these corporate entities going to be under?" asked Mr. Chase of the NEA.

Proponents of for-profit education, meanwhile, argue that union leaders and other critics have their own interests at heart. The real reason the education establishment opposes privatization, they maintain, is that it's afraid of losing power, not to mention money and jobs.

If the critics of such ventures truly wanted to help students, they "should be as intolerant of badly run government schools" as they are skeptical of private companies, said Chester E. Finn Jr., a prominent education analyst and the president of the Washington-based Thomas B. Fordham Foundation.

Howard L. Fuller, an education professor at Marquette University in Milwaukee and a former superintendent of that city's school system, said it's time for those in public education to embrace whatever might help students achieve—regardless of whether the providers are for-profit or nonprofit.

"As a superintendent, I was already dealing with people making profits off my schools, whether it was pencils, or roofs, or tests," said Mr. Fuller, who is quick to point out that his wife, Deborah M. McGriff, a former schools superintendent in Detroit, is now an executive with Edison Schools. "I don't see why there needs to be this firewall when it comes to the core work of education."

"There is an evolution going on throughout our society, and the old lines between the public and private sectors have been blurred," he added. "I don't see why that can't happen in education as well, as long as it serves the families and the children."

Vol. 19, Issue 16, Pages 1, 14-16

Published in Print: December 15, 1999, as Report Card on For-Profit Industry Still Incomplete
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