School & District Management Opinion

A Fair Test of State Privatization?

By Kalman R. Hettleman — September 13, 2000 7 min read
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The deck may be stacked as Maryland begins a closely watched experiment to aid failing schools.

State educators in Maryland are cheating on the controversial “takeover” test. The test is whether the state department of education can improve academic scores in three low-performing Baltimore schools by taking over the schools and contracting them out, beginning this month, to Edison Schools Inc., a national, for-profit company.

As reported in these pages, the contract “appears to be a national first in state education policy.” (“Private Firms Tapped To Fix Md. Schools,” Feb. 9, 2000.) More importantly, it opens up another front in the nationwide battle over privatization of public schools, with state departments of education in a position to lead the charge.

Nearly half the states have “academic bankruptcy” laws that allow interventions in failing local districts or individual schools. According to one recent study, there have been 25 interventions since 1989, including state operation of entire districts and “reconstitution” processes. Maryland officials have relied upon an aggressive reconstitution strategy. The first step places schools with chronic poor achievement in reconstitution-eligible status: Districts must undertake their own restructuring of staff and instructional programs under strict state supervision. Since 1994, 97 schools—including 83 in Baltimore—have undergone this process. The second step allows reconstitution- eligible schools that still do not show significant progress to be reconstituted: that is, taken over by the state and operated by a third party. Earlier this year, the state education department chose to go that route with three Baltimore elementary schools. After soliciting bids, the state chose Edison to operate the three schools.

That action—combining state takeovers and privatization—has predictably generated controversy. The Baltimore Teachers Union, an American Federation of Teachers affiliate, filed a lawsuit seeking to block the contract. (Though a judge ruled against the union last month, an appeal of that decision is expected.) Many city educators and parents have voiced opposition. On the other hand, Nancy S. Grasmick, Maryland’s popular and bold state schools superintendent, has said that Edison will be offering children the kind of educational opportunity that they have never had before: “We’re creating a model. And there’s a lot at stake.”

In the hot national spotlight, state officials are understandably anxious for Edison to succeed. But an excess zeal for success has led to a contract that appears rigged in Edison’s favor.

In the national spotlight, state officials are understandably anxious for Edison to succeed.

First, Edison is being given substantially more money to spend on student instruction than comparable city schools. This violates the letter and spirit of the state takeover regulation that is designed to show whether an outside contractor can raise student performance, assuming the same amount of money per student for school-based instruction. Edison will be paid $7,462 per student, even though the three schools it has taken over received about $2,400 less per student last year from the city school system. This disparity prevents a level playing field for determining whether Edison can do better than the city school system under similar conditions. In other words, the takeover test will not be a fair test.

Second, and even worse, the state is paying the extra money to Edison—at least $3 million—out of city, not state, funds. The excess payments will come out of the pockets, so to speak, of other resource- starved city schools and students. The state promises it will make future revenue adjustments that mitigate the siphoning off of city school funds. But these allowances are uncertain and small compared to the overall losses that city children will suffer.

Education budgets are notoriously arcane, but a fairly simple principle is at the core of the disagreement between the city and the state over how to calculate the per-pupil expenditure payable to Edison. The city says that Edison is entitled only to what is being spent on school- based instruction. The state argues that Edison should get that amount plus what is being spent outside the school in indirect overhead costs.

There are compelling reasons why the city is right and the state is wrong. The state’s method of calculation clearly violates the state regulation governing takeovers. The regulation seeks to provide any private contractor like Edison with the same amount of money that schools have been receiving for school-based instruction. Only this fiscal neutrality permits Edison’s performance to be objectively judged and holds harmless students in the non-Edison schools.

The Maryland Department of Education concedes that it has not followed the technical mandate of the regulation. Rather, it claims to have improvised a fair formula based on a series of unilateral assumptions. But the state’s ad hoc assumptions are disputed by the city because they create such a huge disparity in per-pupil spending between Edison and city schools and shortchange other city students.

An excess zeal for success has led to a contract that appears rigged in Edison’s favor.

Apart from technicalities, Edison’s claim for nonschool overhead is unjustified. Edison, which calls itself the “country’s leading private manager of public schools,” already has 108 schools in 21 states across the country and so incurs little additional overhead under the contract. Moreover, the city school system will be providing many centralized services to Edison at no extra charge. Equally important, the district can’t save on systemwide overhead as a result of the contract because Edison is taking over less than 2 percent (three of 183) of the city schools. According to the Council of the Great City Schools, city expenditures for nonschool-based instruction are relatively efficient. And the state, despite its substantial control over all city schools under state legislation passed in 1997, has not contested central costs. Therefore, the bottom line is that overhead is largely a washout and should be disregarded if the playing field is to be kept level.

Privatization watchers observe that the Edison contract is “EAI all over again.” They are referring to the Baltimore city school system’s pioneering privatization contract in 1992 with Education Alternatives Inc. The credibility of that nationally prominent pilot project was wrecked because of hidden extra payments to EAI.

The Edison schools are virtually identical to charter schools that have extensive autonomy. Yet, Edison will be paid well over $2,400 more per pupil than the city’s other charter schools (called “New Schools”) are now allocated. Moreover, there are other signs that Edison is getting undue advantages. For example, the Edison schools have been leapfrogged to the top of the city list for electrical service for technology. Also, Edison has raided the city schools to hire two of the district’s very best principals. The disparity in funding is a key factor, since at least one of the principals will be paid about $20,000 more than her previous city salary. In addition, Edison is able to recruit the cream of current teachers.

Although the contract is one-sided, city officials— because of pressure from the state—have publicly gone along. But others should cry foul. The state board of education and the state legislature should conduct inquiries, and an independent monitor of the contract should be appointed.

But the issue also has national ramifications, and policymakers and researchers across the country should pay close attention. Any evaluation of Edison’s performance must take into account the disparity in per-pupil expenditures. An analogous issue has arisen in Dallas, where, according to the Dallas Morning News, school board members have charged that their district’s contract with Edison for six schools will cost about $16 million to $19 million more than the regular budget.

In such a prominent national test of privatization, money is not all that matters. But the validity of the test requires a fair accounting. And that, so far, is lacking in Maryland. Only professional and public scrutiny will assure the fairness and integrity of a highly visible experiment in school reform.

Kalman R. Hettleman is an education consultant and writer working in Baltimore. He has served as a member of the Baltimore school board, an education aide to two mayors of Baltimore, the chief executive of a national demonstration project to reduce the dropout rate among inner-city students, and the Maryland secretary of human resources. This essay is based on an article previously published in The Baltimore Sun.

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