Education Funding

Analysis Reveals Firm’s Involvement in Phila. School Reform

By Benjamin Herold — July 12, 2012 7 min read
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The Boston Consulting Group has identified up to 60 Philadelphia school buildings as potential candidates for closure and helped the district use the threat of outsourcing to extract $100 million in concessions from its unionized bus drivers, custodians, and other low-wage employees.

Those steps are just part of the blue-chip consulting firm’s far-ranging behind-the-scenes effort to help the beleaguered 146,000-student school system rethink how it does business.

The broad scope of the group’s work this spring are detailed in previously unreleased “statements of work” obtained under Pennsylvania’s Right to Know law. The district later released a report with the firm’s sometimes-controversial analyses and recommendations.

The Philadelphia School Reform Commission hired the Boston Consulting Group in February as part of an effort to radically overhaul the district, which was plagued by poor student performance and teetering on financial collapse. The agency’s work has helped shape the district’s bare-bones operating budget for the coming school year, its five-year financial plan, and a controversial “transformation blueprint” unveiled by the commission in April.

In a recent interview, the district’s chief recovery officer, Thomas Knudsen, said that Boston Consulting Group to date had identified at least $122 million in savings for the district. “We wouldn’t have gotten anywhere near that number without their help,” he said.

Nevertheless, officials revealed July 6 that the district’s shortfall for the coming school year has ballooned to as much as $282 million—much of which is expected to be closed through borrowing—out of a total budget of $2.7 billion.

Documents and interviews make clear that the consulting group has been deeply involved in nearly every hot-button issue faced by the district, including expansion of charter schools.

But Mr. Knudsen, who is serving as acting superintendent, insisted that the consultants have been taking directions, not giving them.

“I don’t want this to be construed as if management took its foot off the brake and just gave the wheel to Boston Consulting Group,” he said.

To date, the firm has been paid $4.4 million, all of which has come from outside donors.

See Also

The Notebook/NewsWorks obtained under state Right to Know law previously unreleased “statements of work” (Phase II, Phase III) outlining BCG’s extensive assignments, as well as two memoranda of understanding (Phase II, Phase III) detailing the financial relationship between BCG, the United Way, and William Penn.

In addition to the statements of work and summary report, another set of documents obtained July 6 by the Notebook/NewsWorks outlines the complex relationship connecting Boston Consulting Group with the William Penn Foundation and the United Way of Southeastern Pennsylvania. The foundation has directly contributed $1.5 million and helped raise at least $1.2 million more to fund the work, and the United Way has served as a fiscal conduit for those funds.

In separate interviews, top leaders from William Penn, based in Philadelphia, and the United Way lauded the group’s work and dismissed the claims by some critics that the firm and the philanthropists supporting its work are part of a coordinated effort to privatize the city’s public education system.

“This was about getting the foundation laid for the next superintendent,” said Jill Michal, the president and chief executive officer of the United Way of Southeastern Pennsylvania.

That new superintendent will be William R. Hite Jr., who has headed up the Prince George’s County, Md., school district for more than three years.

The school reform commission, the district’s appointed school board, has put on hold a controversial Boston Consulting Group proposal to transfer management of schools to independent “achievement networks.”

For now, the group has a limited presence in the district; a scaled back team of consultants will continue to work in the district pending the formal start of Mr. Hite on Oct. 1.

Boston Consulting Group officials declined to be interviewed for this story, citing company policy.

‘40-Facility Problem’

The Philadelphia School Reform Commission’s transformation blueprint proposes closing one-fourth of the district’s schools while dramatically expanding the number of students enrolled in charter schools.

Vital Statistics

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Philadelphia Schools

  • Enrollment: 146,090
  • Economically disadvantaged students: 117,749
  • Traditional district schools: 249
  • Charter schools: 80
  • Fiscal 2011-12 adopted operating budget: $2.8 billion
  • Governance: Five-member School Reform Commission

Boston Consulting Group

  • Background: 75 offices globally, with headquarters in Boston, and 5,600 consultants; provides services in about 20 different sectors
  • Founded: 1963
  • Annual revenue: $3 billion (2010)
  • Tax status: For-profit, privately held
  • Executives: Hans-Paul Bürkner, president and chief executive officer; Debbie Simpson, chief financial officer; Larry Kamener, global leader of public-sector practice; J. Puckett, a senior partner and managing director leading public education
  • Contract with Philadelphia: $4.4 million (paid for by outside donors)
  • Other education clients: Chicago, Dallas, District of Columbia, Los Angeles, and New Orleans
  • Reported proposals for Philadelphia: Turn over management of schools to independent “achievement networks,” some of which would be privately run; identify 60 schools for closure, based on academic criteria; use private vendors willing to provide transportation and facilities-management services

SOURCES: Philadelphia School District; Boston Consulting Group; Philadelphia Public School Network; Fortune.com

Mr. Knudsen said the district must proceed with the next major step in that plan: closing 40 school buildings by September 2013. Behind the scenes, the consultants have been supporting that effort.

During May and June, the group was asked to develop new criteria for school closure decisions and to identify an initial set of “60 top candidates for closure,” according to the firm’s Phase III statement of work.

Mr. Knudsen stressed that any criteria or potential targets are subject to revision based on public forums tentatively scheduled to begin this summer.

Boston Consulting Group, he said, “began the conversation that continued inside [district headquarters] that has now taken us to a public position.”

The report on the firm’s findings and recommendations, released Aug. 1, contains detailed scenarios under which different configurations of schools might be closed in order to realize about $30 million or more in annual savings.

This past spring, the school reform commission voted to close eight schools based on a “facilities master plan” developed under the guidance of a different consulting firm, United Research Services, based in San Francisco.

But district officials turned to Boston Consulting Group to get a “much more nuanced and sophisticated understanding of what is involved in closures,” Mr. Knudsen said.

The statement of work asked the consultants to provide a “clean, validated baseline of facilities, utilization, financial, and student-performance data.”

That work led to a list of up to 60 schools to be considered for closure.

A final list of schools recommended for closure is expected to be made public this fall, he said.

‘The Charter Question’

The real value of the group’s “horsepower,” said Mr. Knudsen, is the firm’s capacity to take a holistic look at how big issues like school closings and what he called “the charter question” are interrelated.

One major driver of the district’s facilities planning is a projection that as many as 40 percent of public school students in the city could attend charters by 2017.

If the charter-enrollment projection holds true, Mr. Knudsen said, 24 additional buildings will likely have to be closed between 2014 and 2017 to keep the district’s five-year financial plan in balance.

Critics say that shows the district plans to expand charters at the expense of traditional schools, and that the consultants are pushing that agenda.

But Mr. Knudsen said the group did not set the 40 percent target for charter enrollment.

“We had to make a set of assumptions for modeling purposes, and that’s what we did,” he said, stressing that the group is just informing the district’s decisionmaking.

In the report, the firm recommended expanding the city’s program for converting low-performing district schools to charters as a cost-effective alternative to issuing new charters or adding seats to existing charters. The consultants also suggested that the district launch its own virtual high school to reduce parents’ reliance on Pennsylvania’s cyber charters, the quality of which they described as “notoriously low.”

The firm also examined whether charters up for renewal or expansion this spring were merely drawing students from successful schools instead of furthering the commission’s goal of moving students from “low-performing seats” to “high-performing seats.”

“Pupil-level data show that charters often serve students who could have gone to district-operated schools in their neighborhoods that have similar academic performance levels,” the consultants found.

Boston Consulting Group has also helped forecast what might happen if the district’s budget situation or commission policy were to change.

“If there are fewer [charter] conversions or expansions, then we will not close as many [district] schools,” Mr. Knudsen said.

Option to Privatize

Despite the group’s intensive effort, the district is still facing a massive budget shortfall for fiscal 2013 remains, and the cumulative five-year deficit facing the district is still around $1 billion.

To bring the district’s books into balance, Mr. Knudsen and the commission will seek deep concessions from labor unions.

The first skirmish in that effort has been with the district’s 2,700 bus drivers, mechanics, maintenance workers, and other unionized blue-collar employees, all of whom were facing layoffs last month.

But last month the School District of Philadelphia and SEIU Local 32BJ District 1201 reached a tentative agreement that averted the layoffs but resulted in significant concessions and work rule changes.

According to the documents obtained by the Notebook/NewsWorks, Boston Consulting Group provided a powerful sword to hold over workers’ heads: private vendors willing to provide transportation and facilities-management services for $50 million less than the district’s unionized workforce, plus a transition plan to make the shift to outside contractors for the coming school year if necessary.

“What was necessary for us to do was develop the alternative to the current business model,” Mr. Knudsen said. “If we are going to end up privatizing, we needed an ironclad case that it was the logical conclusion to reach.”

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Coverage of the education industry and K-12 innovation is supported in part by a grant from the Bill & Melinda Gates Foundation.

Republished with permission from The Philadelphia Public School Notebook and WHYY’s NewsWorks. Copyright © 2012 The Philadelphia Public School Notebook and WHYY’s NewsWorks.
A version of this article appeared in the August 08, 2012 edition of Education Week as Consulting Group Playing Key Role in Philadelphia Plan

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