Businesses Angle for Share of School Stimulus Aid

The $100 billion in federal economic-stimulus aid that could swell state and local school coffers also has the potential to pump billions of dollars into businesses that serve the education sector—from pencil-makers and textbook publishers to technology providers and management consultants.

The recession that has forced school districts across the country to tighten their budgets has also hurt the K-12 education business sector, and the prospect of sharing in the stimulus package has companies unleashing their sales pitches.

Consider this public relations message sent to the media from Envictus Corp., a Chantilly, Va.-based company that promotes a Web-based solution for producing college- and career-ready students:

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“In light of the importance given to education in the president’s stimulus package, this company is vying for a portion of these funds in order to implement college and career-ready programs in every high school in the country.”

Pittsburgh-based Apangea Learning, which offers online one-on-one tutoring, is offering school districts three years’ worth of services for the price of two, to “help schools win new federal funding that is part of the Obama administration’s estimated $100 billion outlay for additional educational support.”

And, as an “affordable way to maximize stimulus fund[s],” the technology firm mimio is offering one free mimio wireless tablet with the purchase of three interactive, whiteboard-type systems.

For school districts, the pressure is on to spend stimulus money quickly—both to save teachers’ jobs and to push reform, while recognizing that this one-time funding runs out after two years. What’s more, President Barack Obama has declared that spending must be done with “unprecedented levels of transparency.”

Given all of those factors, district officials must be cautious in spending this money with outside vendors, said John Musso, the executive director of the Association of School Business Officials International.

“It didn’t take long for companies to start sending out information and e-mailing,” Mr. Musso said. “There are a lot of good people with great products, but there are also entrepreneurs out there who have other interests, besides kids.”

Momentum Still Building

Although stimulus money under the American Recovery and Reinvestment Act started flowing out of the U.S. Department of Education as early as last month, business isn’t booming yet. And that’s because school districts have yet to receive the bulk of their stimulus money.

“In our conversations with customers, there’s still a high degree of skepticism about how much money is actually going to flow,” said Lee Wilson, the president of San Antonio, Texas-based pci Education, which specializes in special education curricula, textbooks, and other materials. He also blogs on the education marketplace. “It’s like, ‘We’ll believe it when we see it.’ ”

But he said education publishers are seeing some districts increase the size of orders further down in the pipeline—maybe months down the road.

And Mr. Wilson said when business in his industry picks up, that means more jobs. Typically, school district spending on textbooks, supplemental resources, and technology ranges from 2 to 4 percent of the overall budget, he said. The stimulus could boost spending in these categories into a range of 5 to 10 percent.

“Most of the money is still going to protect salaries, but even so, 5 to 10 percent of $100 billion is a pretty large infusion into this market,” Mr. Wilson said.

That spending may significantly cushion the recession’s impact on the education business sector, some say.

“Without the benefit of the stimulus, the [elementary and high school] market would decline this year by 15 percent and possibly as much as 20 percent,” said Harold McGraw III, the chairman, president, and chief executive officer of McGraw-Hill Companies Inc., according to a transcript of a conference call discussing the New York-based textbook-publishing company’s first-quarter earnings. “We have conducted an outreach effort to schools nationwide to provide information about the grants and about McGraw-Hill products and services that would be appropriate for purchase under the guidelines.”

Adrienne Watts Dayton, the spokeswoman for the Silver Spring, Md.-based National School Supply and Equipment Association, said a majority of her membership makes or sells materials for the classroom, everything from pencils and blackboards to computers and furniture. And things are really slow, she said. She pointed to a North Carolina requirement last month that school districts (and other state agencies) halt all purchasing, except for cases when contracts or purchase agreements have been signed.

But Ms. Dayton said one area that looks promising is the money set aside in the stimulus package for school modernization, such as $100 million in the impact aid program, which benefits public districts with students who live on American Indian lands and military bases. There are also multibillion-dollar, low-cost construction loan programs for school districts, including for new construction.

“We’re going to start seeing some benefits there, especially if new schools are built. You have to furnish those schools,” Ms. Dayton said.

Because many school districts are in dire financial straits, they are likely to spend their stimulus money quickly, within the next six to eight months—which industry experts suggest will favor existing companies with long track records, not new start-ups.

“Because we have built that trust over time, we’re already positioned to help schools and grow our business,” said Cheryl Scott Williams, a vice president for strategic initiatives at San Francisco-based Teachscape, which specializes in professional development. Her company has crafted a stimulus Web page and a four-page stimulus document to explain to schools how stimulus funding can be spent, and where Teachscape can help.

Focused Stimulus Spending

Companies seem to be focusing on three main spending areas: products that would be good candidates for one-time funding (such as technology, computers, data systems); services (such as how to use stimulus money to turn around a failing school); and consulting (how to help districts tap into even more stimulus money).

Education business experts say companies that offer help and materials for special education and for struggling schools could benefit the most, since special education and Title I programs are getting a combined $15.2 billion from the stimulus package.

Some are worried that districts will sacrifice quality for speed.

“Quite obviously, the priority goes to academic shovel-ready projects,” Mary Cathryn Ricker, the president of the St. Paul Federation of Teachers, in Minnesota, said at a seminar last month by the Albert Shanker Institute, a think tank affiliated with the American Federation of Teachers. She worries that the pressure to get money out quickly would give vendors of prepackaged or commercial approaches an edge over homegrown reform efforts.

“People are ready to make money rather than support union-management collaboration,” she said.

The U.S. Department of Education says the onus is on districts, as the consumers, to vet outside companies and contractors.

As the stimulus money flows, she said school districts must be sure to avoid the “funding cliff” the can result when this one-time money runs out, said Sandra Abrevaya, a spokeswoman for the education department.

Also, she said, “we are encouraging schools and districts to be very thoughtful about how to spend their funds... and to ask the big questions about whether a particular product or service will drive results for students [and] accelerate reform.”