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From the archives: 'Show me the money'

Stock prices, not reform, are at the heart of the for-profit education movement.
 

The Notebook was launched in 1994 as a newspaper committed to ensuring quality and equity in Philadelphia public schools. We celebrated the 20th anniversary of the first publication this spring. We are featuring an article from our archives each week, shedding light on both the dramatic changes that have taken place in public education and the persistent issues facing Philadelphia's school system.

This News Analysis piece is from the Winter 2001-02 print edition:


by Barbara Miner

In September 1990, "Good Morning America" was broadcast from South Pointe Elementary School in Dade County, Fla. The news peg? It was the first day of school at what was to be a new and glorious era in public schools: for-profit management.

South Pointe was run by Education Alternatives Inc. (EAl), a for-profit company, which at the time was the darling of the privatization movement. Promising to bring business know-how to the country's failing urban schools, by 1992 EAl had a five-year contract to run as many as 11 schools in Baltimore. In October 1994 it was hired to run all the schools in Hartford, CT.

John Golle, head of EAl, boasted that his company could run public schools for the same amount of money, improve achievement, and still make a profit. ''There's so much fat in the schools that even a blind man without his cane would find the way," he told Forbes magazine in 1992.

The rhetoric never matched the record, however. EAl was run out of both Baltimore and Hartford when it failed to deliver on its promises. EAI then got in the charter and private school business, but prospects did not improve.

By the spring of 2000, EAl was in the midst of a corporate and educational meltdown. The company, which has changed its name to Tesseract Group Inc., was millions in debt, kicked off Nasdaq when its stock price tumbled to pennies a share, and couldn't even afford the postage to mail report cards home to parents at its remaining charter schools in Arizona.

The tale of EAl is more than historical anecdote, however. It provides interesting parallels to the problems facing Edison Schools Inc. as it seeks to take on its biggest challenge yet: running as many as 45 public schools in Philadelphia.

One cannot exactly compare Edison and EAl. Edison, for one, has a longer track record and now runs more schools than EAI ever ran. But there are also clear similarities.

Both started out saying they would build profitable private schools but quickly turned their sights on public schools when they realized it was easier to raid the public coffers than charge tuition. Both were founded by marketers turned educational experts. Both had impeccable political connections. Both wowed the media, playing on assumptions that public is bad and private is good. Both have been (or, in the case of the now-defunct EAl, were) plagued by accusations of inflated test scores and reduced services for special education students.

Like EAl, the biggest challenge facing Edison is turning a profit. Regardless of what one may think about the company's educational philosophy, its fate ultimately rests with the overriding concern of Wall Street. Will the company make money for its shareholders?

Edison, originally called the Edison Project, was unveiled at a Feb. 27, 1992, news conference. Some 10 years and 136 schools later - and more than $200 million in private investment on top of the per-pupil reimbursements for running schools - Edison has yet to make even a dime of profit.

The problem facing Edison is the same that faced EAl. Despite perceptions, there is little ''fat'' in urban public school budgets. Nor are there any "silver bullets" that will magically improve schools.

Because education is a labor-intensive industry, there are only two ways to make money: cut wages or cut services. (A variation on "cut wages" is hiring younger, lower-paid staff. A variation on "cut services" is controlling student admissions so that more-difficult-to-educate students are discouraged.)

When Edison announced this fall that its plan for Philadelphia included cutting the costs of support staff, it was following a pattern established by EAl. When EAI went into Baltimore, one of the first things it did was replace $10-an-hour, unionized paraprofessional workers with $7-an-hour "interns" who did not have benefits.

That doesn't mean, however, that some people didn't make a lot of money off of EAI. (Likewise, some people are in line to make millions off of Edison.)

For example, EAl founder and CEO Golle, ever the shrewd businessman, knew when to make his move. In the fall of 1993, over a two-month period when EAl stock was riding high, Golle took advantage of stock options to make a net gain of approximately $1.75 million on sales of 50,000 shares of EAl common stock.

Edison founder Chris Whittle has likewise been smart enough to play the stock option game. On one day alone last March, some 650,000 shares held indirectly by Whittle were sold for more than $15 million. According to a proxy statement filed this fall, Whittle still owns 3.7 million shares of Edison 's publicly traded stock, and he and his associates have options on an additional 4.4 million shares of Edison's publicly traded stock.

Whittle is not the only one with a financial stake in Edison. To cite one other example: Howard Fuller, privatization proponent and founder of the Black Alliance for Educational Options, happens to be married to Edison vice president Deborah McGriff. Last June 12, McGriff sold 15,325 shares of the roughly 200,000 stock options she held when the company first went public - for a gain of $348,184. Not a bad day's work. (If you want to check out Edison insiders and their stock sales, go to the finance section of yahoo.com, look up Edison with the keyword EDSN, and click on the "insider" link.)

Edison is not synonymous with EAI, and the country's privatization movement is far stronger than it was a decade ago. But in the end, money - who gets more and who gets less - remains at the heart of the privatization struggle. Educational improvement is a sideshow.

As the saying goes, "Show me the money."

Barbara Miner is managing editor of Rethinking Schools (www.rethinkingschools.org), an education reform journal based in Milwaukee, WI.

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