Edison battles eroding confidence on school boards, Wall St.

Stock sinks further as company's financial and school contract losses mount

by Paul Socolar

As Philadelphia watches Edison Schools Inc. open its biggest cluster of schools ever, the education management company is busy battling a growing crisis of confidence both on Wall Street and in school districts around the country. A tumbling stock price and the loss of contracts in several communities have put intense pressure on the company to show results, cut costs, and start making a profit.

Edison came onto the education scene a decade ago, promising that they could educate kids better than public schools with the existing resources, while earning a profit for investors. By last spring, as they positioned themselves for contracts in Philadelphia, they reported managing more than 130 schools nationwide, but were incurring large losses.Since April 17, when Philadelphia’s School Reform Commission announced that Edison would be managing 20 schools here this fall and not the 45 that the company had hoped for, the bad news for Edison has been unrelenting.

Weeks of behind-the-scenes lobbying with commissioners failed to win the company a role in managing additional schools beyond the 20 — in the face of continuing opposition to the company from a broad coalition of community and union activists.

Coupled with publicity about an investigation of Edison ccounting practices by the Securities and Exchange Commission, the disappointing news about Philadelphia contracts sent Edison stock into a downward spiral.

Then, when new chief executive Paul Vallas took charge of the District in July, he quickly announced that Edison would not be getting a lucrative “lead consultant” contract to advise the central office – a consulting arrangement that the SRC had approved. Vallas explained simply, “There’s no need for that. That’s what I’m here for.”

Edison asks for raise

At the same time, controversy blew up around negotiations over the financial terms of school management contracts between the District and the seven education managers enlisted to run schools. State officials were demanding that District negotiators award the 45 schools to be run by Edison and other private managers $1,500 more per student than other District schools.

Edison officials acknowledged that they had requested the state’s help in securing exactly that per pupil amount. Yet just months before, when they were developing a plan for the District, company spokespeople had said repeatedly that their goal was to work within the constraints of available funds.

Amidst loud public outcry, investigations of whether there were improprieties in how Edison obtained its contracts were launched at both the state and federal levels.

Under a compromise deal reached by Vallas and Pennsylvania Secretary of Education Charles Zogby, Edison did end up getting an extra allotment for their schools amounting to $880 per student, smaller than they had hoped but larger than any of the other management companies. The five-year contract allows the School District to cancel it, not only “for cause” but “for convenience.”

Company reports improvements

Despite their woes, Edison has continued to claim gains in test scores at most of its schools and say that 85 percent of Edison parents give the company a grade of ‘A’ or ‘B’. “Many positive aspects of the company’s performance have gone unreported,” commented Edison Chief Operating Officer Christopher Cerf.

“Edison consistently over-hypes its achievement results, and the company uses meaningless internal parent satisfaction surveys to counter negative publicity,” countered Caroline Grannan of Parents Advocating School Accountability, a San Francisco group that monitors Edison.

Several school districts showed their dissatisfaction with Edison this summer, in the wake of a series of losses of school management contracts during the last school year in Boston, Trenton, Minneapolis, Wichita, and San Antonio: