Report detailing Boston Consulting Group findings and recommendations released

by on Aug 02 2012

By Dale Mezzacappa and Benjamin Herold

The School District released a 119-page document on Thursday that summarized the analyses and recommendations of the Boston Consulting Group, an outside firm retained at private expense to help the District avert a financial meltdown by radically overhauling its business operations and delivery of education.  

The document details BCG’s work and thinking on hot-button topics ranging from charter expansion to labor negotiations.  It also includes the previously unreleased analyses behind controversial District proposals to close dozens of schools and reorganize those that are left into decentralized, independently managed “achievement networks.”

“This presents a summary of our key findings and recommendations – some of which have been accepted by the school district and integrated into their proposed blueprint, while others await further community input and District consideration,” reads the summary.

Speaking with reporters Wednesday, District Chief Recovery Officer Thomas Knudsen praised the consultants, saying they have been instrumental in helping the cash-strapped District to identify hundreds of millions of dollars in possible savings and to rethink some of its fundamental assumptions. But Knudsen reiterated that BCG, which has worked in several other large districts around the country, has been making recommendations, not setting policy.

“They do not in any way prescribe what we’re doing,” he said.

“What this exercise did was essentially get us into a ballpark, a financial framework in which to operate. How we now move the pieces is the management challenge of the next [several years].”

Underlying the entire document is the reorganization of the District into a “portfolio management” system in which the school is the center of change, receiving support and guidance – but not control and mandates – from the networks and a completely revamped and downsized central administration.  

In a briefing accompanying the document’s release, Knudsen insisted that BCG was not, as alleged by some, in the forefront of pushing a strategy of wholesale school privatization, largely through the achievement networks.

“BCG has been professional, agnostic on any number of topics, and provided excellent analysis. [The consultants] have not attempted to influence the outcome in any way.”

Since being hired by the School Reform Commission in February, BCG has engaged in four distinct phases of work, all paid for with $4.4 million in private donations, most or all of which have been coordinated by the William Penn Foundation and delivered through the United Way of Southeastern Pennsylvania. 

Key BCG findings and recommendations:

Achievement networks

BCG strongly urges reorganizing the District into achievement networks of 20 to 30 schools each to provide them with “customized, responsive support and guidance.”

When the network proposal was first made public, there was an outcry that it was meant to privatize the system. And the details of how exactly the networks would operate were sketchy and confusing, causing the SRC to back off plans to pilot one this coming school year.

For now, they are on the back burner, but certainly not off the table.

“Everybody’s going to take a deep breath for the time being, and this recommendation will be there and the analyses will be there for us to call upon when the time is right,”  Knudsen said. He added that incoming superintendent William Hite needs time to “think through this problem in terms of what he would like to see happen.”

In a later interview, SRC Chairman Pedro Ramos said that “the network discussion continues,” but added that the school closings need to be dealt with first.

In the document, BCG stresses that it does not envision that all the networks would be managed by private, outside organizations.

It goes into detail about New York’s series of networks, pointing out that 80 percent of its networks are operated by district employees, not private groups. And it specifies that unionized principals and teachers who might step forward to run a network in Philadelphia would remain in the union.

It said that the networks would primarily provide general academic support and coaching; special education services focused on improving quality; and support for principals in getting skilled and qualified teachers.

The best such networks around the country, including some high-profile charter management organizations, are “highly customer-service oriented” and “drive strong instructional philosophies, share best practices,” and give teachers in-depth personalized coaching, BCG writes. 

The networks would be part of a three-tiered organization. A lean District Center with fewer than 300 employees would handle functions like the finance office, accountability, human resources and information technology, while a Shared Services Organization would provide services like transportation and maintenance, much of it outsourced. Schools, both District-run and charter, could buy the services they want. 

Charters

Knudsen said that the prediction that 40 percent of students would attend charter schools in five years was a “linear projection” from the District's charter office based on recent trends -- not a goal or a desired outcome promoted by him, the SRC or BCG.

And the document says that charter growth should occur primarily through expansion of the Renaissance Schools process to minimize the financial impact on the District and ensure that charters are in fact helping to move students from low-performing seats to high-performing seats.

The document says that “on average,” charters outperform District-run schools academically, based on a comparison of the number of District-managed schools and charters using the District's School Performance Index.  But the report points out that charters “range widely in performance” and “need greater oversight and management of their performance if they are to meet their full promise.”

It also notes that the District has been reluctant to close poor-performing charters.

“Despite a significant effort to evaluate charter school performance, charters have faced a relatively low threshold for reauthorization and expansion – even charters with poor or inconsistent performance levels,” the document says.

It also notes that the current state funding system “overcompensates charters for disabled students,” and that “charters are leaving the district with a higher share of students with severe disabilities.” Now, charters get more than twice the per-pupil amount for a special education student than for a regular education student, regardless of the severity of the disability.

And cyber charters, it said, drain funds from the District with very little evidence that they are educating students. The District should create its own virtual charter school to stem the tide of students enrolling in expensive state-authorized charters with “notoriously low” achievement.

The document also expresses concerns about other inequities brought about by charter expansion, pointing out that some have high barriers to entry and that they serve very few English language learners.

“As charters constitute a growing proportion of the district, there must be shared responsibility for meeting the needs of all students,” the consultants wrote.

BCG said that pursuing the Renaissance turnaround process to expand charter seats is the most cost-effective and the best way to further the goal of moving students into better learning environments. Now, some students leave high-performing District schools to attend charters that are no better or even worse – and at great cost, it found.

Each new charter seat costs the District $7,000, but “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.”

School closings

The high-profile proposal for closing dozens of schools by next fall, which Knudsen reiterated as crucial and unavoidable, is gearing up, with the first round of public meetings to start perhaps as soon as Aug. 15. Specific school-closing proposals, Knudsen said, would likely be made by October or November.

The document says that the district must close between 29 and 57 schools, and outlined some options: to better utilize huge high school facilities, it could create more 7th- to 12th-grade schools. Or it could keep the same grade spans, but close more elementary schools and pay more careful attention to neighborhood impact.

It points out that “it could be difficult to find 15-19 high school buildings suitable to be closed simultaneously.”

Knudsen promised a lengthy, thoughtful process on closings even as he said that the large-scale closings “must, must, must” occur – and that most must happen in time for the 2014 fiscal year. The document points out that “previous [District] processes as well as the experiences of other districts throughout the country highlight the fact that careful implementation planning and community engagement are critical to the success of large-scale right-sizing efforts.”

Labor

The report strongly recommended outsourcing maintenance and transportation services, “barring sweeping concessions” from SEIU Local 32BJ District 1201. The District rejected the recommendation, but clearly leveraged its findings to wrest $100 million in savings in its settlement with the union.

The document outlines at length inflexible work rules, poor standards and high absenteeism among the District’s blue-collar workers. In recommending that these functions be outsourced, it also points out that the District is required to give part-time workers full benefits and pay into their pensions, something that private contracts don’t have to do. Knudsen and the SRC chose to reach an agreement with the union, but extracted significant concessions, including what amounts to a 10 percent cut in pay as well as promises around productivity, work standards, and flexibility.

The document also makes the point that any new Philadelphia Federation of Teachers contract also needs major changes to work rules and compensation structure, recommending “comprehensive bargaining reform.” It said that both the contract and state school code policies “significantly undermine the [District’s] ability to implement a world-class talent management strategy and become a true magnet for high-performing principals, teachers and staff.”  

Financial analysis

BCG attributes the District’s financial woes – a more than $700 million shortfall had to be closed for this coming school year, and more than $200 million will be borrowed -- to the loss of state and federal revenues, not to bad fiscal policy, and urges the District to seek more funds.

“It is important to note that, while the [District] faces massive deficits, its overall spending and operations costs are generally in line with those of other large districts,” the summary notes. And it says that the District's massive budget gaps “were caused mainly by a loss of $300 million in state and federal revenues, in combination with the continued growth of charters and the rise in personnel costs for compensation, health care, and pension benefits.”

While not citing bad fiscal policy, it outlines a history of “poor communication and transparency among the [chief financial officer], District leadership, and key stakeholders” that undermined the credibility of its numbers. It also notes that its finance office has been smaller than those in comparably sized districts.

Still, it adds, “before undertaking further cuts, the District should continue to seek greater funding.”

School safety

The document recommends creating a comprehensive Office of Safety that would not only deal with policing and security but also would combat truancy and “focus on using both security and school culture strategies to combat unsafe environments.”