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Privatization Critics Crying Wolf? You be the Judge - Tuesday, May 25, 2010

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Privatization Critics Crying Wolf?

You be the Judge!


Paul Pastorek has testified to the Louisiana Board of Elementary Education that it was imperative to open the door to for-profit education management companies because there were insufficient numbers of non-profit organizations that boast the capacity to take over more failing schools.

While that may be the case, it is also questionable that turning to a for-profit is a guarantee of improvement in student achievement. 

The uneven record of the private sector in the last decade reminds us that for-profits have significant limitations--to say the least. The incentive to cut costs is what drives management. The urge to grow can lead to unacceptable compromises in quality. These are real concerns that require careful attention.

Big-name investors are subscribing to this vision, lured by the prospect of getting in on the ground floor of an entirely new industry. From J.P. Morgan and Fidelity Ventures to Paul Allen's Vulcan Ventures, a host of backers are sinking millions into the new school companies in the belief that for-profit education is poised for explosive growth. ''This is a breakthrough business opportunity,'' declares Michigan industrialist J.C. Huizenga, who has invested ''upwards of $50 million'' in National Heritage Academies. National Heritage had its application to operate a charter school in St. Landry Parish rejected by BESE.

Two New Orleans charter schools operated under contract with a for-profit company announced that they were withdrawing

In that episode, the New Orleans Charter Schools Foundation decided last spring not to renew its contract with The Leona Group, which since 2006 has run the New Orleans Free Academy and McDonough City Park Academy. The foundation's board also voted to close the Free Academy at the end of the year, citing low enrollment, weak finances and poor academic performance.

Still another for-profit, Mosaica, was terminated by the New Orleans Choice Foundation for failure to perform.  The record in Lafayette Academy was so poor that it became a story reported in the New York Times, and turned into a court case that returned, in September 2007, $350,000 in unearned profit to the charter school.

In April, Philadelphia’s City Controller released some unflattering details during an investigation into 13 of the city’s 63 charter schools—which collect a total of $294 million a year in public dollars. The 94-page report shows charters gone wild, with little oversight from the school district’s Charter Schools Office (CSO).

In Ohio, the country’s largest for-profit charter company, Imagine Schools,was found to be spending only  40 percent of the state funds it receives on classroom instruction, according to a May reportby an Ohio research group called Policy Matters.

Though for-profit entities are not allowed to set up schools in Ohio, they can secure management contracts.  A third of the state’s charter schools have contracted out to for-profit managers, and the results haven’t been pretty.  Louisiana charter school law contains those same provisions.

With less than half of the $116 million it receives in public funding money getting to the classroom, Imagine schools are failing miserably. None of its schools met federal "Adequate Yearly Progress" goals in 2009. And of the six schools old enough to get ratings from the state, five received an "F” last year.

Charter schools were first envisioned in 1988 by two men who didn’t know one another.  Albert Shanker, the president of the American Federation of Teachers had the idea, as did Professor Ray Budde of the University of Massachusetts.

Both of them thought that public school teachers could get permission from local authorities to open a small experimental school and then focus on the neediest students. The school would recruit students who had dropped out and who were likely to drop out. It would seek new ways to motivate the most challenging students and bring whatever lessons they learned back to public schools, to make them better able to educate these youngsters.

The original vision of charter schools was that they would help strengthen public schools, not compete with them.   By 1993, Shanker turned against his own idea. He concluded that charter schools had turned into a form of privatization that was not materially different from vouchers.

According to U.S. Census data, well over $800 billion is spent on education, public and private, at all levels in the United States each year.   This makes it roughly the same size as the U.S. trade deficit with China. The private sector wants to get its hands on this money.

 A prospectus of Montgomery Securities group explains to corporate America the lure of privatizing education.   According to education author Jonathan Kozol,  "The education industry represents, in our opinion, the final frontier of a number of sectors once under public control” that have either voluntarily opened or have "been forced” to open up to private enterprise.  Indeed, the analysts write, "the education industry represents the largest market opportunity” since health-care services were privatized during the 1970’s.... From the point of view of private profit, one of these analysts enthusiastically observes, "The K–12 market is the Big Enchilada.”

Although for-profit school management companies are proliferating in some parts of the country, in the past few years New Orleans charter boards have ultimately parted ways with three of five for-profit companies brought in to run their schools.  In a fourth case, the school appears to be struggling to attract enough students.”  (Times Picayune, Sara Carr, April 24, 2009)

A charter board based in New Orleans Treme neighborhood  canceled plans to open three charter schools in the fall of 2006 after a falling out with EdFutures Inc., the for-profit chosen to manage the schools. The president of the board said company officials failed to explain the rationale for certain expenses listed in its operating budget, among other concerns. That board has since successfully operated one of the schools, McDonogh 42 Elementary.

Management fees range from 10  percent to 15 percent of total budgets for the profit center schools.

Even the IRS has concerns about for-profit Charter Management Organizations (CMOs or EMOs) running non profit charter schools. The important term here is "running." While it's perfectly OK for a non profit charter to contract out parts of its curriculum and operation to CMOs, it's a violation of tax regulations for the CMO to be in charge.

As this is being written, the Columbus Dispatch (Ohio) reported that a group of tax-funded charter schools is challenging the authority of Ohio’s largest for-profit school management company.  The schools went to court in Franklin County charging that White Hat Management "wields total, unchecked and unconstitutional control over its client charter schools and their funding.”

Under management agreements with its schools, White Hat receives 95 percent of state funds allocated to the schools and handles all school operations.  It maintains sole power to hire and fire.  The company, the paper reports, earns about $1 million per year in profit for each charter school it operated.

Concluding that most districts have little grounds for being concerned about the advent of for-profit charter operation is not a mistake that local school boards should make.  The concept is spreading like a wild fire across the nation and is being found in Louisiana.  The initiative, defeated in St. Landry is a clear sign that even relatively small, mostly rural districts had best be on guard.

Don Whittinghill

5 25 2010


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