THE PHILADELPHIA STORY
With higher federal standards and a reduction in state budgets, public school districts across the country are feeling the fiscal squeeze. Since the passage of the No Child Left Behind Act, signed into law in January, school systems have labored under added pressure to improve student performances on state-mandated tests. Under the act, if a school does not show progress across a five-year span, it must be restructured. In some cases, districts are already confronted with possible takeover.

For a number of districts, privatization has emerged as a solution to cure some of the system's ills and for-profit companies or Education Management Organizations (EMOs) have stepped in. EMOs such as Edison Schools, Inc. and Chancellor Beacon Academies, the two largest in the nation, are vying for considerable contracts with districts around the country. While the companies have met with mixed reviews, they continue to obtain lucrative contracts with districts looking for alternatives to locally run schools. The most recent example comes in Philadelphia, where a number of groups are working to improve the city's struggling school system.

Hoping to boost sagging scores on the Pennsylvania System of School Assessment (PSSA) and to improve the management that left the system $215 million in the red, the state took control of Philadelphia's Public School District in December 2001.

Thirty-one companies, including Deloitte & Touche and Sylvan Learning Center, competed for the contract. Seven were selected: Edison, Chancellor Beacon, Foundations, Inc., Universal Companies, Victory Schools and two area universities, The University of Pennsylvania and Temple University. Edison won the largest contract, and was assigned to run 20 schools.

Now eyes are transfixed on the major reform efforts that Philadelphia is embarking upon. The district, which serves approximately 200,000 students, has entered untested waters. Along with 45 privatized schools - the most at one time in any city - the city also has 21 restructured schools and 47 charter schools within its borders.

The Philadelphia experiment will place EMOs under the microscope as they adjust to new federal requirements. Although the district's five-year, $60 million contract with Edison eclipses its other deals, Philadelphia also negotiated a contract to suit their needs.

Historically, Edison requires that districts pay an $18 million consulting fee, but Philadelphia did not do so. The district also rejected Edison's traditionally longer school day and school year. Philadelphia's contract also includes a clause that guarantees that the district won't be left without educational materials like books and computers if it terminates Edison's contract, another change in Edison tradition.

"This is going to be a test of a somewhat different model than we have used in different cities," Edison founder Chris Whittle said. "But it's not like we do exactly the same thing in every city. We have to adapt."

Vallas says that if the schools are not stronger within in five years, "the ones that are clearly failing, we're simply going to shut down and reconstitute" - even if that means terminating EMO contracts.

Ted Kirsch, president of the Philadelphia Federation of Teachers, has gone further and publicly blasted the EMOs for what he says is a lack of structure, supplies and support.

"It's not going to work because the basic premise is the wrong premise -- that you can do better with less," Kirsch said. "If there's enough money to give it to a private company, why not give it to those who've dedicated their lives to this and we're not about to make money on it."

Despite such initial worries, EMOs have won some support. Aaron Starke, the new 28-year-old principal at the Edison-run Kenderton Elementary in North Philadelphia, says he has already seen changes, including new books, curriculum and computers and notices that his students are excited to learn.

"So far for me, it has meant everything," said Starke, who was hired by Edison. "I've never seen this in my whole career. I've never seen this many materials. I've never seen this much support."

Edison isn't the only city EMO to come under fire. Florida-based Chancellor Beacon, the second largest EMO with 81 schools nationwide, heads up five of Philadelphia's schools. In October, teachers at two of those schools told The Philadelphia Inquirer that the company had left them short of materials, insulted their professionalism and done little to improve conditions.

"It didn't pan out the way I thought it would, Tammy Lind, an eighth grade teacher at Roberto Clemente Middle School said. "This is the first year we've had to do without materials."

However, Sam Howard, Chancellor Beacon's director of school operations, says his company's focus has initially been to improve the physical conditions of the school. The company has made few personnel and curriculum changes and wants to test the students first.

"It's how do you eat an elephant," Howard said. "One bite at a time. So we're starting with this bite and moving through."

Yet with all of its growth, there are still signs of customer dissatisfaction. Three districts, in Georgia, Kansas and Dallas, have voted to terminate their five-year contracts early. And representatives in Philadelphia's neighboring Chester Upland district, also under state takeover, have expressed dismay at declining test scores in the Edison run schools.

However, parents in some Edison-run schools have responded more positively. In a Harris Interactive poll, 88 percent of parents surveyed gave Edison high marks. Nonetheless, Dallas Superintendent Mike Moses, whose district paid Edison some $39 million last year, said the company has not delivered on its promise of improvement.

"There are obvious differences in performance, but have they exceeded expectations?" he asked. "In fact, they have not."

Meanwhile, despite their multimillion-dollar contracts, EMOs have faced their own fiscal woes. As the only publicly-traded EMO - one that at its height sold stock at $38 per share - Edison's financial prospects recently soured, with its stock dropping to a low of 14 cents and barely escaping a Nasdaq delisting. While its initial public offering yielded $122 million, the company has yet to make a profit.

In May 2002, Edison resolved a dispute with the Securities and Exchange Commission over allegedly inflating reported revenues by including some school districts' payments for teachers' salaries, among other expenses. Edison agreed to change its revenue reporting and create an internal audit department.

Like Edison, Chancellor Beacon has not yet made a profit. Last year, Beacon Education Management, Chancellor Beacon's parent company, decided against taking the company public. Chancellor Beacon lost $2.7 million in fiscal year 2000 and nearly twice as much in fiscal year 2001.

The Road From Here
Non-EMO schools in Philadelphia continue to act as a barometer for methods being tested in EMO schools.

The city's school district answered the state push for privatization with its own model for 21 schools, which are not privatized but have the same mandate to raise test scores. Like privatized schools, they will receive additional resources, such as new curricular materials and a monthly student assessment.

"I feel we have one year to really prove ourselves," Peggy Sears, a district administrator who helped design the model, told in The Philadelphia Inquirer. "I feel over the years we have failed to mandate things. We have left education up to every classroom teacher; as a result of that, we have been hitting and missing the mark."

Last month, state Auditor General Robert P. Casey Jr. blasted the Pennsylvania Department of Education for awarding Edison the contract to study the school system and said that officials violated competitive-bidding rules to seal it. Shortly afterward, the city council filed a lawsuit asking the state Supreme Court to restore local control to the schools, contending that Gov. Schweiker had "illegally taken over the Philadelphia School District in order to privatize it." The council asserted that the state takeover violated the city's Home Rule Charter, which calls for a nine-member Board of Education appointed by the mayor.

Recently, U.S. Rep. Chaka Fattah (D-Penn.) requested that the General Accounting Office conduct a review of privatized schools, but the GAO results were inconclusive, citing a lack of "rigorous research" to support or oppose privatization.

"As a result, we cannot draw conclusions about the effect that these companies' programs have on student achievement, parental satisfaction, parental involvement, or school climate," the GAO report said.

Both Chancellor Beacon and Edison representatives remain upbeat. While Chancellor Beacon has usually focused on operating charter and private day schools, company chairman Octavio Visiedo, a former school superintendent, told the Philadelphia Inquirer that Chancellor Beacon was so interested in the city's schools that it may pull out of some other states to concentrate efforts there.

Just last month Chancellor Beacon tapped Wade Dyke, a former U.S. Department of Education deputy chief of staff and longtime educator, to focus on company growth and its daily operations.

"As a company, we have a unique opportunity to offer quality educational services to children with an outstanding team of educators," Dyke said.

Meanwhile, Edison has continued its growth with new contracts to manage a school in Kansas City, Mo. and another in Indianapolis, Indiana for the 2003-04 school year. The company says 84 percent of its schools showed improvement on standardized tests last year.

"We challenge anyone to show us an 84,000-student system of largely disadvantaged children that's performing at the same rate we are," Whittle said.

By Raven Tyler, Online NewsHour