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frequently asked questions by john d. tulekno

John D. Tulenko is the producer of "Public Schools, Inc."

1 · In a nutshell, what are the arguments for and against privatizing education?

School privatization was born in the Reagan era, following efforts to privatize other sectors of the economy, notably health care. Proponents spoke of schools as the last government-run "monopoly." Privatization, they said, would shatter that monopoly and introduce competition to the benefit of schools. "When you have the motivation of private gain, often what you have is improvement," says Steven Wilson, a senior fellow at Harvard's Kennedy School of Government. "Our entire culture is based on this notion, because people compete to do a better job." Entrepreneurs thought they'd outshine the competition by cutting bureaucratic waste and delivering better results in the classroom.

For opponents, the idea of companies running public schools for profit was a dangerous proposition, one that might ultimately corrupt education. "It puts the investor at the head of the list," warned critics like Ted Sizer, a leading education reformer who prefers to operate in the public sector. "The children should be at the head of the list." Opponents feared that companies would seek to cut corners on instruction, for example by hiring teachers at lower pay, in order to boost their bottom line. Some warned that private companies would siphon away thousands of the best students, leaving the public schools to shoulder the burden of educating more expensive "special needs" children. Others felt the whole idea of competition in public education was fundamentally unfair: Even a half-hearted private effort to create better schools would be overwhelming competition to the vast majority of under-financed, overcrowded, and demoralized public schools.

2 · What is Edison's educational model, and how has it evolved?

When Chris Whittle launched the Edison Project in 1991, he invested $50 million from his media company, Whittle Communications, to come up with a new design for public schools. When the design work was completed four years later, however, a good portion of it was put on the shelf.

Originally, Whittle thought he would build 1,000 private schools to compete with public schools. His schools would feature pioneering instruction and a newly designed curriculum of "unprecedented artistry and richness." "This was a bold, bold proposition," says Thomas Toch, a writer who covered the Edison Project for U.S. News and World Report. After scouring the country and foreign shores for the best ideas, however, Whittle's team scaled back its plans. "They decided that a design that was too radical, too different from schools today, wouldn't sell," Toch explains.

After the 1994 collapse of Whittle Communications, Whittle was forced to scale back his ideas further. Instead of designing his own curricula (an expensive proposition), Whittle bought lesson plans from existing publishers. Most Edison schools teach reading with "Success for All," a program designed and sold by Johns Hopkins University. It features 90 minutes of reading each day and small group instruction. For math, Edison uses "Everyday Math," produced and sold by the University of Chicago. Both curricula are widely used in public schools throughout the country, and both are endorsed by the U.S. Department of Education as meeting its criteria for "research proven" methods.

What separates Whittle's schools from most other public schools are the "extras" taught by Edison. Most Edison schools offer these classes, which include foreign language instruction (Spanish), as well as art, music, drama and classes in "character building," two to three times per week. Other components of the Edison model include a longer school day and a longer school year.

Edison schools are also organized differently. Each school is broken down into separate "houses," where instruction is overseen by "lead teachers" who "coach" the teachers in their "teams." In some schools, teams meet daily, for 45 minutes, to plan instruction and talk about their students. "We never got to meet at my old school," says Michelle Saint-Laurent, a teacher at Edison's Montebello Elementary in Baltimore, Md. "We talk about students and issues that concern us as teachers. It's very professional."

3 · What is Edison's business model?

Chris Whittle said he could run better public schools for about the same money districts currently spend. Districts that hire the company pay a per-pupil fee (anywhere from $5,000 to $9,000 per student), which is an average of what's spent per student in the district's public schools. With this money, Whittle sought to use economies of scale to turn a profit. By running a tighter ship than school districts themselves, Whittle believed he could keep the cost of his operation low, and maintain it that way, while he signed up hundreds of new schools. Once revenue from the schools exceeded the cost of the operation, Whittle would have a profit -- some of which could go to investors, some of which could be plowed back into research and design for the schools. So far, it hasn't worked.

In every year since 1996, Edison has added new clients at a steep (30-40 percent) trajectory, thereby boosting its revenue to nearly $400 million in the last fiscal year. But expenses, rather than holding steady as Whittle expected, shot up, resulting in yearly losses of tens of millions of dollars. Part of Edison's problem is that opening new schools is expensive. Nearly a million dollars was spent to start up each new school, including paying for new technology, capital repairs, training for teachers, books and supplies, and support staff. These expenses eat heavily into Edison's net revenue, leaving little to pay for the headquarters operation.

And the headquarters has not been cheap. It cost $71 million to oversee the business last year, up from $50 million the year before. Headquarters costs include many items investors had not anticipated. "They have large number of personnel that deal with the establishment of contracts -- lawyers and accountants -- and then they have business executives and marketing costs," says economist Henry Levin of Columbia University. "Remember that public schools don't have to market their services; Edison does, and it's those additional costs that are hurting them." Last year, Edison lost $76 million. Since 1996, it's lost $250 million.

Today, Edison has a new strategy. By signing fewer clients and slashing $10 million in administrative costs, the company hopes to turn its first profit ever. Edison is also counting on its spin-off businesses, such as summer schools and sales of proprietary software, to produce badly needed revenue. Gone for the foreseeable future, however, is the dream of running 1,000 or more schools.

4 · Does Edison have competitors? Who are they and how do they differ?

"Edison is really the 800-pound gorilla in this marketplace," says analyst Peter Stokes of Eduventures, Inc., which tracks the education industry. The company, which currently runs 150 schools in some 23 states, is approximately twice the size of its main competitor, Chancellor Beacon, which primarily manages charter schools. About a dozen other companies manage schools, but they are only a fraction of Edison's size.

Edison is also the only publicly traded school management company, and, although Edison's stock price has tumbled, access to Wall Street capital has set the company apart. Unlike its competitors, Edison invested heavily in the schools it operated -- as much as $1 million per school. Octavio J. Visiedo, the founder of Chancellor Beacon, says his company spends far less. "Their model is too expensive with all the technology and the like," Visiedo says. "It's like buying a car. With Edison you get the fancy stereo, the fancy woodwork. We're different. We're just trying to build the basic car that's reliable."

5 · How can we evaluate the success of Edison schools? Profitability? Test scores? A combination?

To succeed, Chris Whittle says Edison must demonstrate the kind of progress found in places like its Montebello Elementary in Baltimore, where the percentage of students reaching "satisfactory" level on the state's math and reading test has doubled, climbing to nearly 50 percent.

In most Edison schools, the average annual gain on state tests is more modest: about 4 percentage points. It's good, but maybe not good enough. "For something this controversial to be sustained, what may prove to be necessary is 10, 15, 20 percentile point gains," says Steven Wilson. "You may see it in one school, or a couple of grades, but to see it over a network of schools would be absolutely astonishing."

Other observers say that in evaluating the company's schools, it's important to point out the many subjects Edison teaches that are not tested. "Edison has a rich curriculum that test scores simply cannot measure," says Thomas Toch. "There is no standardized test on Spanish language acquisition, there's no test of art, no test of music in the pantheon of basic skills testing in America today. Edison teaches all those things and thus gets no credit for it."

Like it or not, however, test scores will be the litmus test for Edison. Equally important are the economics at each school, for no company can survive if its terrific work in classrooms is accompanied by losses on the balance sheet. But Edison contends that economics and school performance often go hand and hand -- good schools will attract more students and more students means more revenue for the company.

6 · What is the relationship between the local school boards and Edison? Who has the ultimate authority over curriculum, staffing and other issues?

Every Edison school is different in this regard. Questions of power sharing are usually the subject of negotiations between the company and its clients, and each negotiation produces a different contract.

For example, in Philadelphia, where Edison has its largest contract, the company made deep compromises in its model, choosing to honor collective bargaining agreements covering the hiring and firing of teachers and the structure of their work day.

Edison's Baltimore contract was completely different. Here the company was given a blank slate to make changes. The company was allowed to replace the entire staff of the school, hiring only teachers committed to Edison's approach. And these teachers were not bound by any collective bargaining agreements governing the structure or length of the school day.

7 · How much has Chris Whittle invested and lost in Edison, personally?

Edison Schools was saved from bankruptcy in 1995 when Chris Whittle invested $15 million of his own money to keep the company alive. The funds came from proceeds from the sale of Channel One, his controversial daily news program for public schools, and various properties, including Whittle's lavish apartment in the Dakota building in New York City. Whittle has also benefited financially from his work at Edison, collecting an annual salary near $300,000 in every year except 2002, when he collected $1. Whittle has received loans from the company totaling nearly $7 million, which he used to purchase company stock. The loans are due back in 2004 and 2005.

Whittle currently owns about 15 percent of the shares, with options on nearly 2 million shares. The options have an exercise price of nearly $25, but as of June 2003, company shares trade for around $1.50. "His whole portfolio is underwater," said a former board member who wished to remain anonymous. Whittle is used to the ups and downs. "There have been days when my stock was worth $100 million and there have been days when it's worth $500,000," he says. "But do I think there's still a chance for a serious reward? I do."

8 · Who has voiced the strongest opposition to Edison?

An assortment of unions, most in major cities, has fiercely opposed the company. The opposition is less vocal in small cities and rural areas where Edison operates.

Most union opposition is based on fears that teachers and other school employees will lose jobs. There's some justification for the concerns: When Edison takes over a school, it prefers to hire a new staff, leaving districts to reassign employees to other schools. "On a teaching front, Edison has assumed correctly that it needs to staff its schools itself," says Thomas Toch. "An immense amount of research suggests that a central ingredient of a successful school is one where all the people in the school are there by choice and have bought into the school's mission."

Edison's toughest battle to date was in Philadelphia, where unions joined forces with local politicians to battle the company. The mayor and the city council were furious over the state's initial plan to give Edison control of Philadelphia's school administration and its $2 billion budget. "Schools are the biggest source of patronage jobs," Thomas Toch notes. Philadelphia Mayor John Street even staked his claim to the schools by moving his office to the board of education building, where he camped out for a few weeks. Edison also has fought pitched battles in New York City and San Francisco.

9 · In cases where Edison has been asked to leave a school district, what were the reasons?

In the course of researching this program, FRONTLINE sought to contact every district where ties with Edison had been broken: a total of 13 clients, representing 32 schools. We found that sometimes districts fire Edison, and sometimes it's Edison that drops the district.

Since it started running schools in 1995, Edison has unilaterally terminated about a third of its lost contracts, often citing lack of profitability as the cause. For example, this was the case in Mt. Clemens, Mich., where the company ran four schools.

In the rest of the cases, it was the client who fired Edison. Many districts said cost was the reason they dropped the company, citing in particular its per-pupil fee. Critics pointed out that while Edison typically managed elementary schools, the per-pupil fee they received was an average of what the district spent on all students in grades K-12. Because middle and high schools are typically more expensive to run, critics argued that the districts were paying Edison too much. Cost was cited as the reason that the Dallas school board terminated a large contract with Edison.

Ironically, success also has been a cause for termination. After hiring Edison to improve a local magnet school in Hamden, Conn., officials decided the company had done such a good job that its services were no longer required. The district dropped Edison but continues to use its academic model. In Kansas, the Wichita school system also fired Edison, but plans to continue the reforms the company put in place. "We think we can do it just as well if not better," says Wichita Superintendent Winston Brooks. "And at the same time, we think we'll save half a million dollars."

10 · How are the schools in Baltimore, Philadelphia, and Chester faring since FRONTLINE last visited these places?

This year, Montebello Elementary in Baltimore was named a "Blue Ribbon" school by the state of Maryland, an award it bestows on schools for exceptional leadership and student achievement.

In Chester, where Edison has met significant resistance from the teachers union, test scores for Edison's second year have arrived. The district uses two standardized tests (the SAT-9 and the PSSA, Pennsylvania's state test) to measure school performance. The company reports an average gain of 15 percentile points across all grades on the SAT-9, compared to scores from before Edison took over. One school posted 54 percentile point gains in all subjects and all grades. Results from the state test, which most educators agree is a better measure of what students are expected to know, will not be available until fall.

In Philadelphia, where the protesting has quieted down, scores in Edison's first year were less impressive. On a national standardized test called the TerraNova, Edison posted small gains, but so too did district-run schools. Both the district and the company downplayed the scores, preferring to withhold judgement until scores on the state test arrive later in the summer.

On the political front, however, Edison is not out of the woods in Philadelphia. The city has a new school superintendent, Paul Vallas, who has repeatedly threatened to cancel Edison's contract. Vallas fired his latest salvo in early June, saying he would let Edison go in order to save money for his own reforms. In Philadelphia, Edison schools receive nearly $900 more per pupil than city-run schools, a result of appropriations from the state legislature that critics charge are unfair. Vallas recently sought to cut Edison's subsidy in half, saying he wished to "level the playing field." Lawmakers threatened to cut Vallas' own funds if he proceeded with his plan. In the end, it was Vallas who backed down, agreeing to keep Edison for at least two more years, although under the terms of the contract he can still terminate the deal at any time.

 

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published july 3, 2003

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