There Is No Profit In Public Education

For 10 years, Christopher Whittle’s Edison Schools Inc. has been hyped by right-wing think tanks and privatization advocates as the poster child for the transformation of America’s public schools. These days, the controversial for-profit company is dealing with a plummeting stock price, a crumbling bottom line and charges it is cooking the books on its financials and test scores.

In February 2000, Samuel A. Walker, a communications specialist for the Mackinac Center for Public Policy, a conservative Michigan-based policy institute, boasted that Edison Schools were the wave of the future. In a “Free Market Moment,” Walker, using the techniques he honed as director of editorial services in the Heritage Foundation’s public relations department, said: “Several years ago… [we] put forward an idea that struck many as far-fetched: privatize school districts.

The conservative poster child for the privatization of public schools is barely keeping its head above the water.

“That’s right,” he said enthusiastically, “there are private companies that will come into a failing school district, take the money the state is providing through taxes, and do a better job of educating our children. One of those companies — the New York-based Edison Schools — already runs 22 schools in Michigan.” Walker closed by saying, “As Edison schools prosper, parents are starting to believe in real education reform.”

Now, almost three years later, Edison Schools Inc., the conservative poster child for the privatization of public schools, is barely keeping its head above water. The much ballyhooed for-profit public and charter school management company is facing a double whammy: a financial crisis that could result in its removal from the Nasdaq Stock Exchange and the loss of contracts in a number of cities across the country.

As we have seen over the past several months, one of the surefire indicators that a company is under-the-gun is when it goes out and hires a hotshot PR firm to tell its story. As the share price of Edison plummets — going from a high of $38 in 2001 to 50 cents in recent days — the company, formerly called The Edison Project, has hired The Nieman Group, a Harrisburg, PA-based company, to handle its advertising and public relations. Edison Schools Inc. is the brainchild of entrepreneur Christopher Whittle who also founded the controversial company Channel One, a classroom television news program complete with commercials geared toward kids. Channel One is now owned by K-III Communications, Inc., a property of Kohlberg, Kravis & Roberts.

The Nieman Group’s first salvo came in the form of a full-page advertisement in the Monday, Oct. 28 edition of The New York Times. The ad, according to O’Dwyer’s PR Daily , “addresses four main points critics are raising about the 10-year old company — test score improvement, acceptance of the Edison program, financials, and the flurry of press coverage about the company.”

The ad pointed out that Edison is “the most scrutinized school system in America, bar none” and declared “that its operating position is strong despite the ‘ups and downs’ of its share price.” The ad also claimed that “test scores at Edison schools are rising on average and that the company now educates 80,000 students in 150 schools.” Although it has dramatically increased the number of schools and students it has under contract, last year contract disputes caused it to close 20 schools with 7,400 students, reports Business Week.

The test scores claim doesn’t square with a late-August report in The Philadelphia Inquirer that found that almost all the Edison-managed schools in the Chester Upland district in Pennsylvania — historically one of the state’s lowest-performing districts — “ranked well-below average or below average, compared with test takers around the country.” The Inquirer goes on to say: “In none of the district’s Edison-run schools did all of the grades advance at least one grade level.”

Is it as simple as not being able to get its message out or are Edison Schools problems more deeply rooted?

On the business side of the ledger, Business Week is reporting, in its Nov. 4 edition, that “Edison’s precarious financial position is forcing it to borrow funds at exorbitant rates of 12 percent and higher”. The Wall Street Journal ‘s “Marketplace” section on Oct. 22 pointed out that the company had never turned a profit — losing as much as $86 million last year — despite the frequent optimistic predictions by Whittle to the contrary. In June 2002, reporter Tali Woodward said that the company had “racked up $250 million in losses” since its founding in 1992.

In a report for Corp Watch, Woodward wrote that: “Edison is still reeling from a three-month inquiry into the company’s finances by the Securities and Exchange Commission. Investigators determined that the company consistently misreported revenues, providing an unduly rosy picture to investors. For example, Edison reported $375.8 million in revenue in fiscal 2001. According to the SEC’s May 14 order, $154 million of that never passed through the company: It was spent by school districts on salaries for teachers and other staff at schools run by Edison. The SEC also found that Edison does not have an adequate system of internal accounting controls in place.” Despite the SEC’s findings, no action was taken against the company. In fact, things looked quite promising as Edison prepared to enter the new school year with its heftiest contract to date under its belt — managing 20 “low-performing” schools in Philadelphia.

The genesis of this contract is worthy of note. Woodward reports that in 2001, Edison was paid $2.7 million by then-governor Tom Ridge to perform an assessment of the Philadelphia schools and “come up with a reform plan.” Edison recommended that the state place 45 of the district’s “lowest-performing schools” as well as the district offices in the hands of a private company. According to Woodward, “the company also targeted thousands of support jobs, including janitorial services, for budget cuts.” In December 2001, the mayor of Philadelphia and the governor placed the school district in the hands of a five-member reform commission. In April 2002, “the commission announced… that 42 schools would be handed over to private managers — 20 of them to Edison.” A major battle ensued, involving thousands of teachers, parents and students vehemently protesting the Edison contract.

Edison is still reeling from a three-month inquiry into the company’s finances by the SEC.

Now, only a few months later, Edison is facing the humiliating possibility of being removed from the Nasdaq Stock Exchange if its stock price doesn’t rise above $1 by late November.

At its Web site, Edison claims to have “implemented its school design in 150 public schools, including many charter schools,” across the country. Its “school design” included a pre-packaged standardized curriculum, a longer school day, reducing administrative costs by slashing the educational beaurocracy, and taking advantage of economies of scale. Edison’s plan translated itself into the hiring of inexperienced and lower-paid teachers, initiation of a cookie-cutter curriculum, the removal of special-needs students, and an overemphasis on teaching testing.

In late October, despite talk of a possible Edison bankruptcy, the Philadelphia school system sent the company a check for $5 million “after signing a deal guaranteeing that the district wouldn’t be left without school equipment and supplies if the company failed,” the British newspaper, The Guardian, reported.

The threat of bankruptcy has been a concern of other school districts that have had Edison contracts. In June 2002, the Michigan Department of Education warned its schools that it should have contingency plans in place should Edison go out of business. As the Mt. Clemens school board was negotiating an end to its seven-year contract with Edison, Watkins told local school boards or colleges that they may have to consider dissolving their Edison-run schools. The Detroit News reported that state Schools Superintendent Tom Watkins told charter school sponsors that these plans, “may be as simple as hiring another educational service provider to immediately take over Edison’s responsibilities.”

According to a late August editorial in the Boston Globe, earlier in the month the school superintendent in Dallas “informed Edison that the city intends to cancel multi-year contracts at seven Edison-run elementary schools.” And last May, the Globe pointed out, “the Boston Renaissance Charter School also severed its relationship with Edison, citing the need, and ability, of local Renaissance staffers to manage curriculum issues, standardized testing, and personnel administration without Edison’s help.”

Many public school advocates and opponents of privatization have watched Edison closely and conclude that the company relentlessly toots its own horn, but rarely meets the claims it trumpets. While some schools run by Edison have shown some improvement in test scores, the American Federation of Teachers says that like the company’s financials, these numbers are often illusory.

In the midst of this current crisis, the Oct. 22, 2002, edition of the National Center for Policy Analysis’ Daily Policy Digest reported that Edison says it will tighten its belt, cut unprofitable contracts and overhaul its strategy by cutting back on expansion plans. The NCPA, a conservative policy institute, claims that “The future of public education in the United States, and efforts to reform it, are closely tied to the prospects” of Edison.

Edison relentlessly toots its own horn, but rarely meets the claims it trumpets.

In early October, Edison founder Christopher Whittle came up with a desperate and harebrained scheme to reduce labor costs for the company. Whittle proposed that public school students take on some of the company’s administrative work. According to press release issued by Philadelphians United to Support Public Schools, Whittle commented that, “600 pupils working one hour a day was the equivalent of 75 full-time adult staff.”

Given its lack of profitability, it’s less-than-august educational track record, and these controversial statements by the company’s founder, it is going to take a heck of a PR effort by The Nieman Group to handle Edison’s growing problems. Business Week gives the company until next June to prove “it can make money while effectively running schools in such tough places as Philadelphia. If it fails, Edison will likely either become a private company or face bankruptcy.”

If the company files for bankruptcy, as the Tesseract Group (formerly Education Alternatives Inc.) — another for-profit company with contract to manage public schools — did in 2001, it will result in chaos for school districts with Edison contracts. In the short run it may slow the rush to privatization but it will not end these efforts. America’s public schools represent a multi-billion dollar industry and the privateers desperately want their share.

Published: Nov 13 2002

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