Edison Schools Going Under?


February 2000, Samuel A. Walker, a communications specialist for
the Mackinac Center for Public Policy, a conservative Michigan-based
policy institute, touted Edison Schools as 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, wrote: “Several years ago…[we]
put forward an idea that struck many as far-fetched: privatize school

right 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 twenty-two schools
in Michigan.” Walker closed by pointing out, “As Edison
schools prosper, parents are starting to believe in real education

more than two and a half 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 in
the U.S.

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
plummeted—going from a high of $38 in 2001 to barely over $1
in mid-November—the company, formerly called The Edison Project,
has hired The Nieman Group, based in Harrisburg, PA, 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 currently owned
by K-III Communications, Inc., a property of Kohlberg, Kravis &

Nieman Group’s first salvo came in the form of a full-page
advertisement in the Monday, October 28 edition of the

New York

. The ad, according to O’Dwyer’s

PR Daily

“addresses four main points critics are raising about the ten-year
old company—test score improvement, acceptance of the Edison
program, financials, and the flurry of press coverage about 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


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


goes on to say: “In
none of the district’s Edison-run schools did all of the grades
advance at least one grade level.”


reported in its November 4 edition, “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 October 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.

a report for

Corp Watch

, Woodward wrote, “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.”

the SEC findings, only minor sanctions were imposed. Overall, things
looked relatively promising as Edison prepared to enter the new
school year with its heftiest contract—managing 20 “low-performing”
schools in Philadelphia—under its belt.

genesis of the Philadelphia 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.

its website, Edison claims to have “implemented its school
design in 150 public schools, including many charter schools,”
across the country. Its “school design” included a prepackaged
standardized curriculum, a longer school day, reducing administrative
costs by slashing the educational beauro- cracy, and taking advantage
of economies of scale. Edison’s plan translated 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.

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


, reported.

threat of bankruptcy has been a concern of other school districts
with 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


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.”

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.” Last May, the


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.”

Failing Grade


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. (For an AFT report
on Edison titled “Student Achievement in Edison Schools: Mixed
Results in an Ongoing Experiment,” see www.aft.org/research/edison-project/summary).

the midst of this current crisis, the October 22, 2002, edition
of the National Center for Policy Analysis’s

Daily Policy

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.

early October, perhaps out of desperation or frustration, Edison’s
founder Christopher Whittle came up with a strange scheme to reduce
the company’s labor costs. Whittle proposed that public school
students take on some of the company’s administrative work.
According to a press release issued by Philadelphians United to
Support Public Schools, Whittle pointed out that the company’s
bottom line could be enhanced because “600 pupils working one
hour a day was the equivalent of 75 full-time adult staff.”

its lack of profitability, falling stock price, less than august
educational track record, and ludicrous comments by Whittle, 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,”

Business Week

says, “Edison will likely either become
a private company or face bankruptcy.”

the company files for bankruptcy as the Tesseract Group (formerly
Education Alternatives Inc.)—another for-profit company that
managed public schools—did in 2001, school districts with Edison
contracts will be left in the lurch. Privatization? In the short
run it may slow it down, but it certainly will not end these efforts;
America’s public schools represent a multibillion dollar industry
and the privateers desperately want their share.

Berkowitz is a freelance writer covering conservative politics