Class Acts

How charter schools are revamping public education in Arizona--and beyond.

James K. Glassman from the April 1998 issue

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The financial oversight has been pretty hands-off, too. In fact, only two schools--less than 1 percent of the total--have lost their charters because they failed to meet the state's fiscal standards. In one case, there was out-and-out fraud; in the other, the state didn't trust the school's enrollment numbers. Those failures actually point out a major strength of the charter system. As Keegan wrote in January in a letter to the editor in The New York Times: "Our public system has at times been rife with mismanagement, yet before the advent of charter schools Arizona had never been able to take such strong actions on behalf of students. Closing a failing school is not a travesty, it is progress." Like any other business, a school should fail if it messes up financially or if it can't deliver what its customers want. When you have trial and error, you have error--and it has to be punished. Bad schools should go bankrupt. The idea, after all, is to create a resilient system, not a fault-free one.

The only deficiency of Arizona's law--and it's a big one--is that the state stipend is not supplemented to account for buildings and other capital costs. Arizona charters receive the same amount, per student, as conventional public schools do for operations. But the charters, unlike regular public schools, have to use some of that money to pay rent on their buildings.

"At $4,200 [a student], your margins are so thin that if you hiccup, you're going to lose money," explains John Golle, chairman of the Tesseract Group. When it opens its charters over the next few years, Tesseract will be Arizona's largest charter school operator, with 16 sites and a total of 6,650 students in grades K-12 (it already runs a private school in Scottsdale, with annual tuition averaging about $6,700). This is the same company that, before changing its name from Education Alternatives Inc. last December, ran schools under management contracts with boards in Baltimore and Hartford. Those deals came apart at the seams, in large part because of opposition from the unions.

In Arizona, Tesseract's challenge is more economic than political, though hardly less daunting: How do you stay in business given the state's relatively stingy stipend? Golle's idea is to run his charters like a movie house, profiting from the popcorn, not the film. In this case, the popcorn includes preschools that feed into the charter, post-secondary classes for adults, summer programs, and special classes in computer skills.

If Superintendent Keegan gets her way, though, charter school operators will see their margins fatten up a bit. She is now pushing for an extra $640 per student as a capital stipend. The ultimate goal, she told me, is to "strap dollars on the back of students." That's a concept that could, of course, lead to a voucher-style system, where the money accompanies students to private schools (which enroll about one in eight kids nationwide). Whether that ultimately happens, the odds look fairly good that Keegan will succeed in getting a capital stipend for charters. If and when she does, says Jaime Molera, the 29-year-old top assistant on education to Gov. Jane Dee Hull, "Charter schools could grow exponentially."

John Graham, a Phoenix real estate developer, concurs. He says that firms like Tesseract and Edison have asked him to build schools in his suburban subdivisions and lease them back to the charter operators for free, or at a token rental, to encourage families to buy houses there. It's nice deal for the educational firms, he says, but one that doesn't do much for the builder. "As a businessman, it doesn't make sense," says Graham. But, he points out, if a developer could pull in $600 per student, or $180,000 in annual rent from an enrollment of 300, it does.

I visited with Graham (who is, incidentally, Keegan's ex-husband; Phoenix is that sort of small town) last November. A little later that same day, I toured a school in a central-city neighborhood that is worlds apart from Graham's commodious developments. The school has 359 elementary students, nearly all of them Hispanic, and is located in a former shopping center. It's run by Advantage, a typical start-up company with enthusiastic founders, high expectations, and little else. Currently, Advantage has only one other charter school, in Rocky Mount, North Carolina, and another set to go in New Jersey this fall. Advantage has received a total of $5 million in venture-capital funding from Bessemer Venture Partners and Fidelity Capital, a division of Fidelity Investments, the huge mutual fund house.

Critics accuse charters of "skimming" the best students from public systems, which is often a coded way of claiming they have predominantly wealthy, white students. But the Advantage school's large minority student body is actually pretty typical for charters. A study released last May by the U.S. Department of Education found that 48 percent of charter school students are minorities, compared with 34 percent for all public schools nationwide. In Arizona, the study found that 45 percent of charter students come from families with incomes low enough to qualify for the free or reduced-price lunch program, compared with 40 percent for all public schools in the state. Nationally, 13 percent of charter school students are in special education programs, vs. 10 percent at regular public schools.

Far from skimming the best students, then, charter schools often wind up with those who are having problems. The reasons for this are not hard to fathom. As researchers Chester Finn, Gregg Vanourek, Bruno Manno, and Louann Bierlein suggest in their extensive 1997 study of charter schools for the free-market-oriented Hudson Institute, the most comprehensive review yet of the existing charter school literature: "Well-to-do parents of successful youngsters are not likely to enroll their progeny in new, unproven schools that have not yet established firm reputations....The families streaming into charter schools are plenty needy, and many of their children have been poorly served elsewhere."

That's certainly the case at Advantage, where 90 percent of the children are on free or reduced lunch (the generally used poverty standard for schools). While most of the parents are Hispanic, the teaching language is English. Both the school day and the school year are longer than in normal Phoenix public schools. But that doesn't seem to bother the kids. The principal, Pepe Quintero, a 27-year veteran of teaching, is a bundle of energy, and the students, all in neat uniforms, are almost frighteningly attentive to teachers using a highly scripted curriculum called Direct Instruction that stresses reading skills.

Each classroom has rules posted on the wall: "Be responsible. Be kind. Tell the truth. Persevere." Encouragement is everywhere. In a fifth-grade room, a sign says, "We are the world's best class." And there's a remarkable amount of respect shown to the kids by the teachers and administrators. For example, when Quintero brings me into a classroom, he says to the second-graders, "Excuse me, ladies and gentlemen, for interrupting."

Anyone who has visited an inner-city public school would find the sense of order at Advantage astonishing. But not surprising: The parents of these kids want discipline and structure in their children's schools; that's one of the main draws of Advantage. Clearly, the power of self-selection is intense and effective. It helps everything run more smoothly.

"Everybody is here by choice, not by assignment," says Stephen Wilson, the president of Advantage and formerly director of strategic planning for the commonwealth of Massachusetts. And he's referring not just to the students and their parents but to the teachers and the principal as well.

Wilson's partner is Theodor Rebarber, who was an aide to former Minnesota Rep. Steve Gunderson and who authored a 1997 Reason Public Policy Institute study on charters. Like any other businessmen, they're out to make a profit by giving customers what they want. But staying in the black is no easy task given Arizona's level of per-student funding. "Phoenix, for us, is a great business challenge," says Wilson. "If we can make it here, we can make it anywhere." Next on his list are Washington, D.C.; Worcester, Massachusetts; Kalamazoo, Michigan; and Chicago. If Advantage goes public, Wilson says, teachers will get stock options.

To my admittedly untutored eye, the Advantage school appears to be an enormous educational success. But it just opened its doors in September, so no student test results are available yet. Similarly, there are not yet any substantive data from other Arizona charter schools.