P.S., Inc.

Will private management teach the public schools a new attitude toward education?

When the bell rings at Baltimore's Harlem Park Community School, children swarm the hallways. Their voices rise and fall in a cacophonous chatter, echoing down the hall. To the casual observer, it appears no different from any other inner-city school. But Harlem Park is a public school run by a private company, and the changes taking place inside are reverberating down the corridors of American public education.

Harlem Park is one of nine public schools in Baltimore operated by Education Alternatives Inc. In Minneapolis, the new superintendent is a consulting firm. In Massachusetts, the public-school system has brought on 13 private organizations, including the Whittle Corporation's Edison Project, to design and run 15 new schools. Across the country, officials are asking private companies to manage public schools and teach everything from remedial math to Japanese.

It's like the Post Office hiring Federal Express to carry the mail: It's not supposed to happen. A public monopoly is supposed to protect its territory, not contract it out. But under withering criticism and the threat of competition, public schools have finally stumbled onto something that works: capitalism. Contracting for school management, once unthinkable, is now a mainstream idea.

President Clinton, in his 1994 State of the Union address, promised to "empower individual school districts to experiment with ideas like chartering their schools to be run by private corporations." A few days later, Assistant Secretary of Education Thomas Payzant told Congress, "If communities want to hire companies to come in and help their schools, they ought to be able to do so." Such statements are remarkable, since the teachers' unions, one of Clinton's most important sources of support, are vehemently opposed to school contracting.

Inner-city schools are leading the movement toward contracting. In 1987, Kurt Schmoke became Baltimore's first elected black mayor, pledging to improve that city's troubled school system. Frustrated with the public-school bureaucracy, in 1992 Schmoke prodded the city to sign a five-year contract with Education Alternatives Inc. (EAI) to manage one middle and eight elementary schools. The school district can cancel the contract at any time if EAI fails to meet its expectations.

Armed with the experience of running a single public school in Dade County and an innovative curriculum known as Tesseract, Minneapolis-based EAI took on the task of turning around some of the most troubled schools in the city. To accomplish its mission, it had the same per-pupil funding as the average Baltimore city school--about $5,900 a year, a modest sum for urban public schools though slightly higher than what other Baltimore elementary schools receive.

"We wanted to compare their approach with some of the other approaches that we have in our school system," says Schmoke. "They really made us an offer we couldn't refuse. For the same amount of money that we are currently spending per pupil, they would increase academic performance, improve the support side of schools, and make a profit for the firm."

Across the street from the Harlem Park Community School, about one in four row houses is boarded up, their bleak stoops serving as benches for the area's homeless. Unemployment in the neighborhood tops 30 percent. At 10 a.m. the streets are eerily quiet, since the largest local industry--the drug trade--doesn't really pick up until late afternoon.

But inside the Harlem Park Community School, as at all Tesseract schools, "morning meeting" begins at 8:30 a.m. sharp. Lasting about 20 minutes, it serves as a wake-up call, a pep rally, and a social ritual that parents are invited to attend. A typical meeting includes a group song, school announcements, and an upbeat message from the principal stressing the theme that "every child can learn." Morning meeting strives to build a sense of identity and community, uniting students and teachers of various grades and instilling a sense of common purpose.

A more tangible difference can be seen in the classrooms. EAI has put four computers in every classroom (first grade and up), in addition to a new computer lab with more than 35 machines for each school. The computers are not toys or outdated hand-me-downs from local businesses. Each one includes a color monitor, mouse, headphones, and CD-ROM. These are networked, integrated, lean, mean, learning machines--a central component of the overall curriculum.

"It has been a tremendous change, and a good change," says Bernadette Key, a teacher at Rodham Elementary, one of the EAI schools. "I have been in the system for 20 years, and I have never seen it work like this." Key is monitoring a class of 8-year-olds as they tap away on their keyboards, working on individually paced reading and math programs. Assisted by an intern, she manages one of the school's two computer labs. She occasionally interrupts the interview to assist one of the 30 second-graders with math or reading questions.

Key regularly reviews printouts of each child's progress. "See this young man right here?" she says, proudly pointing to an 8-year-old sporting a gold stud earring. "He started the year at 1.7 [computer-scale grade level] in September. He is now at 2.9, on into 3.0." Because the instruction is individualized, students progress at their own pace, some working above grade level, some below.

Key has seen programs come and go, but she believes in this one. She praises EAI for bringing in not only the new computers but other amenities such as a rocking chair, new carpeting, and beanbag chairs. "Before, we had to wait a long time to get books," she says. "We had to wait to get materials. We had to wait, wait, wait. I'm happy to come to work now. I don't know how to put it--just say 19 years versus one."

Speed is, in fact, one of the biggest advantages of private management. EAI signed its management contract in August 1992 and by November had already selected the computer system s software and hardware, and found a vendor. Machines were installed over the winter holidays, and the schools held a technology open house in February. By comparison, a Baltimore public school that decided to purchase computers that same August still had not logged on a year and a half later.

Similarly, EAI gives principals the authority to go directly to vendors for purchases, and the turnaround time for approving large expenditures is usually 24 hours. In the other public schools, any purchase over $500 has to be approved by the Board of Estimates, a city agency that replies in about 40 days.

"We've freed them from the control of the central bureaucracy and given them more flexibility in their procurement procedures," says Mayor Schmoke. "They have introduced business principles to the school site."

In some cases, EAI has applied those principles by hiring subcontractors to take on specialized tasks. To improve cleanliness and hold down costs, for instance, the company hired Johnson Controls World Services to handle janitorial services. Specialization--a business principle notably lacking in typical public-school systems, which run not only classrooms and curriculum but cafeterias, bus systems, and cleanup crews--has transformed the schools' appearance.

"The floors smile at us now," says one staffer. Even the program's harshest critics admit that the schools are cleaner under private management. In many public schools, political resistance to contracting creates an in-house janitorial bureaucracy immune to market forces. In New York City, public-school janitors earn an average of $60,000 a year. In many Baltimore public schools, when a water fountain breaks a requisition for repairs is sent to a central bureaucracy, where it goes to the bottom of a pile and sometimes sits for weeks. In EAI schools, if a water fountain breaks, it gets fixed within a few days.

The entire approach to building maintenance has changed under private management. Discovering it had inherited an inefficient lighting system, EAI invested about $330,000 to upgrade the lights in all of its schools. The change will save $150,000 a year in electric bills, paying for the upgrade in less than three years. Such common-sense investments are often overlooked in the public sector, where managers have little incentive to find savings because rewards--both individual and organizational--are not linked to productivity. Perhaps more important, public schools lack the financial flexibility to make such front-end investments. Because they "can't afford" to spend $330,000 this year, schools end up paying an extra $150,000 every year.

Since more than 40 percent of all K-12 spending goes to non-instructional support activities, increasing efficiency in these areas can have significant educational impact. So while much of EAI's spending is dictated by existing teacher contracts, sources of savings still abound. By cutting costs in the cafeteria, EAI can put computers in the classroom, shifting resources to where they can do the most good.

Tesseract schools--unlike the magical story from which the curriculum name is derived--are not the stuff of fairy tales, of course. The problems of the community do not disappear at the schoolhouse door. The cafeteria at lunch makes feeding time at the zoo look serene (one parent volunteer suggested using the National Guard). Verbal abuse of teachers, especially at the middle school, is not uncommon. And in the halls, don't be surprised to hear one student tell another to attempt an anatomically challenging act.

More importantly, no one really knows how much the children are learning. Meaningful test scores will not be available until the 1994-95 school year, when an independent consultant will evaluate EAI's performance. And while the Tesseract tour is impressive, it is a guided tour, and EAI has an obvious interest in maintaining a good image.

Still, parents are hard to fool, and they seem pleased. The parents decorating a hallway at Rodham Elementary are effusive in their praise. "The change has been substantial," Joanne Floid, whose two children attend the school, says amid a chorus of agreement. "The computers, the neatness, the children's attitude about school. My 7-year-old is reading now. He wasn't reading on his level, [and now] we're going past his level."

Principal Flora Johnston says parental involvement is a conscious goal of the Tesseract schools. "Parents have an opportunity to meet with the teachers and set goals for their children," she says. "Always before we as educators were telling the parents what we were going to do. Now the parents can say 'I like this, and I will help do this.' They have some ownership."

EAI's president, John T. Golle, sees the Baltimore arrangement as a model for turning around public education. EAI has attracted interest from other districts. Last December, Washington, D.C., Superintendent Franklin Smith announced his intention to place up to 15 schools under private management, a move that sparked strong opposition, prompting him to delay implementation until 1995. "We have to make radical changes in the way we do business in D.C. public schools," Franklin says. In January the Pinckney, Michigan, school board signed a letter of intent to hire EAI.

In Minneapolis, the school board has selected the Public Strategies Group (PSG), a St. Paul consulting firm, as the new superintendent of schools, overseeing 77 schools and a $250-million budget. "The board will be paying for results, not for someone to keep a chair warm," says PSG President Peter Hutchinson. Unlike the typical employment contract, the contract with PSG calls for specific, measurable outcomes, with compensation tied to performance. The contract could earn PSG more than $200,000 if goals pertaining to student achievement, school safety, and attendance are met. "If we don't produce results, we don't get paid," says Hutchinson.

If test scores in Baltimore and Minneapolis show gains in student achievement, look for the private-management model to be replicated in cities across the country. EAI's initial success has already spawned a number of hopeful competitors, all seeking a share of the nation's $250-billion public-education market. This competition is important if contracting for school management is to have any long-term beneficial effect.

Not everyone likes the idea of competition, however. "As a labor organization, we have a natural animosity to privatization," says Linda Prudente, a spokesperson for the Baltimore Teachers Union (BTU). "This is a private company siphoning off public funds into profits. We're against that."

Profit seems to be a dirty word in the public-school world; critics of firms such as EAI call them "eduprofiteers." But teachers, of course, are also paid with tax dollars, as are the companies that sell schools everything from chalk to toilet paper. Whether called profit or salary, tax money winds up in the pockets of individuals. In a competitive market, companies and individuals earn money by serving the customer better than their competitors. In a public monopoly, employees (and their unions) can earn money simply by showing up. When teaching excellence occurs, it is the result of personal initiative rather than systemic rewards. Without competition, employees (and their unions) have little incentive to excel, and their pay often rewards seniority rather than achievement.

That's an arrangement that the unions are eager to keep. Companies like EAI "just want to come in here and make money off this system," says Loretta Johnson, president of the paraprofessional (teaching assistants) chapter of the BTU. Johnson's chapter lost 90 members when EAI substituted lower-paid education interns (all of whom have four-year degrees) for unionized paraprofessionals. In December 1993, the BTU filed suit against the city of Baltimore and the Tesseract program, arguing that it was illegal for the city to contract out the management of public schools. Even though no teachers were laid off and those affected were given the option of transferring to other city schools, the BTU has switched from grudging partner to staunch opponent of the EAI contract.

Mayor Schmoke intends to fight the suit. "In terms of the union itself, it is very difficult to understand, other than protecting the paraprofessionals, why they would file suit," he says. "The program actually treats teachers far more professionally than before, and the teachers who have volunteered to be in those schools seem to like the program."

Indeed, teachers such as Bernadette Key are pleased with the changes, both for themselves and the children. "When we first started in August, union members were out protesting," says Johnston, the principal at Rodham Elementary. "But of my 30 teachers, only four stayed out. Remember, they were given the opportunity to leave if they wanted to, and they chose to stay."

As the experience at Rodham Elementary suggests, the unions do not represent the wishes of all teachers. In addition to the public-school teachers who prefer private management, a growing number of free-lance teachers recognize that an education market can offer more freedom, greater professionalism, and better compensation for talented instructors.

Robin Gross is director of the Maryland-based Science Encounters, a private firm specializing in hands-on science instruction for elementary-school children. She started her business, which now employs 30 part-time teachers because, she says, "I didn't want to do yard duty. I didn't want to attend teacher conferences. I just wanted to teach science." As an educator in private practice, Gross, a former private-school teacher, sets her own schedule, negotiates her own contracts, and focuses on what she enjoys most: teaching. "I'm not thinking about the furnace or the rest of the school district," she says. "I'm thinking about what the student learns about science."

School administrators are finding that private firms like Gross's can often provide expertise and flexibility they just can't get in house. High Tech High School, a public magnet school in New Jersey, has hired Berlitz International, a company better known for instructing tourists than teenagers, to teach Japanese. Sylvan Learning Systems, a national tutorial company, provides remedial education to public-school students under the federal Chapter 1 program. Other national franchise chains providing services to schools include Huntington Learning Centers and the Japanese-owned Kumon Educational Institute, which markets math and reading programs to American public schools.

A bold experiment in Massachusetts will combine the advantages of private management with the creativity of free-lance educators. In March the state announced that it will allow 13 organizations to design and operate 15 "charter schools," autonomous institutions that report directly to the state and avoid much of the stifling regulation and bureaucracy that constrain other public schools. In addition to the for-profit Edison Project, the brainchild of entrepreneur Chris Whittle, the organizations include Boston University, a public housing association, and various groups of parents and teachers. They will receive the same amount of funding per child as other public schools, but they will be given wide latitude to try out a variety of curriculum and management approaches. Edison Project President Benno C. Schmidt Jr., former president of Yale University, says the company expects to open its three charter schools in August 1995.

Massachusetts Gov. William Weld, who has made privatization a cornerstone of his administration, wants to bring market forces to bear on education. "The governor is enthusiastic about any ambitious attempt to remake public schools, including the Edison Project," says Steven Wilson, Weld's director of strategic planning.

In contrast to those in some other states, charter schools in Massachusetts can be created from scratch, rather than through the restructuring of existing public schools. This means that management will not be bound by existing collective bargaining agreements, as is the case with EAI's arrangements in both Baltimore and Dade County. A privately run charter school in Massachusetts could mean market wages, pay for performance, and non-unionized teachers.

Not surprisingly, the Massachusetts teachers' union opposes the charter-school experiment. "We have a strong philosophical opposition to the notion of bringing the profit motive into public education," says Robert Murphy, president of the Massachusetts Teachers Association (MTA). Located a short walk from the governor's office, the MTA has historically been a formidable force in Massachusetts politics. Massachusetts, after all, invented public education, and a statue of Horace Mann--"The Father of American Public Education"--graces the lawn of the Capitol Building.

In this case, however, the teachers' union is joined by an unlikely ally: school-choice advocates. Larry Overlan, executive director of the conservative New England Institute for Public Policy, sees vouchers as the only way parents can seek schools that reflect their values. Though he concedes that contracting may result in marginal improvements, Overlan thinks it will eventually become a politically controlled insider's game. "Mostly," he says, "I don't like it because I think it will lessen the demand for vouchers."

Chris Dobrowolski, president of the Massachusetts-based Citizens for Educational Choice, agrees with Overlan's assessment. "If public schools improved because they had to compete for students, that would be great," says Dobrowolski. "But making the public-school monopoly more efficient doesn't improve things for parents who want alternatives. Contracting is a distraction that could delay the only real reform-school choice."

Dobrowolski has a point. Companies doing business with government don't like competition any more than the public-education bureaucracy does. Such companies, once entrenched, soon become defenders of the status quo; in fact, EAI's Golle has already voiced strong opposition to school choice.

And though it uses market forces, school contracting is far from a free market. It is a government monopsony, a market in which there is only one buyer. The innovations contracting brings today may give way to political shenanigans tomorrow. There are no standard procedures for awarding school management contracts, and the situation has the potential for abuse. Albert Shanker, president of the American Federation of Teachers, raises a valid concern when he notes that "schools are political institutions. Mayors, superintendents, and school boards who hire outside companies have a vested interest in getting results that look good….[H]onest, competent, independent evaluation must be part of the game plan."

But these concerns should not preclude the use of contracting. Experience shows that corruption in contracting for municipal services is rare, partly because kickbacks are illegal (and the press enjoys exposing corrupt politicians) and partly because competing bidders look for such high jinks. You can bet that Al Shanker will be subjecting his private-sector counterparts to intense scrutiny--an added benefit of healthy competition.

Hiring private firms to run public schools doesn't eliminate the problems associated with political control, but it does reduce the red tape of everyday operations. And each new advance of the private sector into public schools--whether sweeping the floors, teaching Japanese, or managing a district--transforms the relationship between the public and private sectors. Private involvement in public education challenges public officials to explore new models for providing education.

In the end, eroding the anti-market bias of public educators may be the most salutary effect of contracting. Every private company becomes an ambassador of market economics in a realm where such ideas have been unwelcome. Over time, administrators may grow accustomed to the responsiveness of the firms they hire; teachers may treasure their greater autonomy; and parents may grow comfortable with the idea of a private firm running their local school. These changes may well pave the way for further, more sweeping market reforms. A little perestroika is a powerful thing.

John O'Leary and Janet R. Beales, policy analysts with the Reason Foundation, are co-authors of the study, "Making Schools Work: Contracting Options for Better Management."