Learning From Charter Schools (US)

June 8, 2010

Commercial interests have always gotten a share of public education dollars through contracts for school construction, food services, textbooks, and the like. But until the 1990s, the delivery of education content and the accountability for student results were solely government’s preserve.

Enter the era of market-based reforms to public education and the advent of charters: publicly funded schools freed from certain regulations applied to traditional public schools. Both for-profit and nonprofit groups manage charter schools. The vast majority have freestanding management and are commonly referred to as &quo t;mom-and-pop" charters.

Although they constitute only a fraction of the U.S. public education sector — about 5 percent of all schools — charters are the current heroine of the education reform movement and have been embraced by the Obama administration. States with charter-friendly policies, or those willing to adopt them, are stronger candidates in federal grant competitions. The highest-performing charters have demonstrated unequivocally that low-income minority students can achieve in the right conditions.

How educators can best duplicate the success of high-performing charter schools has become a key question in the national discussion about education policy.

For-profits that manage charter schools, commonly referred to as Education Management Organizations, run about 18 percent of charters. Proponents argue that building on the success of charter schools requires private-sector resources. Raising private capital, growing quickly, acquiring buildings, investing in research and development, and doing it all for less are their principal competitive advantages.

Access to private capital, for-profit leaders say, frees schools from having to raise money. "I have noticed that charters with management contracts with for-profit companies do little, if any, fundraising," said Larry Maloney, president of Aspire Consulting. Maloney worked on a recent report by Ball State University that analyzed funding differences between charter schools and district schools (traditional public schools).

The Ball State report found that charters, on average, receive less per-pupil funding from the state than traditional public schools. But when all of the items that figure into the total cost of education are factored in, it’s unclear if charters are doing it all for less.

"There is no evidence to suggest that [for-profit management companies] are saving the public money except for what they suggest [they’re saving]," said Gary Miron, an education professor at Western Michigan University. Since 1998, Miron and colleagues have been producing an annual profile of for-profit companies that manage public schools.

Miron’s work shows that for-profits serve more students per school than nonprofit organizations that manage charters. In 2008-09, schools operated by for-profits served 470 students per school on average, compared with 296 students at schools managed by nonprofits. (Figures include a small percent of district schools.)

In brick-and-mortar classrooms, for-profit management growth has not been impressive. But in virtual education, for-profits have taken the lead in recent years. According to a report by the Center for Public Education, an information warehouse created by the National School Boards Association, for-profits have nearly quadrupled the number of virtual charter schools they operate since the 2003-04 school year, from 13 to 50.

For virtual learning, "over the last 10 years, the ability to build a research-and-development budget for innovation, continue to change content, and adapt has been greater in for-profits than nonprofits managed within a governmental structure, with only a few exceptions," said Susan Patrick, president of the International Association for K-12 Online Learning. Patrick’s group includes for-profit, nonprofits, and state-run virtual schools.

Student performance, however, is the most important criteria by which to judge for-profit operators, education experts say. And like the data on charter schools in general, the results are mixed. According to the National Alliance for Public Charter Schools, charters operated by nonprofit education management organizations outperformed for-profit charters from 2005 through 2008 in terms of the percentage of schools meeting the No Child Left Behind Act’s proficiency targets in math and English.

In the for-profit sector, Imagine Schools, EdisonLearning, National Heritage Academies, Mosaica Education, and White Hat Management are some of the biggest players.

In New York state, National Heritage Academies’ charters have done very well: Since the 2005-06 school year, the schools have made consistent gains in the percentage of students scoring proficient on state exams for English and math. In certain subject areas at some schools, the portion of students scoring proficient doubled, and even tripled in one instance, in the past five years. According to Jeff Clark, CEO of National Heritage Academies, students at his group’s schools outperformed their peers 97 percent of the time on all New York state proficiency tests in 2008-09.

Imagine Schools, the largest for-profit charter operator, has lately come under fire for its poorly performing schools and its management practices. A new report by Policy Matters Ohio, a liberal think tank, found that none of the 11 schools that Imagine manages in the state has scored above a D in ratings by the Ohio Education Department since the 2005-06 school year.

What’s more, the report found that Imagine overstepped the legal boundaries of its role as a school manager. In Ohio, as in many other states, a for-profit entity cannot hold a public school charter. The for-profit managing company is a third-party vendor contracted by a nonprofit school board (the entity varies by state). Under Ohio law, the local school board exercises governing authority over charter schools.&l t;br />

According to Robert Bellafiore, who previously served as a charter school authorizer in New York state, a school board’s contract with a for-profit manager should ensure that the board is in control of the school. "There are challenging issues of governance and control [with for-profits] that aren’t necessarily involved with a mom-and-pop charter or a not-for-profit," Bellafiore said.

One former school board member interviewed for the Ohio study said that Imagine wanted the board to be a "rubber stamp rather than a governing body." Dennis Bakke, owner of Imagine, stirred controversy in 2009 when the press got hold of an internal memo he wrote encouraging his employees to disregard the power of appointed school boards and remember that the school, the money, and the risk all belonged to the company, not to the board.

Industry insiders say that Imagine’s behavior makes it an outlier.

"As a country, I don’t think we have had a conversation about why it’s OK for commercial providers to exist in some parts of the education sector and not others," said John Bailey, a director at Dutko Worldwide who was an adviser on education and other domestic policy issues in the George W. Bush White House. Bailey and others say that for-profits’ ability to scale up quickly has been hamstrung by federal, state, and local policies biased against them.

Investing in Innovation, a federal grant competition commonly referred to as i3, excludes for-profits from being a "lead applicant" with school districts applying for the grant, putting for-profits at a significant disadvantage in the process. For-profits are also barred from the high-quality charter competition recently announced by the Education Department.

"Our competitions are built that way to reflect the law," Jim Shelton, head of the Office of Innovation and Improvement at the Education Department, said. The Recovery Act’s provision governing the use of the money distributed in the i3 and the high-quality charter doesn’t allow the direct participation of for-profits.

A 2008 report by the National Resource Center on Charter School Finance and Governance, an organization dedicated to providing information and resources to the charter movement, found that 16 states have laws prohibiting a for-profit organization from applying to open a charter school.

The trend speaks to a cultural distaste for commercial companies’ participation in the education sector. "It’s a visceral reaction that ‘you guys are in this to make money, not educate kids,’ " Mike Connelly, CEO of Mosaica, said.

"There is something unsavory, even repellent, about extracting a profit from public education," Diane Ravitch, a noted education historian, wrote in an e-mail. "All funding should be targeted at improving education, not paying off investors." Public education should be funded through tax revenue, Ravitch added.

Connelly, however, says he has never paid a dividend to one of his investors, and to his knowledge, nobody else in the business has either. All of the money gets reinvested in education, he says. Connelly and other for-profit charter operators posit that the only way to succeed in their industry is to generate good academic results.

But others share Ravitch’s concern that even if investors are not making money today, eventually they will demand a return. "It doesn’t matter if you have a source of working capital." said Sherman Dorn, a professor at the University of South Florida and an education historian. "Somebody is going to expect the money back at some point."

Leaders of for-profits say that policy makers should embrace the private sector for its ability to build capacity at a time when state and local governments are broke. "The nonprofit public education sector does not have any exclusive claim on either quality performance or moral superiority," said Barbara Dreyer, CEO of the Connections Academy, a for-profit that operates virtual schools, including charters. For now, commercial interests in public K-12 education must work hard to overcome widespread skepticism.

"The reason there is an additional caution there is that a for-profit, by definition, has a different part to its mission than just serving the children," Shelton said. "Every time there is a competing mission, you have to be sure that it’s aligned with the service of the children."