Readin’, Writin’ and Profitin’

For-Profit Charter Schools Siphon Money from Public Schools and Threaten Union Jobs.

By Clyde Weiss

A new and ominous seedling has taken root in the American educational system: the profit motive.

For-profit charter schools, run by corporations, are the latest manifestation of a movement to steer children away from public schools and into private and sometimes parochial schools. It is a movement that AFSCME members with school-age children should be particularly concerned about. Here’s why:

• For-profit schools divert taxpayer dollars away from the public school system, which the vast majority of AFSCME members’ children attend.
• To increase their profit margin, for-profit charter school companies generally hire teachers with fewer qualifications, and pay them less, than their counterparts in the public schools.
• For-profit charter schools are experimental and have a brief and rocky track record. Many have already failed and closed their doors.

The for-profit charter school movement can be traced back to 1989 when the Wisconsin legislature passed the nation’s first educational voucher plan, which permitted low-income children in the Milwaukee Public School system to attend private, non-sectarian schools at state expense.

Vouchers, controversial private-school tuition subsidies funded by taxpayers, are widely criticized for diverting scarce resources from public schools in order to bolster enrollment in private and even religious schools.

Vouchers, in turn, paved the way for charter institutions, which are public schools set up through a contract with either state agencies or local school boards. Parents and teachers, and even for-profit businesses such as Edison Schools can found charter schools. Even though they are partly financed with public funds, like other public schools, charters are nonetheless self-governing.

For instance, the charter, or contract, gives operators of these schools some control over regulations. Depending on the state, they can have their own curriculums, staff, teachers and financial arrangements. They may not be required to honor labor contracts that cover the same jobs in the public school system.

In exchange for this freedom, charter schools are expected to deliver a higher level of student achievement than the public schools provide. That is the promise. The reality is less clear.

CHARTERS TAKE OFF. Since the first charter school opened in Minneapolis in 1991, the growth of “charters” has been explosive. By last September, more than 250,000 students were enrolled in 1,605 such schools operating in 31 states and the District of Columbia, according to a national study released by the White House in February.

The study does not distinguish between regular and for-profit charters, but a recent Business Week cover story estimated for-profit charter schools now teach roughly 100,000 students in about 200 schools nationwide. That’s only about two-tenths of 1 percent of the 53 million public-school students from kindergarten through 12th grade. But in 1999 alone, 421 charter schools opened — a 40 percent increase over the previous year.

For-profit charter schools are turning education into big business. EduVentures, a Boston education consulting firm, estimates that the so-called education industry is worth as much as $680 billion, and more than a dozen private companies are trying to tap into the market.

Edison Schools, with 37,000 students nationwide, has been the leader in the for-profit charter school field since it opened four schools in August 1995. The publicly owned company now manages at least 79 schools in 17 states and the District of Columbia, and grossed $133 million in fiscal 1999.

In addition to Edison, other leading charter-school firms include the Tesseract Group, Advantage Schools and National Heritage Academies.

CHARTERS’ PROSPECTS? As the Edison experience indicates, despite having more latitude to operate their schools, for-profit charter firms are not assured of making a profit. In a 1999 report, Edison candidly admitted as much: “We have not yet demonstrated that public schools can be profitably managed by private companies, and we are not certain when we will become profitable, if at all.”

Because start-up costs and other expenses cut into gross revenue, Edison actually lost $49 million last year.

Since 1992, at least 59 charter schools have closed. Whatever the reason for closure, the result is the same: The education of students is disrupted.

The National Education Association (NEA), the nation’s oldest and largest public education organization with 2.3 million members who work at every educational level, warns of the danger for-profit companies such as Edison pose to America’s public school system. “By its own account, Edison puts between $1 [million] and $1.5 million of company money into each school the first year,” the association says. “But this is a for-profit company that cannot and will not continue to operate at a loss. When it’s time for Edison to begin making money, will the company cut back the program in its schools — or demand more money from school districts?”

Edison has already answered that question.

“We have incurred substantial net losses in every fiscal period since we began operations,” Edison says in a 1999 financial report to investors.

Consequently, its “ability to become profitable” will depend not only on increased revenue but also on receiving higher “site contributions,” presumably from the school district or charter board, or even the state.

Some state lawmakers are willing to help the privateers. The Center for Education Reform in Washington, D.C., says “state legislators are just beginning to amend their laws to allow charter schools more access to state funds” to pay for start-up costs, facilities, renovations and other expenses.

This is a troubling development for the public school system, says Jamie Horwitz, spokesperson for the American Federation of Teachers (AFT), a trade union that represents more than 1 million workers in education, health care and public service. “We’re leading a movement for schools to reach higher standards,” he explains. “At the same time, there’s this counter-movement to create [charter] schools that won’t adhere to those standards. They’re essentially opting out of the school districts” and taking with them taxpayer money that otherwise would go to public schools.

OTHER OBSTACLES AHEAD. To sustain its early growth, Edison turned to the public last November, raising $109.3 million on shares of stock that sold initially for $18. Even with investor support, however, Edison acknowledges that money is not all it requires to succeed.

Edison says it also needs the cooperation of skeptical teachers’ unions. Without that, “we could lose business and our ability to grow could suffer.”

Labor unions, which represent employees at public schools, are watching the charter school movement with caution. AFT says it supports “properly structured charter schools as a useful vehicle for school reform.” But the AFT also insists that charter school employees must be covered by collective bargaining agreements.

“Charter school laws that are designed to destroy the collective bargaining rights of teachers and other school employees do not serve an educational purpose; they serve a political one,” the AFT says. The union has recently launched an effort to organize faculty at for-profit charter schools.

AFSCME also is watching the for-profit charter school movement with concern. While not opposing charters per se, AFSCME worries that charter schools may ultimately have the same impact on public school employees as privatization and vouchers — that is, they may reduce wages and labor standards. Instead of using taxpayer dollars to bulk up the profits of companies like Edison, efforts should instead be made to improve the quality of public schools with new construction, renovation, more and higher-paid teachers and support staff, up-to-date computers and more books. For-profit charter schools threaten to reduce funding for such purposes.

CONFLICT IS INEVITABLE. For-profit charter schools operate outside the boundaries of their traditional public counterparts. For example, even though they operate in the same school district, they may not need to recognize collective bargaining contracts that protect public school employees. The result is conflict.

“We regularly encounter resistance from local teachers’ unions during school board debates over whether to enter into a management agreement with us,” Edison warns its investors.

AFSCME, which represents paraprofessionals, clericals, food service workers and other public school employees, has dealt first-hand with Edison and other for-profit charter school companies. On balance, that experience has not been positive.

The Minneapolis Board of Education Employees Local 56 (Council 14), which represents about 900 clerical employees and child development technicians, was forced to file a grievance recently after Edison Schools attempted an end-run on the union by not hiring clerical people covered by the local’s contract.

In this case, Edison operated not its own charter school but, under its contract with the district, a public school. Even so, the company hired a secretary and clerk typist who would not have been protected by the union contract, despite the fact that their paychecks came from a school district whose employees AFSCME covered.

Local 56 filed a grievance with the district, and mediation resulted in compromise. The employees were made part of the local’s bargaining unit while the union conceded to Edison a bit more latitude in filling job slots.

Had the union lost, says Local 56 Pres. Vicki Hamilton, “It would have been the same thing as St. Paul trying to get rid of all the trades” by contracting with outside companies. “It would have been privatizing our jobs.”

Circumventing organized labor is nothing new for Edison. About five years ago, the company opened two charter schools in Miami, Fla., then tried to displace custodial employees who worked for the Dade County School District. Edison planned to set up shop “without all the other ‘obstacles,’ such as labor contracts,” recalls Sherman Henry, president of AFSCME Local 1184 (Council 79). The union insisted that Edison respect its collective bargaining contract, which covered school district employees.

In the end, Edison agreed essentially to adopt the local’s contract with the school district as the basis for its agreement with its own employees. Notes Henry: “We were successful in beating them back because the [charter] contract was ultimately with the district, and we had a little political clout.”

FIGHTING A LOOPHOLE. Insufficient political clout played the key role in an unsuccessful effort to prevent Edison from gaining a foothold in Duluth, Minn., says Erik Peterson, business representative with AFSCME Council 96, which represents some 3,800 public and private employees in Duluth. The school district was prohibited from contracting with for-profit charter school companies, but Peterson says pro-charter members of the school board used a legal loophole to create a nonprofit “dummy” company that subcontracted with Edison to run its schools.

The council majority, arguing that Edison would drain $2 million a year from the public school system, helped to persuade state legislators to draw up a measure eliminating the for-profit charter loophole. Under threat of a veto, however, then-Gov. Arne Carlson (R) had the provision stripped from a bill.

The next battleground was the pro-Edison school board. Council 96 recruited four anti-Edison candidates in 1997. Although all four won, the pro-Edison faction still outnumbered them, 5-4. To make matters worse, the board voted to extend Edison’s lease another three years before the new members were even seated.

“We screamed about it, but there wasn’t a damned thing we could do,” Peterson recalls.

Well, almost nothing. The union recruited five more anti-Edison candidates last November and won two more seats on the school board. With a 6-3 majority on their side, the council saw a real chance to end the Edison contract. Yet the outgoing majority moved quickly: It voted to renew Edison’s charter for three more years before the new members were sworn in.

KEEPING CHARTERS OUT. There are 46 charter schools in Ohio, but the Ohio Association of Public School Employees (OAPSE)/AFSCME Local 4 in Columbus has helped to keep out charters run for profit.

OAPSE, which represents about 33,000 members, belongs to a coalition that is working with the state legislature to extend to charter schools the same standards and controls in existence for public schools. “We’ve taken a number of aggressive political and legislative steps to attempt to corral the voucher movement and to hold the charter school movement’s feet to the fire,” says OAPSE Exec. Director Joseph Rugola, who is also an International vice president. “The standards would include the same certification requirements for teachers, the same drug, alcohol and background testing, and the same student performance standards that exist for the public schools.”

HERE TO STAY? NEA Pres. Bob Chase told Business Week that for-profits may be just another “fad du jour.” But the magazine also noted a forecast by Edison founder and CEO Christopher Whittle that up to 30 percent of U.S. public schools will be run by for-profit companies in 20 years.

For-profit charter school companies and their advocates claim their flexibility and methods allow them to provide a superior education. “Although early data should not be over-interpreted,” Edison says, “they indicate that student achievement at Edison schools is up substantially.”

Some school privatization experts are very skeptical. “One thing that’s fairly clear is that any statement calling these [for-profit] schools pretty successful is stupid,” says Max Sawicky, an economist for the Economic Policy Institute (EPI) in Washington, D.C., and co-author of Risky Business: Private Management of Public Schools. “They haven’t been running long enough to show anything, one way or the other.”

The NEA agrees: “The companies claim they’ll improve student learning — and make a profit. Experience doesn’t support their claim.”

Making money does not necessarily translate into better schooling, says Peterson of Council 96: “We’re not talking about widgets here. We’re talking about education. The bottom line should not be profit. We’ve seen what that’s done in health care where you don’t make a profit unless you cut costs. The way they cut costs at Edison is to keep a revolving door of young, low-end teachers. The turnover rate is already legendary.”

“If you start with younger teachers, you get to save a ton of money,” adds EPI’s Sawicky. “And if you were able to stay with younger people continuously, by turning them over, you’d have a cost advantage over the public systems, where workers have long-time job security.”

STILL AN EXPERIMENT. Charter schools are not necessarily bad if they serve a specific mission, such as filling the special needs of inner-city youth, says OAPSE’s Rugola. “What we do object to are institutions that operate independent of the public schools” without regulation according to any standards, especially for-profit charters.

“Most of these charter schools call themselves experiments,” says the AFT’s Horwitz. “In the history of experiments, some succeed but most fail. When you’re talking about children, they shouldn’t be experimented on. We want to go with what works, and we think higher academic standards in public schools are what works.”