Wall Street Journal - February 20, 2000
For-Profit School Managers Discover Teacher Unions Can Be Unlikely Allies
By DANIEL GOLDEN Staff Reporter of THE WALL STREET JOURNAL
In his 1992 manifesto, "Reinventing the Schools," Steven Wilson called teachers' unions "pathological" and accused them of perpetuating "much of what is wrong" in schools while standing "ready to sting the innovator with a volley of grievances."
But today, Mr. Wilson, now chief executive of Advantage Schools Inc., says he is confident of a "productive relationship with the unions" if he wins his bids to manage public schools in Baltimore and other cities.
For most of the 1990s, the school-choice movement -- including charter schools, new private-school chains and outside management contractors like Boston-based Advantage -- was virtually defined by hostility to unions. And the unions retaliated, prevailing on school boards to terminate contracts with for-profit managers in Hartford and Baltimore and initiating legal challenges elsewhere.
But now, as activist states and districts increasingly turn to private managers to rescue failing public schools, the relationship between these managers and the teachers' unions is warming into a mutually convenient courtship. "We reject the idea that unions as a whole are antireform and inflexible," says Christopher Cerf, chief operating officer of New York-based Edison Schools Inc. "That is not consistent with our experience." Of 113 schools managed by Edison, about 40% have union contracts.
Self-preservation and economic opportunity are behind this newfound togetherness. Regular public schools offer a wider and more lucrative terrain for management companies than charter schools, the 2,000 publicly funded and mostly nonunion schools nationwide that operate with autonomy from local school districts. Most companies that started charter schools are losing money on them, largely because they usually have to pay start-up costs, such as acquiring facilities, out of operating funds.
Taking over existing public schools is cheaper because the school district typically pays for renovation and other capital expenses. Also, companies frustrated by the pace of launching charter schools can expand faster by taking over clusters or entire districts of public schools.
Last August, Edison began managing the Inkster, Mich., system, which had been targeted for state takeover. In return for higher pay scales adjusted to Edison's longer school year, the union gave Edison a relatively free hand -- through buyout provisions, for example -- in assembling a staff committed to the company's curriculum.
Now, Edison is applying jointly with state and local unions to run the Chester-Upland school system in Pennsylvania, the first taken over by that state's board of education. Eleven more distressed Pennsylvania districts may be headed for privatization. "These state takeovers weren't even on our radar screen 18 months ago," says Edison Chief Executive Christopher Whittle.
Last December, with behind-the-scenes union backing, Edison was chosen over Advantage and other applicants to manage five struggling schools in New York City. Edison still needs approval from parents, who will vote next month.
"Edison has a mixed record on student achievement," says David Sherman, vice president of New York's United Federation of Teachers. "But that's better than other for-profits."
For unions, for-profit management of poorly performing public schools is the lesser of several evils. It's better than state takeovers because the states are often tougher than local districts on union perquisites. It's preferable to public-school students switching to nonunion private schools on vouchers or attending nonunion charter schools, because teachers continue to be dues-paying members. At its convention last year, the National Education Association, the largest national teachers' union, replaced an earlier resolution opposing all for-profit management with a milder policy that considers privatization efforts on a case-by-case basis.
The new policy "recognizes that many of our state and local affiliates were either working or looking to work with Edison because they consider it a viable alternative," says NEA senior policy analyst Heidi Steffens. "Before, we had this kneejerk policy that didn't correspond to reality."
In Chester-Upland, the union allied itself with Edison rather than take the risk that the schools would be converted into charters and members would lose their jobs. "Our choice was to find a partner and collaborate, or fight whoever came in as a provider using collective bargaining and labor law," says Terry Barnaby, assistant executive director of the Pennsylvania State Education Association.
In Miami, the United Teachers of Dade, an affiliate of the American Federation of Teachers, has received charters for 10 schools and hired Edison to operate them, using unionized teachers on loan from Miami public schools. The teachers retain retirement and other benefits and receive Edison stock options, too.
Rancor hasn't been completely eliminated. The union in San Francisco supports a school-board effort to oust Edison from managing an elementary school there. The teachers' union in Baltimore sued the state for contracting with Edison last fall to run three failing elementary schools with nonunion teachers. The state won in a lower court, but the case is under appeal.
Mosaica Education Inc., a New York-based charter-school management company, recently defeated a unionization drive at its Saginaw, Mich., school. For-profit companies "have to make sure they don't compromise their integrity to achieve a partnership with unions," says Mosaica Chief Executive Michael Connelly, who plans to continue concentrating on nonunion charters.
Advantage, which operates 15 nonunion charter schools, is taking a different tack. Last September, it hired Bill Rojas to spearhead its efforts to win public-school contracts with unionized teachers. When he was the school superintendent in Dallas and San Francisco, Mr. Rojas recruited Edison to run public schools.
Beacon Education Management Inc., of Westborough, Mass., antagonized unions by operating a Pennsylvania public school with nonunion teachers until a court struck down its contract with the district in 1998. Now Beacon, which manages 25 charter schools, is bidding on contracts to run unionized public schools and expects half of its future expansion to be in that sector.
John Chubb, Edison's chief education officer, once wrote that unions "have further rigidified the schools" and "are part of the bureaucracy problem." Another key Edison executive, former U.S. Rep. Floyd Flake, campaigned for the Michigan voucher proposal that was defeated in a referendum last November.
But over the years, Edison has learned to roll with the punches from organized labor, including a 1994 NEA resolution urging state retirement plans to divest themselves of companies doing business with Mr. Whittle and an AFT study last fall challenging Edison's claims of students' educational gains.
Edison now flatly rejects Mr. Flake's cause in its SEC filings, saying it doesn't participate in voucher programs. Without "cooperative relationships with local teachers' unions, we could lose business and our ability to grow could suffer," adversely affecting the stock price, Edison states.
Edison is relying on those cooperative relationships to meet its goal of expanding in the next few years to 350-400 schools. The company, which had a loss of $22.7 million in its fiscal first half ended Dec. 31, expects to be profitable when it has 250 schools.
In one instance, Edison's conciliation with unions appears to have backfired. When the Michigan Education Association sought to organize teachers at Edison's charter school in Lansing, where teacher-administration relations were deteriorating, Edison remained scrupulously neutral. Last year, teachers voted to unionize.
But the company's stance infuriated the school's community board, which was vehemently antiunion. Although Edison sought to bargain with the new local, and to base the contract on agreements in Inkster and elsewhere, the board insisted on taking the lead and writing a contract from scratch.
Today, there is still no union contract. Edison's management contract expires in June, and the board is soliciting other bidders to run the school.
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San Francisco's School Board Seeks to Revoke Edison Charter
By ANN GRIMES Staff Reporter of THE WALL STREET JOURNAL
SAN FRANCISCO -- The Thomas Edison Elementary School was in need of help long before Edison Schools Inc. took it over three years ago, promising to improve the curriculum and test scores. But its academic woes seem routine in comparison with the political imbroglio going on now.
In 1998, the school board here agreed to let Edison Schools take over the management of the low-performing inner-city elementary school, whose name is only coincidentally the same as the company's. Edison has made a business of taking over poorly performing schools and this was to be its beachhead in San Francisco. It hired new teachers, refurbished the school, and set about teaching the Edison way.
But now, San Francisco is on the verge of kicking Edison out of town. Last week, a newly elected, union-backed school board put the company on notice that it intends to revoke its five-year charter pending an investigation into its performance. That would be a first for New York-based Edison, which operates 113 for-profit schools in 45 U.S. cities.
San Francisco School Board President Jill Wynns says that she and a majority of the new board are "philosophically opposed to for-profit management" and want to investigate complaints about Edison's financial, contractual and management practices, and allegations that it weeded out troublesome students who are tough to teach.
Edison denies any irregularities. "This school deserves applause, not revocation," says Christopher Whittle, the company's founder and chief executive. Should the board move ahead, he plans an appeal with the state board of education.
The situation is unfolding just as the 10-year-old company is poised to take over management of schools in New York City and Chicago. And the emotional debate here underscores the deep divisions facing communities across the nation as they -- and the new Bush administration -- grapple to improve public education, often by introducing private-sector players.
Support from local teachers unions, or lack of it, is critical. While Edison has made inroads with unions in other cities, the relationship in San Francisco is chilly at best. "In San Francisco, it's not the same at all," says Kent Mitchell, president of United Educators of San Francisco, which supports revoking the charter at Edison Charter Academy, as the school of 550 elementary students is now known.
The board has the power to revoke Edison's charter if it believes that the terms of the contract aren't being upheld. Among the contract's terms, test scores are supposed to improve under Edison's management and the school is required to serve all students who enroll.
Edison says scores are up at the school, but Ms. Wynns and other critics say that nine other low-performing San Francisco schools improved just as much without Edison's extra resources. She also contends the improvement reflects an increase in middle-class students who have been drawn to Edison's perks and curriculum.
Edison spokeswoman Gaynor McCown says: "The assertion is inaccurate." Ms. McCown says enrollment is on a first-come, first-serve basis. She also points out that about 60% of the students are eligible for school lunches.
More worrisome, Ms. Wynns says, are complaints that Edison has quietly removed some students. "There have been multiple instances of the parents of special education and other students complaining that their children were asked to leave the school or advised not to apply in the first place," Ms. Wynns says. Ms. McCown denies that has occurred. "We have pretty rigorous standards," she says, "but we don't kick kids out."
The board also is taking issue with Edison's management style and the high teacher turnover at the school. Last year, a majority of the teachers quit, unwilling to work the longer school days and school year that the company requires. Edison hired a new principal, its second since 1998 (and fifth since 1995).
"There are some issues we've had to deal with in San Francisco," says Ms. McCown. "We never said we are perfect."
What bothers school-board officials most is the fact that public funds are being spent on a profit-making endeavor. The issue was hotly debated when the charter was granted, but at the time there were more board members sympathetic to Edison Schools. In November, Ms. Wynns unseated the pro-Edison president, and two other pro-Edison members were replaced.
Ms. Wynns calls the Edison funding arrangement "a sweet deal," that is costing the district money. "We have five charter schools; this is the only one we charge no rent to," she says. "Edison gets a whole bunch of things for free: food service, transportation and payroll services." Of the five schools, all but Edison are nonprofit.
Vincent Matthews, Edison elementary's new principal and a 15-year public-school veteran, agrees that under the contract the school doesn't pay for such things. But he says Edison gets the same $4,200 per pupil reimbursement as other public schools. The national average for Edison schools is $6,500, which is close to the overall U.S. average.
The teachers union's Mr. Mitchell contends the school is controlling operating costs by stinting on labor. He says Edison and the school district modified the teachers' contract, giving Edison control over teacher pay, hours and the grievance process -- without consulting the unions.
But Christopher Cerf, Edison's chief operating officer says Edison has a "deep commitment" to working collaboratively with unions. At the time the charter was signed, he says, "collective bargaining was not a required feature of charter schools under California law." The matter is pending before the state's Public Employees Relations Board, Mr. Mitchell says.
The stakes are high for Edison and California schools. Through a family foundation, Donald Fisher, founder of San Francisco-based Gap Inc., has pledged $25 million to California districts that work with Edison and donated $1.8 million to Edison Charter Academy. Those funds enabled Edison to buy 300 home computers for students and 80 more for the school. In fact, those philanthropic dollars, Mr. Whittle says, subsidized Edison's launch in California, where pupil spending is low and teacher pay is high. But under the grant agreement, if the board terminates Edison's San Francisco charter, "the goods revert to the foundation," says its managing director, Scott Hamilton. "Whether our foundation board would choose to do that is another matter."
Adding to the controversy, Mr. Fisher's foundation has a financial stake in Edison. Securities and Exchange Commission documents show Edison issued below-market warrants for over one million shares at $7.96 each to the foundation. On Friday, the shares closed at $32.375. For the year ended June 30, 2000, Edison had a loss of $36.6 million, or 93 cents a share; revenue was $224.58 million. Analysts say Edison may show a profit by the end of 2003.
Given the foundation's assets, which are about $50 million, says Mr. Hamiltion, "the investment we have in Edison is not significant. If the Edison stock does well that means we have more to give away to charitable purposes. So I don't think we have a vested interest in Edison's success."
Meanwhile, neighborhood parents turned out in force with their children at last week's board meeting. "Who cares if it's a for-profit company from New York?" asks one parent, Joy Lawrence Tyus.
Mr. Whittle calls the fracas "an example of politics before children." But given the stakes, Edison isn't above a bit of politics itself. Two buses shipped protesting parents and kids to the board meeting, and Edison and the Fisher Foundation will pick up the costs, Ms. McCown says.