Public face of private loss

29th March 1996 at 00:00
Christopher Farmer finds American schools reluctant to take up entrepreneurial offers of assistance.

Given the entrepreneurial reputation of the United States, a surprising picture has been drawn by a recent report on the privatisation of services in American public (state) schools.

A survey undertaken by the National School Boards Association (NSBA) indicates that less than two-thirds of school districts have considered the use of private companies to provide services to students.

For the purpose of the report, Private Option for Public Schools, "privatisation" refers to the voluntary use of private companies by school boards. The services these companies could provide range from student transport to special education classes to the management of individual schools. The development of education-business partnerships and charter schools (the US equivalent of grant-maintained schools) fit awkwardly into this definition.

The problems faced by private companies which seek contracts have recently attracted a good deal of attention. The Edison Project, founded by media entrepreneur Christopher Whittle, began the school year managing just four schools rather than the 100 or so which were originally anticipated by its $45 million research and development programme.

Education Alternatives Inc, which was running all 32 schools in Hartford, Connecticut, and nine in Baltimore, Maryland at the beginning of the school year, has lost both contracts over the past few weeks and is now without a school to run.

Problems arose after the company failed to meet its own performance claims and the districts failed to agree budget cuts with the company. Shares in Education Alternatives Inc are running at 12 per cent of their 1993 value. After making a loss of more than $4.2m during its last trading quarter, the company now intends to focus its attention on suburban rather than urban schools.

Despite these setbacks and the Edison Project's failure to make a penny profit on its investment to date, Christopher Whittle remains optimistic. He told a recent meeting of the Californian Association of School Administrators that he was confident that private companies will soon be managing a significant slice of the state-school "market".

The NSBA report suggests that the high-profile problems experienced by companies represent the tip of a sizeable and more robust privatisation iceberg. It identifies 16 types of management services and 12 instructional programmes which are provided by private companies to schools or their districts.

The four principal contracted-out services - facilities maintenance, food services, transportation and vehicle maintenance - are unsurprising. Other services include management consultancy, professional development and day-care services, public relations and after-school programmes, the last often provided through the YMCA.

The range of privatised instructional programmes is more interesting. These represent a relatively small proportion of the privatisation market but include some services which are both educationally and politically sensitive.

Of the school districts that responded, 14 per cent purchased tuition for students with special needs. Other instructional programmes include school technology classes, provision for at-risk students, remedial education, ESLbilingual education and foreign-language classes.

Contracted services for students with special educational needs across a number of school districts include speech and hearing therapy, physiotherapists, school psychologists and nurses, and remedial classes.

The market leader in the area of remedial education is Sylvan Learning Systems, with more than 500 centres across the country. It has recently announced a $1.75m annual contract to provide services to the city of Newark in New Jersey, and a $100m advertising campaign to promote itself in the market place.

The three main reasons reported for privatisation initiatives were cost reduction, management efficiency and the improvement of facilities. Only 40 per cent of responding districts saw academic improvement as an aim. These expectations have been broadly matched by reported outcomes: improved efficiency, lower costs, better financial management, the elimination of waste, and improved facilities. Some districts have reported substantial savings.

The report strikes a cautionary note, however, in that of the 45 per cent of districts for which savings were the primary motivation for privatisation, only one-third indicated that they had been achieved.

The surprisingly low proportion of districts which have considered contracting-out services appears to reflect legislative differences on opposite sides of the Atlantic. School district administrators in the US complain that both federal and state laws and regulations tend to obstruct rather than encourage the development of privatisation.

Wage rules, mandatory bargaining arrangements and laws which require districts to accept the lowest bidder without regard to service quality are commonly cited as legal obstacles to the extension of public-private agreements.

In California, for example, state regulations require school districts to employ staff for the purpose of providing food. The result is that private companies are contracted to manage the school meals but district employees actually prepare and serve the food.

As in the UK, there are different levels of enthusiasm for privatisation. The NSBA takes an agnostic public position. There is no doubt, however, that many district administrators see the capacity to contract out as a means of both saving money and improving service quality.

Tim Cuneo, president of the Association of Californian School Administrators, reflects the general tenor of the NSBA report when he suggests that most Californian superintendents would prefer to focus on their core mission of educating students and have the facility to contract out support services where this will help the district.

Not surprisingly, district employees and their trades unions are nervous of proposed changes in state regulations which would make it easier for districts to look to private companies.

However, Wall Street seems to share Christopher Whittle's optimism for the future of private companies trading within what brokers estimate to be a $619 billion education market. The value of shares in the 25 publicly traded companies followed by the Education Industry Report in the US increased by more than 65 per cent during 1995.

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