Edison’s Red Ink Schoolhouse

Edison’s Red Ink Schoolhouse

The biggest brand name in for-profit education is floundering.


For Edison Schools, Inc., April was the cruelest month. Edison, a $1.3 billion corporation that in 2000-01 ran what it counts as 113 schools (some with the same principal under the same roof) enrolling some 57,000 students, is the largest and easily the most visible of the nation’s so-called EMOs, the for-profit Educational Management Organizations operating public schools, and thus the nearest thing to an emblem for the school privatization movement. But this has not been a happy spring for the company. On March 27 the San Francisco school board voted to break Edison’s five-year contract to manage the city’s Edison Charter Academy unless certain conditions were met within 90 days. At almost the same moment, it became clear that Edison wouldn’t get anywhere near the number of parent votes it needed to win the right to run five New York City schools, as it and many of its Wall Street friends had hoped. And that, not surprisingly, accelerated the slide in the company’s stock from a February peak of just over $38 to a fifty-two-week low in mid-April of just under $16.

Nor was that all. In Dallas, where Bill Rojas–the same superintendent who in 1998 had rammed the Edison contract through a divided San Francisco board–had engineered an Edison contract to run seven of that district’s schools, board members were beginning to suspect that under its contract with Edison, the district was paying the company considerably more per student than it was spending for similar students in the schools that it was operating. The district recently estimated that the difference could be running to as much as $20 million a year. (Rojas, fired by Dallas after eleven months on the job, is now working for Advantage Schools, an Edison competitor.)

In Inkster, Michigan, where Edison had contracted to run a troubled four-school district that was on the verge of a state takeover, school board members were complaining about lack of information about the company’s expenses. In nearby Pontiac, where Edison runs the Edison-Perdue Academy, school trustees were talking about ending a contract midstream. And in Goldsboro, North Carolina, the Wayne County school board voted unanimously to terminate Edison’s management of two schools.

For an organization that, in one incarnation or another, has been around for nearly a decade and has yet to make a profit, those were not negligible events. Most of Edison’s schools are, in effect, loss leaders. In an effort to prove itself, Edison has poured resources into the schools it operates–and still it has run into trouble. What happens if–or when–investor pressure forces the company to pare back expenses so it can show a profit?

All that being said, it would be a mistake to count Edison out or discount its importance, both as force and symbol, in the nation’s fractious fight over the structure, control and quality of American public schools. Despite its recent setbacks, Edison’s numbers will almost certainly go up in the coming year. Even as it lost the visible fight in New York and as its stock got hammered, the company was announcing new deals in Nevada to run seven Clark County (Las Vegas) schools, a contract for two new schools in Indiana, a deal to manage six of the ten schools in Chester, Pennsylvania, as well as expansions in California, Kansas, Michigan and Ohio. Most significant, Edison is in negotiations to run nine charter schools in Miami in collaboration with the United Teachers of Dade County–the union lamb lying down with the corporate lion. The company’s total “enrollment,” which grew from 37,000 to 57,000 last year, could increase at least as much again by September, and maybe considerably more. By mid-May, a month after it hit that fifty-two-week low of $15.90, Edison stock was back at $24 and Wall Street was buzzing that after the dotcom shakeout, one of the places to go was to the EMOs. The April decline, said an analyst at J.P. Morgan, created “a great opportunity” to buy Edison’s stock. “Political risk is inherent in the K-12 school business,” he said. “In our opinion, the potential rewards outweigh the risks.” Edison may yet go away, but the industry–and the issue–will not.

Underlying Wall Street’s enduring faith–the faith of the industry, investors and certainly the faith of people like Chris Whittle, the supersalesman who created Channel 1, the in-school commercial TV “news” program, and who started Edison and remains its president and CEO–are two unshakable beliefs: (1) that a major shakeup is under way in American education, that the neighborhood school is becoming a thing of the past and that choice, often in privately run schools, is the future; and (2) that through efficiency and smart management, companies like Edison can provide quality education and still make a profit from the same tax dollars and with the same children that public schools have often failed. “Charter schools,” said John Rubino, a Wall Street commentator in a recent analysis of education stocks, “are gaining traction all over the place…. People who like the idea of school choice now control the White House and most state governments…. Add it all up, and you get a $400 billion market that’s ripe for the taking.”

But schoolchildren are not production units and education is not a chicken franchise. Sooner or later, the privateers with all those dollar signs in their eyes may wake to find that they’ve been the biggest dreamers of all. What’s clear already is that efficiency has not yet worked its charms. Conservatives are fond of complaining that public schools fritter away their money. But what conservatives are cheering with Edison–and what liberals are deploring–is an organization that frequently spends more per child than the publicly run school down the street. It appears to have done that in part by pegging the cost of educating each student to the district average rather than to the cost of elementary education, which is lower; and by leaving certain expenses–transportation, security, food services–to the district, and in part through large up-front investments at each site.

Of necessity Edison has become a bottom-feeder: For self-evident reasons, the contracts it gets tend to be for the worst-performing schools in their districts–dysfunctional places serving disproportionately large numbers of poor kids that superintendents would just as soon get rid of and that in many cases couldn’t get much worse. Edison offers instead what it calls a research-based program built around a longer school day, a longer school year and a strict (some say regimented) curriculum that includes ninety minutes daily of structured reading instruction, an hour of math, plus Spanish, science, social studies and art, plus a free computer, beginning in third grade, for every child–a menu that, on paper at least, is far richer than what most of the same kids have ever gotten before. There’s also, as Thomas Toch, who’s working on a book on privatization at the Brookings Institution, points out, coherence in its program that’s sadly lacking in many other schools.

Perhaps just as important, at least from the parents’ point of view, Edison spruces up its buildings, paints them and seems (with some exceptions) to create a safer and more orderly environment in schools that had been dark, filthy and depressing. There are Edison schools, as in West Covina, California, that have waiting lists of 1,000 students. New York Schools Chancellor Harold Levy was said to have privately told colleagues that he would have gladly spent more money on Edison schools if they could have succeeded–and then he could have gone to Albany citing Edison’s success as justification for additional funding to improve learning in other low-performing schools.

Edison, by general agreement, is the class act of the field. “It’s far and away the best,” said one respected academic authority on privatization who asked not to be identified. “The rest do it on the cheap.” But that hardly means that things have always gone swimmingly, or are going well now. In some schools, the changeover from public management has generated high rates of staff turnover and months, sometimes years, of turmoil. Many teachers don’t want to work the longer hours and longer year that Edison requires; some chafe at the regimented curriculum, which, despite Edison’s claims, consists largely of off-the-shelf programs, like the reading program Success for All, that any school can buy. Conversely, others, especially new teachers with weak training, like it. As a consequence, Edison schools are staffed by disproportionately large numbers of new and uncredentialed teachers–teachers who may make up in enthusiasm (and low pay) what they lack in experience, but who may not remain very long. But the story is not so different from that of many other urban schools (which is why school officials rarely tell it). To its credit, Edison gives its teachers an intensive two- to three-week period of professional development before they begin work, something not many publicly operated schools do. But the scripted academic program (again, as in many other schools) may well be teaching the basics at the expense of the analytical and problem-solving skills on which success in the higher grades–and beyond–depends.

Output is even harder to assess. While Edison issues glowing press releases about its students’ dramatic improvements on various state tests, the overall record is more modest and spotty. A recent report by the American Federation of Teachers found Edison’s record “mixed, at best.” Another, by researchers at Western Michigan University and funded by the National Education Association, concludes that the company’s claims are badly exaggerated–that, for the most part, Edison students do no better on standardized tests than similar students in publicly run schools, and in many cases do worse. But those assessments are also subject to doubt. Edison’s California schools, for example, are doing much better in the state’s assessment ratings than the AFT gives them credit for (Edison sharply criticized both reports as “predictably biased” in methodology and for failing, among other things, to include the most recent test scores). Henry Levin, who runs the National Center for the Study of Privatization in Education at Teachers College, believes Edison may have a slight achievement advantage over similar public schools.

But, as he points out, it’s still early to make any sweeping comparisons. And how conclusive are standardized tests anyway? As critic Herb Kohl observes, with its scripted, test-oriented curriculum, Edison may be “embedded in the same pathology of education” as everybody else. Edison, obviously feeling the heat, recently commissioned RAND to do an independent evaluation of its schools. Until the first results begin to come out later this year–and maybe not even then–judging Edison’s performance will, like so many other things in assessing education, remain a matter of controversy and uncertainty.

Even in places like San Francisco, where the Edison school has sharply increased student test scores (as it has in most of its eight other California schools), the company’s detractors allege that Edison subtly counseled difficult students out of the school–a charge that Edison chairman Benno Schmidt calls a “fabrication”–and fudged its numbers by failing to test all those who were there (the state Department of Education says 95 percent of the school’s eligible students were tested). Yet because parents have opted into the school, enrollment has increased by some 60 percent since Edison took over, suggesting that it must be doing something right. Those same overwhelmingly black and Latino parents–Padres Para Salvar Edison–have since signed petitions and marched to school board meetings, where Edison opponents now have a majority, asking the district not to cancel the contract. Even Edison’s critics admit that the school is brighter, more orderly and more functional, and promise to keep Edison’s program even without Edison.

At bottom, what’s most questionable about Edison–and what the critics most dislike–is simply the idea that somebody is trying to turn public education into a profit-making enterprise and that it tries to do that primarily on the backs of the poorest and neediest kids. But so far there isn’t much cause for worry, at least not about the profit part. Ever since Edison began, it’s been announcing that profitability is just around the corner; when it had twenty-five schools it would show a profit; that was later changed to fifty, then to 100 and now to the year 2004. To the extent that the company has been succeeding with its schools, it’s done so by spending more money than it receives in revenues–even when its contracts provide higher per pupil revenues than what comparable publicly run schools get to spend. While Whittle sings the sweet song of economies of scale and efficiency, Edison’s own annual report and SEC filings contain a somber warning: “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…”

To cloud things even more, Edison would not be in some schools at all without outside gifts and grants. In California, the company got $25 million from a foundation created and run by Gap founders Donald and Doris Fisher to help pay the upfront costs of setting up schools. (In return, the foundation got low-cost options to buy a sizable chunk of Edison stock, some of which it profitably exercised, for a gain of about $9 million, before Edison’s April fizzle.) Similarly, in Peoria, Illinois, a Caterpillar Company heir donated $1 million in startup costs for two Edison schools, and in suburban Indianapolis, the Perry Township school district is expecting a $4.5 million grant from the Lilly Endowment to help fund two Edison schools there. For a company whose faith rests in the free market, those arrangements send a curious message. Is this an entirely new creature–a nominally for-profit company whose viability depends on the charity of wealthy individuals? According to Barron’s, Whittle once remarked that “philanthropy…can be the venture capital of this movement,” but starry-eyed philanthropists are hardly a sound basis for long-term profitability. And then there is the question of what those donors are after: Are they merely interested in helping a few schools, or are they seeking to advance a political agenda centered on the privatization of public education?

At the same time, however, the Edisons, if not their on-the-cheap competitors, raise troubling questions–political and moral–for those among us who profess a particular tenderness for poor and minority children. Edison is working a fertile field of schools generally acknowledged to be pretty awful. Can anyone really say that notwithstanding Edison’s mixed record on test scores, students in those schools would have been better off without the resources and energy Edison seems to be providing? The record makes plain that for good reasons or bad, Edison’s tenure can be ended. After a half-century of reform efforts in public education, there’s not much evidence of the same accountability in the rest of the system.

During this year’s bitter privatization fight in New York, some parents asked why the Board of Education couldn’t do the things Edison promised. It’s a good question. If the key to the longer day, the richer program, the computers, the intensive professional development for teachers and the contractual commitment to produce is the extra funding that Edison has managed to get, why can’t public schools get the same funding and make similar commitments? “The willingness to contract with Edison,” says Rice University education professor Linda McNeil, “is a public admission of the failure to invest equitably in low-income schools.” In fact, it’s more than that. It’s an admission of failure generally.

Dear reader,

I hope you enjoyed the article you just read. It’s just one of the many deeply-reported and boundary-pushing stories we publish everyday at The Nation. In a time of continued erosion of our fundamental rights and urgent global struggles for peace, independent journalism is now more vital than ever.

As a Nation reader, you are likely an engaged progressive who is passionate about bold ideas. I know I can count on you to help sustain our mission-driven journalism.

This month, we’re kicking off an ambitious Summer Fundraising Campaign with the goal of raising $15,000. With your support, we can continue to produce the hard-hitting journalism you rely on to cut through the noise of conservative, corporate media. Please, donate today.

A better world is out there—and we need your support to reach it.


Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

Ad Policy