Education for Sale?

Education Alternatives Inc. is an innocuous name, and one could easily confuse it with countless other education reform efforts that come and go with barely a ripple of concern. But this fledgling Minneapolis-based company is at the center of the fiercest controversy in education today.

EAI boasts it can run public schools for the same amount of money, improve achievement — and make a profit. The most prominent of several private companies to make such claims, it is on the cutting edge of efforts to look for private sector solutions to public school problems.

“Our contention,” EAI founder and CEO John Golle told Rethinking Schools, “is that you do not need to spend more money. You need to spend it differently: more in the education of the children, and less on the management of the enterprise.”

EAI’s claims are untested, however, and the company has spawned bitter battles.

“I studied their proposals in Green Brook, N.J., Winona, Minn., and Duluth, Minn.,” said Anne Bretts, a reporter with the Duluth News-Tribune. “In all those cases, there was an initial flash, a lot of politicking, a lot of media hype, and then when it came right down to doing the job, it turned out their solutions involved cutting staff, cutting wages, cutting services. There wasn’t any magic formula and so people ended up being unwilling to make those kinds of cuts.”

EAI currently has contracts to manage a prototype school in the Miami area, and to run nine public schools in Baltimore, Md. Public controversy notwithstanding, EAI has impressive support, particularly in the business community. Three companies with daunting balance sheets have allied with EAI to provide services in its schools. They are:

• Johnson Controls Worldwide Services, a subsidiary of Johnson Controls, which had over $5 billion in sales in 1992. The company provides maintenance, secretarial, and food services.
• KPMG Peat Marwick, the world’s largest accounting firm with $5.6 billion in revenues in 1992. Peat Marwick provides financial consulting and accounting services.
• Computer Communication Corp., which is owned by Simon and Schuster, the largest educational publishing company in the world, which in turn is owned by Paramount Communications (the movie and television conglomerate), which had $4.2 billion in sales in 1992. CCC provides computer-based learning programs.

Among EAI’s board members and major investors is John Walton, the son of Wal-Mart founder Sam Walton. The family’s personal fortune stands at over $6 billion.

“A lot of very smart business people have decided that EAI could be a big company in a hurry,” Michael Moe, an analyst with Dain Bosworth, told Rethinking Schools.

Dain Bosworth is a Minneapolis-based brokerage company that has been involved with EAI’s public stock offerings.

In the long run, however, the issue is not who admires or who despises EAI, or whether corporate officials are honorable (as most believe) or less-than-honorable (as a few believe). The company is only a footsoldier in a much larger battle over the future of public schools.

The key issue is to what extent public schooling will be turned over to for-profit, private enterprises. And that issue leads inevitably to another. Do we want to jettison our vision of public schools as an integral part of our democratic vision — as a public responsibility controlled by and for the public — to one where profits and stockholder concerns dominate?

Jonathan Kozol, author of Savage Inequalities and other books on education, told Rethinking Schools he is deeply troubled by the long-term implications of business involvement in schools. One key worry, he said, “is that when businesses run schools, they will inevitably propagate business values. There’s no way to avoid that. Every teacher knows that schools are never neutral, curriculums are never neutral.”

For example, Kozol continued, “I’m very concerned with the future of labor unionism in America. It is very difficult to imagine that non-union businesses that go into education are going to educate a generation of kids who will likely be union members or even likely question the ethics of unregulated American enterprise.”

EAI’s Origins

Education Alternatives Inc.’s goal is to enter into contracts to run either a group of public schools in a district or, ideally, the entire district. It argues that by eliminating inefficiencies and bloated bureaucracies, it can run the schools for less — and use the remainder for profits. It also promises academic improvements through its “Tesseract” teaching philosophy.

“Tesseract” — a name taken from a children’s story by Madeleine L’Engle describing a fifth-dimensional corridor for exploring new territories — stresses cooperative learning, whole language, individualized student goals known as Personal Education Plans, intensive use of computers and technology, and other reforms that value student activities more than lectures by teachers. The reforms are familiar to many public school teachers. EAI’s main innovation seems to be that it had the business acumen to package the reforms into a seemingly unique set of marked the term Personal Education Plan.

EAI was founded in 1987 by Golle and emerged from a failed effort by Control Data Corp., one of the country’s top computer and data-processing firms, to develop “a perfect school.” Control Data ran into financial difficulties and Golle, a former Xerox salesman and a co-partner in an education and training firm for Fortune 500 companies, bought Control Data’s Tesseract research.

Golle’s original goal was to form a chain of 20 private elementary schools within five years, grossing $30 million annually. His first school opened in September 1987 in Eagan, a Minneapolis suburb. His next school opened a year later in Paradise Valley, Ariz.

The schools used the Tesseract method and became educational models for EAI. They were models in other ways as well. There was no art teacher, or phy-ed teacher, or science teacher, or librarian. The classroom teacher, assisted by an aide, covered such responsibilities. “Although teachers made an average of $5,000 less than their public-school counterparts, they were encouraged to spend liberally on teaching tools,” according to a July 1991 article in Inc. magazine.

The effort nearly bankrupted Golle, however. When Golle was forced to raise tuition to meet expenses, enrollments dropped 20%, according to Inc. magazine. In 1990 Golle was about to call it quits.

And then Golle read about Dade County, Florida’s search for new ideas to help run its schools. A “never say die” kind of person, Golle changed tactics and zeroed in on public schools. He had learned the hard way that there was little money to be made in the exclusively private sector — a lesson Chris Whittle is only now appreciating (see story page 17.)

Wowing Them in Dade County

Golle wowed them in Dade County, and in June 1990 won a five-year contract to develop an educational program and train teachers for a new public elementary school. In September 1991, EAI opened the South Pointe Elementary School. Above all, the school was designed to prove that EAI could transfer its methods from a private, suburban school serving primarily white, middle-class students, to a public, urban school with significant numbers of low-income students of color.

EAI generally has received praise for its efforts in South Pointe, and both students and teachers reportedly feel positive about the program. It is too soon to know, however, whether academic achievement has improved — or to what extent success will be measured by standardized tests that educators generally acknowledge have little to do with real learning.

If success is measured by media attention, however, South Pointe is the most successful school in the country. On its first day, for example, “Good Morning, America” broadcast live from the school. Before the school year’s end, 2,000 visitors reportedly traipsed through the school.

The school is widely acknowledged to be in a unique situation, and it is therefore not necessarily reflective of what EAI would do if it ran a number of schools. For one thing, the school was built to order for EAI. Secondly, the company was given waivers from regulations dealing with labor, purchases, and other areas. Also, EAI agreed to raise $2.42 million from private donations to supplement the money provided by the district.

In addition to the opening of South Pointe, other key developments occurred in 1991. That April, David Bennett, a former assistant superintendent in Milwaukee and superintendent in St. Paul, was hired as EAI President. About the same time, the company made its first public stock offering, raising some $6 million to help bide the company over until it earned a profit. (A second public offering in the late spring of 1992 raised another $3.15 million, while a third offering this spring raised $32 million. The stock, which initially was offered at roughly $4, sold at the third offering for $22.50.)

That July, EAI won a five-year $250,000 contract with the Granite School District in Salt Lake City to provide training at two district schools. That December, EAI allied with Johnson Controls and Peat Marwick to form The Alliance for Schools that Work.

Despite the media success and organizational developments in 1991, profits remained elusive. By the end of fiscal 1991, the company had lost some $7.3 million since its founding, and it would lose another $1.5 million by the end of fiscal 1992. (It is only in recent months that the company has earned any money; through the third quarter ending in March 31, it had a pre-tax profit of $502,000.)

A Make-or-Break Year

It was essential the company get new contracts in 1992. Enter Duluth and Winona, Minn., Green Brook, N.J., and Baltimore.

In Duluth, EAI signed a 4-month, $40,000 contract with the district in March 1992 to provide an interim superintendent and a feasibility study of the district’s financial, educational, and non-instructional programs. Once again, EAI made national headlines.

Although the contract was limited in nature, expectations were high on both sides. By that June, however, hopes had popped. EAI never submitted a proposal for a long-term contract, Duluth hired a permanent superintendent, and the two went their separate ways.

“I don’t think anybody was sad [when EAI left],” then School Board President Michael Maxim said. “We were ready to move on.”

One reason for the falling out was the feasibility study. Highly controversial, the report outlined $3.88 million in budget cuts. Suggestions included wage cuts from custodial and support staff, elimination of up to 60 jobs, and drastic cuts in music and vocational programs, and in school libraries.

EAI also ran into troubles when it began discussions to manage the school district in Winona, Minn. EAI ultimately decided not to make an offer, explaining that there were not enough “substantial savings” to be found in district operations. Some 700 residents at a public hearing in Winona that March “roared their approval” when they were told that EAI would not come to town, according to the Winona Daily News.

The controversy in Duluth and Winona, however, was nothing compared to events several thousand miles away in Green Brook, N.J.

The first big controversy was when the board violated New Jersey’s open meetings law in January 1992 and met in closed session to discuss whether to meet with EAI. The Somerset County Prosecutor censured the board for the closed meeting — and public interest in EAI perked up . In response to the controversy, a slate of five candidates ran and won in the school board elections that spring on a platform opposing EAI.

The new board president, Robert Bolandi, was particularly critical of a 23-page report that the company provided the board and charged that the report was “riddled with errors.” “EAI was their own worst enemy,” Bolandi told the Courier-News. “Their presentation killed them.”

Golle, meanwhile, told the press that the proposal failed because, “quite frankly, certain people started spreading lies.”

By then Golle had bigger fish to fry. Discussions were underway with the Baltimore public schools to run eight elementary and one middle school. In June, the company signed a 5-year, $135 million contract to do so. EAI had finally hit the elusive jackpot: a multi-school contract. No interim agreements this time, no single-school prototypes. This was the real thing.

Needless to say, the Baltimore experiment has been the focus of countless articles — and controversy. It has also been mired in politicking that has had little to do with education, a phenomenon most clearly demonstrated when then U.S. Secretary of Education Lamar Alexander visited Baltimore on Sept. 2 — the second day of school — and awarded EAI a “breaking the mold” award for its work in the Baltimore schools.

Tough Sledding in Baltimore

By all accounts, EAI has had tough sledding in Baltimore. Broad sectors of those involved in public education in Baltimore, many teachers, parents, community people and administrators, “seem to hate him [Golle] like poison,” notes Denis Doyle, a senior fellow at the Hudson Institute, a conservative think tank in Indianapolis.

“The unions are not the big problem in Baltimore,” Doyle continued. “I think the problem is the culture of schooling.”

One of the problems, Doyle continued, is that “there is a pervasive American phenomenon which is a mistrust of profit-making companies. Although we are a very energetic capitalist society, the cultural ethic is one that is hostile to profit in the human service areas.”

While EAI publicly emphasizes that the contract is based on its receiving the average per pupil cost for running the schools, the finances are more complicated.

According to Judson Porter, head of finance for the Baltimore schools, EAI put forward the average cost as the starting point for negotiations. The Baltimore schools countered that EAI should receive the actual per pupil expenditure for those schools. While the systemwide figure would have given EAI $26.7 million per year, Baltimore estimated it would have only cost $20.6 million for direct operation of the nine schools. After negotiations, a compromise was reached and EAI was given $2.7 million per year more than the schools would have ordinarily received. Under the contract, it is to use the money for unspecified improvements, according to Porter.

Most of the praise for the EAI schools in Baltimore has centered around building maintenance and upkeep. Schools were painted, graffiti was eliminated, new windows and desks were put in, leaky faucets and toilets were repaired, and rocking chairs and telephones were to be provided each classroom. But such benefits were overshadowed by problems in other areas. Some of the many controversies that erupted in Baltimore involved:

• Paraprofessionals. The approximately 90 paraprofessionals who worked in the nine schools, who were approximately 70-75% African-American and came from the community, were replaced with predominantly white interns with college degrees. While the paraprofessionals were unionized and earned an average of $10 per hour with benefits such as sick pay and vacation, the interns were paid $7 an hour and not given any benefits.
  
  Further, EAI has had difficulty hiring the 160 interns it has said it will provide, and it was forced to use a temporary employment agency to help fill the slots. Turnover was also high among interns, and a number seemed to be taking the EAI job only until something better came along. Further, interns were not required to have a background in education, and some had degrees in areas such as hotel management or forestry.

• Minority subcontracting requirements. The company was not required to meet the city’s standards for hiring subcontractors owned by minorities or women — an oversight that caused City Councilwoman Sheila Dixon to say at a public hearing in November, “Personally, we never should have let this [EAI] contract out.” David Butler, president of a minority-owned firm that had provided maintenance at one of the EAI schools, told the hearing that his firm was abruptly let go and replaced by Johnson Controls World Services, according to the Baltimore Business Journal.
• Mainstreaming of special-education students. Many parents complained they were not consulted before their children were taken out of special ed classes. “At one school, no parent has agreed to the change; at another, parents have agreed to mainstream only eight of 30 children,” according to a Dec. 22, 1992, article in the Los Angeles Times.
• Eliminating teacher positions. EAI cut positions for art, music, reading, special ed, librarians and other resources teachers, arguing that there were now two college-degree adults in every classroom who could handle all necessary teaching tasks. (EAI literature routinely refers to two teachers in every Tesseract classroom, although only one is certified and the other is an intern. EAI’s claim has led to charges that the company is less than candid about what really happens in EAI classrooms.).
• Non-instructional services. One of the key areas where EAI hopes to make money is in non-instructional areas. Michael Moe of Dain Bosworth said the alliance with Peat Marwick allows for financial and accounting savings of at least 5-10%. “But the real savings comes in where Johnson Controls is involved,” Moe said.

Referring to the paraprofessionals and non-instructional staff, Moe charged that those opposed to EAI in Baltimore are those “being paid for more than they are worth in the private sector.” He specifically said of the paraprofessionals, “It was like a food stamp program in Baltimore, providing jobs for people who can’t get jobs anywhere else.”

Moe said “there’s no mystery” in EAI’s profit-making strategy. “You can’t spend more in the classroom, as they do through training and technology…you can’t do that without cutting costs somewhere. What I argue is that if you cut costs in areas that don’t affect education, what’s wrong with that?”

Johnson Controls is responsible for non-instructional services such as custodial, secretarial and food services, maintenance, grounds, and energy management. Food service was subcontracted out this year because Johnson Controls is waiting for a U.S. Department of Agricultural waiver so that the contract can go directly to Johnson Controls instead of out for a bid.

Johnson Controls admits that the number of custodial and maintenance workers was not bloated in the Baltimore schools.

“We found that they [Baltimore schools] were not grossly overstaffed in any area at all,” said Jim Butterfield, technical services specialist for education for Johnson Controls World Services.

While admitting that the Johnson Control workers are non-unionized in Baltimore (as opposed to comparable workers with the Baltimore schools), he refused to say their pay scale. He said such information was proprietary, and that its release would violate the privacy rights of the workers.

Butterfield said money was also saved in areas such as procurement and purchasing because Johnson Controls “doesn’t have to follow as many regulations as a government entity” such as bidding processes.

Under the alliance with EAI, Johnson Controls keeps 20% of any savings realized, with the other 80% turned over to EAI, Butterfield said.

Golle, for his part, insists that EAI’s profits are based on elimination of bureaucracy, improved accounting, and “thousands of little decisions” such as improved energy efficiency. He denies that reducing personnel costs has anything to do with the company’s profit-making strategies.

Where Now?

While Baltimore has been rough going, certain kinks are sure to be ironed out in coming years. One key question that goes beyond Baltimore is whether the company will get new contracts for the fall of 1993.

Moe told The Milwaukee Sentinel in April that EAI’s top three prospects for the fall were Milwaukee, Shelter Island, N.Y., and West Palm Beach, Fla.

In West Palm Beach, contract negotiations are dead, in Shelter Island they never got beyond preliminary discussions, and in Milwaukee there has never been any formal overture to the School Board to even sit down and talk.

The biggest setback was in West Palm Beach, where EAI had hoped to run 14 schools. This spring, EAI withdrew its proposal and at a subsequent meeting the school board formally decided not to pursue any contract with the company. (EAI has a pattern of withdrawing from negotiations before its contract proposal is formally rejected, allowing the company to appear to be the one withdrawing from the proposed venture.)

The prevailing sentiment was summarized in an editorial in The Palm Beach Post on Feb. 5, 1993. “The proposal by the Alliance for Schools that Work to run 14 Palm Beach County schools is like a poor answer on an essay test: long on words, short on substance,” the editorial charged.

Jeeti Puri, head of business affairs for the West Palm Beach Schools, told Rethinking Schools that his criticisms centered on EAI’s vague financial answers. “The bottom line was they did not provide me a breakdown of the services they would render and what the cost of those services would be,” he said.

One of the controversies surrounded EAI’s view that the starting point for negotiations be based on average per pupil costs. Yet the direct operating budget for elementary schools in West Palm Beach is lower than that for middle and high schools, according to Roy Childers, head of the budget department for the West Palm Beach schools.

EAI is fond of stating that it can run a school for the same per pupil average as a school district. Yet it has also said it wants to concentrate on elementary schools — which everyone acknowledges tend to be less expensive to run than middle and high schools. Thus a logical question is whether EAI’s strategy is in part based on trying to get districts to pay more for EAI schools than those schools would ordinarily receive.

Nor has EAI had any more luck in Shelter Island, N.Y. School Board president Robert Reylek, when told that his district had been mentioned as a top prospect for an EAI contract in the fall, was bemused. He said his district involved only 240 students, and that EAI had made it clear that Shelter Island would have to align with nearby districts and sign a joint contract.

Reylek told Rethinking Schools that EAI had made two public presentations in the Shelter Island area, most recently at the end of April. After the latest presentation the company faxed a letter saying they would send a “non-binding letter of intent” but that by May 10 nothing had been received. “I don’t know if they lost interest or what,” Reylek said.

Golle told Rethinking Schools that he is confident of a new contract in the fall, but he refused to say what districts were in discussions with EAI. When such discussions are made public prematurely, he said, opponents “pull out the stops” and before long there are “lies, innuendos, and rumors” that damage the process.

EAI does not immediately need to sign new contracts to survive financially. But its media image seems to rely on an image of continual growth. So does the price of its stock.

“Their stock prices currently reflect some additional contracts,” said Lee Schaefer, editor of the magazine Corporate Report Minnesota, who has written about EAI and has followed the firm over the years. “Investors expect these guys to do some more.”

At the same time, the company’s latest stock offering raised an additional $32 million and “it will take a long time for them to go broke,” Schaefer noted.

Schaefer’s take on the company is that “these are honorable guys with good business intentions who seemingly are selling something that is needed.”

The challenge is that the public sector works by different rules than the private sector. “There are a lot of people who think the stock is overvalued because they expect the public sector to grind these people up,” Schaefer said.

Schaefer said the company’s greatest strength is John Golle, and that its greatest weakness is John Golle. A classic entrepreneur driven by a vision, Golle is incredibly tenacious. But he has a fondness for the good things in life — such as diamond r ngs and cufflinks — that can rub people the wrong way. In an article he wrote on EAI titled Classroom Capitalist, Schaefer related the following: “After one presentation, Bennett tried to broach the topic [of his lifestyle] with Golle, asking him, ‘Did you ever consider leaving your diamond ring and cuff links at home?’”

Shedding cuff links and rings may be the easy part, however. (Golle has already sold the red Porsche he used to drive.) To succeed in the long run, EAI has to prove that it can do more than cut costs and personnel and can actually transform how schools are run. And it has to hope that school districts won’t look at their operations and decide that there’s nothing to prevent them from doing absolutely the same thing on their own.

If EAI’s main focus is reducing personnel and making cuts, “then that’s not enough,” said Doyle of the Hudson Institute.

“I assume that they are working their way toward productivity increases by using personnel differently, by using computers differently, by using students differently,” Doyle continued. “There are possibilities of substituting computers for people, which I assume they are going to do at some time.”

Public vs. Private

Will EAI succeed? Only fools who like to predict the outcome of elections and baseball games would venture a definitive answer. But one thing is clear: EAI’s future will profoundly affect — and be affected by — the larger debate on the relationship between public schools and for-profit business ventures.

Maxim, the former School Board president in Duluth, said it was only after the EAI experience had ended there that he realized the complexity of many of the issues. Some of those include:

• When you hire an outside company to come in and run your school system and they supply the superintendent, who does that superintendent work for? The company or the school board?.
• How do open meeting laws for public entities such as school boards mesh with the closed-door decision-making practices of private companies?
• Who does EAI ultimately take its direction from? Its stockholders or the school board?
• If you have a new school board that wants to change policy but there’s a contract with EAI, what becomes of the power of the school board?

“These are not criticisms of EAI,” Maxim said, “but general questions of whether you can meld a private and a public entity.”

Through negotiations, some of the issues could be worked out. More fundamental is the contradiction between the ideology of business and the ideology of schooling.

Kozol said he had three fundamental concerns about the growing admiration for businesses and business practices running schools.

First, he said, “if these ventures are not profitable, the demands of any corporation will require that they either cut back services, screen out the difficult students or simply shut down.”

Second, he added, is a fear that business ideology will creep into the schools “at the expense of values that have to do with resistance, oppositional characteristics, maverick virtues that one identifies with, to take but three examples, Malcolm X, Huck Finn, and Sojourner Truth. It’s hard to imagine that the entrepreneurial mindset will look upon these as role models for students.”

Third, he said, even if a business-operated school leaves the curriculum intact, certain characteristics of American business “are conveyed completely apart from curriculum or textbooks — for example just the idea that competition is the best way to generate success, which relies upon an unwarranted faith in the virtues of unmitigated individualism.”

Kozol said that when he mentions such concerns, many people think he is exaggerating, and that big publishing companies and film conglomerates involved in schools are not going to indoctrinate children.

“And I respond, ‘Of course they will, why wouldn’t they?‘” Kozol said. “What corporate executive wouldn’t like to see a whole nation of children that look and sound like himself?”