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Privatization suffers blow with EAI loss Baltimore school board cancels a pact the firm uses as a selling point; EAI down to one client; Chairman now drags 'more chains than Jacob Marley's ghost'

On Thursday night, while the Baltimore school board was voting unanimously to kill the city's contract with Education Alternatives, Inc., one EAI representative was at another meeting -- telling parents at Murch School in Northwest Washington about EAI's school-management services.

EAI's cancellation in Baltimore may make it more difficult for the Minneapolis-based firm to win contracts in the District of Columbia and elsewhere, even supporters of EAI say.

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"What's happened in Baltimore is extremely disappointing. It points out how political this whole business is, and how strong the opposition is to preserve the status quo," said Michael T. Moe, a stock analyst with Lehman Brothers in New York who has been optimistic about EAI in the past. "It calls into question the momentum for education reform."

But EAI's always-upbeat chairman, John Golle, said his company -- also locked in a payment dispute over its only current contract, to manage schools in Hartford, Conn. -- expects to be moving on "to any one of half a dozen [school] districts that very much want our services and have been kind of waiting in line."

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In EAI's 3 1/2 years managing nine Baltimore public schools, Mr. Golle said, "We've made it work." He said there is increased interest among school districts in hiring for-profit managers.

"This thing is taking off," he said, "and we have Baltimore to thank for it."

But, particularly among those who have been skeptical about private management of schools, the consensus is that EAI has been damaged.

"When John Golle comes into a community, he's going to be dragging more chains than Jacob Marley's ghost," said Alex Molnar, professor of education at University of Wisconsin-Milwaukee.

"Those chains are Baltimore and Hartford. There are not too many districts who are going to say, 'Gee, can we pay you more to get less?' "

"In the debate over the facts, it's really hard to tell who's right," said Howard Nelson, director of research for the American Federation of Teachers.

The teachers union, which opposes private management, has issued studies showing achievement did not improve in EAI schools in Baltimore or the school it ran in Miami.

"But something that's really measurable is whether they lose their contract -- and they've lost two contracts in the past year," Mr. Nelson said. The Miami contract was not extended when it expired last spring.

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The Baltimore contract was canceled after Mayor Kurt L. Schmoke, trying to close a school department deficit, proposed a $7 million reduction in payments. The city and EAI could not agree on a revised contract.

An evaluation by the University of Maryland Baltimore County found that EAI schools received more money per pupil than other public schools in the city, but there was no significant difference in achievement.

Some who believe school privatization will grow believe the Baltimore cancellation is not a major setback for EAI.

"I don't think it's a liability at this point," said John M. McLaughlin, editor of Education Industry Reports.

As the first company to win such contracts, "it's got name recognition with school boards, and it's further along the learning curve both in terms of its perfecting its product and organizationally. There's still talent there, despite the loss of two core people."

William F. Goins, EAI's chief operating officer, and David Bennett, EAI's president and a former St. Paul, Minn., superintendent of schools, have both resigned in the last five months. "I don't think this closes the door to management contracts or to EAI in particular," Karen Shook, vice president of the District of Columbia school board, said.

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However, she added, "I think I could say I have more concerns now about this particular company. We just have to be very careful."

She said she has been "a very strong supporter of private management," and voted with the school board majority to allow individual schools to negotiate contracts with firms after the companies win approval from the superintendent.

Schools are in the exploration stage now and could have contracts in place for the next school year. Mary Gill, principal at the Murch school in Washington, said of this week's meeting, "We're looking at many different things -- we're just starting our research and exploration."

Jay Butler, director of public relations for the National School Boards Association, said his organization is not seeing many districts as close to contracts as Washington.

Early returns on a survey of school boards, Mr. Butler said, show more than half willing to consider contracting such services as buses, but less than 10 percent interested in hiring managers for the academic program.


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