Charter Schools and Private Profits - educational management organizations

School Administrator, May, 2000 by David N. Plank, David Arsen, Gary Sykes

The emergence of educational management organizations to run charters raises questions about the pursuit of profits and the quality of education

One of the most significant developments associated with the introduction of charter schools is the rapid emergence of educational management organizations.

Unlike the schools with which they contract, which are legally prohibited from seeking profits, EMOs usually are for-profit firms that seek to earn profits from their provision of administrative and educational services to schools. Rapid expansion in the number of charter schools has opened the door to the public school system for these firms, and they have been quick to enter.

A critical question is whether this development is good or bad for students. Our research in Michigan raises concerns, while pointing to the importance of the rules that govern the emerging market for schooling. The rules embodied in charter school legislation determine whether expanding private participation in the public school system will help or harm children.

Different rules create different incentives, and different incentives produce different outcomes. A carefully designed policy framework can ensure that the market for schooling works efficiently and effectively to improve the educational opportunities available for all children.

Debate Over Profits

In an interview we conducted not long ago, the principal of a charter school made a surprising statement. "I hate charter schools," she declared. "They are not doing a better job, and they will ruin public education." She was especially troubled by the thought that charter school operators might profit from their management of schools.

"You can't make profits if you're committed to educating kids," she said, because there is never enough money to meet all of the challenges that children bring to school. In her view, profits can be obtained only by depriving children of services and opportunities that would help them to succeed in school. This is wrong, she said.

The views of this principal may be unusual among charter school administrators, but they are widespread among educators in the traditional public school system. Professionally committed to pursuing ambitious goals with an ethic of public service not personal gain, it is natural for public school educators to view profits as suspect. After all, the money that is returned to adult investors as profit is money that could otherwise be spent on the education of children.

In response to these qualms, the advocates of private-sector participation in the education system make three arguments. First, they say, many important activities in the educational system always have been the preserve of private firms, including textbook production and most standardized testing. Private sector participation has been increasing in recent years. Why should profits be acceptable in some parts of the educational system and not in others?

Second, they contend the pursuit of profits serves our society well in many ways, as anyone who has a 401(k) retirement plan or shares in a mutual fund will recognize. We rely on profits to finance our retirement. We rely on for-profit firms to provide most of the goods and services we consume, including food, housing and health care. Why should we exclude for-profit firms from providing educational services as well?

Finally, the advocates of private-sector participation in education note that the public sector has failed to provide a satisfactory standard of education for large numbers of children, especially poor and minority children in urban school districts. Some claim that resources are being wasted on a grand scale. If private firms, motivated by profit, can enhance organizational efficiency and do a better job of educating these children, why not let them try?

The Rise of EMOs

Charter schools are public schools, financed by taxpayers and accountable to agencies of state or local government. Like other public schools, they are nonprofit organizations. Any surplus revenues they generate must be used to advance their educational purposes.

Increasingly, however, charter schools are managed under contract by for-profit educational management organizations. EMOs provide a variety of services to charter schools. Some offer a relatively limited array of management and financial services to their schools. Others offer whole-school packages to charter school operators.

Under these contracts, the EMO exercises full administrative control over the school. The principal and teachers are EMO employees, and decisions about curriculum and instructional practice are made by the EMO. Some EMOs, including Edison and Advantage, have implemented whole-school packages in traditional public schools as well as in charter schools.

One of the early lessons from charter school reform is that starting a school from scratch without the support of a public school district is very difficult. Opening and maintaining a building, hiring and paying a staff, developing and implementing a curriculum and ensuring compliance with state regulations and reporting requirements takes more work than many charter school operators ever imagined. Many EMOs have emerged to provide charter schools with the administrative support that traditional public schools ordinarily receive from the central office. They are, in other words, private-sector school districts.