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BUSINESSWEEK ONLINE: DAILY BRIEFING: SPECIAL REPORT | ||||||||||||||
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When the Profit Motive Goes to School Here's a look at one Jersey City charter school run by Advantage, a for-profit education company "At her public school last year, my daughter was reading at the second-grade level," recalls her mother, Sharon Robinson. "Now, Nyesha's going into the fourth grade at her charter school, and she's reading on the fifth-grade level. She's not a great math student, but she's on grade level now." Nyesha Polon is one of nearly 500 students who recently finished their first year at the new Golden Door Charter School in Jersey City, N.J. Mayor Bret Schundler took advantage of the state's charter-school legislation, which he co-authored in 1996, and helped establish five charter schools in one of the nation's most ethnically diverse cities. Golden Door opened last September in temporary facilities -- a cluster of gray modular classrooms at the center of a downtown city block that had been leveled and paved with asphalt. Working with the mayor, Advantage Schools Inc. -- a for-profit, education-management company founded in Boston three years ago -- implemented every detail of Golden Door's curriculum and staffing in only six months. Golden Door is one of eight charter schools, serving a total of 4,500 students, that Advantage has established in the past two years across the country. Advantage's goal is twofold: improve student performance and make education a profitable venture. "We thought the for-profit culture would create the kind of discipline and focus on execution that nonprofit environments sometimes lack," says Theodor Rebarber, an Advantage co-founder. "It also works well with our commitment to expand. We want to have an impact on education, not just one or two schools." Advantage plans to open as many as 10 new schools in the fall of 1999, and up to 15 more the following year. Edison Project, Advantage's main for-profit competitor, manages 51 public schools nationwide, though only 14 are charter schools. GROWING MOVEMENT. Charter schools are publicly funded and follow the "autonomy for accountability" principle. In exchange for exemption from bureaucratic regulations and union contracts, charter schools must demonstrate improved academic achievement, usually within five years. Since 1991, 37 states and the District of Columbia have passed charter-school legislation. This past academic year alone, 473 new charter schools opened, bringing the total to just over 1,200 charter schools serving 300,000 students. Hundreds more are scheduled to open in the fall. Sounds impressive, but the charter-school movement is still a fledgling one: The U.S. now has 80,000 public schools with 46 million students. While the vast majority of charter schools are nonprofit, several states have regulations that favor for-profit companies. In Michigan, for example, for-profit companies run almost 70% of the state's charter schools, while Connecticut has no for-profit charter schools. Not surprisingly, many charter schools are located in large urban areas where disillusionment with neighborhood public schools is strongest. Jersey City's public schools have performed so badly that they've been under state control since 1989. Unlike private schools using voucher plans, charter schools can't charge tuition or impose admissions standards. So they have become increasingly popular with poor families as inner-city dropout rates remain high and academic achievement scores stay low. In contrast, more affluent parents have always had choices: Send their children to private schools or move to a suburb with highly rated schools. Nearly all of Golden Door's students qualify for free lunches at their public schools. Advantage schools are organized around a teaching method it calls "Direct Instruction." Students are drilled daily in basic skills in a highly repetitive, cue-response format that has been scripted in exact detail in the teacher's workbook. During a third-grade reading class at Golden Door in late June, Karen Jones, who became school head (Advantage-speak for principal) after 23 years as a public-school teacher in Chicago, demonstrated the technique. She read from "Lesson 124. Word Attack Skills," in the instructor's workbook: "Everybody, find part A in your textbook. [Wait] Touch under the first word in column 1. [Pause] What word? [Signal] Eighty. Next word. [Pause] What word? [Signal] Guarded...." Jones read and followed each instruction with enthusiasm and precision. The students obeyed and answered in unison, making their way through three columns of words and then on to a similar exercise where they rehearsed each word's meaning. CHOREOGRAPHED. "This curriculum was created more than 30 years ago to teach students who were called problem learners," explains Jones. "There's a specific way teachers need to teach skills and those skills need to be taught in a specific order with specific language. To ensure that, the curriculum is scripted." She adds: "The teacher aims for 8 to 10 responses a minute. We do reading, math, spelling, and grammar this way." Of course, that could mean up to 600 responses an hour, and if the teacher were a dedicated drill sergeant, thousands a day. Fortunately, the script allows for other activities, but the danger, at least of laryngitis, is apparent. Edison Project also uses a tightly scripted instructional method, "Success for All," which is widely used in public elementary schools with many disadvantaged students. The entire school day, however, is not so rigidly choreographed. Advantage schools tout a Socratic great-books program designed to develop reading, writing, and higher-order thinking skills. Foreign-language, physical- education, computer, art, and music classes are also offered. Advantage sets up its schools on a K-5 basis, then plans to add a grade each year. Golden Door is applying for a second charter that would allow it to grow into a K-12 institution.
Evaluating charter schools, however, is problematic since state legislatures have yet to create comprehensive oversight mechanisms. Some charter schools have had serious problems in their initial stages. Some have folded, and some have been closed -- and others likely will be. Advantage claims that all its schools are doing well. Rebarber boasts that even his kindergartners are taught to read. CONFOUNDED. But when New York Times Magazine reporter Michael Winerip visited an Advantage school in Rocky Mount, N.C., recently and brought in his own children's books for the students to read, the kindergartners were confounded by the simplest words. When the school opened in September, 1997, the kindergarten class was given the Iowa Test of Basic Skills (ITBS), a widely used assessment, and scored on average in the 48th percentile. Winerip's visit came the following May, about the same time the children took the ITBS for the second time. But in contrast to the results of Winerip's experiment, this time the same students scored in the 82nd percentile -- a seemingly remarkable rise to a grade equivalent of 1.3. Standardized test results are not yet available for Golden Door's students. In September, Golden Door will move into a new $8.75 million structure Mayor Schundler financed with municipal-bond money. This will obviously save Advantage millions on start-up costs. At its other schools, Advantage spends significant amounts to renovate or build. While the Jersey City mayor sits on Golden Door's board, he also made a shrewd deal for the city. "The building is a community center with a daytime tenant, Golden Door," explains Schundler. In the evenings and on weekends, local groups use the facility. "Golden Door pays the principal and interest. We end up having a community center for free, as far as the local taxpayer is concerned." In comparison, the mayor points to a public elementary school the city is currently building, but for $30 million -- all of which will be paid by taxpayers. The public school will serve the same number of students in the same square footage as the new Golden Door school. By state law, Golden Door gets only 90% of the $9,200 allocated per public-school pupil in Jersey City. Out of that, Advantage pays $1,500 per student in rent, which goes back to the municipality, and then pays salaries, benefits, and operating expenses for the school. According to the mayor's office, this translates to a 40% reduction in the per-pupil cost to the taxpayer. LESS "AGGRESSIVE." So how can a company run successful schools in some of the nation's worst school districts for significantly less than regular public schools and turn a profit? The bottom line has to balance student needs against investor expectations. Several venture-capital firms -- including Kleiner Perkins Caufield & Byers in Menlo Park, Calif. -- together have bet $25 million on Advantage's capacity to do so. "Advantage has been less aggressive than others at going for profits," says Western Michigan's Miron. "It provides busing and hot lunches. That helps them recruit students from all segments of the school district. Other companies are better at selecting less-costly students." Still, "our costs," Rebarber says, "have been what we predicted, and we are growing the central office at a reasonable pace. We're on track to pay out investors a reasonable return within the next few years." Is a public offering in the works? Says Steven F. Wilson, co-founder and CEO: "Raising public money to accelerate our growth is something the board will consider in the coming months." Increasingly, as education becomes more privatized, consumers will have the last word. Golden Door enjoys a 95% reenrollment for the fall and, like all the charter schools in this overcrowded school district, it has a long waiting list. "I like the uniforms and the structured education at Golden Door," Sharon Robinson concludes. "At Nyesha's public school, the children were a lot freer to run around, and the curriculum was a lot looser. Here, the students are under strict instruction, and my daughter can focus a lot better on her lessons." For many parents with school children, that's a big improvement.
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