Some Hard-Knock Lessons About Public-Private Partnerships.

What One District Gained from Its Privatization Experience

Few issues of late have been as divisive in American public education as privatization. If a public-sector organization contracts for private services, it may be perceived by some as a betrayer of public trust and by others as a paragon of courage and genius.

But buying outside services from private vendors is certainly not new to public schools. School districts always have sought services, supplies, and resources from the private sector. We have contracted for food services, financial services, data management, legal services, and special education services. Our buses and books and pencils do not come from foundations. They come from people who are in the business of providing a good product and a good service for a return that will include a profit.

In Baltimore, we looked to the private sector to help us achieve management reform and accountability, and to provide cost-effective strategies for our operations. We got much more than we bargained for.

First Impressions

In the summer of 1992, the Baltimore City Public Schools entered into a $133 million, five-year contract with Education Alternatives Inc. EAI oversaw the management and instruction of eight elementary schools and one middle school. (Later, three more schools contracted with EAI for management services.) As part of the agreement, EAI also provided facilities management, some staff development, and financial management.

In the spring of 1996, our district severed its relationship with EAI. The contract was canceled for several reasons, but not one was failure by either of the partners. In many respects, our school system will never be the same because of this public-private partnership.

What first impressed me about EAI was "The Tesseract Way" of instruction. In Tesseract schools, I observed classrooms where children were achieving in an environment of high expectations. They received individualized attention through personal education plans, and they benefited from each classroom's low adult-to-child ratio. Parents and families were actively involved in decision making. Teachers used cooperative learning strategies and technology-assisted instruction. Most important, Tesseract schools' philosophy focused on helping all children achieve. I saw this approach as a solution to the crisis in urban education.

We can argue that this approach is simply sound pedagogy and would work no matter who provides it, but EAI brought something to the urban classroom that most public-sector organizations could not--readily available resources and capital. Operating as part of the Alliance for Schools that Work, EAI tapped the services of KPMG Peat Marwick for financial management, Johnson Controls World Services for facilities management, and Computer Curriculum Corporation for computer-assisted instructional management.

In public schools, significant reform has been stifled by bureaucracy. Decades of self-serving rules, policies, and procedures have produced an educational gridlock that only preserves the bureaucracy. With EAI, a private company could untie my hands.

Contract Terms

EAI's agreement with the Baltimore City Public Schools expanded the contractual relationship of a vendor and a school system. Basically, all operational responsibilities were to be managed with authority and autonomy delegated to EAI and coupled with accountability. EAI had the autonomy to determine whether it would provide the services directly or whether it would contract back with the school system for delivering those services. The general framework of the contract provided for a periodic transfer of funds based upon a negotiated per-pupil allocation for educational and most noninstructional services. EAI also had partial discretion to select staff, curriculum delivery, instructional methodology, training, and other areas supporting instruction.

The contract offered a five-year conditional commitment with yearly reviews. We could terminate the contract at any time if we gave 90 days' notice.

My New Role

EAI managed nine of Baltimore's 182 schools in collaboration with school district staff. As superintendent, I maintained fiduciary responsibility, but the key to this arrangement was the sharing of responsibility and power.

EAI and school system staff agreed to appoint a liaison to represent the superintendent and to manage personnel. The liaison, a school district employee, was responsible for staffing decisions and disciplinary measures and for adhering to the policies and procedures of the Baltimore City Public Schools.

In November 1995, the Baltimore City Board of School Commissioners voted to serve 90 days' notice to terminate the contract. The immediate cause of contract termination was a significant budget shortfall. We simply could not afford to continue paying EAI at the negotiated rate, and EAI could not afford to lower its costs to meet our offers.

What We Learned

As pioneers in the uncharted territory of private management of public schools, both Education Alternatives Inc. and our school district learned some "hard-knock" lessons about contracting for educational services--and about the politics of funding and managing an urban school district. These invaluable lessons will help us navigate future partnerships.

* Anticipate conflict and secure the support of all constituencies.

School leaders cannot impose innovations on school communities. While the immediate school communities embraced the EAI partnership, other segments of the Baltimore community distrusted our intent. We learned quickly and repeatedly that radical changes and substantive educational reforms engender controversies.

Early in the negotiating and planning process, the Baltimore Teachers Union supported our contract with EAI. Later, the union became a vocal opponent of the partnership because of a disagreement about the status of existing classroom instructional aides, or paraprofessionals.

Paraprofessionals, represented by the teachers' union, were replaced in Tesseract schools by "degreed interns." (The Tesseract Way required the presence of two adults with college degrees in each classroom.) Even though most displaced employees were transferred to non-EAI schools, this disagreement would prove to be an insurmountable obstacle to union acceptance of the contract.

Politics is an ever-present force in public education and, not unexpectedly, political issues dogged the experiment from the outset. In the beginning, the Maryland State Department of Education and the Maryland legislature supported our efforts. The state relaxed special education procedures and offered waivers for school food services and Title I services. Later, it was unclear if the waivers had ever been granted.

Because EAI was new and radically different, the Baltimore City Council scrutinized the company's financial records. The council also criticized EAI for not raising test scores quickly. We spent considerable time attempting to convince outspoken opponents that significant student achievement is longitudinal and that test scores alone do not determine a project's overall success.

* Establish specific performance objectives at the outset with milestones to monitor progress and accountability mechanisms linked to funding.

We did not establish a formal monitoring mechanism and therefore could not hold EAI accountable for student achievement. We have learned that we not only should expect schools to do better, but we should base progress on agreedupon units of measurement on standardized tests.

We also learned that we should establish accountability measures to link funding to performance-based standards.

* Establish a reasonable time frame for changes to occur and inform the public about realistic expectations.

Student performance often dips when substantive changes are introduced to the school environment. Because the public was not fully informed of this normal occurrence, parents and community groups were unprepared and disappointed when setbacks in test scores occurred. In our zeal to establish and promote new programs, we should avoid giving false hopes of overnight success. We cannot minimize the importance of informing the public about reasonable expectations.

* Agree to terms of severance.

At the beginning of this partnership, we should have thought clearly about the end. If we had been very specific about the disposition of leases,equipment, materials, and supplies when we entered the agreement, we would have eliminated hours of negotiation when we terminated the contract.

* Renegotiate terms of the agreement as needed.

Contracts can be reopened to contend with changes and introduce improvements. In Baltimore, we were participating in a groundbreaking effort in public school management. We had few signposts to follow. For this reason, we should have inserted a clause in the agreement that would have allowed us to reopen negotiations and accommodate changes. This flexibility could have helped us resolve unexpected union and community issues.

* Accept the need for upfront dollars.

Money does matter in public education today. Long-term, substantive reform of urban schools requires an influx of resources. EM was able to improve facilities and introduce computer-assisted instruction because it willingly invested the dollars needed to provide an environment for school improvement. If we are to effect systemic change, all schools will need the dollars that gave EM this advantage.

Early Outcomes

Even though we ended this partnership earlier than originally planned, we believe the outcomes were positive and promising. An early internal evaluation of the nine EM schools revealed a dramatic rise in parent involvement, improved physical facilities, and extensive individualized instruction.

In a third-year independent evaluation of the program, researchers from the University of Maryland-Baltimore County's Center for Educational Research acknowledged that change takes time and courage. For the EM schools, the researchers noted "considerable" achievements in instructional practices and praised the inclusion of special education students in mainstream classrooms, calling this "EAI's shining contribution to urban education."

Because of our involvement with EAI, we became better educators and better managers. Many of our schools are now applying EAI's most successful instructional strategies, and EAI's models have helped us use technology not just to instruct but to track student progress.

Besides giving us new instructional approaches that we could replicate in other schools, EAI and the Alliance for Schools that Work helped us understand good business practices and business paradigms. KPMG Peat Marwick, one of the largest U.S. accounting firms, studied our school district and showed us how to implement more efficient fiscal accounting practices. As a result of this study, we hired a chief financial officer to oversee our organization's $650 million budget. We also learned that business paradigms can help us achieve accountability for adults.

A Major Bargain

Participating in this partnership made the Baltimore City Public Schools more efficient, more competitive, and more open to reform. EAI's presence in just nine schools stimulated districtwide innovations and encouraged healthy competition and risk-taking when other schools set out to prove that they could be better than the EAI schools.

This new entrepreneurial spirit helped us progress more smoothly and quickly with our school-based decision-making initiative called "Enterprise Schools." Enterprise is a market-driven approach to school management that gives school leadership teams the authority and flexibility to determine the use of resources--with central-office managers supporting and guiding the process.

Because of our positive experiences, we continue to support the concept of public-private partnerships. As John Golle, EAI's chairman, once told me, "The genie is out of the bottle." We must now have the political will and courage to save our children by continuing to use that genie. The quicker we are able to take advantage of it to seek good contracts, the quicker we will be able to save more of our children and reclaim our future.