Prometheus 6

School Entrepreneur Named to Be a Deputy Chancellor
By DAVID M. HERSZENHORN

Schools Chancellor Joel I. Klein yesterday appointed the former president of Edison Schools Inc., the world’s largest for-profit operator of public schools, as a deputy chancellor, perhaps the boldest move yet in the Bloomberg administration’s effort to increase the role of the private sector in managing city public schools.

The former Edison president, Chris Cerf, is a longtime friend of Mr. Klein and has been a consultant to the city’s Education Department since early this year, paid with private donations. He is part of a team that has been re-evaluating virtually every aspect of the overhaul of the school system in Mayor Michael R. Bloomberg’s first term.

You know about Edison Schools?

Edison's Failing Grade
Investors and school districts are ditching the country's leading public education privatizer
by Tali Woodward, Special to CorpWatch
June 20th, 2002

Edison Schools Failing?

A year ago, Edison Schools Inc. was flying high. With 133 schools under its control, Edison had quickly become the nation's largest for-profit manager of public schools. And the public education funding that the company was tapping into seemed to provide a potentially limitless revenue stream. Founder Chris Whittle had predicted that, by 2020, Edison would run one in ten public schools in the United States. The company was a hit with Wall Street: shares were trading at $38, up from $18 when Edison went public just over two years earlier.

Now shares of Edison are changing hands for about a dollar, the minimum price required to stay listed on NASDAQ. Edison has racked up $250 million in losses since it began. The company announced June 3 that it had secured the $40 million investment it needs to open school in the fall. But the futures of 74,000 kids in Edison schools from Maryland to California remain tied to a company that is financially unstable. Edison's economic troubles raise renewed questions about the wisdom of turning public schools over to for-profit corporations -- and could pose a major setback for the school privatization movement.

Edison is still reeling from a three-month inquiry into the company's finances by the Securities and Exchange Commission. Investigators determined that the company consistently misreported revenues, providing an unduly rosy picture to investors. For example, Edison reported $375.8 million in revenue in fiscal 2001. According to the SEC's May 14 order, $154 million of that never passed through the company: it was spent by school districts on salaries for teachers and other staff at schools run by Edison. The SEC also found that Edison does not have an adequate system of internal accounting controls in place.

At least ten class action lawsuits have since been filed against the company, one of them by Milberg Weiss, the firm handling a major stockholder suit against Enron. All charge that the company misled investors. Yet amidst this turmoil, the former golden child of for-profit education is planning its biggest project to date: next fall's takeover of 20 low-performing schools in Philadelphia.

Edison's improper bookkeeping practices may come back to haunt the company, as was the case with Enron. But there's more to the Edison story than an accounting scandal. Edison was built on the premise that a private company could run public schools more effectively and efficiently than local government could. Judging from the company's recent track record, that premise may soon be proven false.

Bruce Fuller, a professor of education and public policy at UC Berkeley who has researched charter schools and is familiar with Edison's history, says that Edison's stock performance isn't unconnected to the company's classroom record. "I think the softness of the stock price is related to the softness of their test scores and educational results," he says. "Another way of looking at it is, if they were doing better on the ground and getting more contracts, they wouldn't have to obfuscate their numbers. Even markets have rules -- and [Edison's] evidence is so mixed that it's starting to affect their standing with investors."