Getting clear about "profit" in our public schools

No matter what some people say, local public schools don't make a "profit." But many charter school operators do. Is that what's best for our kids?

After years of quiet, malign neglect, the issue of profit in our public schools has become a topic of public discussion. Efforts have been made to amend legislation to remove profits from schools - and were defeated. An amendment to the state constitution was just proposed, banning for-profit education providers. Of course, our local public school districts are public entities and therefore non-profit, and our charter schools (public school academies) are organized as non-profit entities. So what's the problem? The problem is that we are starting to see a separation between the "school" and the companies that run the schools and hire the people who actually teach our kids. That is where the issue of profit raises its ugly head. Because where there's profit, there's also an incentive to use the political process to create more.

Michigan Parents for Schools supports efforts to take the profit motive out of the education discussion. Sen. Rebekah Warren (D-Ann Arbor) proposed an amendment on the Senate floor to the charter cap bill (SB 618) that would have prohibited new contracts with for-profit management companies. That amendment was defeated, as was another offered by Rep. David Rutledge (D-Ypsilanti) in the House Education committee that would accomplish the same thing. Finally, Senators Warren and Hoon-Yung Hopgood (D-Taylor) proposed an amendment to the state constitution last week that would prohibit for-profit entities to provide instructional services or comprehensive school management services. We'd like to thank these legislators, and those from both parties who supported the amendments to SB 618, for doing the right thing by our kids.

Education in Michigan is a "$14 billion market"
This issue is timely, because the state Legislature is currently considering - and close to passing - bills that would remove limits on the number of charter schools and online "cyber" charter schools. Another bill would create a new class of charter schools formed by converting existing local public schools to charters by a vote of the parents. Unlike local public schools, charter schools are not required to staff and manage their own schools - and most of the time they do not. In Michigan, the vast majority of all charter schools instead hire a management company ("educational management organization") to staff and operate the school. In these cases, the "public" part of the school is the school board; everything else, often including the building, is owned and operated by the management company hired by the school board.

It's worth noting that the charter school board is considered "public" because it is appointed by a public authorizer - usually a state university - whose board in turn is usually appointed by an elected official, the governor. Charter school boards are not elected locally or by the parents in the school.

Nationwide, these management companies are often non-profit organizations; these non-profit managers are becoming more and more common across the country. In Michigan, however, only a handful of charter schools are operated by a non-profit; a somewhat larger number are "self-managed." But the vast majority of all charters in Michigan, more than 70%, are operated by private, for-profit management companies - more than in any other state. These firms are taking public money to educate students and retaining some portion of that as profit for their investors. I say "some portion" because these private firms are not required to fully open their books - as local public schools are - so that we have no idea what kind of profit margin these firms are making.

So now the trade groups representing many (but not all) Michigan charter schools are pressing hard to pass legislation that would remove all restrictions on the number of charter schools. They are joined in this effort by the largest charter school authorizers (Central Michigan, Bay Mills Community College, and Grand Valley State are the top three) who in turn can earn 3% of a charter school's funding as a service fee. As the lobbyist for one of the trade groups said, education in Michigan is a "$14 billion market." There are a lot of private companies who would like a big piece of that market.

"A world of profit"
Charter school advocates have an answer ready for the objection to for-profit management firms. All schools, they say, contract with for-profit firms all the time to do maintenance and construction, provide materials and perform other services. As Indiana State Superintendent Tony Bennett said before the Senate Education committee, the textbook companies, computer manufacturers and even the lawyers hired by school districts "make a world of profit." However, these are ancillary services and not instruction, which is the core responsibility of public schools. bq. The bill designed to remove the cap on charter schools also originally included a provision allowing regular public schools to contract out instructional services - to privatize teachers, in short. This provision was removed when the bill reached the Senate floor.

Now, we're hearing a more aggressive line of argument, which claims that community-governed public schools make a "profit," too. For instance, Senate Education Committee chair Phil Pavlov (R-St. Clair) was recently quoted as saying: "If you took a look at what for-profit is, you would see traditional public schools are operating at [a] nice profit." Other lawmakers and public school critics are making similar arguments. But what, precisely, does this mean? Even a non-profit organization has revenues and spends those revenues providing services. Non-profits also usually pay their professional staff to provide those quality services. What they don't do is set aside a share of the revenue to give back to owners as profits - by definition, non-profits do not have "owners" and work in the public interest. That's why they are tax exempt.

What Sen. Pavlov and others making this argument seem to be saying is that teachers, administrators and other educators who work in regular public schools are making a "profit" because they are getting paid more than he believes they should. That's a questionable argument, but it has nothing to do with profits. A non-profit organization uses all of its revenues to provide services, and that includes paying the people who provide the services. A for-profit company seeks to maximize what it can pay to the owners/investors, reducing the amount available for operating the company. That's how private companies work, and that's fine. But is it how our schools should work, especially when the money in question is coming from public tax dollars reserved for education?

Education is an investment, but not a business opportunity
Support for private, for-profit charter operators seems to depend on the idea that the profit motive will encourage these companies to run schools that offer a huge improvement in education. As the head of the National Charter Schools Institute said in testimony before the Senate Education committee, charters are seeking to offer "breakthrough performance." But is that what's happening? Researchers at the pro-reform Center for Research on Education Outcomes at Stanford University found that the vast majority of charter schools performed about the same as demographically similar local public schools. Less than 20% performed better, and more than 30% performed worse.

Dr. Gary Miron and his colleagues at Western Michigan found that around 60% of Michigan charter schools are performing worse than would be expected given the districts their students come from. Finally, even data from the Michigan Association of Public School Academies comparing MEAP scores of charters with those of "similar districts" shows that while charters have higher percentages of students deemed "proficient," the differences are small. The largest difference is in 8th grade reading, where 77.5% of charter students are proficient compared to 70.8% in "similar" local public schools. All the other measures are even closer. There is nothing wrong these results, but would anyone call it "breakthrough performance"?

There are clearly excellent charter schools, just as there are excellent local public schools. But there is no evidence that giving free reign to the profit motive has dramatically changed education outcomes in our schools. What it has done is to divert increasingly scarce state School Aid Fund money to line the pockets of private investors. Michigan should join other states, most recently New York, which prohibit for-profit companies from managing charter schools. Our children deserve for those resources to be spent directly on their education, instead. There is no justification for anyone making a profit on the backs of our children and siphoning funds from their education.