Edison's Red Ink Schoolhouse -- THE BIGGEST BRAND NAME IN FOR-PROFIT EDUCATION IS FLOUNDERING. IT TURNS OUT WHAT'S GOOD FOR CHILDREN IS BAD FOR BUSINESS: SPENDING MONEY ON SCHOOLS

Article excerpt

For Edison Schools, Inc., April was the cruelest month. Edison, a $1.3 billion corporation that in 2000-01 ran what it counts as 113 schools (some with the same principal under the same roof) enrolling some 57,000 students, is the largest and easily the most visible of the nation's so-called EMOs, the for-profit Educational Management Organizations operating public schools, and thus the nearest thing to an emblem for the school privatization movement. But this has not been a happy spring for the company. On March 27 the San Francisco school board voted to break Edison's five-year contract to manage the city's Edison Charter Academy unless certain conditions were met within 90 days. At almost the same moment, it became clear that Edison wouldn't get anywhere near the number of parent votes it needed to win the right to run five New York City schools, as it and many of its Wall Street friends had hoped. And that, not surprisingly, accelerated the slide in the company's stock from a February peak of just over $38 to a fifty-two-week low in mid-April of just under $16.

Nor was that all. In Dallas, where Bill Rojas--the same superintendent who in 1998 had rammed the Edison contract through a divided San Francisco board--had engineered an Edison contract to run seven of that district's schools, board members were beginning to suspect that under its contract with Edison, the district was paying the company considerably more per student than it was spending for similar students in the schools that it was operating. The district recently estimated that the difference could be running to as much as $20 million a year. (Rojas, fired by Dallas after eleven months on the job, is now working for Advantage Schools, an Edison competitor.)

In Inkster, Michigan, where Edison had contracted to run a troubled four-school district that was on the verge of a state takeover, school board members were complaining about lack of information about the company's expenses. In nearby Pontiac, where Edison runs the Edison-Perdue Academy, school trustees were talking about ending a contract midstream. And in Goldsboro, North Carolina, the Wayne County school board voted unanimously to terminate Edison's management of two schools.

For an organization that, in one incarnation or another, has been around for nearly a decade and has yet to make a profit, those were not negligible events. Most of Edison's schools are, in effect, loss leaders. In an effort to prove itself, Edison has poured resources into the schools it operates--and still it has run into trouble. What happens if--or when--investor pressure forces the company to pare back expenses so it can show a profit?

All that being said, it would be a mistake to count Edison out or discount its importance, both as force and symbol, in the nation's fractious fight over the structure, control and quality of American public schools. Despite its recent setbacks, Edison's numbers will almost certainly go up in the coming year. Even as it lost the visible fight in New York and as its stock got hammered, the company was announcing new deals in Nevada to run seven Clark County (Las Vegas) schools, a contract for two new schools in Indiana, a deal to manage six of the ten schools in Chester, Pennsylvania, as well as expansions in California, Kansas, Michigan and Ohio. Most significant, Edison is in negotiations to run nine charter schools in Miami in collaboration with the United Teachers of Dade County--the union lamb lying down with the corporate lion. The company's total "enrollment," which grew from 37,000 to 57,000 last year, could increase at least as much again by September, and maybe considerably more. By mid-May, a month after it hit that fifty-two-week low of $15.90, Edison stock was back at $24 and Wall Street was buzzing that after the dotcom shakeout, one of the places to go was to the EMOs. The April decline, said an analyst at J.P. Morgan, created "a great opportunity" to buy Edison's stock. …