School districts’ contracting with private, for-profit companies reflects an increasing trend toward private management of public services and concerns about the quality of U.S. education. As a result, school districts nationwide are experimenting with a range of reform options, including school-based management, charter schools, and contracting with private companies for management of their public schools. School districts have historically contracted with private companies for noninstructional services, such as student transportation, building and vehicle maintenance, and food provision. School districts have also contracted with private companies for limited instructional services to specific student groups, such as at-risk children. To date, however, despite considerable discussion, only a handful of districts have signed contracts with private companies to manage schools or school districts. In some school districts, the decision to contract with a private company for school management followed years of frustration with school performance. School districts began contracting with private companies in the hope that they would (1) bring new ideas and a bold new direction to public schools and (2) do a better job of educating children. Federal and state laws support innovative efforts to improve education. For example, under the Goals 2000: Educate America Act, enacted by the Congress in 1994, state education agencies may use federal funds for state planning and evaluation activities involving local efforts to contract with private management organizations to reform public schools. Some states have laws authorizing charter schools that permit private companies to enter the public education arena. Under such laws, private companies, teachers, school administrators, and other members of the community may propose, create, or manage a publicly funded school. In school year 1994-95, four school districts—Baltimore City Public School District, Baltimore, Maryland; Dade County Public Schools, Dade County, Florida; Hartford School District, Hartford, Connecticut; and Minneapolis School District, Minneapolis, Minnesota—had contracts with private companies for school management. In Baltimore, 1 in 4 citizens is functionally illiterate. The average student is a poor, African American child living in a female-headed, single-parent household; he or she has not met state standards for test scores, has missed 1 in 5 days of school, and has only 1 chance in 2 of earning a high school diploma. For its 183 schools, the Baltimore City Public School District spent an average of $5,948 per student in school year 1994-95. However, Baltimore spent $40,000 less per classroom than districts in the nearby Maryland suburbs. School officials believed that Baltimore’s lower classroom funding level made it difficult for the district to address the low test scores, low attendance rates, and extremely high secondary school dropout rate. The Dade County Public School District is an inner city district with a multicultural population. Foreign-born students enter the schools at a rate of 11,000 to 15,000 per year. Nearly 60 percent of the district’s students have a native language other than English. In school year 1994-95, over half of the students received a free or reduced-priced lunch, an indicator of poverty. For its 286 schools, the Dade County Public School District spent an average of $4,773 per student in fiscal year 1994-95. About 18 percent of the students drop out of school each year. In school year 1993-94, almost 40 percent of Dade County’s students scored in the bottom quartile in reading on standardized tests. Hartford is the poorest city in Connecticut. Nevertheless, the Hartford School District spent $8,688 per pupil in school year 1994-95, well over the national average of $5,170. Despite such funding, district officials believed the district lacked the resources to operate its schools in a “proper and efficient” manner. Teacher salaries, which averaged about $58,000 a year, consume a significant portion of the district’s budget. In the 32-school district, test scores are well below the state average. About 16 percent of students drop out each year; about 93 percent of students are minority. The district has 40 percent of the state’s bilingual students and 16 percent of its students are special education students. In school year 1994-95, approximately 78 percent of Hartford students received free or reduced-price lunches. The Minneapolis School District is in a large, multicultural city, which has undergone dramatic changes in ethnicity, race, and income during the past 20 years. In school year 1994-95, 36 percent of the families received benefits from Aid to Families With Dependent Children; 65 percent of children in first grade were eligible to receive free or reduced-price lunches. In the Minneapolis School District, where the average per pupil expenditure was $6,408 in school year 1994-95, minority children account for 61 percent of the students. That number is projected to reach 70 percent by 1998. In school year 1994-95, 39 percent were African American children; 12 percent, Asian American; 4 percent, Hispanic American; 7 percent, Indian American; and 39 percent, white American. These children come from families in which over 70 different languages and dialects are spoken. Languages include Cambodian, Hmong, Lao, Russian, Spanish, Ukrainian, and Vietnamese, among others. The gap in test scores between minority and white students has persisted and is growing yearly. Two private companies—Education Alternatives, Inc. (EAI) and Public Strategies Group (PSG)—had contracts with school districts for school management in the 1994-95 school year. The companies differ in their approaches to providing services. EAI’s approach focuses on three aspects of the schools: education, facilities, and financial management. EAI has joined with three other companies—KPMG Peat Marwick, Johnson Controls World Services, Inc., and Computer Curriculum Corporation—to provide services to schools. Collectively, they refer to themselves as the Alliance for Schools That Work. As the lead company of the alliance, EAI is responsible for overall school management and provides education management through its Tesseract instructional approach. Major components of Tesseract include a personal education plan for each child, low adult-to-student ratios in the classroom, continuous training for teachers, active parental involvement, the use of computer technology in instruction, and special education inclusion. Other companies in the alliance provide additional services. KPMG Peat Marwick, the world’s largest public accounting and consulting company, offers financial management assistance. Johnson Controls World Services, Inc., which has operated, maintained, and managed facilities for over a century, provides supervision and maintenance of buildings, energy use, transportation, and other noninstructional services for schools. Computer Curriculum Corporation, owned by Paramount Communications, the world’s largest entertainment and educational publishing corporation, provides computer-based, instructional software. PSG provides superintendent services for the Minneapolis School District. Its president functions as the Minneapolis School District’s superintendent and leads a team of employees from PSG who help manage the school district. According to PSG, it focuses on helping schools in several ways, including improving performance. The company’s stated goal is to develop current Minneapolis district administrators to take over the management of the schools when the company’s contract expires. Because of their interest in school reform, the Chairman, Senate Committee on Labor and Human Resources, and the Chairman, Subcommittee on Labor, Health and Human Services, Education and Related Agencies, Senate Committee on Appropriations, asked that we provide information about the experiences of school districts that have contracted with private companies for management of their public schools. Specifically, we were asked to describe (1) what the private companies and school districts were required to do under the contracts, (2) what happened in the school districts as the contracts were being implemented, and (3) the impact of private management efforts on students. To obtain this information, we used several methodologies: contract reviews, site visits, and review and analysis of reported school operating expenses and student outcomes. We reviewed the contracts for and visited schools in the four districts that had contracts for school management with private, for-profit companies in school year 1994-95. Our study excluded the five additional districts that had signed contracts for private company management of schools in the 1995-96 school year because the districts either had not begun operating under the contracts or had only been doing so for a few months. Our study also excluded school districts with contracts for only highly specialized instructional services, such as teaching foreign languages or tutoring. Nor did we study districts that contracted solely for noninstructional services. We visited the Baltimore City, Dade County, Hartford, and Minneapolis school districts. Three of these districts had contracts with EAI and one with PSG. By visiting only districts with contracts in effect for the 1994-95 school year, we were able to observe program implementation. In each district, we talked to stakeholders—superintendents, school board members, private company officials, school administrators, city council members, teachers, principals, teachers union representatives, and parents. We asked about the changes that had taken place under the private company’s direction, including services provided, difficulties in program implementation, and results to date. Except for the Minneapolis School District, where primarily superintendent services were provided, we visited privately managed schools. In the Baltimore City Public School District, which had the longest running and most comprehensive private management effort under way, we analyzed 4 years of data on student outcomes for seven of the nine privately managed public schools. We reviewed data for 1 year before private management as well as for 3 years during private management. We matched each privately managed school with a similar nonprivately managed school and then compared standardized student test scores and attendance. (See table III.1 in app. III for a list of schools in the analysis.) We looked at only two areas for test scores, reading and math. For both areas, scores were available from routinely administered standardized tests. We used normal curve equivalent (NCE) scores from the Comprehensive Test of Basic Skills (CTBS) and, when available, outcome scale scores from the Maryland State Performance Assessment Program (MSPAP). (See app. I for a discussion of our selection of statistical procedures and technical details about the analyses.) We used two types of analyses—longitudinal and cross-sectional—to compare student outcomes. In both types of analyses, we compared test scores and attendance measures of students attending the privately managed schools with those of students attending matched, nonprivately managed schools. In the cross-sectional analysis, we performed the comparison at the school level, analyzing each year separately, disregarding changes in the student population from year to year. In the longitudinal analysis, we limited the analysis to those students who were enrolled in a privately managed school (or its matched, comparison school) for the entire 3-year period. Students meeting this criterion were aggregated into a privately managed or nonprivately managed group for the analysis. We did not conduct our own analyses of student outcomes for test scores and attendance in the Dade County or Minneapolis school districts. Instead, we used findings from evaluations conducted by the districts themselves, which sometimes included measures other than test scores and attendance (for example, suspensions). We did not analyze student outcome data for the Hartford School District, which was in the relatively early stages of implementation. Of the four school districts we visited, Baltimore City and Hartford were the only districts in which the company was to manage school or district budgets. Although Hartford was not far enough along in its budget implementation for a financial analysis, we did compare reported operating expenses for Baltimore for 1 year before private management with reported operating expenses for 2 years during private management. To carry out our analysis, we obtained and reviewed reported operating expense data provided by the district and EAI. We could not, however, determine the reliability of the expenses provided by the Baltimore district because audits were not done for individual schools. When we attempted to verify the EAI data, EAI would not provide the supporting documentation we needed. As a result, we based explanations for differences between reported operating expenses before and during private management solely on oral or written explanations from EAI and Baltimore City Public School District officials. However, for the nine Baltimore schools, we were able to reconcile EAI’s fiscal year 1993 and 1994 expenses with its audited statements of cash receipts and disbursements. We did our study between December 1994 and December 1995 in accordance with generally accepted government auditing standards. The four school districts we visited gave private companies varying authority and responsibilities in managing their schools. Under the contracts, school districts also retained varying powers and responsibilities and compensated the companies in different ways. Except for the Minneapolis contract, however, the contracts that school districts had with private companies were similar in their lack of requirements for improving student outcomes, which are traditionally measured by test scores and attendance and graduation rates. In July 1992, the Baltimore City Public School District signed a 5-year contract with EAI that gave EAI broad authority and responsibility for managing 9 of the district’s 183 schools. Under the contract, EAI was to (1) implement its Tesseract instructional approach, which included supplying computers for use as instructional tools and college-educated teaching assistants; (2) provide building maintenance and other noninstructional services; (3) manage the nine schools’ budgets; and (4) determine school staffing levels for the nine schools with the approval of the school district superintendent. The district could terminate the contract upon 90 days’ written notice. The company had authority to discuss matters concerning the nine schools with union representatives and to participate in evaluating employees at the schools after obtaining the required approval. However, EAI could not reprimand or terminate any school system personnel. EAI also had authority to hire its own personnel to implement its Tesseract approach. In managing the nine schools, EAI could either pay a subcontractor to provide noninstructional services or purchase them from the district; however, EAI could not subcontract for instructional services without the district’s expressed agreement. Annually, the Baltimore City Public School District was to pay EAI in 12 monthly installments, with the amount of each installment based on the district’s historical expenditure patterns. The total payment to EAI was to be the districtwide average per pupil expenditure multiplied by the total number of students in the nine schools. With the money, which totaled $26.7 million in the first contract year, EAI was to pay the costs of operating the nine schools, including employees’ salaries and benefits, utilities, leasing costs for computers and other equipment, and repairs and maintenance. EAI paid the district $3.4 million to cover the nine schools’ share of central support services provided by the district, leaving EAI $23.3 million for the direct operation of the schools. Under this payment arrangement, EAI’s payment for managing the nine schools was the difference between the total payment received from the school district—excluding interest earned and grant money—and the cost of operating the schools. For the first 2 years of the contract, EAI reported gross profits of $1.9 million and $3.3 million, respectively. According to an EAI official, these were gross, and not net, profits because they did not reflect time that EAI’s corporate staff spent on contract matters. The Dade County Public School District’s 5-year contract with EAI, which covered June 1990 through June 1995, gave the company the authority to implement its Tesseract instructional approach at Dade County’s South Pointe Elementary School. However, EAI was to raise the money needed to implement the Tesseract program with the cooperation of the district. EAI was also to help the district hire the school’s principal and its teachers. The district was responsible for managing all other aspects of the school, such as its budget, food service, and building maintenance and repair. The contract allowed the district or EAI to terminate the contract at the end of any academic year upon 90 days’ prior written notice. Under the contract, EAI agreed to raise over $2 million, of which $1.4 million was to be raised in the first 3 years. This amount was to supplement the funds the school ordinarily received from the district to provide school services. The district was to deposit the money that EAI raised under the contract into an interest-bearing account from which only the district could withdraw money. The money was to be used to pay for special staff needs, instructional materials and equipment, and EAI’s out-of-pocket expenses and consulting fee. The Board of Education for the Hartford School District signed a 5-year contract with EAI in November 1994, which became retroactive to July 1994. Under the contract, EAI was to perform management and operations tasks necessary to achieve the goals of the district’s strategic plan. EAI was to also assume responsibility for managing the operations of the 32 schools in the district while the Board of Education retained policy-making and ultimate decision-making authority. Unlike the Baltimore and Dade County contracts, the Hartford contract did not specify that EAI implement its Tesseract instructional approach. Rather, EAI was to recommend and implement enhancements to the educational program. In addition, the contract stated that over the 5-year term EAI expected to spend about $20 million on technology and software initiatives and $1.6 million on building improvements. EAI was also to recommend and, with approval of the Board of Education, implement enhancements to improve student performance, including staff training and student evaluation. EAI was given authority to purchase materials and services from commercial sources and to make recommendations concerning staffing levels; organizational structures; and the hiring, assignment, duties, compensation, discipline, and discharge of district employees, including the superintendent. However, the Board of Education remained the final authority for all personnel and organizational structure decisions. The contract also allowed EAI to provide advice during negotiations with labor organizations, but the Board had the statutory responsibility for collective bargaining and administering contracts with labor organizations. Under the contract, the district’s entire annual school appropriation and all grant money (including federal and state grants), which totaled about $200 million in the first contract year, were to be used by EAI to manage the schools. EAI and Hartford, however, ultimately disagreed on the interpretation of many key contract provisions relating to payment and control of funds. The district had the right to terminate the contract upon 90 days’ written notice to EAI. EAI could also terminate the contract if it believed that the annual appropriation was insufficient to meet all contractual financial requirements. In December 1993, the Minneapolis School District signed a 3-year contract with PSG. Under the contract, the district employed PSG to provide leadership to the district, including a superintendent. PSG’s president was designated superintendent. The company was to implement the district’s improvement agenda, which included, among other things, to improve students’ test scores and attendance rates, instruction, and curriculum; reduce suspensions; enhance district management and accountability; and maintain community trust and involvement in the schools. As superintendent, PSG was responsible for the school district finances but within the district’s budget and payable systems. The contract allowed the district or PSG to terminate the contract with 30 days’ advance written notice. Under the contract, PSG was to be paid a monthly fee of $5,000 for serving as superintendent. In addition, the company would receive additional compensation for achieving the objectives in the district’s improvement agenda. PSG characterizes the contract as a “pay-for-performance” contract. For each goal or objective, the district established indicators, such as changes in test scores and attendance rates, that were intended to help the district assess the extent to which the goal had been achieved. The agenda could be amended from time to time to reflect additional goals and objectives. The four school districts that awarded private management contracts had different implementation experiences. The Baltimore and Hartford contracts proved difficult because of some opposition in the communities to private management of the public schools, while Dade County and Minneapolis implementation was easier because private management was generally supported. In Baltimore, the mayor, superintendent, and, initially, the teachers union supported private management of the public schools. The school district selected for private management only those schools with principals who were interested in private management. In addition, the district gave teachers who did not want to teach in privately managed schools the option of transferring to other schools in the district. The teachers union, however, opposed EAI’s requirement that teaching assistants have at least 90 college credits. The teaching assistants who did not meet this requirement were transferred from the privately managed schools to other schools in the district. EAI replaced these assistants with a larger number of teaching assistants, who usually had college degrees. The Baltimore teachers union protested the transfers as well as the replacements. The union contended that the original teaching assistants were valuable because they were experienced and from schools’ neighboring communities and therefore provided inner-city children much needed relationships with familiar, trusted adults. In addition, some people opposed EAI’s special education inclusion model and the manner in which it was implemented. One group who opposed the model believed that the real motive of EAI’s special education inclusion program was to reduce the number of special education teachers and thereby reduce costs. In addition, a national teachers union questioned whether the decision to implement the inclusion model was in the children’s best interest. To further complicate EAI’s efforts to implement inclusion, the U.S. Department of Education found that EAI had not followed the procedures as required by the Individuals With Disabilities Education Act before changing special education students’ placements by moving them to regular classrooms. Even with such opposition, EAI was able to generally implement its contract. However, with over 1 year remaining in the 5-year contract, the school district decided to terminate the contract effective March 1996. School district officials had tried to negotiate with EAI to reduce the amount of money EAI would receive to operate the nine schools because of unexpected districtwide expenses. EAI would not agree to the reduced amount, and the district decided in November 1995 to terminate the contract. Our analysis of reported operating expenses before and during private management of the nine schools found that EAI spent about the same each year on direct operations as the district had spent in the year before the contract (see table 3.1). However, EAI allocated funds differently. In its first year, EAI spent less on general instruction and special education instruction but significantly more on facilities. In the second year, EAI’s overall reported costs were similar to those of its first year, but, again, EAI allocated funds differently. EAI increased its spending for general instruction (primarily because of salary increases) but spent less than it had in the previous year on special education. EAI also spent less on facilities than it had in the previous year (primarily, according to an EAI official, because of the facility upgrading done during the first year), but the company continued to spend more than the district had previously spent on facilities. Although most school board members in Hartford supported private management of public schools, many in the district did not agree with them. The superintendent, for example, had several concerns about the district’s decision to enter into a contract with EAI. The teachers union, as well as other unions, opposed private management from the onset, possibly at least in part because they viewed EAI as a vehicle for reducing teaching jobs. Opposition reached its peak when EAI submitted a budget proposal for school year 1995-96 that would have eliminated a substantial number of teaching positions. EAI wanted to cut teacher costs and use the savings to help fund technology initiatives specified in the contract, as well as invest in clean and safe schools, implement site-based management, and improve instruction. However, most school board members would not support the reduction in teachers. In commenting on a draft of this report, EAI said that it believed that such a cut was warranted, saying school district teacher-pupil ratios, determined by the district’s contract with the teachers union, had resulted in a system that was “overstaffed by millions of dollars of personnel.” According to Hartford, the cuts would have resulted in massive violations of class size limitations contained in the district’s agreement with its teachers union. During the first year of the contract, the district and EAI agreed that EAI would prioritize its efforts in 6 of the 32 schools. Hartford, in responding to a draft of this report, stated that EAI suggested this six-school focus to achieve “showcase results quickly as a strategy to build community support.” EAI was to provide specific education management services to the six schools. These services included (1) training teams of staff for site-based management in five schools and one adult learning center and (2) providing technology improvements, such as computers. In January 1996, however, Hartford announced that it would terminate its contract with EAI. According to Hartford, the relationship broke down and the contract will be terminated because EAI concluded that it would not operate under the contract as written. EAI, on the other hand, said that it ceased services to Hartford due to the district’s failure to pay it for services rendered in accordance with the contract. In its 1995 annual report to its stockholders, EAI stated that it had recorded costs totaling $5.5 million for the Hartford contract but acknowledged uncertainties about whether the district would reimburse it. The Dade County School Board and the teachers union supported EAI’s Tesseract program for one of the county’s newly constructed public schools. EAI also helped the district hire the school’s principal and teachers, helping to ensure the support of those who would implement the program. EAI raised $1.4 million of the over $2 million agreed to under the contract and was able to implement its Tesseract instructional approach. The company also received in-kind donations estimated at about $285,000. Most of the money raised was used to pay for teaching assistants’ salaries and computer hardware and software. Dade County officials said that they were generally pleased with EAI. The contract expired in June 1995 but was not renewed. According to district officials, EAI wanted a larger role in school management, but the district would not agree to this. The Minneapolis school board unanimously agreed to sign the contract with PSG amid general support for the company serving as school superintendent. District officials, however, did not view this decision as private management of their schools. The school board’s search for a superintendent was the same one used to select previous superintendents. This time, however, the board encouraged nontraditional candidates—those without training or experience in education—to apply. PSG’s president was a well-known member of the Minneapolis community. He had previously served as a consultant to the district and had been instrumental in improving financial management in the district’s schools. As of June 1995, after 18 months of the 3-year contract, the Minneapolis School District determined that PSG had partially achieved some of the goals and paid PSG 66 percent of the $716,500 that PSG was to receive under the contract if it had fully achieved each goal. For example, the company was paid when the suspension rate dropped, attendance increased, and families’ involvement in their children’s education increased. PSG was also paid when it developed baseline measures for assessing student performance, identified the predictors of effective teaching, and developed a strategic plan for the district. It was not paid, however, when student test scores did not improve or when it did not negotiate the teachers’ contract to the district’s satisfaction. The contract with PSG remains in effect until December 1996. Regardless of whether private companies fulfilled their contract obligations, we found that contract services yielded some benefits for students in all four districts. For example, students received individualized instruction and had greater access to computers and cleaner school buildings. In addition, private management companies have served as catalysts for districts’ rethinking of the status quo. Despite the positive impact of private management efforts, however, one measure of student outcome—scores on standardized achievement tests—did not substantially improve in Baltimore, where we analyzed test scores. Similar results were also reported in Dade County and Minneapolis. Hartford test score data, however, were not available for analysis at the time of our review. In Dade County and Minneapolis, attendance rates improved; in Minneapolis, suspension rates declined. According to a Dade County internal evaluation, after 2 years of private management, attendance in the privately managed elementary school improved significantly compared with another similar school in the district: Absences declined an average of 1.6 days per student, from 10.5 in school year 1990-91 to 8.9 in school year 1992-93. The Minneapolis School District reported slight districtwide improvements in attendance. Attendance rates increased from 90.5 percent in school year 1993-94 to 90.7 percent in school year 1994-95, according to district officials. Suspension rates for all students in school year 1994-95 decreased in 7 of 10 months compared with school year 1993-94. The decrease in suspensions, a PSG contract goal, is a result of a change in how student discipline is managed, district officials said. Our analysis of attendance rates for Baltimore showed that they did not improve for students in the privately managed schools compared with the rates for students in the nonprivately managed schools. (See app. II for the details on our Baltimore attendance rate results.) In Baltimore and Dade County, EAI implemented its Tesseract instructional approach, resulting in more individualized instruction and additional teacher training. For example, in Baltimore, as part of its Tesseract approach, EAI said it removed desks and replaced them with tables to facilitate teacher-student and student-student interaction. EAI also provided weekly teacher training in its Tesseract approach, which included training in the Tesseract philosophy and implementation, instructional technology, and leadership. The Baltimore, Dade County, and Hartford contracts specified that EAI provide computers. In Baltimore, for example, EAI leased about 1,100 computers for the nine schools. A typical classroom had four networked computers, and each school had one or more computer labs. EAI also provided fax machines, copiers, and telephones for teachers in their classrooms. In Hartford, EAI’s strategy was similar. EAI installed computer labs in 5 of Hartford’s 32 schools. EAI also said that it provided copiers and fax machines for all 32 schools. In Baltimore and Hartford, EAI provided school building repair and maintenance. In Baltimore, officials told us that the nine schools were cleaner as well as better maintained. EAI spent money to paint the schools, improve heating, and install air conditioning. In addition, EAI spent money on bathroom repair and plumbing, fence repair, landscaping, and preventive maintenance. The company also retrofitted lighting in the nine schools, which brightened classrooms and is expected to reduce energy costs. In Hartford, EAI completed several types of repairs throughout the district, concentrating on six of the district’s schools. Private companies have served as catalysts for school districts’ rethinking and challenging the status quo. In Baltimore, the superintendent said that the entire school district has become more competitive because of EAI’s presence. For example, he said that other schools—concerned that functions, such as maintenance, would be contracted out—are doing a better job in those areas. He also said that the schools are operating in a more business-like manner. In Dade County, the district is seeking ways to continue to have college-educated teaching assistants in classrooms, although the contract with EAI has expired. In this case, district officials sought to continue an EAI innovation. In Hartford, some district officials were concerned that teachers’ salaries consumed too much of its budget and asked EAI to help it negotiate the teachers’ contract. EAI succeeded in helping to secure a zero increase in the teachers’ salaries for 1 year. In Minneapolis, the school board hired what it considered to be a nontraditional superintendent—a private company. In addition, PSG’s president, who serves as the school district superintendent, does not have the traditional background in education. This may change the way district officials view future candidates for superintendent, officials stated. In the Baltimore and Dade County privately managed schools—scores on standardized achievement tests, a traditional measure of student learning, showed no improvement when the scores were compared with those in other comparable schools. Similarly, in the Minneapolis district, scores on standardized achievement tests did not improve. For Hartford, test score data were not yet available because the district was still in the early stages of implementation. In our own test score analyses of Baltimore schools, we found little or no difference between scores of students in privately managed schools compared with students in other similar schools. In general, scores tended to be significantly lower in privately managed schools in the 1992-93 school year, during the year in which private management was beginning in Baltimore, compared both with school year 1991-92 scores and with scores of other similar schools. During the second and third years of private management, however, scores in privately managed schools increased, so that by the end of the 1994-95 school year, little or no difference remained between scores of students in privately managed and other similar schools. (See app. II for the details on our Baltimore test score results.) Dade County’s evaluation of EAI’s Tesseract instructional approach, after 2 years, showed no improvement in test scores compared with another similar Dade County school. Although test scores of students in the privately managed schools improved, they improved at a rate similar to that of students in the comparison school. In Minneapolis, children’s test scores showed no improvement after 2 years under private management. In fact, the learning gap between minority and nonminority children widened, according to the district. Thus, in Minneapolis, PSG did not achieve two of its goals—improving test scores of all children and narrowing test scores between minority and nonminority students. Although standardized achievement tests provide a widely accepted measure of student learning, they do not measure attainment of the entire range of educational objectives. Standardized achievement tests tend to measure core skills and knowledge common to the curricula of most states, not necessarily the curricula of particular classrooms or districts and not more abstract forms of learning. Thus, such tests may not measure a child’s creative thinking, values, and sense of personal and community responsibility—all qualities parents and teachers we interviewed mentioned as important educational goals. In some districts, some parents and teachers said they saw positive effects on children in privately managed schools, even though standardized test score results did not improve. In addition, standardized achievement tests tend to be better suited to measuring the cumulative effects of instruction; thus, it may take several years before improved learning is reflected in standardized test scores. This may partly account for the lack of overall improvement in test scores in Baltimore, Dade County, and Minneapolis. To improve educational outcomes for their students, school districts in Baltimore, Dade County, Hartford, and Minneapolis contracted with private, for-profit companies to manage individual schools or entire school districts. These contracts reflected considerable variation in the authority and responsibilities school districts were willing to give these private companies. For example, EAI was to focus its instructional approach in only one school in Dade County but was to manage the entire Hartford School District. Our work suggests that implementing the contracts was more difficult in some school districts than in others because the companies faced more community opposition. The level of opposition appeared to depend on the extent to which groups in the community perceived themselves as losing something. The strongest opposition occurred in Hartford, where the company was viewed as a vehicle for reducing the number of teachers. On the other hand, companies faced almost no opposition in Dade County, where private management was used in a new school for which teachers and staff had not been hired, or in Minneapolis, where the private intervention involved primarily the superintendent position. Although scores on standardized achievement tests did not substantially improve in the three districts where test scores were available for analysis, in all four districts, the private management companies made changes that benefited students. For example, students enjoyed individualized instruction, greater access to computers, and improved building maintenance and repair. In the end, three of the four contracts had either expired, been terminated, or were in the process of being terminated. In Baltimore, the cited reason for contract termination was budget constraints. In Hartford, the company cited the district’s failure to pay for services rendered in accordance with the contract; the district cited the unwillingness of the company to operate under the contract as written as the reason for the impending contract termination. The Dade County contract expired at the end of its 5-year term. The Minneapolis contract remains in force until December 1996. A draft of this report was provided for review and comment to the Department of Education as well as the school districts (Baltimore City, Dade County, Hartford, and Minneapolis) and companies (EAI and PSG) that were the primary focus of our work on private management of public schools. Only the Department of Education declined to provide comments. In general, the comments clarified or provided additional information pertinent to issues discussed in the report. Baltimore’s Superintendent of Public Instruction stated that he and his staff had no recommended changes or concerns about the report’s contents. The superintendent added that much was learned from the district’s experience with private management, although Baltimore’s relationship with EAI had ended. According to the superintendent, the district plans to continue to implement EAI strategies and programs, which he said have proven successful and beneficial to students. The Dade County School Board provided several technical comments that we incorporated in the report where appropriate. The Hartford Board of Education provided its interpretation of the fundamental structure and essential terms of its private management contract with EAI. As noted in our report, the Hartford district and EAI disagree on the interpretation of many key contract provisions. The Hartford School District also commented that neither opposition nor the district’s budgetary problems prevented EAI from implementing the contract. We modified the report to reflect the district’s view. The district also made several technical comments that we incorporated throughout the report where appropriate. Comments from the Minneapolis School District were incorporated in the comments provided by PSG. PSG’s comments are discussed in the following paragraphs. EAI was particularly concerned that we used spring 1992, rather than spring 1993, test score results to determine the base year for measuring the academic performance of Baltimore students based on the Comprehensive Test of Basic Skills (CTBS). In explaining its preference for using spring 1993 test score results, EAI stated that its first priority after it was awarded the Baltimore contract in July 1992 was to focus on failures of the physical plant and safety issues. According to EAI, initial resistance to staff development programs also hindered progress in implementing improved instructional techniques. In addition, it took until February 1993 to install approximately 1,100 computers in the nine Baltimore contract schools. Because the CTBS test was again given in March 1993, EAI believes that the spring 1993 testing date is a far more accurate baseline date than is March 1992. We disagree with EAI’s position on this issue and believe that 1992 is the appropriate baseline year. Using spring 1992 scores as a baseline provides a benchmark of student performance immediately before EAI’s assuming management in the fall of 1992. Our goal was to assess changes in student performance that occurred while these schools were under EAI management. Using 1993 scores as the baseline ignores the impact of the first year of EAI management and thus fails to assess the entire experience. EAI also maintained that we failed to note the results of the Maryland State Performance Assessment Program (MSPAP) in our report. MSPAP is a test that measures student performance on tasks that require critical thinking, high-level problem solving, and the integration of knowledge. Our analyses do include MSPAP test scores to the extent they were available, and these results are discussed in appendix II of the report. EAI also made several technical comments that we incorporated in the report where appropriate. In PSG’s comments, which also included comments from the Minneapolis School District, the company discussed the issue of accountability. In PSG’s view, its willingness to be accountable for the results it produces for the entire school district is the key to building accountability throughout the rest of the local system. In this regard, the company believes accountability must be adopted by stakeholders throughout the educational system, including teachers in their classrooms, principals in their schools, and parents and community members. Accountability throughout the system is imperative, PSG believes, for students to succeed. PSG also provided technical comments on the information contained in our draft report that we incorporated as appropriate. The most significant point on which we disagree with PSG concerns payment for superintendent services. Our report states that PSG was to receive a monthly fee of $5,000 for serving as superintendent. PSG said that, instead, the fee for superintendent services is paid on a pay-for-performance basis; that is, it would only be paid if the district were satisfied with PSG’s progress as superintendent. Because we found no such qualifications in our analysis of the PSG contract, we did not change that statement in our report.

Summary: Pursuant to a congressional request, GAO reviewed the experiences of four school districts that contracted for public school management, focusing on the effects of private management contract arrangements on students. GAO found that: (1) in Baltimore, Maryland, one contractor used its average per pupil allocation to manage 9 of the district's 183 schools, implement an instructional approach, and pay employees' salaries and benefits, utilities, and leasing and maintenance costs; (2) the Dade County, Florida, contractor raised $2 million to implement its instructional approach in one school and hire principals and teachers, but the district retained its responsibilities over the school's budget, food service, and maintenance and repair; (3) in Hartford, Connecticut, the contractor received district, state, and federal funds to manage the district's 32 schools and made recommendations for improving instruction; (4) the Minneapolis, Minnesota, contractor served as the district's superintendent and was paid for achieving specific goals, objectives, and assignments; (5) while the school boards and teachers unions supported implementation of private management in Dade County and Minneapolis, there was opposition to private management in Baltimore and Hartford; (6) in Baltimore, teaching assistants with college degrees were placed in each class, students had access to more computers, and schools were cleaner and better maintained; (7) in Dade County, attendance rates improved, teaching assistants with college degrees increased, and students had access to more computers; (8) in Hartford, students had access to more computers and the contractor was in the process of repairing school buildings and installing computer labs in five schools; (9) in Minneapolis, attendance rates improved and suspension rates declined; and (10) in each of the four districts, standardized achievement test scores did not significantly increase or were not available.