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.