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Edison battles eroding confidence on school boards, Wall St.

Stock sinks further as company's financial and school contract losses mount

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

As Philadelphia watches Edison Schools Inc. open its biggest cluster of schools ever, the education management company is busy battling a growing crisis of confidence both on Wall Street and in school districts around the country. A tumbling stock price and the loss of contracts in several communities have put intense pressure on the company to show results, cut costs, and start making a profit.

Edison came onto the education scene a decade ago, promising that they could educate kids better than public schools with the existing resources, while earning a profit for investors. By last spring, as they positioned themselves for contracts in Philadelphia, they reported managing more than 130 schools nationwide, but were incurring large losses.Since April 17, when Philadelphia’s School Reform Commission announced that Edison would be managing 20 schools here this fall and not the 45 that the company had hoped for, the bad news for Edison has been unrelenting.

Weeks of behind-the-scenes lobbying with commissioners failed to win the company a role in managing additional schools beyond the 20 — in the face of continuing opposition to the company from a broad coalition of community and union activists.

Coupled with publicity about an investigation of Edison ccounting practices by the Securities and Exchange Commission, the disappointing news about Philadelphia contracts sent Edison stock into a downward spiral.

Then, when new chief executive Paul Vallas took charge of the District in July, he quickly announced that Edison would not be getting a lucrative “lead consultant” contract to advise the central office – a consulting arrangement that the SRC had approved. Vallas explained simply, “There’s no need for that. That’s what I’m here for.”

Edison asks for raise

At the same time, controversy blew up around negotiations over the financial terms of school management contracts between the District and the seven education managers enlisted to run schools. State officials were demanding that District negotiators award the 45 schools to be run by Edison and other private managers $1,500 more per student than other District schools.

Edison officials acknowledged that they had requested the state’s help in securing exactly that per pupil amount. Yet just months before, when they were developing a plan for the District, company spokespeople had said repeatedly that their goal was to work within the constraints of available funds.

Amidst loud public outcry, investigations of whether there were improprieties in how Edison obtained its contracts were launched at both the state and federal levels.

Under a compromise deal reached by Vallas and Pennsylvania Secretary of Education Charles Zogby, Edison did end up getting an extra allotment for their schools amounting to $880 per student, smaller than they had hoped but larger than any of the other management companies. The five-year contract allows the School District to cancel it, not only “for cause” but “for convenience.”

Company reports improvements

Despite their woes, Edison has continued to claim gains in test scores at most of its schools and say that 85 percent of Edison parents give the company a grade of ‘A’ or ‘B’. “Many positive aspects of the company’s performance have gone unreported,” commented Edison Chief Operating Officer Christopher Cerf.

“Edison consistently over-hypes its achievement results, and the company uses meaningless internal parent satisfaction surveys to counter negative publicity,” countered Caroline Grannan of Parents Advocating School Accountability, a San Francisco group that monitors Edison.

Several school districts showed their dissatisfaction with Edison this summer, in the wake of a series of losses of school management contracts during the last school year in Boston, Trenton, Minneapolis, Wichita, and San Antonio:

  • In Dallas, site of one of Edison’s largest contracts, school district trustees voted to oust Edison at the end of this school year from all seven schools it has managed. Test scores were improving no faster than at district-run schools, even though Edison was getting 10 percent more money, district staff said.
  • In Hamden, Connecticut, a magnet school is terminating its contract with Edison at the end of the current school year. Edison has used that school as a showplace for visitors to its New York headquarters.
  • In Mt. Clemens, Michigan, which was one of Edison’s earliest contracts, the company lost its contract to operate four schools. Edison has lost contracts for most of its original cohort of schools from 1994 and 1995.
  • In Macon, Georgia, the school board voted to remove Edison from two schools two years early. Complaints included low test scores, teacher turnover, and drops in student enrollment.

But the company’s reversal of fortune has been most stunning on Wall Street, where Edison has consistently found the financing they need to keep the unprofitable corporation going. Now Edison is promising they will turn a profit by the quarter ending in June, but the losses keep piling up — $86 million for the year just ended – and analysts have been downgrading their ratings of the stock.

The stock is down 98 percent this year to date. It hit a low of 22 cents in August and is in danger of having its listing on the Nasdaq stock market dropped.

The company’s problems prompted Mayor Street to tell reporters in August that he didn’t think Edison would be around in a year. In Michigan, the state superintendent warned several districts that they needed a “contingency plan” in case Edison fails.

Will their cash hold out? Edison reports that they have borrowed enough to operate this year and have been implementing central office layoffs.

In Philadelphia, they are trying to achieve improvements at their 20 schools with a scaled-back program. But whatever happens in Philadelphia this year, it’s not clear whether the company will get any more chances if they cannot achieve profitability as promised.

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