EAI test revelation may hurt credibility

June 08, 1994|By Kim Clark and Michael Ollove | Kim Clark and Michael Ollove,Sun Staff Writers

An admission by Educational Alternatives Inc. that it exaggerated the progress of its Baltimore students has undercut the already tenuous credibility of the for-profit school-management company, industry analysts said yesterday.

But the revelation may make little difference in cities such as Baltimore, and Hartford, Conn., where many teachers, parents and administrators already are polarized over the company's plans.

The Minneapolis Star Tribune reported Saturday that EAI, which manages 12 Baltimore schools, inaccurately reported 1993 Baltimore test scores when it claimed it had raised students' abilities by nearly a grade in three months.

"Their fingers got charred on this one," said Michael Sabbann, who follows EAI's stock for the Piper Jaffray stock brokerage house in Minneapolis.

Mr. Sabbann, who still recommends EAI, said he believes that the report was not intentionally inaccurate. Nevertheless, he thinks the error will convince some undecided parents and school officials that EAI is not entirely trustworthy. "The results can be serious," he said.

The price of EAI's stock tumbled a total of $3, or 18 percent, Monday and yesterday, and it fell another 75 cents yesterday, closing at $14. On Aug. 26, 1993, the day the company issued the overly optimistic test results, the stock had risen 62.5 cents, to $34.50.

Some analysts noted that Monday's admission is the latest in a string of mistakes and questionable tactics.

Pamela Lund, an analyst for John G. Kinnard & Co., another Minneapolis-based brokerage house, removed her buy recommendation for the stock, saying the admission "raises the issue of the company's integrity, and that's the key."

"So many issues have been raised already," she said, noting, for example, that the company announced in February that it would change its accounting procedures after critics complained that it was inflating its revenues.

While she said she still expects Hartford officials to hire EAI to run their schools, Ms. Lund predicted that the test result controversy will hurt the company. "Hartford will be much more wary and watchful about how they [EAI officials] manage" schools, she predicted.

The Hartford school board has agreed to bring in an outside firm to run its city's entire 26,000-pupil school system, and plans to make a final decision on EAI's bid by next month.

The decision to invite EAI into Hartford has been marked by bitter debate and the revelations appeared to have further inflamed the company's detractors but not dissuaded the company's supporters.

"I would hope that if they falsified test scores that they would be disqualified," said William E. Meagher, president of the Hartford Board of Education and one of three dissenting votes against EAI on the board.

The Hartford teachers union hopes the new disclosures will derail the plans to bring EAI to its town, an official said. "I plan to get this information out as soon as possible," said Jeanne Spencer, president of the Hartford Federation of Teachers.

But many others involved in the Hartford debate said the revelation may not change many minds there because in presentations last spring the company never made claims about student performance in Baltimore.

"They did not make these allegations about test scores to us," said Elizabeth Brad Noel, a member of the Hartford school board, and one of three dissenting votes opposing EAI.

Ted Carroll, a supporter of EAI on the Hartford board, said that, while test results from the past are insignificant, he is looking forward to new Baltimore scores expected to be released later this month. Those scores, he said, may affect how deeply involved EAI becomes in Hartford. The board has yet to determine whether it wants to turn over curriculum as well as operational matters to an outside firm.

Last August, EAI sent out press releases boasting that 4,800 students attending its Baltimore schools had advanced an average of nearly a full grade level in three months under the company's operation. John Golle, the company president, called the scores proof of the company's success.

Walter G. Amprey, the Baltimore school superintendent, added his voice of praise. "This is one more piece of evidence that the Tesseract philosophy is serving our children well," he was quoted as saying. On standardized tests given last spring to all city students, scores for those in the nine EAI-run "Tesseract" schools declined slightly.

After the release of the Baltimore erroneous test scores and expansion opportunities in other cities, the company's stock rose, reaching a high of $48.50 on Nov. 12, 1993.

The company now concedes that the improvement in test scores did not pertain to students in all the Baltimore schools it runs. The scores actually apply to a much smaller subgroup, 954 underachieving students in five schools.

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