'Sweetheart deal of a lifetime' has a price tag City gave extra $18 million to manage EAI schools, leaving others with less

June 05, 1995|By James Bock | James Bock,Sun Staff Writer Staff writers Gary Gately and Mike Bowler contributed to this article.

First, they held the news conference. Then, for six intense weeks of faxes, phone calls and red-eyed meetings, they haggled over the details. Finally, the deal: Baltimore would bring private management to nine troubled public schools, all at no extra cost to the city.

Nearly three years later, the price is clear. Education Alternatives Inc. got at least $18 million more to manage those schools and three added later than the city would have spent ordinarily, according to school system analyses.

Baltimore siphoned the dollars, in effect, from other city schools because the system got no new funds for the privatization venture. If redistributed, that $18 million could have sent a new teacher to each of Baltimore's 182 public schools or bought 9,000 computers at $2,000 apiece.

Those six weeks of negotiations in the summer of 1992 have stretched into three years of controversy about private management of Baltimore's public schools.

The argument revolves around the lack of proven academic success at EAI's Tesseract schools and often comes back to money: Is it fair that they get more dollars than other schools? Is it right that a private company profit by running cash-strapped public schools?

While $18 million over three years amounts to just 1 percent of the city education budget, the disparity in funding has fueled criticism of the EAI deal from the City Council, the Baltimore Teachers Union, civic activists and school system insiders.

"I don't think we should be paying profit to an outside group," said Anna Coplin, principal of Cecil Elementary, a non-Tesseract EAI school in East Baltimore. "There are schools in need, and those schools are being deprived in order to pay [EAI] a profit."

But Superintendent Walter G. Amprey says EAI is no different than for-profit companies that sell the city pencils, textbooks and desks. He said the system "paid to learn" from EAI.

"It's hard to find anybody who doesn't make money off of education," Dr. Amprey said. "It's part of the American way."

"We're not talking about major carving or surgery on our budget that went to EAI," he said. "They got more money for those schools than they would have gotten ordinarily, but they got less money than they originally wanted."

An examination of city documents, correspondence and financial records underpinning Baltimore's experiment with privatization shows:

EAI's contract guaranteed that its schools had extra money to spend.

High enrollment projections by the school system gave EAI a $1.5 million windfall. When actual enrollment fell short, the contract let the company keep most of the money.

City oversight of EAI spending has been limited, and the city's chief overseer, Dr. Amprey, has often sided with EAI against his own top aides in battles over finances.

While EAI has yet to show solid student gains, shareholders have benefited as Baltimore revenue propelled EAI to higher stock prices and its first profits.

EAI took more than $6 million gross profit from Baltimore to company headquarters in Minneapolis, according to audited financial statements of its first two years here.

John T. Golle, the 51-year-old supersalesman who founded EAI in 1986, says his Tesseract reform program brought Baltimore "the sweetheart deal of a lifetime" - spotless schools, teacher training, classroom computers and financial expertise.

Mr. Golle, the company's chairman and chief executive, says that once corporate overhead (including executive salaries) is deducted from gross profit, EAI's net profit in Baltimore was $1 million.

He calls such profit a "modest" reward for a company that risked up-front capital and took on schools with more than their share of needy children. In fact, he says EAI is underpaid.

"We have never done a deal like this. We will never do another one," he said.

Splitting the difference

The key to EAI's Baltimore profits lies in the deal struck with city officials. Mr. Golle demanded the system's average cost per pupil: Take the school system's annual budget and divide by its projected number of pupils. Multiply the result by the Tesseract schools' projected enrollment of 4,815. Revenue to EAI: $26.7 million.

The school system countered that EAI should receive only what the city had budgeted to operate the nine Tesseract schools directly: $20.6 million.

The two sides nearly split the difference. EAI agreed to pay back part of the $26.7 million to the city for central administration. That left the company with $23.3 million, or $2.7 million extra - money to spend or take as gross profit.

That extra money is equivalent to the cost of operating a typical 600-student elementary school or the expensive Baltimore School for the Arts for a full year.

From the first, EAI said its proposal was "cost neutral" to Baltimore, meaning the city wouldn't have to increase school funding to pay for it.

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