Cutoff of EAI saves little Scrapped contract does not resolve schools' money crisis

November 23, 1995|By Jean Thompson | Jean Thompson,SUN STAFF Sun staff writers Mike Bowler, Bill Salganik and Eric Siegel contributed to this article.

Baltimore's decision yesterday to cancel its contracts with Education Alternatives Inc. ends its nationally watched partnership aimed at improving educational quality but does little to resolve the school system's immediate financial crisis.

Ending the contracts will save the school system an estimated $2.8 million this year -- far less than the savings sought during weeks of futile negotiations with EAI, city officials said.

Mayor Kurt L. Schmoke said yesterday that it was EAI's unwillingness to accept a $7 million cut in fees that forced him to void its deals with the city. The school system will resume control of EAI's nine schools on March 1.

"Those who look closely will see that what happened here was a failure to resolve a business problem -- but they can also see that we can look at the educational issues as separate from the

business issues," Mr. Schmoke said. "Our view was that we were EAI's major customer, and it seemed to us that the company was not being accommodating to its major customer."

EAI's position yesterday remained unchanged -- Baltimore asked for more than the company had to give. The school board's decision yesterday sent EAI stock into a tailspin.

It disappointed some parents and educators who had hoped the project would succeed as a model of urban educational reform, and left many employees worried that they will lose their jobs.

It also left city officials scrambling to find the savings this turn of events will not produce and recounting lessons learned from their risky venture into the young field of school privatization.

The city now anticipates helping bail out the financially strapped school system, which is trying to balance a budget that is $32 million in the red, Mr. Schmoke said yesterday.

Neither the amount to be covered from city coffers, nor the effect on other city agencies has been determined, but city and school finance officials will begin discussing this alternative next week, he said.

In addition, the school system must cut deeper than originally anticipated in its own budget -- possibly by cutting its teaching corps at midyear when school enrollments are re-counted, Superintendent Walter G. Amprey said.

Superintendent disappointed

Dr. Amprey, long a champion of EAI's work, said he was disappointed with the termination, but has few regrets.

"We are proud of the progress that our young people have made, and we are very optimistic about the future, as the lessons we have learned have benefited the entire school system," Dr. Amprey said.

Canceling the contracts will spark significant but manageable changes for the nine schools that EAI operated and three others at which it consulted, school board President Phillip H. Farfel said yesterday. He scheduled a public school board meeting next Thursday to officially sever Baltimore's ties to the Minneapolis pioneer in for-profit management of public schools.

"We're confident the transition can be done with minimal disruption to the schools," he said. "Remember -- these are our principals, our teachers, and our children."

The decision affects about 500 teachers and paraprofessionals, and about 6,900 of the school system's 111,000 students.

Principals and communities will be asked to help develop the plans to transfer control of the schools' budgets back to public governance, to decide which employees and vendors to retain, and to resume decision-making affecting the children's instruction.

In a written statement released to business news services, EAI founder and Chairman John T. Golle said: "We are gravely disappointed with the potential cancellation, but we are not willing to cut back on what we're offering the children of Baltimore. The significant budget reduction would have compromised the integrity of the Tesseract program."

In Minneapolis, EAI spokeswoman Lory Sutton told reporters not to expect any elaboration from Mr. Golle. "John is not granting interviews because of the volatile nature of the stock market at this time," she said.

The NASDAQ Stock Market suspended trading yesterday on EAI stock 11 minutes before the market was due to open at 9:30 a.m. because The Sun had reported that the school board was recommending cancellation of the contract, said Marc Beauchamp, a NASDAQ spokesman. Trading reopened in the afternoon.

EAI's stock, which closed at $7.25 per share Tuesday, opened at $4.50 per share, and dipped as low as $3.875 -- a new 52-week low -- before closing at $4.375. Shares traded above $16 per share just two months ago.

In October, Mr. Golle sold more than 100,000 shares of stock, about 20 percent of his holdings.

EAI's Baltimore manager, Ramon Harris, declined to comment except to pledge that during the transition, "We will always be cooperative and the children's interests will always come first."

Reaction from parents, educators and labor representatives came swiftly.

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