Sunday, September 14, 2014

Privatization and Elementary Math

I’ve been watching the push toward privatization in the new “prison industry,” “education industry,” and more, with both perplexity and alarm.

And wondering when and how the theology of free market salvation gained so many devoted believers.

I didn’t major in business, but even I know that rule number one for any for-profit business is maximize profits, minimize costs.

So, for instance, in the push to privatize prisons, preservation of inmate contact with families has been sacrificed to maximizing profit from phone calls (more than $1.13 a minute until a federal cap was putin effect in February 2014)  Profits are  maximized through “insourcing” work to inmates, some paid as little as $0.25 an hour.   And intensive lobbying shapes legislation to keep prisons full As I discussed in more detail in an earlier post, privatization of prisons incentivizes incarceration; a net result is that many states now spend more on prisons than education, and one out of four inmates – globally – is held in a US prison. 

Maximize profits, minimize costs. 

from The For Profit Prison Boom in
One Worrying Infographic
 Business Insider, January 27, 2014
Prison industry profits are high, and CEO salaries are higher. Damon Hininger, president of CorrectionsCorporation of America (CCA), the oldest and largest private prison company in the US, earned $2,772,435 in 2012. The company has given over $5,200,000 in campaigncontributions (three fifths of that to state campaigns), has spent over $20,700,000 in lobbying on crime, detention, and immigration issues, and has contributed generously in the past to ALEC the American Legislative Exchange Council) which has written and promoted many of the laws responsible for increased sentencing and overcrowded prisons. Ever penny spent, every dollar of the more than $300,000,000 in profit last year, came from state and federal taxes. 

Maximize profits, minimize costs.

Even in obvious for-profit industries, that simple equation leaves out other important values: worker safety, employee satisfaction, truth in advertising, safeguarding of air and water, robust local economies.

Free-market principles too often reward short-term behaviors, externalizing costs to communities, workers, consumers and pushing long-term consequences onto unsuspecting others.

Setting that aside - are there arenas that should be outside the reach of for-profit motivation?

Medicine? What happens when a doctor will profit form a particular diagnosis, or prescription of a particular drug? Which diseases receive attention when profit shapes practice? Which low-cost solutions are ignored? What happens when marketing models stall low-cost sharing of essential vaccines or medications, costing human lives?

Roads? Ports? Airports? Does competition make them safer, more accessible?

Mail and package delivery? Internet access? Phone service? What happens when providers choose the most lucrative markets, and leave remote areas with no suppliers at all?


Advocates of “small government” often describe privatization as a way to shrink government expense.

It’s an interesting theory that ignores some elementary math. 

In practice, it works if the government abandons the enterprise completely, or ignores the quality of services given. Otherwise privatization adds a costly layer of oversight, regulation, and administration.

Not to mention the money spent in political influence, the corporate salaries, the shareholder profits.

Privatized education works if we agree some kids are just not worth educating.

Or convince ourselves that for-profit corporations will put kids before profit without extensive regulation and costly oversight.

Or buy the idea that teachers should be paid less, trained less, treated as hourly workers in an industry with high turnover and little job satisfaction.

The economic challenges of local school districts I posted about last week are compounded by the push to expand for-profit charter and cyber schools, funded with public money.  

Advocates of “school reform,” “school choice” and “smaller government through privatization” need to spend some time on basic math.

The numbers don’t add up.

A charter school is an independent public school established and operated under a charter from the local board of school directors. Charter schools must be established as public nonprofit, nonsectarian entities by teachers, parents, institutions of higher education or museums.
Some excellent charter schools formed by parents and non-profit widened access to excellent education, and opened doors of opportunity to students who struggled in larger, over-burdened public schools.  

But despite the “nonprofit, nonsectarian” definition, Pennsylvania has allowed for-profit firms to provide teachers, curriculum, administrative support, or complete on and off-site management,
blurring completely the definition of “nonprofit.”

It has also allowed for-profit firms to create and manage publicly funded cyber schools.

And it has allowed those schools to collect per-pupil fees equivalent to those of each student’s local district, without regard for the real cost of teaching that student, and without any public scrutiny of profit, expenses, or relationship between advertised claims and student results.

Dig even a little and the evidence is overwhelming: while investors and CEOs of these firms enjoy large profits, students, teachers, and school districts pay the price.

Just a small sampling:

1. A 2009 national study by CREDO, (Center for Research on Education Outcomes),a research unit at Stanford University,  found that 
Compared to the educational gains the charter students would have had in their traditional public schools, the analysis shows that students in Pennsylvania charter schools on average make smaller learning gains.  

2. No PA cyber charter schools made adequate yearly progress in 2011-2012 (the most recent year available). According to an April 2014 report by the Democratic House Education Committee: 
For 2010-11, while 94% of school districts met AYP (Adequate Yearly Progress), 75% of public schools met AYP. In contrast, only 61% of charter schools met AYP and only two of the 12 cyber charter schools met AYP. . .
 For 2011-12, while 61% of school districts met AYP, 50% of public schools met AYP. In stark contrast, only 29% of charter schools met AYP and none of the 12 cyber charter schools met AYP (9)
3. Charter schools and siphon off students with mild, easily addressed special education needs, leaving more expensive-to-teach students in local schools. In Pennsylvania, charter schools have no limit on how many special education students they claim, while local schools are held to a percentage. A detailed evaluation by The Center for Rural Education found: 
A single payment amount for all types of special education students does not reflect the wide variation in the costs of different types and intensities of services that various students need. Under the current funding formula for special education tuition payments, the charter schools received substantially more in tuition payments for special education students than they reported spending for special education. As reported on the Pennsylvania Department of Education website, in 2012-13, charter schools received $351 million in tuition payments from school districts for special education students and had $151 million in special education instruction and related expenditures, an excess of
$200 million. In 2011-12, the reported data were $295 million in special education tuition payments received from school districts for special education students and $134 million spent for special education, a difference of $161 million.
There is no provision for review of excesses, and no mechanism to have that money refunded to school systems that were forced to pay excessive amounts.    

4. Several of Pennsylvania’s cyber schools have been involved in fraud investigations:
PA Cyber . . .  has been receiving well over $100 million in public money annually, a portion of which prosecutors allege that Trombetta was using to fund businesses that functioned as his "personal ATM machine" and "personal retirement account. 
Page 1 of a 4 page chart from Charter and Charter
Cyber School Reform Update
 (pp 9-12)
In March 2013, the Democratic House Education Committee study offered an extensive “fraud chart,” listing a long list of abuses against a long list of charter corporations. Many had multiple offenses, including multiple salaries, unsubstantiated expenses, incomplete or inaccurate financial disclosures, conflicts of interest, use of public funds for personal expenses.

In 2010, Attorney General Jack Wagner  asked for a moratium on creation of new charter and cyber schools until the legislature addressed the flawed funding system. That moratorium didn’t happen. Charter school reform bills have been introduced, killed in committee, watered down until they reform nothing.

Public funds pay the CEO salaries of these for-profit firms (those numbers are not publicly available) and public funds are used to fatten the campaign funds of compliant legislators on both sides of the aisle.) A major contributor to Governor Tom Corbett in 2010, Vahan Gureghian, is one of the top political contributors in Pennsylvania, and in the last few years has built multi-million dollar mansions in both Gladwyne and Palm Beach.   

Those dollars all came from Pennsylvania’s education budget – a budget stretched too thin to provide counselors and librarians for urban kids, or after school sports in cash-strapped rural towns.  

Next time you hear someone talking about “school reform” ask yourself: what does “reform” mean?

Who is paying to publicize that message?

Who will profit if that “reform” takes place?

And does privatization really make government smaller, or just shift public dollars for common goals to private pockets?

Take some time to do the math.

Next steps?

The League of Women Voters of Pennsylvania education page offers links to organizations involved in education, and descriptions of current legislation.  

Education Voter of Pennsylvania offers more detailed information, and link for contacting local representatives. 

And two League of Women voter tools can help voters find out more about local candidates positions. In many states, Vote 411, and in others, (including Pennsylvania and California) Smart Voter provide sample ballots by zip code, and links to candidates own websites. 

This is the third in a series looking at specific issues of importance in state and local elections, as an extension of my 2012 series "What's Your Platform?"

Earlier posts:
What are Workers Worth, September 1, 2014Back to School Lament, September 7, 2014  

As always, your thoughts and comments are welcome. Just click on   __comments below to see the comment option.