Levy Faces a Battle As His Edison Plan Meets Hostile Board

On the afternoon of March 16, at a hurriedly called meeting of the City Council’s Education Committee at City Hall, it soon became obvious that the Board of Education had done a miserable job of launching the first-ever privatization of city schools.

No one was happy. City Council members were angry that Edison Schools, a for-profit company with ties to the Giuliani administration, a questionable track record and uncertain finances, was threatening to take over five failing public schools–and doing it without the full involvement of parents, whose power to make or break the deal with a pending vote came too late in the process, they believed.

Teachers’ union representatives–who obviously had their own labor concerns about Edison–were also upset that parents had been latecomers to the decision making, and were urging families at two schools to reject the plan.

Parents themselves were furious that the families whose children attend the five schools were given a Hobson’s choice–take Edison or your neighborhood school may be shut down–leaving them squarely in the middle of the most contentious education issue since the debate over prayer in the public schools.

And proponents of the Edison Schools initiative in New York City were likewise fuming that a plan which seemed to them so well-intentioned and obviously necessary was set up to go the way of Westway, another flawed civic initiative met by a wall of resistance.

There was, however, one consensus in the City Council hearing room: The Board of Education and its chancellor, Harold Levy, could not have screwed this up more if they’d tried.

Said Council member Guillermo Linares, “I support the chancellor on everything, but on this one he messed up. Real bad.”

The New York Post had come to the same conclusion–albeit for different reasons–that very morning in an editorial titled “A $13 Billion Disaster.” The editorial, which carried a bold logo, “The Edison Debacle,” complained that the upcoming parent vote would “doom any plan.” “It didn’t have to be,” the editorial read. “Levy could simply have contracted Edison to run the schools rather than subject the plan to what is essentially a rigged vote.”

And though he hadn’t said it, it was looking more and more as if Mayor Giuliani felt the same way. Just two months ago, the relationship between the Mayor, who controls the Board of Education’s $11 billion budget, and Mr. Levy, who was not the Mayor’s choice as schools chancellor, was touted as a great success, largely on the grounds of the two men’s seeming agreement over Edison. But, as a close observer of the relationship remarked during that Friday afternoon Council meeting, a good sign that things had soured came during Mr. Levy’s first-ever national education conference earlier that week, when “Rudy went to Harold’s meeting and pissed all over it.”

But if the whispers behind the scenes are that Mr. Levy mishandled the Edison proposal (sabotaged it, some critics are hinting), the precarious state of the proposal also begs the question: How had a politically astute, market-savvy company such as Edison–a leader in the field of for-profit school management–stumbled so badly? Company officials admitted they had been trying for years to get into New York. And they still might: A majority of parents at at least two of the five schools could approve Edison’s takeover.

But at what price? Said Marshall Mitchell, an Edison employee, in the week before the Council hearing, “We never expected to fight this battle in court or in the press. We just expected some opposition.”

And opposition is what they got–in the courts (when the public advocacy group ACORN filed a suit against the Board of Education, which the board settled), in the press, in the City Council hearing room. After years of building up relationships in New York City, of hiring all the right people, of courting chancellors and politicians in preparation for just this very moment, Edison found itself buried by an avalanche of attacks from parents, advocates and city officials

“Typically, there are critics,” said a visibly drained Manuel Rivera, chief development officer at Edison, as he walked out of the City Council hearing at the end of a long afternoon. “But New York City is certainly a case study.”

Five Schools

Many a developer or other private entrepreneurial concern has long known that New York City is a “case study” when it comes to resisting change–and protecting the interests of its entrenched forces, like civil-service workers. Nonetheless, the reaction to the Edison proposal has been startling in the amount of animosity it has entailed. Even Assemblyman Roger Green, who had been the first Democrat to come out in support of charter schools in the State Legislature, turned up at the City Council hearing to testify against the proposal, calling on the Board of Regents to use its authority to stop the process should the parents vote their approval.

Edison partisans hint that they were set up for failure. Edison’s original proposal had called for the takeover of 45 low-performing elementary and middle schools by the fall of 2003 (starting with 12 this September).

“It’s important to note that Edison volunteered 11 primary schools,” said Chester Finn Jr., the conservative thinker from Vanderbilt University who was a member of Edison’s original inner circle. “The city came back with five middle schools. It’s not a good thing. If I were setting up a private firm to fail, I would take one that wanted primary schools and give them middle schools.

“There’s obviously some push-and-pull there,” he added. “Otherwise you wouldn’t have such a big, bold idea nibbled away as badly as this one has been since it was first voiced.”

The plan seemed simple enough. Under pressure from Mr. Giuliani to give school privatization a shot, Mr. Levy had selected five schools–Public School 161 in Harlem, Public School 66 in the Bronx, Middle School 246 in Brooklyn, Middle School 320 in Brooklyn and Intermediate School 111 in Brooklyn–that were by all accounts on life support. Two faced being shut down as early as this June, and another had been on the list of the lowest-performing schools since 1989. So who could argue with a radical new approach that just might turn the dregs of the system into safe havens of learning?

But parents protested that significant progress had been achieved at their schools which hadn’t been taken into account. Further, they complained that they’d found out about the proposal too late for them to have a say, their pending vote notwithstanding (under the state’s charter-school law, more than half of the parents must approve the plan before Edison can take over their school).

Most galling–and the issue that gets under most critics’ skins–is that other private or not-for-profit firms had been rejected in the request-for-proposals process. In New York, process matters deeply, and in the eyes of the parents, neither Mr. Levy nor Edison followed acceptable channels.

But connections matter deeply here, too, and Edison had plenty of those, starting with members of the influential Manhattan Institute, the neo-conservative think tank.

This is not to say that Edison is not worthy. Though its track record is mixed, it does have experience on its side. “They’re clearly one if not the most professional of the bunch,” said Jeffrey Henig, a visiting fellow at the Russell Sage Foundation, who has studied Edison in Washington, D.C. “They’re more forthcoming. They’re slick, they package it, but they’re the most substantial act around and probably were the most professional [in their proposal to the Board of Education].”

Created in 1991 by media entrepreneur Chris Whittle, of Channel One fame, the Edison Project, as it was then known, originally developed around the idea of a network of private schools. The company’s core members gradually became a varied group that included former Yale president Benno Schmidt, Edison’s chairman today; Mr. Finn; public-school critic John Chubb, now a fellow at the Brookings Institution; Lee Eisenberg, former editor in chief of Esquire magazine; and Dominique Browning, a former assistant managing director of Newsweek . They soon realized that a purely private model would be too expensive; Mr. Whittle was talking about raising some $2 billion. At the instigation of Daniel Biederman, another core member who today heads the 34th Street Partnership, an alternative model was developed built around public-school takeovers.

According to Mr. Biederman, Mr. Whittle was lukewarm about the idea, but Mr. Schmidt embraced it. “Chris said, ‘This is forcing me to do exactly what I don’t want to do: go talk with school boards and grovel,'” Mr. Biederman remembered recently. “But Benno always thought there was a potential in it. He thought you could negotiate your way around public administration.” And indeed, it has been Mr. Schmidt who’s been heading the grassroots efforts to get Edison accepted, showing up at community-board and school meetings with a smooth, reassuring pitch.

The first Edison public-private schools opened in 1995. Today, the corporation has 113 schools, some created as independent charter schools, others similar to the New York proposal. But it remains to be seen whether the company will meet its goal of becoming profitable in 2004. “The idea [of public schools] was meant as a backup,” Mr. Biederman said. “I never vouched for it as being a profitable model, and I don’t know how they’re doing that.”

Were politics and patronage put aside in New York’s Edison debate, profitability would arguably be the largest issue blocking the takeover plan. At the City Council meeting, Elaine Frazier, who heads the Board of Education’s charter-school office, emphasized that Edison was the only company with the financial acumen to take over the schools. But, as City Council member Stanley Michels pointed out, “This is a publicly traded company … which is not making any money now and is not going to any time soon. How do you know it’s financially accountable?”

In fact, Edison has tallied losses of $197 million since it started in 1992, and although the company’s stock price doubled in 2000 to $31.50 a share, it is mired in debt.

Conversely, say critics, profitability can only come to Edison if it gets into the New York City schools.

“There’s no question that one of the things Edison hopes to do is use this to market other schools all over the country,” said Assemblyman Steven Sanders, who chairs the Education Committee. “It would be a real feather in their cap to be able to say that they are the first in New York City to be able to do a conversion of this sort.”

And there is proof that this is so. During the week last December when the Edison pact was announced, the company’s stock bounced from $26.56 to $30.63. Reaching as high as $36.75 at the beginning of February, the stock then plunged to $21 in early March–right about the time it appeared that public resistance could doom the New York proposal.

Edison was aware that it faced resistance. As Mr. Biederman remarked, “People don’t like the private sector here.” Nancy Hechinger, a former core member of the Edison group, recalled: “In New York, people have never liked the Edison project, they’ve never liked Chris and the unions are still very, very strong.” She added: “And the New York media love to put down Chris.”

Mr. Rivera, who has been with Edison for seven years, said previous chancellors had also resisted Edison.

“Politics have kept us out of New York City schools for a number of years,” he said. This time, however, the political stars were in alignment. There was a Mayor devoted to the idea and a changing public climate.

“On the one side, we have these chronically low-performing schools. On the other, there’s the advent of the for-profit management company and the charter-school movement to bring schools outside the governance structure,” said a former Board of Education official. “And then there’s an entrepreneurial bunch looking for opportunities. The likeliest opportunity is the takeover of these low-performing schools.”

Irving Hamer, one of the two Board of Education members who voted against the project, put it more plainly. “I happen to think Chris Whittle is an experienced marketing whiz,” he said. “He’s amassed this team … and now everyone thinks public education sucks. [They] have hit a wave of ‘We need new choices and alternatives.'”

Help From Friends

In New York, it certainly helped that these ideas were gaining ground thanks to the Manhattan Institute, a privileged conduit to the ears of the Mayor. Heather MacDonald, one of the institute’s most public figures and a key writer for its publication City Journal , was appointed by the Mayor to his City University of New York task force (headed by none other than Mr. Schmidt.) Other fellows of the Manhattan Institute included Mr. Finn, who is now at the Hudson Institute, and the Reverend Floyd Flake, a leading proponent of vouchers and privatization in the black community. To boost the privatization concept among parents, Mr. Flake was hired by Edison last May, shortly after the state’s Board of Regents refused the company’s application for its first New York charter school. He now heads the company’s charter-school initiative.

A former Congressman who leads one of the largest churches in the state, the Allen A.M.E. Church in Jamaica, Queens, Mr. Flake brought with him Marshall Mitchell, his former chief of staff, and political know-how.

Speaking of Mr. Schmidt’s strategy for winning community acceptance of Edison, Board of Regents member Merryl Tisch said: “He’s cleverly put in place people with better contacts in the grassroots community. He has Floyd Flake there and another man, Marshall Mitchell. I remember going to an Edison meeting last year and being very impressed by the group they were assembling to do the project in New York. They’re really doing their homework.”

The company’s ties to the Giuliani administration extended further. For instance, a former Edison consultant, Richard Roberts, left the company for City Hall in 1994 and headed the Department of Housing, Preservation and Development until last summer. He was recently appointed by the Mayor to head the city’s Health and Hospitals Corporation, and he also had been part of the Mayor’s CUNY task force.

The last key player in this process is none other than Mr. Schmidt, who headed the task force, serves as vice chairman of the CUNY board of trustees and was recently instrumental in the controversial appointment of Jennifer Raab, the Mayor’s candidate, to head Hunter College (though he inexplicably flip-flopped at the last minute to side with the chancellor and support a different candidate).

For some, all this is a little too close for comfort. “There’s politics involved here, not merit,” said Council member Bill Perkins. “Benno Schmidt is the leader of the Edison Project and also the person the Mayor chose to be the hit man in terms of the City University system.” Assemblyman Green said the request for proposals was constructed to favor a large corporation like Edison and disqualify smaller, more community-based school-management providers like Victory Schools, the next runner-up, which already manages three charter schools in the city and was favored by many community leaders. Victory Schools would not comment.

“Edison was chosen because this was a political contract, straight up,” said Mr. Green. “There’s no question it was because of the ties between management and the Mayor.”

Although some disagree, the Board of Regents’ Ms. Tisch suggested that Mr. Schmidt was a lightning rod. “The minority community, backed by the faculty senate at CUNY, were opposed and incensed by the [CUNY] report authored by Benno Schmidt,” she said. “That was the first insult. The second insult is this: He’s coming in and telling them what to do with their high schools and middle schools.”

Also a source of ire, though not mentioned, is that public schools provide jobs in communities that need them. Arguing against the public sector just as minority workers are starting to dominate civil-service jobs reeks to those affected.

Of course, these are dreadfully failing schools. All are on the notorious list of Schools Under Registration Review, a state list created about a decade ago to monitor the most poorly performing schools in the state. The threat hanging over SURR schools is that the state will disband them completely, scattering students, teachers and administrators to other schools and districts to shatter the pattern of failure.

With the 1998 passage of the law allowing the creation of charter schools–publicly funded schools exempt from most of the rules of the local Board of Education–for-profit school-management companies became a possibility in New York. Schools chancellor Rudy Crew had resisted privatization; he was soon gone. Mr. Levy was more accommodating, endorsing a privatization plan last July.

“You know, three other chancellors went up against the Mayor and ended up dead,” said Frank Macchiarola, a former chancellor himself back in the 1980’s, now president of St. Francis College. “You cannot have bad relations with the Mayor, otherwise you’re dead.”

But how much Mr. Levy–a former Citigroup director and avowed Democrat who was initially anathema to the Mayor because of his strong ties to the United Federation of Teachers–truly supported privatization is a matter of dispute. The Mayor held the purse strings; did Mr. Levy have a choice?

“You have to have a working relationship” with the Mayor, said Judith Rizzo, deputy chancellor for instruction of New York City schools. “That’s very different from being a lackey or a puppet whose strings are being pulled. The fact is, does the Mayor like the notion of privatization? He does; he’s been unequivocal about that. On the other hand, there are members on our board who feel differently about it, [and] Harold works for our board. They sign his paycheck. What Harold did was he sort of weighed both…and said, ‘Let’s give it a shot.’ I don’t think I would have done any differently.”

Yet, in the end, Mr. Levy has managed to anger everyone.

“I was very disappointed with the decision to go with a single company,” said Council member Eva Moskowitz, who said she supports educational innovations. “It’s rather perplexing to me; Harold is a banker and he understands the value of different companies competing to provide the best product.”

The Board of Education, however, maintained that it had no choice. “It would have been better for us if it came out differently, because then we would have had competition between more than one entity,” said Ms. Rizzo. “But we couldn’t do it; the runner-up was so far away from that.”

Yet the consensus is that the Edison proposal was so badly handled that even some opponents began to voice sympathy for Edison. Bertha Lewis, who heads ACORN, the community group that brought suit to block the Edison takeover, said she told Rev. Flake: “I believe the Board of Ed has really set you guys up. They’ve invited you in a bad negative way, and it does you guys a disservice.

Walking out of the Council committee room after an intense two-hour grilling, Ms. Frazier, of the Board of Education’s charter-school office, used the very same words as Mr. Mitchell to assess the situation: “This process will live or die by the streets.” Would she do things differently? “We learn every time we have a precedent. “