The Article

David Plank and Gary Sykes, professors in the College of Education, and David Arsen, associate professor in MSU’s James Madison College, detail in this article the emergence of educational management organizations (EMOs) to run charter schools.

Discussion

The authors draw on their earlier research on Michigan charter schools to describe the rise of EMOs, how they profit, and other dynamics. They point out that opening a charter school from scratch is very difficult. “Opening and maintaining a building, hiring and paying a staff, developing and implementing a curriculum and ensuring compliance with state regulations and reporting requirements takes more work than charter school operators ever imagined.” Thus, EMOs have stepped in to provide charter schools with the support traditionally offered by the school district central office. Plank, Sykes and Arsen show that EMOs turn a profit by three ways: reducing labor costs, using economies of scale, and providing fewer services, such as special education. In terms of labor costs, the researchers find that in Michigan charter school teachers are younger and less experienced than neighboring public schools, and while beginning salaries are generally competitive, “seniority brings smaller rewards. It is not yet clear whether reducing labor costs is a strategy that promises long-term profitability for EMOs. If charter schools consistently pay teachers less than they could earn in nearby public schools, then EMOs will have to provide some compensating advantage (stock options?) to make charter school employment attractive.” Economies of scale can result by lowering per-pupil costs by spreading them over larger number of students. The potential for savings from economies of scale seem limited, according the to the researchers, because two-thirds of all education expenditures are in teacher salaries. In dealing with charter schools offering fewer services, the researcher point out that charters can be designed to serve niche markets. In this way, they can avoid providing services that traditional public schools offer. For instance, charter schools can serve only elementary students, who are much less expensive to educate than secondary students. Even though charter schools can take advantage of reduced labor costs, economies of scale, and fewer services, the researchers note that it appears that EMOs have found it difficult to generate profits. Despite the lack of profitability, the researchers believe the larger question is whether the pursuit of profits in the public school system is good for students. Their answer is that it depends on the state regulations, or rules, that govern charter schools in a given state. “If we get the rules right, we can harness the power of markets to advance the core purposes of public education.”

What It Means To You

Because of the expense of starting a charter school, EMOs have stepped in to provide the services that are traditionally offered by a district central office. The researchers make clear that EMOs have sought to be profitable through reduced labor costs, economies of scale, and offering few services. However, at least to date, EMOs have had a difficult time generating profits.

For More Information

Plank, D.N., Arsen, D. & Sykes, G. (2000). Charter schools and private profits. The School Administrator, 5(57), 12-18.

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