Private Sector Competes for Share of Stimulus Pie

The competitive funding for education under the American Recovery and Reinvestment Act has caught the attention not only of school reformers, but of business leaders.

With the largest single pool of federal education dollars in history flowing to states and school districts, education-related companies have been looking to gain a share of the cash, marketing themselves as uniquely equipped to help with improvement efforts.

“The money has to be spent by 2011, and districts are going to need more hands on deck than they’ve got, so that is a good thing,” said Lee Wilson, the president of San Antonio-based PCI Education, which specializes in special education curricula, textbooks, and other materials. “It accomplishes the larger objective of the stimulus in creating positions.”

Mr. Wilson, who blogs about the education marketplace, said the extra funding has increased business for his company, which has added staff members to meet the demand.

“I do know from talking to other companies, until recently we were one of the few companies seeing a real surge in orders,” he said. “We already had the right product at the right time.”

Forty states and the District of Columbia applied for the first round of funding under the $4 billion in competitive grants available through the Race to the Top competition. The application asks states to demonstrate their ability to carry out the Obama administration’s top education priorities, including adopting common academic standards, developing data systems, turning around low-performing schools, and improving teacher quality.

Meanwhile, school districts and nonprofit organizations are gearing up to submit their applications, which will likely be due later this year, for the Investing in Innovation competition, or i3, which aims to expand programs that have a record of success.

To help with the time-intensive applications for the Race to the Top, states called in high-powered backup.

“[States are] using their Rolodex and calling on providers who are thought to be popular with the administration,” observed Frederick M. Hess, the director of education policy studies for the American Enterprise Institute, a Washington think tank that espouses free-market principles. “They are turning to the consultants to help them loop in initiatives and providers who are reputed to be good at X, whether that is turnarounds or data systems or the rest of it.”

Spending Wisely

Mr. Hess joined Chester E. Finn Jr. of the Thomas B. Fordham Institute in writing a December column for the AEI’s journal The American, warning school officials to be cautious in how they spend stimulus money.

“Yes, many of today’s for-profit and nonprofit operators are self-promoters out to make a buck—and some are little more than snake-oil salesman,” they wrote. “Many others, of course, are honorable ventures with a track record of doing right by children and schools.”

John Musso, the executive director of the Reston, Va.-based Association of School Business Officials International, echoed that sentiment.

In one instance, he said, he saw a company offering to tell people everything they needed to know about the economic-stimulus program for $1,000—before the U.S. Department of Education had even released information.

In selecting consultants or companies, administrators need to make sure not to throw caution to the winds, he said.

“There are a lot of good companies selling a lot of good stuff,” Mr. Musso said. In the interest of spending money quickly, “you can’t spend money unwisely.”

While a number of the groups that states have turned to have worked in education for a long time, Mr. Hess said having billions on the table can tempt some businesses to oversell their capacity to replicate previous successes. There are questions about whether any can scale up their work in the way that states expect.

“What we see with Race to the Top is a real premium on people suddenly touting themselves as one-stop solutions,” Mr. Hess said. “I’m not sure any of these ought to be touted in the way many states seem to be looking at them as solutions.”

For example, he said, the Boston-based Mass Insight Education and Research Institute, Chicago’s Academy for Urban School Leadership, or AUSL, and the University of Virginia’s Darden-Curry Partnership for Leaders in Education have all been praised for their success with turning around low-performing schools, but those reputations have been burnished working with a relatively small number of schools.

Mass Insight, a nonprofit organization that developed a framework for school turnarounds in 2007, recently announced it will work with six states over the next three years to turn around clusters of low-performing schools. To make sure school districts have enough capacity, the strategy requires each of them to select a “lead partner”—which could be a charter-management organization or a group of district employees—to manage and deliver the array of support services that principals will need, said William E. Guenther, the president of Mass Insight.

Donald Feinstein, the executive director of AUSL, said his organization is weighing the very concerns raised by Mr. Hess as it figures out how to use what it has learned with its eight Chicago schools to help others. The turnaround group has been preapproved by Illinois state education officials to be a lead or supporting partner in working with low-performing schools across the state.

“Certainly with Race to the Top and school improvement grants, there will be states taking on the work of turning around their low-performing schools,” Mr. Feinstein said. “We do want others to be successful. We are thinking about how do we organize ourselves to help others to do this work.”

While Mr. Feinstein said AUSL has a “moral obligation” to help others improve education for children in failing schools, he said the organization “wouldn’t do it if we couldn’t do it correctly and effectively.”

Daniel L. Duke, a professor of educational leadership at the University of Virginia who runs its program to prepare principals who can turn around schools, said the Darden-Curry partnership is now working with Missouri and Texas, in addition to several other states. The partnership’s turnaround strategy relies heavily on central-office and school-level leadership; it won’t work with districts unless they have certain capacity-related benchmarks in place.

“We want to make sure the turnaround specialists aren’t isolated in their schools and have plenty of support available,” Mr. Duke said.

In addition to the federal stimulus money, the Bill & Melinda Gates Foundation has put up millions to pay for consultants to help states develop their Race to the Top applications.

Last summer, the foundation selected 15 states it believed had a good shot at winning the grants and offered each $250,000 to use in hiring a consultant from a list vetted by the foundation. The foundation later opened the opportunity for grant help to all of the states.

Thinking Strategically

To qualify for funding, the expanded roster of states needed to meet certain criteria, including signing on to a consortium to develop common academic standards, such as the effort led by the Council of Chief State School Officers and the National Governors Association; offering an alternative route to teacher certification; and having a data system with elements recommended by the Data Quality Campaign, a Washington-based group that has promoted high-caliber building longitudinal-data systems.

In total, 24 states and the District of Columbia met the criteria and received support from the Gates Foundation, said Christopher Williams, a spokesman for the Seattle-based philanthropy. (The foundation also provides grant support for Editorial Projects in Education, the publisher of Education Week.)

As legislatures move to change laws to help boost their states’ chances of winning a Race to the Top grant, consultants are trying to help them think strategically.

Sajan George, an Atlanta-based managing director of Alvarez & Marsal and head of its education practice, said the management-consulting firm worked with three states on first-round Race to the Top applications. The projects have included helping each of the states pull together its ideas into a coherent strategy with a clear “theory of action,” he said.

In addition to the work in preparing the applications, Mr. George said, the firm has consulted with states on “leveraging partnerships and building capacity for sustainability” beyond the grant period.

Other consulting firms working on Race to the Top and Investing in Innovation grant applications include McKinsey & Co. and the Boston Consulting Group, both based in that city.

Marc Dean Millot, the editor of K-12 Leads and Youth Service Market Reports, which details requests for proposals at the federal, state, and local levels, said he’s skeptical about the extent to which states and districts plan to use the work of the consultants after winning grants.

“To show evidence you are trying to improve your school system, you would really like to have a Bridgespan study,” he said, referring to the San Francisco-based consulting group. “Whether you are going to do anything with that study is immaterial.”

In the end, experts were of varying opinions on how much long-term effect the stimulus money will have on the K-12 education market.

“As a practical matter, these things are being done by the states and districts to comply with a grant requirement, not of their own volition,” Mr. Millot said. “Will there be a national change that makes a real change in the market? I don’t see it.”

Staff Writer Lesli A. Maxwell contributed to this story.