By Gary Sernovitz
July 30, 2018
|In New Orleans, charter schools, like businesses, are compelled to|
succeed by competition and choice. But they’re hampered by a
market system that, in key areas, is only half-built.
A year ago, I volunteered to serve on the board of a charter elementary school in New Orleans, where I live. Two months ago, in a cafeteria crowded with whiplashed parents, I tried to give some comfort by explaining why, three days before the school year ended, the school had announced that it wouldn’t be open this fall. I apologized. I described the scrambling to try to solve a six-hundred-thousand-dollar budget shortfall. I apologized again.
But what I didn’t explain was that the fate of Cypress Academy, a unique closure in a unique, charter-dominated school district, was not just about one school. It was about how startups fail, and about what happens when a school system is redesigned around the engines of the free market—autonomy, competition, and customer choice.
Frankly, I didn’t understand this until later. Which is good, because the parents didn’t want to hear market theory. They just wanted their children to get a good public education.
In New Orleans, alone among large urban districts, almost all schools are now charter schools. This is the result of perhaps the most ambitious school-reform effort in the country’s history. In 2004, the year before Katrina, only fifty-four per cent of New Orleans high-school students graduated. After Katrina, the state of Louisiana took over almost all of the city’s schools and began turning them over to independent groups—either single-school charters, like Cypress, or largely local charter-management organizations, or C.M.O.s.
This month, after thirteen years, the Orleans Parish School Board assumed control as the regulatory body over all the public schools in the city, reunifying the district and stirring intense reflection—locally and nationally—on the effects, so far, of ceding the city to a charter system.
That system, in which eighty-three per cent of students are economically disadvantaged, still has a long way to go. Forty per cent of the city’s schools are ranked “D” or “F” by state standards, and New Orleanians are no rookies at the national pastime of school segregation: the C.M.O.s serve mainly poor black students, while independent, “community” charters serve racially mixed populations.
But, in the years since Katrina, the rates of high-school graduation, college attendance, and college persistence have increased by a range of ten to sixty-seven per cent. That’s confirmed in a recent study by Matthew Larsen, a professor at Lafayette College, and Doug Harris, an education researcher and economist at Tulane who, in the past, has been wary of “teach-to-the-test” results and the notion that “scores equal learning.”
New Orleans achieved all this without two of the features most detested by charter critics: there are no for-profit charter schools in the city, and the charter system doesn’t drain money from the “regular” school system. In New Orleans, there is no other system.
Sitting on a charter-school board, I could observe that system firsthand. I joined the board of Cypress because Bob Berk, the founder of the school and a childhood acquaintance, convinced me that volunteering in elementary education was the most direct way to help children in a state that’s hard on them. (Save the Children recently ranked Louisiana the worst state for children, for the second year in a row.)
And, I admired the school’s philosophy, which stressed diversity, a “whole child” education, and a commitment to teaching all types of learners, from gifted to special-needs, in one classroom.
In New Orleans, parents rank schools through a common application, so Cypress treated every challenge—teacher turnover, disappointing enrollment—as an existential threat that demanded a creative response. By the end of the school’s third year, there was high demand from parents for the coming term. But that success came with a rot in the woodwork: the school couldn’t afford to deliver the education that was capturing parent interest.
For four months, the board pursued initiatives familiar to any cash-burning startup: potential mergers, cost cutting, revenue fixes (in this case, money from the school board), and capital raising. There was too much hope, in hindsight, and too few hard decisions. No solution came.
Startups fail all the time. That’s why markets work. (Doug Harris attributes a good deal of the New Orleans charter system’s success to the de-chartering of underperforming schools.) But Cypress’s failure was unique in the history of New Orleans school reform; according to Michael Stone, the former co-C.E.O. of the nonprofit New Schools for New Orleans, it was the first time a “good” school had closed.
To me, Cypress’s fate had to do with a larger failure: a school system that had the engines of the free market but not all of its features. Cypress, like a business, was compelled to succeed by competition and choice. But, like other charter startups, it was hampered by a market system that, in three key areas, is only half-built.
First, there’s the incomplete reward system. An open secret in the charter community is that many charters work because they devour the time, energy, and bodies of their staff. That kind of grind applies at private-sector startups, too; but there a startup founder knows that her investment could result in retiring, at thirty-four, to a life of microdosing and suborbital space travel. A charter-school job will never supply such comfort. The economic model is based on endless life-draining and frequent burnout.
The second problem, and one of the most fatal to Cypress, is the clash of a competitive system with a fixed-price economy. Cypress wanted to educate all children, and twenty-six per cent of its students had special needs, twice the city’s average. New Orleans’s funding for these students, though much improved, is still a work in progress. Each special-needs student effectively takes money away from the budget for other students.
Given this, other schools “recommended” Cypress to parents of special-needs families. Cypress welcomed those children; it was its mission. But unlike, say, a startup restaurant chain that could adjust its menu or prices to attract certain customers and improve margins, Cypress is an open-admission school. It couldn’t, morally or legally, choose its customers nor the revenue it could gain from each one.
“Philanthropy doesn’t want to pay teachers’ salaries.”
Finally, the funding model for startup charter schools is only half finished. Venture capitalists often refer to “The Valley of Death”—the potential period, well known to startup companies, when venture funding runs out but self-sustaining profitability has yet to begin. The exponential growth in capital available to float companies over that valley has been one of the central novelties of our age. (The most obvious example is Uber, which still raises money to cover operating losses.)
But most of the philanthropic “investors” in the school-choice movement see their payoff as the disruption of underperforming school systems. There’s a lot of money for system-wide change and new schools; Cypress benefitted from it. There’s even “growth capital,” supplied by groups such as the Charter School Growth Fund, that allows proven and financially stable schools to spawn new ones.
But, as the Cypress board discovered when trying to appeal to the rich of New Orleans—a smallish number in a poor city—there is very limited capital for startup schools trying to cover their operating losses until they reach scale. As Michael Stone put it to me, “Philanthropy doesn’t want to pay teachers’ salaries.”
When Cypress announced its closure, the plan was for an ungainly merger with a C.M.O.-managed school. Then Cypress parents, in an admirable eruption of self-organization, told the Orleans Parish School Board that Cypress’s closure was not just another day in the market. The board almost immediately reversed its decision, and will now take over the school.
No one knows how this will turn out. Maybe—and this seems its vision—the board will be energetic caretakers for a year or two before another organization, or the parents’ group, charters the school again. Maybe the school will endure as something like the health-care debate’s public option, reminding the city that there are some students, and some models, that can’t live and die by the free market.
Or maybe, the charter movement in New Orleans, and across the country, will learn, through examples like Cypress, that there is hard work to come in making the funding, reward, and revenue systems work. No market is just about competition and choice.
Gary Sernovitz is a writer and a managing director of a private-equity firm. His most recent book is “The Green and the Black: The Complete Story of the Shale Revolution, the Fight over Fracking, and the Future of Energy.”