Edison Seeks Funds to Run Philadelphia Schools

Published July 1, 2002

Following the mid-April award of management responsibility for only 20 of Philadelphia’s public schools rather than an expected 45, Edison Schools, Inc. stock dropped from around $13, slowly at first and then precipitously, to $1.37 a share by May 17. That day, Edison warned not only that it might not be able to raise the $30 to $50 million it needs to open those schools in the fall, but also that its stock could be delisted from Nasdaq if the price slide continued. The stock started the year in the $20 range and once commanded a $45 price tag.

Four days earlier, the Securities and Exchange Commission had announced a settlement in a three-month inquiry into Edison’s accounting practices regarding the overstatement of revenues, an issue raised by Bloomberg News in February. Although Edison cooperated with the SEC and was not fined, company officials warned on May 17 that the inquiry could make it more difficult to raise capital, secure new contracts, and maintain existing contracts.

In the preceding days, Edison had received unwelcome news regarding two of its existing contracts, one with the Boston Renaissance Charter School and the other with the public school system in Inkster, Michigan.

Contract Difficulties

The Boston Renaissance Charter School, one of the largest charter schools in the nation, announced on May 16 it was pulling out of its $9 million annual contract with Edison this year instead of continuing as scheduled until 2005. Although unimpressive test scores were one reason for the change, another was that the school’s governing body was seeking independence.

“We would not have started without Edison’s help, but we’ve moved out of infancy,” school president Dudley Blodget told the Associated Press. “We’re now into young adulthood.”

In Inkster, public school officials are refusing to pay Edison for managing the district, which they contracted for in 1999 to forestall a state takeover because of the district’s continuing budget deficits. Although the contact calls for the district to give Edison its state funding and then let Edison operate the district, Inkster school officials have not yet given Edison the state funding for the current school year. At the school board meeting on May 15, Inkster officials took no action to fulfill their contractual obligation and transfer the funds to Edison. As a result, the state may be called in to control the district’s finances.

Edison is the nation’s largest contract management company for public schools, managing 133 schools with about 74,000 students. Although the company last November reported a cumulative loss since 1992 of $233 million, investors have until recently been willing to accept Edison’s “burn rate” of approximately $3 million a month in anticipation of future profitability from growth and improved student achievement. With that anticipation apparently gone, attracting further investor funds will be difficult, as Edison acknowledged on May 17.

By comparison, the poorly performing Philadelphia Public Schools, with 265 schools and 200,000 students, has a projected deficit of $216 million for the current year alone, and a projected deficit of $1.5 billion for the next five years. Under Governor Mark Schweiker’s original takeover plan, the city would get $75 million in additional state funds if Edison was given control of 45 of the lowest-performing schools and the district administration. Edison now will get just 20 schools, without the central office, but city officials still anticipate being given another $75 million “investment” from taxpayers.