Forbes Dec. 11, 2000
School of Hard Knocks
Why should Standard & Poor's enter the fray of public school spending evaluation? Because that's where the money is?
By RiShawn Biddle

Perhaps it was bored with crunching numbers in all those eye-glazing bond documents. Or maybe Standard & Poor's was just looking for a little excitement. But if it's controversy S&P was courting, it sure couldn't have picked a better business than evaluating school spending.

Started quietly last year, S&P's School Evaluation Services unit purports to tell taxpayers what kind of return they're getting for their investment in public education spending.

By culling academic and financial data, the McGraw-Hill unit claims it can show how much it is costing for school districts to get students to pass statewide tests, meet specific SAT scores or graduate on time.

One satisfied customer is Harold Guthrie, superintendent of the 32,000-student Spring Branch school district in Houston. He hired S&P last year to perform a "school performance analysis" that looked at what the district got in return for its $240 million budget. In one area, bilingual education, S&P concluded that the district was trailing its peers in every performance category, but outspending them. So Guthrie revamped the program.

"Most people come in and just tell you to make cuts, not the dollar return on a particular program. Now we can do that," says Guthrie, who paid S&P $60,000 for the service.

Fools rushing in where angels fear to tread? Hell hath no fury like superintendents, school board members or teachers whose spending priorities are questioned.

"Some programs are very popular and people don't want a serious evaluation," says Dominic Brewer, head of the education program of Rand Corp., the think tank that found itself embroiled in a controversy over its own school evaluations during the presidential campaign. "Often evaluations are perceived as threats. Anybody external and independent isn't going to always say good things."

In Michigan, where S&P was hired by the state's pro-charter-school Governor John Engler, the National Education Association affiliate is apoplectic over S&P's involvement.

"We were skeptical as to how this data will be used," huffs Margaret Trimer-Hartley, director of communications at the Michigan Education Association. She claims the union did not learn about the contract until after it was approved. "Initially S&P didn't give us any sense of security that this would not become another tool for journalists who just want to rank the schools in the state in a convenient way that only exacerbates some of the problems we are dealing with." The union wheedled its way onto a panel advising S&P on its Michigan evaluation.

Jewell Gould, research director in the Washington, D.C. office of the American Federation of Teachers (the nation's second-largest teachers' union), accuses S&P of being a prop for the governor's conservative schemes. "I cannot believe that Engler would request a report from Standard & Poor's not expecting a certain result," he says.

William Cox, the S&P managing director in charge of the service, bristles at the union accusations. "We're not going to be a tool of governors' offices or teachers' unions. But there are some people who are not interested in good information, who might feel that it will make their lives too difficult."

Just to be safe, Cox is keeping a low profile. Though S&P has signed more than $20 million in contracts with Michigan and Pennsylvania, covering 1,200 school districts and charter schools, Cox has limited his marketing efforts to state school officials. Perhaps as an indication of the company's sensitivity to its public image, S&P officials called around to several of FORBES' sources after they'd been interviewed for details about this story.

"Eventually, we hope it comes in reviewing our work versus making a splash," demurs Cox, who used to evaluate the creditworthiness of municipal utilities.

He has his work cut out for him. On Wall Street, the S&P name is like the Good Housekeeping seal of approval. But in the politically charged atmosphere of school spending, S&P and other evaluation services are mostly viewed with suspicion.

Privately held SchoolMatch in Columbus, Ohio also conducts school audits. But the service makes up less than 10% of revenue and is usually commissioned by newspapers, corporations and outfits such as the Heinz Endowment. It pays its bills mostly by selling data to Microsoft and other companies for their relocation services. (Do you want to make your own judgment about where to live? You can get data on school district performance from www.schoolmatch.com, but statistics are also available from newspapers and state education departments.)

SchoolMatch has hit roadblocks erected by entrenched superintendents who resent the outside scrutiny. "When we conduct some audits, superintendents will tell us that the SAT data aren't available, or the state test scores are lost," says M. Donald Thomas, chairman of SchoolMatch and a former education adviser to three governors. (One of those governors was South Carolina's Richard Riley, who is now U.S. Secretary of Education.) "If the results are bad, they might say the test was given on a rainy day, or some adverse condition. The historical record usually shows otherwise."

Another evaluation firm, Davis, Calif.-based Management Analysis & Planning, has found itself making ends meet by providing expert testimony in lawsuits in between advising school districts. James Smith, president of the firm and a former deputy superintendent of the California State Education Department, says education spending is often more a creature of local and state politics than of necessity.

Even if S&P can figure out a way to appease the politicians and unions, the knives are out for the company. William L. Bainbridge, president of SchoolMatch, is dubious that S&P can overcome its inherent conflict of interest as the unit of a company that also sells textbooks and other school supplies.

"How can McGraw-Hill be a vendor on the one hand and an evaluator on the other?" Bainbridge scoffs.

This fight is going to get uglier before it is over.