Consultant: Philadelphia district needs to close 29 to 57 schools

Six months into its study of the troubled Philadelphia School District, a global management firm has made public its extensive, game-changing analysis and recommendations for how the system should proceed to overhaul operations and avoid insolvency.

Among the suggestions in the 118-page document, being released Thursday: The district should close between 29 and 57 schools in the next five years. It should be much more selective about charter school growth, which in the last decade has given Philadelphia families more educational options - but at a staggering cost to the district.

It should pursue massive changes in the next teachers' contract, not just reforming the salary and benefits structure but disconnecting seniority from layoffs and possibly extending the school day and year.

Thomas Knudsen, the district's chief recovery officer, stressed that the Boston Consulting Group Inc. was hired to survey the education system and recommend a way out of the district's current financial and academic troubles, with an emphasis on decentralization.

But "they do not in any way prescribe what we're doing," Knudsen said in an interview Wednesday. "We take the information and make judgments accordingly."

Though many of the consultant's suggestions were incorporated into an overhaul plan announced in the spring, some may be rejected, Knudsen said. Some already have been.

Though the consulting firm recommended that the district should consider privatizing its facilities services, officials opted to reach an agreement with SEIU 32BJ Local 1201, the union that represents facilities employees. Work rules were changed, with millions in savings for the district and the preservation of most of the jobs of the 2,700-member workforce.

"The conclusions we reached and the way that the matter was conducted were not consistent with some of the recommendations of BCG," Knudsen said.

Academics have long lagged in the district - Philadelphia's graduation rate, 61 percent, is well below the national average, and its scores on a national math and reading test are lower than those of most urban districts.

But finances were front and center when BCG came to work in Philadelphia in February.

The newly reconstituted School Reform Commission had just demoted the acting superintendent and chief financial officer, appointed Knudsen, and announced that, despite already making about $700 million in painful cuts, the district faced a $1.1 billion deficit over five years if corrective action was not taken.

Funding, not spending, was the main problem, BCG concluded - the loss of more than $300 million in federal and state revenue, plus the costly continued expansion of charters and fixed, negotiated costs in salaries and pensions put the school system in a tough spot.

"The district's per-pupil spending is roughly in line with that of other urban, unionized districts," the company said.

The consulting firm did, however, highlight some major missteps - the district's lack of a plan to keep costs down when revenue fell, for instance, and the failure of former Superintendent Arlene C. Ackerman's administration to manage the emergency.

"The tensions between the superintendent and the CFO [Michael Masch] created an environment that did not reflect the type of transparency and open communication necessary to avert or effectively manage through a crisis," the firm concluded.

Though SRC Chairman Pedro Ramos has publicly cited "bad fiscal policy" for past problems, Knudsen said Wednesday he didn't believe that in the past, there had been any "fiscal mismanagement in the classic sense of the word."

But "no question, there was a level of dysfunction," Knudsen said. "I don't think anyone pretends there wasn't."

Things have improved under Knudsen and the current SRC, BCG noted.

The structure of the district, the consultants found, simply doesn't match the current reality of a "system of schools" - district schools; freestanding, lottery-based charters; and Renaissance schools, which are former struggling district buildings managed by charter organizations.

About 50,000 students fled the district over the last decade, but it has not downsized accordingly and now faces a surplus of tens of thousands of seats. It also has a central office structure that doesn't adequately support its schools.

The 146,000-student district should close between 29 and 57 of its roughly 250 school buildings, BCG concluded. In the spring, announcing a "blueprint for transformation," Knudsen and the SRC said the district would close 40 schools in 2013.

BCG estimated the district could save between $32 million and $40 million in operating costs annually through the closings.

Schools to be shuttered have not been identified, officials said. BCG has helped develop some recommendations to consider in determining which schools to close, but a series of community meetings will help.

The names of schools under consideration for closing won't be released until about October, Knudsen said.

In addition to having too many old, underenrolled schools, BCG also found that the district has underinvested in areas like finance, human resources, and information technology.

The already announced strategy of shrinking the central office and breaking the district into "achievement networks" of 20 to 25 schools run either by district personnel or outside nonprofits such as charters or universities was generated by BCG.

But it's clearly backed by the current district leadership. "We need something that's much more flexible, much more entrepreneurial, much more responsive," Knudsen said.

The achievement network model would allow schools to have more autonomy but also a better support system, officials said.

After a great deal of public pushback - the plan was labeled "privatization" by many - the district has decided to hold off on piloting an achievement network program in the fall. New Superintendent William R. Hite Jr. needs to get up to speed, Knudsen said.

"Everybody's going to take a deep breath for the time being," Knudsen said. "This recommendation will be there and the analyses - which are well done - will be there for us to call upon when the time is right."

Charter school creation and expansion has been a constant in the city for the last decade, and though charters generally boosted high-quality school options, they also cost the district millions annually: each additional student who enrolls in a freestanding charter costs the district $7,000.

Officials estimate charters will add 32,000 seats in the next five years, educating 40 percent of all city students by 2017.

But rather than create new freestanding charters, the district should use the Renaissance program, overhauling existing schools through preferred charter providers, BCG said, because Renaissance charters are more cost-effective.

BCG also stressed that the district must "undertake comprehensive collective-bargaining reform" with the Philadelphia Federation of Teachers and advocate for changes to the school code.

The district is banking on $156 million in savings in labor costs over the next five years from its unions, of which the PFT is the largest.

But beyond salary and benefits changes, which the district will certainly seek, the management group urged the district to eliminate its current policy of filling most teacher vacancies through straight seniority. It also wants principals to have full say over who gets hired in their buildings.

BCG suggested performance, not seniority, should determine layoffs. It wants reform in leave policies, and changes to the amount of paid and unpaid time teachers can take. It wants to end "inflexible staffing arrangements" and adopt tougher, more meaningful teacher evaluation systems.

Some of the firm's recommendations are a leap for a district that's barely making ends meet.

Every district school ought to be a "school of choice," BCG said, and the district can minimize future closings "by improving the quality of education in the district schools citywide and attracting and retaining students."

It also suggested that the district fashion itself into a "true magnet for high-performing principals, teachers, and staff."

Those things are doable, Knudsen said. But "it will be a challenge. ... There's no question about that."

District officials had high praise for the consulting firm, which was paid $4.4 million, money that came not from district coffers but from private sources, raised by the William Penn Foundation and distributed through the United Way.

"BCG did superb work," Knudsen said.

The firm is under contract through September, and could stay on longer if more private money is raised to support it.

But BCG's role has been a hot-button issue in recent months, with skeptics saying the firm is pro-charter at the expense of district schools - that it is trying to turn the district into a business.

Was BCG advancing a privatization agenda? "The answer to that is no," Knudsen said. "They're not."

Some have also accused the district and BCG of keeping its work under wraps for too long.

The timetable, Knudsen said, necessitated the process. BCG has been sprinting since February to analyze the sprawling, complex organization, then generate recommendations and finally help the district begin to do the work, such as creating a "performance management office" to implement district-wide changes, he said.

"For people to have assumed that this was going to be something of a public review period, that just wasn't possible," Knudsen said. "Would we have liked to do it differently? Yes. Could we do it differently? No."