FL. RETIREMENT SYSTEM TO BUY SCHOOL PRIVATIZATION FIRM FOR $182 MILLION

Download printable flier on Edison
Read letter to Gov. Jeb Bush about Edison purchase
Read Tallahassee Democrat article
Read the State Board Administration's statement about Edison
Review FRS fiasco with Enron

The Florida Retirement System for Florida government employees, including public school workers, is on the verge of becoming the principal owner of a financially failing school-management company that makes its money by supplying private services to operate poorly performing public schools.

Liberty Partners Inc., a New York money management firm whose sole client is Florida's public employee pension fund, is the primary bidder in a move to buy out Edison Schools Inc., which has never turned a profit. The beleaguered 11-year-old, publicly traded Edison has aggressively pushed to contract with school districts to run public schools, including Reeves Elementary School in Miami.

Liberty Partners, along with Edison founder and Chief Executive Officer Christopher Whittle, have proposed paying shareholders about $110 million from Florida's $93 billion pension fund. It's not yet decided if the pension fund, or some other investor, will absorb Edison's debt, which would cost $70 million more.

Florida AFL-CIO President Cynthia Hall, AFSCME Florida Council 79 President Jeanette Wynn, Service Employees International Union (SEIU) Southern Region Director Keith Maddox and Florida Education Association (FEA) President Andy Ford wrote a letter to Gov. Jeb Bush, who sits as chair of the State Board of Administration, denouncing the deal as “an unsound economic decision” and demanding that “action to reverse the decision should be taken immediately by the State Board of Administration.”

ACCOUNTABILITY: POINTS ABOUT THE RECORD EDISON SCHOOLS, INC.

1. This is not good business. Edison was formed in 1992 and has had exactly one profitable quarter – this most recent one in which they achieved profitability through sales of property. As little as two years ago, the stock sold for more than $36 a share and today it sits below $2 a share. The company’s losses since its founding amount to more than $354 million, SEC filings show.
2. Edison is shrinking. Though the company cites running 149 schools in its press releases, a recent check of their website lists 99 schools in 18 states and DC for the ‘03-’04 school year. In addition, in one district in Michigan the superintendent has said he’s canceling the contract to run an additional three schools and a district in Pennsylvania, which is the company’s second largest contract, is still waiting for the state legislature to pay Edison’s $2.5 million consultant fee for this school year. The financially distressed school district cannot afford to pay Edison and was bailed out last year by the Republican Secretary of Education, but this year the new Democratic administration has not committed to use limited state funds to pay Edison’s fee.
3. Who’s minding the store? Gov. Jeb Bush, as one of the three overseers of the pension fund, said: “I’ve not studied the investment. We create the broad parameters of the mix of investments that the pension should make, and we do it based on expert professional advice. ... I have total confidence in the ability of the director and his team to make these decisions, and I’m not going to second-guess them.” Coleman Stipanovich, the executive director of the State Board of Administration said: “The trustees don’t get down to micromanaging investments.” He said Liberty Partners has full discretion over the $1.8-billion it invests for the pension fund in “alternative investments,” such as buyout deals. “We simply don’t interfere in terms of the companies that they invest in. We have a contract with Liberty Partners, and they have full discretion and authority to make investments on our behalf.”
4. Liberty Partners has performance problems of its own. Since Liberty Partners was founded in 1992, the Board has invested more than $1.2 billion in six limited partnerships managed by the firm. Of those six limited partnerships, three have failed to meet their benchmark for performance since inception, and the six Liberty funds together lost more than $105 million in the fiscal year ended June 30, 2002.
5. At the same time Liberty Partners, a firm with no apparent expertise in education investments, is investing in Edison Schools, Leeds Weld & Co, a leader in education investing, is backing away from education privatization. Leeds Weld, an early backer of Edison, which only last year participated in a $40 million debt financing of the firm, announced in August that it will no longer invest in companies seeking to privatize public schools. In announcing this decision, principal Jeffrey Leeds stated that “investors frequently fail to appreciate the political risks posed by investment in companies that pursue privatization of education” and that his firm “no longer views companies that pursue privatization of education as likely to generate the long-term growth necessary to offset these risks.”
6. Remember that the Florida Retirement System managers allowed $335 million in purchases of Enron stock as it collapsed. This total was more than three times greater than any other state retirement fund. In addition, the FRS lost nearly $85 million with the collapse of WorldCom.
7. Edison likes to say that they don’t privatize school systems, they manage them. But their management nearly always involves the privatization of principals and assistant principals, who are also members of a retirement system, and the elimination of support staff jobs.
8. Businesses that win contracts to privatize government services often end up giving up these contracts, have them taken back or try to renegotiate for more money. Our experience in with privatization in the state of Florida is that it rarely saves money and often costs jobs.
9. The health of a public retirement system often supposes that public employees will stay public employees. If these employees are privatized, then the assumptions of health of the retirement system can rapidly change.
10. Many government officials who wrongly think privatization can solve their problems often turn public-sector jobs over to for-profit operators, then close their eyes and learn — too late — that the work is not being performed as promised. A 1997 survey of U.S. cities and counties, conducted by the International City/County Management Association, makes the point: While 90 percent of respondents said they had contracted out public services that were being performed in-house five years earlier, only 40 percent said they monitored contractors to ensure goals were met. Think about the lack of accountability we’re seeing in some of the voucher schemes in Florida today.
11. A report by the American Federation of State County and Municipal Employees (AFSCME) found that the trustees of the Florida State Board of Administration, which manages the FRS, are the least representative of plan participants of the 100 largest public pension funds, ranking dead-last in the number of active and retired employees who are board members — zero.