Defying Convention, Superintendent Takes A Chance on Charters

April 11, 2000

SAN CARLOS, Calif. — Hurtling around central California visiting his start-ups;t alking business plans and deliverables; courting venture capitalists and angels; fretting how he’ll manage the corporate growth that’s still illusory at best, Don Shalvey could be any Silicon Valley entrepreneur hustling his product.

Except Mr. Shalvey’s product is schools. After 33 years as a teacher, principal and superintendent, Mr. Shalvey is launching what he plans will be a string of 100 charter schools to compete with the very same public schools he has long run.

In the white-hot economy of Silicon Valley, “we pray at the altar of competition; it’s our lifeblood, our oxygen,” says Reed Hastings, a software entrepreneur and one of Mr. Shalvey’s backers. But in education, he adds, “competition is considered weird, it’s unhealthy, it’s almost bizarre.”

That’s what makes Mr. Shalvey’s journey, from education bureaucrat to education entrepreneur, so unusual. It’s why fixing the schools is proving so tough, and why education is emerging as a centerpiece issue in the presidential campaign. But for all that, it’s also where public education is heading — and faster than almost anyone ever expected.

Mr. Shalvey’s idea is to cluster charter schools in some of California’s more troubled school districts, with his charter elementaries feeding into his charter middle schools and charter high schools. When enrollment reaches 10% of the local student population, he calculates, the district schools will have lost so many students and so much state funding to his nonprofit University Public Schools that they will be forced to improve their own programs or, better yet, adopt his. Ebullient and ever enthusiastic, Mr. Shalvey explains his reasoning with a story about the kids who visited his
boyhood Philadelphia neighborhood and whipped the locals at basketball. “We got better when better players showed up and beat us,” he says.

That’s a guiding notion behind charters — that by competing with district schools and each other, charters will improve them all — and a popular one here in Silicon Valley. A venture-capital fund that includes John Doerr and Brook Byers, who also backed Inc. and Sun Microsystems Inc., has given $1 million to Mr. Shalvey’s company and put two directors on his board. Mr. Hastings, who began an Internet dot-com after selling his software company and who is on the California board of education, also gave $1 million and sits on the UPS board. That highoctane support has smoothed, although not paved the way for UPS.

There are only two schools this first year, in Stockton and Modesto. Mr. Shalvey uses vacation days from his job as superintendent in San Carlos to run his company. Philanthropy is paying for curriculum writers and school construction. Mr. Shalvey says UPS won’t be “sustainable” — that is, able to operate without gifts — until it reaches 10 schools in perhaps two years. He talks of keeping overhead low by moving the UPS offices into a mobile home and traveling from school to school, but first, he allows, he has to find the money to buy the mobile home.

And finding a niche in a mature market — there are schools everywhere, after all — isn’t easy. So it is that, searching for expansion, Mr. Shalvey cleared his calendar one recent afternoon when he was summoned to St. Louis Bertrand Catholic church in Oakland. The parish has closed its school because of falling enrollment and indicated it may be willing to rent it to Mr. Shalvey. The school, like the largely Hispanic neighborhood beyond, is in decline: brightly painted, but bypassed and worn. Mr. Shalvey grinned as if he had just stolen market share, which is of course what he hopes to do.

“ This,” he said, “is exactly where we want to be.”

Charter schools are publicly funded schools that operate outside the school-district bureaucracy — an arrangement that is supposed to make them more agile and experimental. Since the first opened in Minnesota in 1992, charters have ballooned to 1,700 schools enrolling about 250,000 students. That’s only a fraction of the 53 million U.S. schoolchildren, but in a few places, enrollment is large enough to begin challenging the districts: Charters account for 4% of all schoolchildren in Arizona and 9% in Washington, D.C.

With voters saying they are worried about education, moreover, charters are enjoying political clout far beyond their numbers. Both parties and presidential candidates endorse them. President Clinton, having noted that there weren’t any charters when he took office, says he wants to see 3,000 charters before he leaves. Even the teachers’ unions have embraced them, largely to head off voucher plans that use taxpayer money to send children to private schools.

Beyond that, the new state laws that authorized charters have, in effect, deregulated education, making possible a forprofit education industry and nationwide chains of schools. For-profit educationalmanagement organizations, or EMOs, haven’t captured investors’ hearts. “There are easier ways to make money,” says Gene Wade, whose for-profit LearnNow Inc. plans to open its first four charters in the fall. Still, they already account for 10% of all charter schools.

Charters are so new that there isn’t much evidence they are fueling change in the district schools yet, though the U.S. Department of Education says seven in 10 have waiting lists, a sign that demand is growing faster than supply. It’s also too soon to claim they’re doing a better job of educating kids; most researchers say that will take at least five years to prove.” This isn’t a chip shot,” says Henry Levin, who heads a center on the privatization of education at Columbia University. “It’s much harder to run schools and get results than these charter operators think.”

But those doubts don’t deter or even slow the 55-year-old Mr. Shalvey, whose wife also is a career public-school teacher and principal, and whose two children attended public schools and universities. Mr. Shalvey says he watched California’s charter law work its way through the legislature in 1992 and was determined to win one of the first charters (as it turned out, few others applied). Mr. Shalvey, then an assistant superintendent in Lodi, Calif., was interviewing for the superintendent’s job in the San Carlos district, and the teachers there “were asking for some new thinking,” says Beth Hunkapiller, president of the San Carlos board. “They felt they needed some change.”

Change isn’t easy under California’s 9,000-page education code, which tells schools, among other things, how to teach phonics, which textbooks to buy, how to do on-the-job teacher training — and that they will have cafeterias with full-service kitchens. Wealthy and well-educated, San Carlos was the ideal place to experiment with charters, Mr. Shalvey says he reasoned, so he sold the idea at a town meeting. “I wanted to start somewhere they weren’t needed,” he explains and then expand the concept in places with poor schools.

For a superintendent to ask the state to approve a charter in his district isn’t unlike Kmart offering Wal-Mart a storefront down the street. A charter draws children and money away from the district schools, and the district doesn’t have any control over it. “They’re inconvenient,” says Mr. Shalvey, mimicking the opposition to charters. “There’s risk: What happens if you fail? What happens if you succeed?”

Michael Kirst, who runs a program that offers joint master’s degrees in business and education at Stanford University, says that fear of risk is what keeps many superintendents from trying new ideas, even when the old ones don’t work. A superintendent’s “career trajectory” takes him up through layers of administration where risk is discouraged — because who wants to risk an eight-year-old’s education? “We weren’t trained that way,” says Robert Stremple, who was superintendent of the U.S. Department of Defense schools and now sits on Mr. Shalvey’s UPS board, “and we’re perpetuating ourselves in the way we train others.”

Only 55 children showed up when the San Carlos charter opened in 1993 — the first in California — and many of those came from other districts, seeking the San Carlos imprimatur. But the charter quickly turned into an R&D lab, pioneering technology, multiage classrooms, individual student-learning plans and teacher bonus pay, most of which have since been adopted by the district schools, too. With enrollment now at 184, and 100 on the waiting list, the charter also has set off competition for students in a district where enrollment is falling because families can’t afford to move in (two-bedroom bungalows may fetch $600,000).

“The competition is intense,” says Kaaren Andrews, the 29-year-old “instructional coordinator” who heads the charter. Faced with competition from the charter, two other San Carlos elementaries converted to charters this year — with 80% of the unionized teachers voting for the change — and Mr. Shalvey has sent letters to all the other schools in the district, urging them to do the same.

Freed of state restrictions, says Robert Winslow, Heather School, where he is principal, chooses its textbooks and receives state funding in a lump sum, rather than in a dozen smaller pots linked to programs. But beyond that, charter status enables Heather to solicit for students in other districts — and worried about low kindergarten enrollment next September, the third year in a row, Mr. Winslow already has started an ad campaign. “If we weren’t a charter, we’d lose staff,” he says simply. “If we lose staff, we lose programs” and then possibly more kids and still more staff.

Two years ago, with a leave of absence and the unanimous approval of his school board, Mr. Shalvey took his evangelism for charters statewide by launching a voter initiative to lift the 100-school cap on charters in California. Thirty-six states permit charters, but most control their spread: Oregon limits charters to 10% of a district’s enrollment; Missouri allows charters only in St. Louis and Kansas City. California’s high-tech community endorsed the initiative, which, as it turned out, put so much pressure on legislators that they lifted the cap themselves. Mr. Hastings, the software entrepreneur, says that in an economy fueled by ideas, “the least we could do is spread the net of opportunity.”

But traveling the state together, Mr. Hastings says he and Mr. Shalvey concluded that even if they got the charter law changed, “that wouldn’t get schools built or kids served. We decided our next project should be a really big network of charter schools.” Mr. Shalvey announced he would retire from San Carlos this fall (the school board has begun a search for a charterfriendly replacement), and UPS launched itself with a virtual office — everyone in different cities, but linked by e-mail.

California gives charters about $4,000 a year per child to operate. But like many states, it doesn’t provide money to buy or renovate a building, and few charters have the collateral for a loan. The need for capital has helped fan
the growth of for-profit charters, which can raise money from investors. LearnNow’s Mr. Wade says he first planned a nonprofit chain of inner-city schools, but rethought it when he realized he needed at least $22 million in the first two years. “No way could I get that from foundations,” he says. But Mr. Shalvey’s goal isn’t profits, he says (he will earn $115,000 as chairman of UPS, the same as he earns in San Carlos“a lateral move,” he calls it). It’s to have his charters spread their best ideas to other schools, much as the San Carlos charter does. “There are no trade secrets” in a nonprofit, he says.

The migration of ideas already is starting in Stockton, where the UPS charter opened in a converted grocery store, its renovation paid for by Mr. Hastings. In a district so crowded that the schools run on shifts, the UPS charter offers 190 days of teaching, vs. 163 in other schools. Cleaning, food service and even gym classes are contracted out to save money. Teachers get a month of training — nationally, three or four days is common — and will depend for part of their pay on how well students perform on statewide tests and how many return for the next school year.

Although one-quarter of the students are poor, the message in Stockton is that everyone will go to college. Each classroom is named for a university — there’s the San Diego State class, the Pepperdine University class — and the school puts aside 1% of its $1.5 million budget for college scholarships. “Everyone wants in,” says parent Yvonne Sousa. The school will have spots for 60 new kids in the fall; it stopped taking applications when the list hit 200.

Del Alberti, superintendent of the Lodi Unified School District that feeds into the charter, says he welcomed the nonunionized school because it gives him the chance to try out ideas that either the state education code or the teachers’ union contract precludes in his schools. UPS schools, for example, combine two grades in the same classroom; the idea is that kids develop different skills at different ages. “We couldn’t get a buy-off from the union on that,” says Mr. Alberti. With what Lodi has learned from the UPS charter, though, Mr. Alberti says it will open its own charter in August — and this time, “the union has been at the table with us.”

UPS plans another Stockton elementary this fall, and two charters in Oakland (St. Louis Bertrand has decided to rent its school to UPS). Oakland Mayor Jerry Brown is encouraging charters as part of his effort to turn around a woeful school district. “I don’t think they can reinvent from the inside without someone like us on the outside,” Mr. Shalvey says, “and I don’t think we’d do as well if we weren’t looking over our shoulders at them.”

What’s next? San Jose, San Francisco and Los Angeles are on Mr. Shalvey’s master plan. “People are going to get really mad at us” as his schools compete and expand, Mr. Shalvey predicts. The idea doesn’t seem to trouble him.