Overhead eats up federal tutor funds

State officials question how money is spent
By Diane Rado
[Chicago] Tribune staff reporter

September 26, 2005


Private tutoring firms are spending only 56 cents of every taxpayer dollar, on average, to tutor poor children in Illinois, an amount raising red flags among state education officials.

The rest of the money pays for everything from executive and consulting staff, leases and building maintenance to distributions to shareholders, according to new state data--the first disclosure nationwide of how private companies are spending tax dollars for federally mandated tutoring.

State education officials said the overhead costs are high compared with those incurred in other public education programs that contract with private companies. For example, special education and early childhood providers in Illinois spend about 71 cents to 77 cents of every dollar on direct services to clients, according to the Illinois State Board of Education.

"We do have concerns" about the tutoring firms' costs, said Jonathan Furr, general counsel for the state board.

In light of data released earlier this month, he said, the state will look at ways to limit companies' spending on overhead, freeing up money to serve more children.

"Some of the options could be to require additional justification for administrative costs over a certain level, or potentially limit administrative costs that we deem to be exorbitant," Furr said.

In defense of expenses

Tutoring firms defended their costs, with one saying its profit is low compared with other education-related private companies. And the tutoring industry's professional association said the focus should be on whether tutoring is helping schoolchildren.

"I guess at the end of the day the fair question would be, what kind of educational outcome is the public getting for its investment? So whether they're spending 56, or 32 or 85 percent of their funds on [direct] instruction, ultimately the better question should be what educational outcomes were promised and what were delivered," said Steven Pines, executive director of the Education Industry Association.

The state has a new tracking system in place this school year to assess the progress of students being tutored. However, Furr said those results need to be coupled with a financial analysis that ensures public dollars are being spent appropriately.

Under 2002 No Child Left Behind changes, free tutoring in math and reading must be made available to low-income children in schools that consistently fail to meet federal standards on state tests and in other areas.

School districts are required to use part of their federal dollars for low-income students to pay for tutoring, with hundreds of millions of dollars available nationwide.

In Illinois alone, school districts are expected to spend some $60 million on private tutoring this school year, with the average cost per student about $1,515.

But education officials acknowledge that state oversight of the programs has been lax. After Chicago expelled a tutoring firm from seven schools in March for performance problems, federal officials said the state should assume the chief oversight role over tutoring programs statewide.

In response, the state board set up the most extensive financial reporting requirements for tutoring firms in the nation, among other changes.

"This information is long overdue," said Jack Jennings, president and chief executive of the Center on Education Policy, which monitors No Child Left Behind issues. "The states have been charged with overseeing these firms for years now, and very little has come out on how the money is spent."

The 56 cents of every dollar going to direct tutoring in 2004-05 included costs for teachers and consultants, insurance, instructional materials and snacks during tutoring sessions, according to state data. The percentage is expected to be about the same this school year.

For tutoring firms doing business in Chicago in 2004-05, an average of 8 cents of every dollar went to curriculum development and staff training; 3 cents went to occupancy expenses such as leases, property taxes and maintenance; and 33 cents went to administrative and general expenses. The numbers were similar for firms doing business outside of Chicago.

Furr said that curriculum development and training is not direct tutoring because it doesn't occur in the classroom, though the state considers those activities important.

Administrative excess

He said he is most concerned that more than 30 cents of every dollar is being spent on administrative and general costs, which include management salaries, legal and accounting consultants, distributions to shareholders and net profits.

The state limits administrative costs for early childhood providers to 5 percent of total grant awards, Furr said.

The largest tutoring provider in Chicago last year, Newton Learning, spent 52 cents of every dollar on direct tutoring for 2004-05 semesters.

Of its administrative costs, $953,586 was in the category of distributions to shareholders or net profits.

That figure represents a profit of about 8 percent--"on the low side" compared with other education-related firms, such as textbook companies, said Joel Rose, general manager at Newton, a division of New York-based Edison Schools. Edison is a private manager of public schools.

Open to interpretation

Overall, policy experts and tutoring firms say the financial figures released by the state are difficult to interpret, in part because they are so new.

Comparisons to the private sector are difficult because overhead varies by industry. And comparisons to public schools are problematic, in part because the definition of direct instruction costs varies.

Data collected by the federal government, for example, shows public schools, on average, spent 61.3 percent of their daily operating funds on instruction in 2002-03, with Illinois' figure at 59.8 percent.

But that same year, Illinois reported spending 46 percent of all education dollars on direct instruction, using a different definition. But even that definition isn't the same as the one applied to the private tutoring firms.

State board officials settled on an approach that compared the tutoring firms to early childhood and special education providers, which include profit and not-for-profit firms that use taxpayer dollars to provide instruction to children.

Financial figures for the tutoring firms are available at www.isbe.net/nclb/htmls/sesp_isbe_resources.htm



drado@tribune.com