ESP, EMO, CMO?

What purpose do educational service providers and charter network operators serve?

The flexibility of a charter school is crucial for innovation and it is a central piece to any charter school’s operations. District schools contract with the same vendors over years and years. The schools themselves have very little control over this because the district central office usually has standing agreements and long-term contracts in place already. Charter schools, on the other hand, leverage these types of relationships to find the best prices and meet their strict budget. In some cases, if a charter foundation (a board of directors with 501c3 status) wants to only manage one aspect of the charter school (for instance, the curriculum), then the board can contract with an educational service provider (ESP) to handle the shopping/implementation process for all the other aspects.

When a charter foundation hires an ESP, the board of directors still controls the charter itself and is totally responsible for governance. All grants are awarded to the foundation, the charter is filed under the foundation’s name, and the foundation has the final say in all school-related activity. The only thing the ESP does is manage the day-to-day operations of whatever the board hired it to manage. The board’s governing duty is to make sure the ESP does its job, not tell the ESP how to do its job. If the ESP fails to deliver its contractual results, the board can fire it and seek a new ESP.

The largest ESPs have outgrown specialty status and now manage multiple aspects of a charter school’s operation. These organizations have taken on the appearance of charter network operators (CNOs), of which there are two kinds: CMO and EMO.

A charter management organization (CMO) is usually a non-profit entity that can either manage certain aspects of a charter school for a board (such as writing the charter application, filing for grants, or shopping for vendors) or even manage an entire network of schools from the top-down. A good example is KIPP, which has a network of schools all over the country, but has different boards managing each school. KIPP is so large now that it wouldn’t manage individual aspects for a board that called on it. KIPP is too busy managing a successful franchise network to bother with such trivialities, but KIPP is a good example of what a CMO strives to be in its later stages of growth.

An education management organization (EMO) is thus named because it tends to manage all aspects of the educational experience and drive its own growth without waiting for boards to call on it for help. EMOs are typically for-profit companies with a network of schools under its wing and a successful model that it replicates across the state or country. It does this by seeking out community leaders who want to start a charter school, but who lack the wherewithal to do so. An EMO presents an opportunity for these community leaders to charter a school in their neighborhood, without all the hassle of filing a charter, finding vendors, purchasing textbooks, hiring teachers/admins/custodians/etc., creating a budget, finding an existing facility, building a new facility, etc. An EMO can do all of this as part of a single contract drafted at the very beginning of the relationship, and takes a small percentage fee to put toward other school projects.

The subject of fees has garnered a lot of skepticism in recent years, mainly because some people question the ethicality of a private, for-profit company taking tax revenue from a public school. Whatever the fee structure (percentage or one-time fee), it’s important to understand that the tax dollars go to the school’s foundation first and then to the management company, and they are the exact same tax dollars that would have gone to the local district for the exact same administrative services. The main difference here is that the school district’s central office gets tax revenue before the individual school and then distributes those monies out as it sees fit. The school district is essentially charging the school for administrative services before those services have been provided.

The difference between CMOs and EMOs is thin. KIPP’s model today is similar to an EMO, but as a non-profit, KIPP is unable to replicate the entire school management process, such as purchasing property and buying/updating computer labs for all its schools at once. For-profit EMOs can hold on to large amounts of capital and deploy it in ways that truly streamline the school management process. Instead of moving its students from one cramped, dilapidated building to another for several years before finding one that fits its enrollment model, an EMO can find a large enough building, buy it, refurbish it, and have students in seats within months. The company can then implement its own curriculum, which has been successfully replicated across its current network, and it can market the school on local TV and radio channels, providing all local parents with an equal opportunity to enroll in the lottery. A good example of this type of EMO is Charter Schools USA, which sharpened its education model in large, brand new schools all over Florida before heading out into other states.

Unfortunately, plenty of bad examples “average out” the good ones. Some for-profit managers take the basic fee without providing the proper direction and consultation to the boards who hired them. The boards don’t know how to run a school without the ESP’s expertise, then struggle financially and academically, eventually either getting shut down or seeking a new ESP. There’s no excuse for an apathetic ESP, and we here at AmericanSchoolChoice.com would call for harsher punishments (including paybacks of management fees) for CMOs and EMOs that were failures from start to finish. Of course, journalists and school boards have begun lumping all for-profit managers together under one roof, contaminating otherwise stellar records, such as those of CSUSA or National Heritage Academies, or KIPP, or Yes!Prep. These managers should be encouraged to start more schools and even take over entire failing districts, particularly the for-profit companies which have the resources to act fast and on a large scale. These managers have track records that reflect their accountability standards. In fact, most EMOs run a deficit the first three years of a school’s birth, and some don’t take a management fee for the first five years in order to make the budgets work. That means after injecting millions of dollars in capital, some EMOs don’t see profit for half a decade.