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A for-profit approach to Head Start

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At St. Elizabeth's Head Start in North Philadelphia, Aaron Lieberman, founder and chief executive officer of Acelero Learning Inc., spends some time with the children in Ashley Post's classroom. (Photo by CLEM MURRAY / Philadelphia Inquirer Staff Photographer)

On a recent spring morning at the St. Elizabeth’s Head Start center in North Philadelphia, Ashley Post, a first-year teacher freshly graduated from the University of Pennsylvania, clicked on her “listening ears” and patted down her “thinking cap” as a room full of 15 preschoolers imitated her every move.

Many of the children were here last year, but most of the adults in the room – including Post, the center director, the curriculum manager, and a Teach For America mentor taking notes on Post’s lesson – are brand new, along with many of the toys, books, furniture, and even the paint on the walls.

The changes are part of an initiative by Acelero, a company that took over St. Elizabeth’s this year, to dramatically raise the quality of education at this center, and – Acelero’s founders hope – to make a profit while doing so.

Turning Head Start, the federal childcare program for low-income children, into a money-making venture is a novel idea that has raised questions among some early childhood advocates. Since the 1960s, Head Start has relied almost exclusively on nonprofit operators. But in 1998 Congress passed a law that opened the door to for-profit companies, and changes to the program proposed last year might lead more companies to take advantage of the opportunity.

Running a Head Start center tends to be an altruistic endeavor: Operators often must rely on donations and volunteers to make ends meet. Acelero, headquartered in New York City, is the first and so far the only large-scale for-profit Head Start operator in the country.

Yet Acelero’s CEO, Aaron Lieberman, a Yale graduate with an interest in the sort of market-based education reforms that have fueled the charter school movement, believes he has found ways to turn profits from one of the country’s longest running anti-poverty programs.

Our collaborator

This story was reported and written in collaboration with the Philadelphia Inquirer and ran in its May 23, 2011 edition.

Since opening its first center in Camden in 2005, Acelero has expanded relatively quickly. More than a dozen Acelero centers now operate in New Jersey and Nevada. Last fall, Acelero ventured into Pennsylvania for the first time, taking over two centers in North Philadelphia, including St. Elizabeth’s, after the YMCA, the previous operator, lost its grant because of “recurring fiscal issues,” according to the Administration for Children and Families, the federal agency that runs Head Start.

The company also runs the education program at Frankie’s World, a center for children with medical issues on Poplar Street.

Lieberman said he started Acelero as a for-profit in order to “do well” financially “and do good at the same time,” and he has found some supporters. “They’re trying to be very smart about delivering good services to children and families,” said Yasmina Vinci, director of the National Head Start Association, an advocacy group.

Acelero has also encountered its own problems, however, including a federal audit that accused the company of overcharging the federal Head Start agency and reports in New Jersey that a worker slapped a child and that another left children alone.

“It seems someone would have to look closely at how they’re making money to make sure they’re not shortchanging children or ripping off the taxpayers,” said Janet Currie, a Columbia University economist who has studied Head Start.

Lady Bird Johnson visiting a classroom for Project Head Start in 1966.

The company is expanding at a moment when Head Start is facing pressure to become more academically focused, and more competitive. A major study released last year found that achievement gains made by Head Start children disappear after they reach elementary school. It fanned criticisms that Head Start is broken and fed House Republicans’ calls for cuts to the program this year.

In the fall, the federal government announced it was shaking up the 45-year-old federal program through an infusion of competition. Typically, the only way to open a Head Start program has been to take over a program with egregious and ongoing problems, and turnover is rare. But the new rules proposed by the federal government would put a minimum of 25 percent of Head Start grants up for competitive bidding each year, opening the door to a newcomer such as Acelero to expand more rapidly.

“We want to send this message out that this is free and open competition,” Yvette Sanchez, the director of Head Start, said.

Lieberman, who grew up in Arizona, began his career in Head Start when he was a college senior at Yale majoring in English. He had worked summers at a camp for disadvantaged children from New York City, where, he said, “You just saw kids make unbelievable gains and progress.” In 1994, he taught in a Boston Head Start center while launching a nonprofit called Jumpstart, which hired college students to work as tutors in Head Start programs. In 2000, Lieberman left Jumpstart to pursue a long-time goal: running Head Start centers himself.

Head Start operators – whether nonprofit or for-profit – have some flexibility in how they spend their money. There is no set per-pupil payment; rather, grantees write their own budgets that are approved by the federal agency.

Under the federal law, Acelero is not allowed to profit from Head Start dollars, but for-profits have another potential source of income. Many states allow private centers to earn profits on state funding for extended-day programs and other wrap-around services that augment the typical 3.5-hour Head Start schedule. In New Jersey and Pennsylvania, Acelero profits from state subsidies provided for centers that offer extra hours and summer school.

But the company hasn’t yet proven that it can turn a profit – Acelero has lost $4 million dollars so far. Lieberman says he eventually hopes for a profit of around 2 percent.

Lieberman says the money will come from “making things run more efficiently.” Until Acelero took over, for example, one operator had been paying rent for two buildings, one of which was used only for storage. It relied on receptionists because there was no voicemail system or email. Acelero got rid of one of the buildings and eliminated some support staff.

Even as it cuts costs, Lieberman says that its centers have raised teacher salaries, increased enrollments and hired more teachers with college degrees. In its centers in Monmouth County, N.J. for example, teachers’ salaries rose by 75 percent to about $38,000, according to the company. (Acelero’s teachers may make as little as $25,000, and salaries top out at $50,000.) Enrollment also rose to more than 500 children, compared to 330 before.

Ellen Frede, co-director of the National Institute for Early Education Research at Rutgers University, consults with Acelero and is impressed with the quality of its centers. “They improve the qualifications and they improve the pay and the facilities,” she said. “So given that, where are they cutting corners that actually matter to children?”

Carmen Tepia, a teacher with 35 years of Head Start experience who works at a Perth Amboy, N.J. center taken over by Acelero last year, said that Acelero was “very professional,” noting that Acelero retrained everyone – including the cooks – when it took charge.

Former employees also praised the company. Jessamyn Luiz, a director at an Acelero center until 2007, said the company’s model “is really effective – it’s trying to bring in high-quality management.” To do that, noted another former Acelero center administrator who left in 2007, Kara Schultheis, the company paid its administrators “really, really well,” although she said line staff seemed to make salaries more comparable to nonprofits.

The drive for change in Acelero’s centers makes the pace “unbelievably fast,” Schultheis added. “It’s a business model that a lot of people might not be used to. It wasn’t comfortable,” she said. “There was definitely turnover as a result of it.”

The program has run into some troubles during its rapid expansion. A federal audit published last June by the Office of the Inspector General accused an Acelero subsidiary in Nevada of inappropriately charging Head Start more than $430,000 for services provided by the company’s national office, along with nearly $20,000 in travel for management.

Auditors said Acelero should have spread some of those expenses to the state of Nevada, which funds the company’s after-school programs. Charging the state would have cut into potential profits the company could make from state funding.

Acelero has contested the audit. “Head Start is a very complex program.” Lieberman said. “Many of the services we provide are Head Start specific and don’t have any relevance” to the state child care program.

Lieberman appealed the audit, and a review is pending. He says he expects to be exonerated.

In New Jersey, at an Acelero center in Asbury Park in 2007, children were left unsupervised in a bathroom, according to state inspection reports. In 2009, the same center was accused of skimping on the amount of food it served children. At another Acelero center in Asbury Park last year, a teacher was accused of slapping a child. Acelero retrained its staff after each incident, resolving the state’s complaints, according to the reports.

Sufficient food is always served at Acelero centers, said Rosa Thorpe, director of Acelero’s Monmouth and Middlesex County programs. “When a child safety issue is identified, staff is either terminated or suspended,” she added.

In Pennsylvania, Acelero has a clean record so far, according to a spokesman for the state’s Department of Public Welfare.

Joel Ryan, director of Washington state’s Head Start association, says “none of that stuff should happen – health and safety things are really serious.” So are financial problems. But Acelero hasn’t yet proven to be “an outlier” among Head Start programs, whether for-profit or nonprofit, he said. If he were grading them, he added, “I would give them an incomplete.”

Currently, Acelero is trying to take over several centers in Camden that would hand the company a monopoly over the city’s Head Start services. In 2005, the federal government gave the for-profit the grant to operate Camden’s Early Head Start centers, which serve babies and toddlers, after another agency was removed because of ongoing financial problems.

When Acelero first arrived in Camden, Rev. Mark Merrill, a local pastor and education reform-minded activist, was skeptical about the company’s intentions.

“Companies come in to take advantage of the city, to get the grants and the salaries,” Merrill said. Merrill ended up liking Acelero’s plans so much, however, that he now serves on its board. “Our goal is to get kids, when they get out of Acelero, right into a charter school,” he said.

Besides earning profits, Acelero’s leaders are also intent on introducing education reforms popular in K-12 settings into Head Start. The New Schools Venture Fund, which invests mainly in charter school networks, has also invested in Acelero, and one of the fund’s administrators sits on Acelero’s board.

Like his counterparts in the charter school movement, Lieberman wants to transform his Head Start program from a system focused mainly on inputs – like teacher qualifications, time spent in the classroom, class size, and curriculum quality – to one also focused on measuring outcomes, including assessments in literacy and math skills.

Lieberman has introduced a system of merit pay, a popular idea among K-12 education reformers. Teachers are given a token amount – $500 a year – based on their performance reviews and whether the center reached certain goals, like enrolling more students. Eventually, teachers will also be rewarded for improving student outcomes on kindergarten readiness tests, Lieberman said.

Nicolette Wilson, a single mother whose 4-year-old son, Christian, is in Ashley Post’s class at the St. Elizabeth’s Center on North 23rd Street, is pleased with what she has seen. Previously, Christian attended the center when it was run by the YMCA, but Wilson says she pulled him out because “it was depressing.”

“The place looked abandoned, the lights didn’t work, the teachers were unprofessional,” Wilson said. This year, she reenrolled her son after seeing Acelero’s changes: “It was a total 360.”

Vinci, of the National Head Start Association, says that Acelero should be careful as it expands. “If I were Aaron, I wouldn’t want to grow too fast, because it could come crashing down,” Vinci said. “This is not a field where growing fast is easy.”

But expansion is probably the only way the company can eventually make significant profits. Lieberman said the pace will be slow, and that the company would apply for no more than five new grants next year, still quite a few in the Head Start world.

“Our belief is that especially as a for-profit, the only route to sustainability in this world is if we deliver superior child outcomes,” said Lieberman. “What other strategy would open people’s mind to the possibility that there’s some role for a for-profit to play?”

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