No Dollar Left Behind: Education law means money for contractors

~ By BEN FELLER and ANDREW WELSH-HUGGINS

Lew and Sharon Goldfarb went looking for a way to make some extra cash and help kids learn, too. They found both in President Bush's No Child Left Behind Act.

The suburban Columbus, Ohio couple bought a franchise with a Florida-based company, Club Z! In-Home Tutoring Services, that provides one-on-one academic help. The Goldfarbs now have 100 tutors working for them, and much of their business is due to the 2002 education law.

The law promises poor parents a free tutor for any child at a school that gets federal poverty aid but has not made steady progress for three straight years. The government estimates $2.5 billion was available for schools to hire tutoring companies this year.

"The fact that I could run a business, be my own boss, help kids and financially do well made it seem like a great opportunity," said Lew Goldfarb, 48. He hopes his business grows to the point that he can leave his regular job -- as a lawyer for Honda of America.

Benefiting vendors

The most aggressive education law in a generation, No Child Left Behind aims to make sure all children can read and do math on grade level. It has also benefited an industry of vendors, who collect public money and help schools meet the law's requirements.

Revenue for products and services sold to public schools hit almost $22 billion in 2004-05, according to Eduventures, a market research company. That was up 6 percent from the year before, and revenues are expected to keep growing at that kind of rate.

But the market is not expanding for all. Some vendors say the law has cost them money by eroding demand for any academic area not considered to be a federal priority.

"If you look at K-12 funding as one big bucket, the money is getting sloshed around from one area to another," said Tim Wiley, a senior analyst at Eduventures. "That's where No Child Left Behind is having the greatest effect."

In particular, money flows to testing, tutoring and teacher training. All three areas have direct ties to deadlines under the No Child law.

In Texas, for example, the state pays about $60 million a year to Pearson Educational Measurement, one of the world's biggest providers of testing services. Five years ago, the state's Pearson contract was $36 million a year.

In its 2005 annual report, the company credited rising sales to "significant market share gains and first year of mandatory state testing under No Child Left Behind."

Cynics dubbed the law "the testing company welfare act," said Henry Scherich, president of North Carolina-based Measurement Incorporated, a leading test provider.

But he said his company, with revenue between $60 million and $80 million, was already experiencing growth from states' own emphasis on testing.

Art of the sales pitch

The law has even changed the art of the sales pitch.

Now some vendors will pay to track down specific teachers -- like a third-grade reading instructor at a school that hasn't made adequate progress for three straight years.

Companies turn to marketing firms, too, like MDR, which has seen demand soar for data that describe how schools are falling short, broken out by grade, subject and employee.

"There are a lot more publishers that are building around math and reading, specifically aiming to prove they can improve test scores," said Mike Subrizi, vice president of database operations at MDR. "That wasn't in the dialogue before No Child Left Behind."

The growth is likely to continue for some vendors. A new federal estimate shows that only 233,000 of 1.4 million eligible children took advantage of free tutoring in the 2003-04 school year.

Federal tutoring business represents just 1 percent of revenue for Huntington Learning Centers, one of the nation's large providers.

"The critics who are out there think a lot of companies are benefiting financially from NCLB, which is not the case," said Julie DeLucca, Huntington's director of school services.

Still, it's not pennies.

Minnesota-based PLATO Learning, approved for the federal tutoring program in 45 states, had revenues of $3.7 million from that work last year.

Baltimore-based Catapult Learning, whose Education Station subsidiary provides tutoring in 25 states, estimates districts will spend $500 million this year nationwide.

No Child Left Behind has also become a business opportunity for former Education Secretary Rod Paige, who now leads a consulting firm with a team of his former aides.

The federal government is a minority player when it comes to paying for education. It does not oversee how schools spend state and local money, a big chunk of the nearly $22 billion that private education companies reaped last year.

However, the federal act drives how schools spend all public money on private services, because schools are scrambling to raise test scores and train teachers as the law demands.

The U.S. Education Department sends teams to states and districts to monitor federal spending, said spokesman Kevin Sullivan. But states have the primary job of making sure schools are spending dollars properly on making the law work.

Some experts say the law has hurt the education marketplace by putting so much focus on two subjects, reading and math. Many schools also won't buy unless a company can prove its service is backed by "scientifically based research," as the law requires.

Confusion over what the term means, and how a company can satisfy the requirement, has hurt some sales of supplemental materials that teachers use. That could deny children access to tools that help them, said Charlene Gaynor, CEO of The Association of Educational Publishers.

As president of the School Market Research Institute, Bob Stimolo helps companies sell their products to schools. His advice: Keep your perspective, pay attention to your base business and be aware that No Child Left Behind may be replaced.

"We know that George W. has only got a couple of years left," Stimolo said. "Then what happens? Is that the end of No Child Left Behind? Did we spend all that money for nothing? That's the uncertainty we're dealing with."

Meantime, education companies say there is nothing wrong with being opportunistic.

"The belief around the whole industry is, yes, we know we want to make money," Subrizi said. "But we believe we're in a worthy cause."

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On the Net:

Eduventures: http://www.eduventures.com/

Education Department: http://www.ed.gov/index.jhtml

Club Z!: http://www.clubztutoring.com/home.php

Measurement Incorporated: http://www.measinc.com