Wednesday, August 14, 2013
Earlier this summer, I posted on Goldman Sachs' investment in Salt Lake City's new pre-k program (here and here) and posited that it was a pretty sweet deal for Goldman. Now, other investors are seeing the sweet deal as well. Ed Week reports that the Pritzker Group is also investing in Salt Lake City's pre-k program. My earlier post had questioned the appropriateness of permitting Wall Street to profit from public education, particularly when pre-k is a proven product. In later conversations with a colleague, he posited that school officials may be firmly committed to pre-k and may not even be looking for financial help for its own sake. Rather, they may be looking to Wall Street to help them sell pre-k to the broader public, particularly in more conservative leaning communities. Regardless, now that more investors see the attractive, more voices are joining me in their skepticism of the the partnership.
For more on these developments, see the block quote and link to the Ed Week story after the jump.
Michael Griffith, the senior school finance analyst for the Education Commission of the States, a research and policy organization in Denver, said it’s important when dealing with public-private partnerships to define the amount of control the private partner has.
“Donating money and loaning money are treated very differently, and this is a rare mixture,” he said. “Is it about loaning money and trusting the school district, or, if the results aren’t as good as expected, are the investors going to demand that changes be made?”
Steve Barnett, the director of the National Institute for Early Education Research at Rutgers University in New Brunswick, N.J., echoed those concerns, expressing worry that the deal is based on overly optimistic projections of the program’s success rate.
“It’s true that high quality preschool programs can reduce special education costs,” he said, “but [the projections] aren’t consistent with the larger body of evidence.”
The district has until the students complete 6th grade to pay off the loan. If the district pays it off early, Goldman Sachs and the Pritzker Group will, combined, receive 40 percent of any additional savings, and the district will keep the other 60 percent. Once the students complete 6th grade, any further savings will go solely to the district.
Mr. Griffith warned that those success payments, through which Goldman Sachs and Pritzker could make much more than 5 percent on their investment, might cause controversy if the amount is high enough. “Anything above a 5 to 7 percent return and you’re going to have people start saying, ‘I can’t believe we’re sending education money there,’ ” Mr. Griffith said.
District officials, however, say that their focus is solely on the success of the students, and that the returns for investors don’t affect their objectives or methods.
“On the implementation end, we’re not concerned about the investment return at all,” said Brenda Van Gorder, the director of Granite’s preschool services . “It’s important to me to make sure that the money shows up and is being used without the influence of the investors.”
One major difference between the partnership in Utah and most social-impact bonds is that the state government is not yet a player in the Granite preschool venture. Because social-impact bonds require public money and affect public policy, governments typically act as key intermediaries between investors and program providers.
The full ed week story is available here.