Minneapolis Public Schools Teach a Lesson in Privatization

In 1994 students returning to school in Minneapolis, Minnesota, were greeted by a historic change in the way their schools were operated. Their district became the first public school entity to name a private company to the position of school superintendent.

Minneapolis Public Schools (MPS) originally hired Public Strategies Group (PSG), a private consulting firm, in February 1993 to help it balance its books. MPS was $5 million in debt when PSG was hired. Around that time, the MPS also hired a search firm to help them locate a new superintendent. MPS authorized the search firm to consider nontraditional candidates and even asked PSG if it would be interested in the position.

Peter Hutchinson of Public Strategies Group (PSG) was the point man in his firm's partnership with Minneapolis Public Schools and was instrumental in turning around the school district's economic and academic fortunes.

PSG President Peter Hutchison took the district's suggestion to heart and offered his own name as a candidate, intending to hold the position of superintendent temporarily. In 1994, the 45,000-student district accepted Hutchison's proposal, but with a twist. It hired the entire PSG firm to serve, in the district's words, "in the capacity of superintendent."

Thus began a unique public-private partnership that ultimately resulted in four contracts between PSG and the district, beginning January 1994 and ending in June 1998. The district agreed to pay PSG a base salary of only $5,000 per month and offer a number of bonus incentives, contingent on the firm's performance in its role as superintendent. A nationwide survey of school superintendent salaries showed that an average superintendent made $86,111 in cash payments in 1997and that doesn't include the noncash benefits that often equal as much as 40% of salary. In Minneapolis an entire firm's expertise was brought to bear on the district's management for a mere $72,000.

Hutchison and PSG tackled the lethargic Minneapolis school bureaucracy to improve the quality of education with a plan designed to exceed the objectives of the school board. The plan was divided into four parts, with each part tailored to address a specific goal:

  • Part I, implemented in the first year of PSG's contract, was to enhance student achievement, build community support and trust, and offer high-quality school management and accountability.

  • Part II focused on the development of new curriculum standards in five key subjects: reading, math, science, social studies, and fine arts.

  • Part III sought to eliminate bureaucracy and increase the role of market incentives in Minneapolis schools.

  • Finally, Part IV formed school improvement feedback teams with the responsibility of creating a resultsoriented learning environment to further improve student achievement.

How well did the plan work? According to the Minneapolis Public Schools Client Summary, the "report card" given to PSG by the district at the end of the four-contract period, PSG performed its superintendent duties admirably. The summary noted that

  • students scored substantially higher on standardized tests;

  • students posted the highest marks in math and reading in over six years;

  • every category of students produced a high score in math and reading;

  • the gap in test scores between poor and wealthier students narrowed; and

  • student attendance was up and suspensions were down during the last six months of the contract.

The Minneapolis school district paid PSG a total of $431,000 for its work during the first contract and its initial extension. This payment included just over $70,000 in base salary, with the rest being bonuses for meeting 60% of the school district's goals. This outcome-based contract allowed the school district to pay most of PSG's compensation only after the firm had thoroughly proven itself.

Local media were also impressed with PSG's performance. According to the St. Paul Pioneer Press, PSG "made fundamental changes in a district that was desperately in need of direction and competence. [Hutchison] streamlined some ancient bureaucratic practices and brought about improved test scores in elementary grades." The editorial continued, "Staff morale has improved, and administrators are encouraged to admit failure as well as success."

The Minneapolis Star Tribune agreed, writing in an editorial that "95% of all Minneapolis elementary students showed improvement" due to PSG "decentralizing management and increasing outreach to families and communities."

These dramatic results were the result of the school district and its private contractor's innovative approach to school management coupled with a well written, incentive-based contract that rewarded constant improvement.

The public-private partnership of Minneapolis Public Schools and PSG contains a lesson for school districts everywhere who wish to improve education while freeing scarce resources for other purposes. As Hutchison told the Star Tribune, privatization gave PSG "a chance to share ... our success and the elements that have gone into that success, so that we can all learn how to get better."