Nature Claims Her Own / Donald Lee Pardue

April 28, 2016; News & Observer (Raleigh, NC)

“It is with heavy hearts that we officially close the doors to NC New Schools. Thank you to all that supported us over the years.”

With these tweeted words, another effort in school innovation heavily bankrolled by the Bill and Melinda Gates Foundation came to an end last Wednesday. In their failure lie some lessons to be learned by their funders and by nonprofits that believe they can depend on their funders to be consistent.

But, of course, as NPQ has reported, Gates himself abandoned the small schools experiment years ago as misguided. Here’s what he said at the time:

In the first four years of our work with new, small schools, most of the schools had achievement scores below district averages on reading and math assessments. In one set of schools we supported, graduation rates were no better than the statewide average, and reading and math scores were consistently below the average. The percentage of students attending college the year after graduating high school was up only 2.5 percentage points after five years. Simply breaking up existing schools into smaller units often did not generate the gains we were hoping for.

But, while this “confession” occurred in 2014, that does not mean that the infrastructure built around that idea did not carry on in this case as a successful and rapidly expanding organization that had not only received $26 million in funding from the Gates Foundation, but also matching funding from North Carolina, fees from school districts, and a recent commitment of $20 million in federal funds.

When the group ended their operations in such an immediate and dramatic fashion, Jeffrey Corbett, board president, told the News & Observer that the organization’s “expansion outpaced its funding. ‘We ran into cash flow problems that were directly related to growth and the speed of growth. It was very, very unfortunate.’”

And very predictable. Its influential patron had turned tail on the idea, and it just took a while for the real effects of that to visit itself on the organization, which at that point was likely functioning as a 150-pound toddler with outsized ideas about its own anointment. The cash flow issues that come with government contracts are well known among nonprofits that know the business model, as we have mentioned repeatedly over the last few months, and organizations ignore it at their peril.

But Howard Lee, a former state senator and State Board of Education chairman, was “absolutely shocked.”

“I think the New Schools Project had a tremendous positive impact on public schools,” said Lee.

As a “professional services agency dedicated to developing high-performing schools and districts,” NC New Schools worked to improve school effectiveness by embedding “into schools and school districts a systematic approach to developing highly skilled educators that is sustained over time and enhanced through the use of technology.” Their success in North Carolina allowed them to expand to 180 schools serving 89,000 students in Illinois, Indiana, Mississippi, and South Carolina. Each school district developed a customized program, which NCNS would then implement. Over 90 percent of students in NCNS schools graduated, showing the impact of the program.

Though their program model showed signs of success and continued to evolve and grow, their business model apparently did not keep pace. They did well at receiving public and private funding commitments, but it seems they weren’t able to effectively match cash outflows with cash receipts. For example, the $20 million federal grant they received in 2014 enabled them to expand their effort into rural areas. But in order to receive the funding, the work had to be performed in advance of federal reimbursement, and NCNS found it too difficult to manage this cash flow challenge.

According to Corbett, the board “saw a problem emerging” from the start of the year and tried to raise more money, but they couldn’t “see a path forward for the organization.”

The position where NC New Schools finds itself faces all growing nonprofit organizations and the public and private funders who support them. Placing the burden solely on the back of the nonprofit leads to more stories like this one. Funders who believe in the work they are investing in may want to think more clearly about this side of the equation. But, as we have said, Gates moved along from the notion that underwrote this group long ago and that withdrawal removed the bumper pads surrounding the effort.—Martin Levine and Ruth McCambridge