Act 51: Can It Save The Public Schools?

The legislature passed a bill “reinventing” the public schools. Now some of the town’s most powerful business executives are trying to make it work.

Our Panel

David Carey:
President and CEO,
Outrigger Enterprises;
co-chair, DOE Interagency
Working Group

Bruce Coppa:
Vice president,
Hawaii 5-O Group;
chairperson, DOE
Committee on Weights

Mitch D’Olier :
President and CEO,
Kaneohe Ranch;
president and CEO,
Harold K.L. Castle Foundation;
chairman, Hawaii Business

Don Horner:
President and CEO, First
Hawaiian Bank;
co-chair, DOE Interagency
Working Group

Joanne “Noni” Toledo:
Vice president and general manager,
Sprint Hawaii;
education chairwoman,
Hawaii Business Roundtable

Randolph “Randy” Moore:
DOE project manager, Act 51;
former president and CEO,
Kaneohe Ranch; former math
teacher, Central Middle School.

Last year, the superintendent admitted that Hawaii’s public schools had become “obsolete,” that the state Department of Education needed change. The governor introduced an education reform package. The Hawaii Business Roundtable, an organization of 50 CEOs from around the state, issued a position paper and pledged $500,000 in support. The Legislature passed its own, controversial schools reform bill, Act 51. To make Act 51 a reality, the DOE looked outside the system. A number of major business leaders rolled up their sleeves and volunteered hundreds of hours in the work of reorganization. Recently, HONOLULU sat down to talk to a group of these leaders.


HONOLULU: You’ve put in a lot of work into public education. We’d like to go around the table and ask each of you one or two specific results you hope to see in the next couple of years.

Horner: Public education is extremely important, because we’re dealing with the true assets of Hawaii—our kids. Business should be involved, because the product of education greatly influences the success of businesses today and in the future.

We’re looking to shine a bright light on the problem. Because clearly there’s a problem. The problem stems from leadership, it stems from accountability, from organizational structure, around a whole host of fundamental structural issues. I don’t think there’s a problem with people. I don’t think there’s a problem with lack of effort. There is certainly not a problem with our children. But there are definitely problems with infrastructure and process and I could go on for another hour and a half.

The bottom line: The first thing I’d like to see is for all the stakeholders to get together, as they have, and force themselves to talk about the problems. Act 51 is the first step toward that.

D’Olier : The first thing I’d like to see is more transparency—financial transparency and student performance transparency. I’d also like to see better measurement. We have haphazard measurement right now, but ultimately we’ll need a measurement system where we’ve got K-12 data on all kids, no matter what school they’re in. Until we have the right data, which is going to require the right systems, we’re not going to know where we are.

Coppa: A number of us in this room have been working for many years on sustaining a strong economy. One of the things that always came up was: Do we have the work force? It all comes back to education. When I envision the future, that’s what I want to come out of all this: that when we graduate students from high school, whether they go to a two-year college or four-year, they’re capable of doing the business that we can do here in Hawaii.

Toledo: When you ask what we’d like to see in two years, that makes me nervous. I’ve been involved in this issue for about five years, with little progress. In two years you’re not going to see substantial change, that’s not realistic. But 10 or 20 years down the road, if we don’t start putting a lot of political will and community focus to this, we’ll be in the same spot we are today. Act 51 in this past Legislature brought a lot of good focus. Now it’s just a matter of executing and implementing.

Carey: The public schools have a $1.7, or $1.9, billion budget, depending on how you count it, and somewhere between 20,000 and 100,000 employees in some stage of full-time or part-time employment. Yet you have administrative processes and systems that were designed 25 or 30 years ago. The administrative processes and systems are constraining the educational product in a major way.

What I would like to see is a real evolution to a more productive and effective administration delivery of the business behind the classroom. So that the classroom has the tools, the resources and the facilities it needs to bring the educational level up.

Moore: As Noni said, this is a long-term process. It’s going to be 10 years before we see real improvement. I’m concerned that this next year, it’s going to look even worse, because the percentage of students that must be proficient in math and reading on the tests goes up. We’re going to have more schools not meeting their annual progress goals, because the hurdles are higher. Things are not going to be looking good come next August or September, when we get this year’s test scores. It’s a long-term project.

HONOLULU: I recently got a chance to ask Gov. Linda Lingle about Act 51. Her reply was that the Legislature and the DOE didn’t want true reform. From your experience, does the DOE really want to be reinvented?

Coppa: I take exception to that. The people around this table are business people who work every day and have things to do. To commit the time and effort to make this reform work, whether it’s two years or five years or 10 years, the fact is, we’re not in this because we feel it’s a fake reform. We’re in the trenches trying to produce a result.

With Act 51, the Legislature opened a door for us, invited the business community to work with the DOE. I take exception to the statement that this is a cover of some kind. This is real.

Toledo: In my interaction with the personnel at the DOE, I see that they do want to change, that they have a passion to reinvent education. But it’s like trying to move this whole building. It’s going to take a while.

D’Olier : I think it’s a complicated question, because the DOE comprises somewhere between 17,000 and 24,000 people. I don’t think you can say “the DOE wants.” My experience has shown me that there are way more good people embedded in the system than I ever thought. I have met people who want to see measurable increases in student achievement in their schools. I see a system bound up in processes that needs to be unbound. What’s happened is that we’ve thrown the door open and we’ve started. My belief is that the superintendent wants true change.

Reform is the wrong word to me. “Change” or “redesign” would be a more neutral word.

Coppa: The question whether the DOE wants “reform” implies that there is a people problem. I’d suggest we don’t have a people problem, but a process problem. Either way, we have a huge opportunity, and it’s going to take all the stakeholders getting together, including the administration and the unions.



What is Act 51?

In 2004, after a much-publicized debate, the Legislature passed Act 51, somewhat grandly called the Reinventing Education Act, over the governor’s veto.

The law contains a mixed plate of provisions. Some are small-scale items that really belong to a school board rather than a legislature: for instance, ordering math textbooks, hiring high-school student-activity coordinators and prohibiting individual schools from having their own academic calendars.

The Legislature did not, as the Lingle administration wanted, break up the Department of Education and reduce it to simply a statewide monitoring agency. The governor called Act 51 “fake reform.” It does, however, contain some provisions that hold at least the promise of system-wide change.

  1. Act 51 calls for a new, more accurate system for allocating funds to schools, based on the number of students at a school. A weighted student formula allocates more money for students who fall into certain “more expensive” categories—special education, low income, English as a second language.
  2. The law gives principals more control of their schools’ budget. Principals will also be held more accountable, with a performance-based system of rewards and sanctions. In order to prepare them for their expanded duties, Act 51 provides funding for training and assistance.
  3. Currently, many of the DOE’s functions are spread throughout numerous state agencies, such as the Department of Human Services, the Department of Health and the Department of Accounting and General Services. Act 51 moves these functions back to the DOE. The process, called delinking, gives the DOE more autonomy, but also risks creating a larger, more centralized bureaucracy.


“The danger here, particularly for business people,
is to spot the problems and expect immediate and
rapid change. That would be great if it happens, and
we’ll get it in a few places, but there’s going to be
some places where we’re going to have to roll up
our sleeves and grind.”
David Carey:
President and CEO, Outrigger Enterprises;
co-chair, DOE Interagency Working Group

HONOLULU: Act 51 calls for moving money and people from other government agencies to the DOE—which is already the largest and most centralized school district in the nation. Don and David, you’re heading up this effort. Are we just going to end up with an even bigger bureaucracy?

Carey: I assumed that the schools were responsible for making sure that their buildings were maintained. The reality is that they’re responsible for running the schools, but the Department of Accounting and General Services provides repair, maintenance and building services. It’s another department, under another budget, under another director, with another set of personnel processes. In between DAGS and the DOE are the governor and the Legislature and the budget process.

There are a lot of good people in the middle there, but they have this enormous beast to try to move through. On top of that, they are critically short on resources. There are roughly 260-something schools, with a total of 4,000 buildings. They have between $12 million and $16 million per year in operating and maintenance budget funds. For any business I’ve ever been in, that’s absolutely nuts. They have a state procurement process, a legislative approval process and a project management process that was not designed to manage that many schools. The people who are living with these problems—the principals and the teachers—are miles from the people at DAGS.

I’m in the service business, and we’ve found that you’re much more effective when you put the action closer to the customer. Here, the customers are the students, the teachers and the principals, and the action is somewhere else in state government. So I’m happy to take that responsibility and put it in one place, so we’ll have the ability to streamline it and make it better.

Coppa: There’s a fundamental concept in business: If you give someone accountability, it’s only fair to give them the tools to achieve it. If the superintendent is responsible for achievement in education, we need to give her the ability to budget and do facilities and personnel management. I would argue that we’ve not made the DOE larger; we’ve given her the leverage to be successful. Frankly, the whole organizational structure still needs a whole lot of work.

Carey: In one of the meetings with DAGS and the DOE, we had them explain, soup-to-nuts, the actual process to get a project done. If a project went really, really well, it took three years. We saw what all the steps were, where all the paperwork went and the business guys in the room, their eyes went like this [opens eyes wide]: Oh my god, I can’t believe that’s what we have allowed to evolve in our state systems.

There was a big argument a couple years ago about how much we were spending per student. Why? Because no one entity had the numbers. Pat Hamamoto had some of the numbers, DAGS had some of the numbers, DOE had some of the numbers, DHRD had some of the numbers. We went through this massive process. Probably the unions were the only ones who knew exactly how many employees they had. That’s no way to run a business.

Carey: At the end of the day, the macro-budget of the schools doesn’t change. What’s being talked about is relocation of personnel and resources from one place to another, not adding on to the system. There are efficiencies inherent in doing this, but it’s not going to happen next week, next year, even as of July 1.

D’Olier : There were a lot of things about what the superintendent did not control that I didn’t understand when I started this journey. I didn’t realize that the budget got created on a line-by-line basis by the Legislature. If I was the superintendent, I couldn’t just pick my team and hire who I wanted without going back and getting the right lines fixed in the legislative budget.

A task this large is going to get accomplished by a group of people and, in my view, that’s the superintendent; her cabinet, which is evolving; a chief financial officer, who doesn’t reside in the system right now; and complex area superintendents who understand the mission and are out there going for it every day. We don’t have the budget flexibility for the superintendent to build that team yet.

Moore: From an educational standpoint, the premise is that the state should set the standards, and the schools should decide how to meet them. It’s pushing down to the schools a lot of the authority that heretofore has been at the state level. The transfer from DAGS and the transfer from Department of Human Resources Development (DHRD) bring control closer to the schools.

“The people around this table are business people
who work every day and have things to do. We’re not
in this because we feel it’s a fake reform. This is real!”
Bruce Coppa: Vice President, Hawai‘i 5-O Group;
chairperson, DOE Committee on Weights

Carey: The role the business community must play is to hold the schools accountable from a public pressure standpoint. I’m vitally interested in seeing the education improve. If someone isn’t encouraging both the administrators on the school side and the legislators on the policy side, it might not happen. This is hard stuff. This is not easy.

HONOLULU: One of the biggest shifts is the changing role of Hawaii’s school principals. Principals are going to have more resources, but they are also going to be under pressure to perform, like business CEOs.

D’Olier : A while ago, a group of entities, including the Hawaii Business Roundtable, created a Principals Leadership Academy. Randy should be talking about that. He taught me that where there is a high-performing public school (and make no mistake about it, we have high-performing public schools in the state of Hawaii), there’s always a great principal, or a great principal just left. The Roundtable has provided volunteers for a process that’s trained 60 principals to date, and has another 24 waiting to train over the next year. Business-related practices, strategic planning, communications—things that business leaders have to know more than principals traditionally have had to know.

Horner: I agree 100 percent that the principals are key. But the Roundtable’s position paper also makes clear the importance of complex area supervisors. Those are the field generals who can really control kindergarten through high school. On the Neighbor Islands, the complex area supervisor should be the last line of authority. That’s where the decentralization should begin and end. We agree with Gov. Lingle that we need decentralization, but it should be with those 15 complex area supervisors. If you just look at the principal of a high school or middle school, it’s hard to hold them accountable if you don’t hold accountable the elementary schools that feed the middle school.

Coppa: With the student-weighted formula, we are moving discretionary monies to the principals. Currently, when a teacher is sent to a school, funding is by position. If the principal decides the school doesn’t need that teacher, the dollars stay with the principal. The principal now has the authority to do something with that money. She does have help in that regard, because you have the School Community Council seeing what it can do with that money.

Horner: The School Community Councils were created by the Legislature to replace the SCBM. The base of their charter is to approve the academic plan and the financial plan for the school. That’s a work in progress: There are 22 pilot schools. Why don’t you speak to it, Randy?

Moore: The preparation of the academic and financial plan starts with a review of student data. The school, led by the principal, says, what do we know about our students? How do they do in reading? How do they do in math? Do they come to school? Do they come to school on time? What are their income demographics, their foreign language demographics?

Then comes the question, what do we need to do differently, so that we will get better results from our students? The process entails research as to what schools in other parts of the country do to get better results. The academic plan is research-based, and then the financial plan is the budget that goes along with that. The school doesn’t get any more money, but it does get to decide how to spend that money. Twenty-two schools have prepared those plans, to be implemented this coming fall. The other 235 will do it for the following fall.



HONOLULU: Bruce, you mentioned the weighted student formula. You’re head of the committee developing it. I know it’s complex, but how do you explain to people what you’re doing?

Coppa: This issue came up when we were moving discretionary monies to the principals. In its simplest form, what we did was put the emphasis on the students. Currently, as students move from school to school, if they have a need, the money to meet that need doesn’t follow them. For example, if English is a student’s second language, it becomes difficult for the school, so that gets a weight. With that weight comes so many dollars. In essence, when that student moves, he now moves with X number of dollars. The money follows the student to the next school, so now that school has the resources to support the student.

Moore: The weighted student formula, in theory, will be a more equitable allocation of resources than the present system, which is in some cases quite rational and, in other cases, has developed from years of successful lobbying on the part of this or that school community for more money.

HONOLULU: So this will actually mean that the school is funded according to the number and type of students it has?

Moore: That’s the theory, yes.

Coppa: There are some exceptions to that, places like Hana, where you’ll have to give more money just because of where they are. Lanai is another exception. Everything to Lanai is by air. Athletics, mail, everything you have to do by air.

Carey: To make this work, one piece that’s critical, and not yet embodied in Act 51, is financial measurement. I talked a little while ago about not knowing where anything was in the department. Now, imagine we’ve got a system that says each school is going to get X amount of dollars based on how many students of certain types it has, but the state financial system today is not set up to provide the real-time financial reporting that those of us in business are used to. That needs to change. It would really help the principals and complex area superintendents be better managers.

Toledo: Currently, funding is not tied to any performance measurement. You can’t tell, if you’re spending the money, whether it’s affecting performance.

D’Olier : For all of us to expect the superintendent and her leadership team, including a CFO, to accomplish this job, we need to deliver to them the ability to measure how the system is doing. They’re going to need a financial system; they’re going to need a student data system. The new head of human resources in the DOE is going to need a human resources system that is more than files of index cards.

HONOLULU: Index cards?

Carey: You have one of the largest employment branches of state government working off of a manual HR system based on index cards. That’s gotta change.

Coppa: The shocking thing is, you walk in there thinking that this is all under control, that the technology is there and that systems are in place. They’re not.

“We’ll know what success looks like when we
see a migration of students from private school
to public school.”
Mitch D’Olier: President and CEO, Ka-ne‘ohe Ranch;
president and CEO, Harold K.L. Castle Foundation;
chairman of Hawai‘i Business Roundtable

Horner: The reason they aren’t, as David pointed out, is that there’s no central accountability, so therefore you have parts of it in DHRD, part of it in Budget and Finance, part of it in DOE, part of it in BOE, part of it in the Legislature.

I think the superintendent has taken a bold step by hiring a human resource director from the corporate community. As opposed to what is historically the case, which has been, frankly, a retired principal. I think that’s a major step, that they’re hiring people that have expertise in those disciplines.

D’Olier : We’ve got Randy, who, in all due deference to Randy’s teaching ability, has a lot longer period of experience in the business world than in the teaching world. I look at him, to that extent, as somewhat of an outsider for the superintendent’s team. We’ve got Rod Moriyama helping with systems, who is a former IBM guy. So we’re starting to see hires from this superintendent from outside of the DOE world, which I believe is a positive thing.

Moore: All four of the current assistant superintendents have private-sector experience.

HONOLULU: The weighted student formula means a school will receive funds according to the number of students it attracts. But are students and parents going to be able to choose any school they want? Is a good school going to grow, and a not-so-good school going to dwindle?

Moore: Yes, that’s going to happen.

Toledo: Because of best practices, a school might become better at educating children with a special need or interest. Because of that, children with that specific need are going to gravitate to that school, parents will want to send their children to that school. Schools will become more specialized.

D’Olier : There’s a real opportunity. If you’ve get more money for dealing with children whose first language is not English, and you have a school that got really good at teaching those children, not only would they attract more of those kids, but they would attract more funding. As a business proposition, it becomes very interesting.

Coppa: To force the issue, when the money follows the student, it’s still coming out of the same pot. We’re not getting more money. Schools are going to have three years to get up to speed and function with the monies that they have.

HONOLULU: This is a philosophical question. You are all in the free-enterprise system. You face competition every working day. Even with school choice, the DOE wouldn’t face competition. A parent could only choose among DOE schools. Would we get better results if we opened it up to real competition? Let the money follow the student to any school, government-run or private?

D’Olier : I don’t know. We’ve got more competition in the system after Act 51 than we did before. We have more opportunity for good management and entrepreneurial behavior by teachers and principals than we did before. I’d have to have a lot more data to answer your question.

Quite frankly, the public schools are in competition with the private schools already. Even though you have to pay money to take your son or daughter outside, people are voting that way. We’ll know what success looks like when we see a migration of students from private school to public school. That’s part of what success will look like.

Carey: I grew up in the Denver public schools. The major private schools in the city were struggling for students, because the public schools were so good. It would be great if there comes a day that parents say, It would take an extraordinary circumstance for me to want to pay for private school, because my neighborhood public school is just fine. That would be the long-term vision.



Coppa: Public schools have the opportunity to increase market share.

D’Olier : There’s another interesting phenomenon. Our independent schools are providing a lot of help and technical support to public schools. Kamehameha Schools is working on conversion charter schools and actually putting money into them. The leadership in the independent schools, particularly Robert Witt [executive director of the Hawaii Association of Independent Schools], has rolled up its sleeves and is heavily involved in helping a lot of us grapple with education issues.

“People sometimes don’t remember that this is an agency of government. We expect it
to be run like one of the private schools—that’s not going to happen. It isn’t wired like
the private schools. We’re trying to change an agency of government.”
Don Horner
President and CEO, First Hawaiian Bank; co-chair, DOE Interagency Working Group

Toledo: Mitch brings up charter schools. That’s another area of competition. There’s an opportunity for the charter schools to be an R&D arm for the DOE. The charter schools are out there foundering right now, they are underfunded; there are certain limits on them. We’d like to see the community come together and see where we want to go with charter schools.

Carey: Before we go on, I want to emphasize again, that for all the talk about reform, there is still a fundamental problem—taking care of the assets, the schools themselves. We used to spend $70 million to $80 million a year, and over the past several years those annual dollars have been declining. What often looks like bad management is actually the lack of resources necessary to do the basic job.

Coppa: It gets compounded by the fact that we keep repairing things that are outdated, because we can’t get the capital to put in something new.

Carey: A school out in central Oahu was repairing a shower, so they got a job spec and a budget. They rip the shower out and they realize the pipes are all rusted out underneath. Repairing the shower isn’t going to do it, but there’s not enough money in the system to repair the pipes underneath. Nobody has the ability to add dollars to the project to repair the pipes underneath, so what happened on that particular deal is they just stopped work. They went back to the process to figure out how to get more money. Next time the contractor comes back, the price has gone up. There are tons of examples like that in the state system.

Moore: When I first started teaching 3-1/2 years ago, my initial impression was the schools are better than most people think, but the system is worse. The staff is very, very talented. There are no bad actors. But it’s very difficult to spend your money optimally. We all make mistakes, but the system causes mistakes to happen all the time.

D’Olier : Because the decision makers on items like the shower that David was talking about are too far away from the action. All of us in the business world for the last 10 years have been pushing decision making way down, as close to the customer as we could get.

Toledo: When they are so far away, they don’t view the schools as a customer. It’s a real cultural shift to view them as customers. The beauty of Act 51 is that it transfers the DOE from being an overseer and an auditor and a bureaucracy into being a service provider. It’s a different mentality, in which the students, the teachers and the principals are the customers, and essentially the DOE is going to have to compete to provide services to the schools. It might come to a time where they may not be the best entity to provide that service. The schools might have to go and outsource somewhere else.

“I’ve been involved in this issue for about five years,
with little progress. In two years you’re not going to
see substantial change, that’s not realistic. But 10 or
20 years down the road, if we don’t start putting a lot
of political will and community focus to this, we’ll be
in the same spot we are today.”
Joanne “Noni” Toledo
Vice President and general manager, Sprint Hawai‘i;
education chairwoman, Hawai‘i Business Roundtable

HONOLULU: So we could give schools the right to find those services from alternative providers?

Carey: That’s the goal. I don’t know if that’s in place today, but certainly that’s where it’s headed.

HONOLULU: In general, I hear you saying, we can fix the things that are keeping the schools from succeeding.

D’Olier : A lot of the things I see ahead of us are fixable. We’ve started, and I think we’re on a good track. There are more assets on the table than I realized, particularly human assets. I think there’s a lot of work to do to get there.

Coppa: There are results. Even if they’re little results, they make you want to do more. I’m confident that the problems are fixable, because when you look at them from a business model, they’re easy. You would’ve thought the systems were there, but they’re not. You come in, and you have to take a step back. I had to, because I was stunned.

Carey: The danger here, particularly for the business people, is to spot the problems and expect immediate and rapid change. That would be great if it happens, and we’ll get it in a few places, but there’s going to be some places where we’re going to have to roll up our sleeves and grind.

You’re not going to put in a contract management process and work rules in a 4,000-building system in six months. It’s just not going to happen. You’re not going to put a human resources system in overnight. You’re not going to suddenly make principals brilliant business managers overnight. Those things take time; you’re going to make mistakes; you’re going to learn.

We’ve finally focused on some of the issues that can be fixed with experience and knowledge from the business community. It’s not rocket science. It’s not that tough. That’s the good news.

Horner: In my experience during this legislative process, I’ve been very impressed with Norman Sakamoto and Roy Takumi, the two educational chairs. They want to make a change, and I think they have a passion for getting this right.

Carey: Leadership is important, particularly the large-scale support from businesses. There are concerns on the part of labor which, if they aren’t managed correctly, could be a threat. This should not be a threat; this should be an opportunity.

Horner: I think that both the HGEA and HSTA have a major stake in this, and a major stake in the success. There needs to be some flexibility on their part—which I’ve seen—to make this work.

Toledo: I think our biggest challenge is for the community to stay the course. We’re on the right path now, but we have to stay the course.

Horner: The reason I’m hesitant is that there are some things we can’t change. People sometimes don’t remember that this is an agency of government. We expect it to be run like one of the private schools—that’s not going to happen. It isn’t wired like the private schools. We’re trying to change an agency of government.

The first thing we need to change is the culture. The students and parents are the customers. The teachers and the principals are the line, and the folks at the DOE are the staff. The staff works for the line, and the line works for the customers. That’s a different paradigm than state government has. But with the right leadership from the superintendent, and support from all the stakeholders, we can change that paradigm.