This is a Collaborative Learning Community (CLC) assignment. Rancho Solano (RSPS), with its new international focus and class ratios of 7:1 continues to be a highly ranked private school in the state of Arizona and was ranked as the third best private school in the state of Arizona with its overall student population of over 1,000 (azcentral.com). However, the July 8, 2014, recommendation by Adam McLaren, the analyst at Moody Analytics, states "Meritas' rating or outlook could improve if it can organically grow its revenue/earnings through price increases and enrollment growth, and increase size and improve diversification such that debt to EBITDA approaches 5.0 times (including Moody's standard adjustments) and EBITDA less capex coverage of interest expense is sustained above 1.5 times." (https://www.moodys.com/research/Moodys-rates-Meritas-2nd-lien-term-loan-Caa2-affirms-B3--PR_302960). Time will tell if the international focus was the right strategic direction for RSPS as well as what lies ahead for the K-12 private school education industry in the state of Arizona. The board of directors at RSPS has hired you as part of a consulting team to review the situation and present your findings and recommendations. Write a paper (1,250-1,500 words) that discusses the case and submit it to your instructor at the end of Topic 2. Complete this assignment from the perspective of the hired consultants.
Respond to the following questions:

3. Determine the potential effect of the changes on organizational behavior within the closed campuses and the campuses that would remain open (at the time of the announcement). How do you think this change impacted organizational behavior within the closed campus, within the school, and among the stakeholders?

INFORMATION:

Rancho Solano Private School (RSPS) was founded in 1954 by the Bayer and Freesmeyer families. Over the years, the reputation of the school was established as a leading academic institution with an advanced curriculum. Parents describe the school as having a highly performing academic environment with a rigorous curriculum, but also as having a safe and family-oriented atmosphere in a place where community was valued. Not surprisingly, the student population grew and the school opened multiple campuses around the valley (Gilbert, Union Hills, Greenway [Scottsdale,] Missouri [Phoenix,] and Hillcrest [Peoria]).The Freesmeyer family eventually sold RSPS to the for-profit Illinois-based Meritas Family of Schools in 2007. The mission of the Meritas group was to broaden the international focus of Rancho Solano, along with the nine other schools it owned (across the United States, Switzerland, and Mexico). Even under the new ownership, the environment in the various RSPS campuses was still described as achievement oriented and supportive.

Milestones

1954 Rancho Solano Private School founded by the Bayer and Freesmeyer families

1954 Inaugural opening at Missouri Campus

1979 Union Hills Campus established

1991 Greenway Campus established

2003 Gilbert Campus created

2007 Rancho Solano Private Schools joins the Meritas International Family of Schools

2008 Union Hills Campus relocated to Hillcrest Campus

2008 The inaugural freshman class joins Rancho Solano Preparatory High School

2010 Rancho Solano Preparatory High School is designated an authorized International Baccalaureate (IB) Programme School

2012 Rancho Solano Preparatory High School graduates first class in May

2012 Rancho Solano's new 6th-12th grade Middle & Upper School Campus opens in August

2013 Opening of Upper School Athletic Complex & Student Center (Ranch Solano Preparatory School, 2014)

Within one year of Meritas owning the school, parents noticed a subtle name change. The school, which was previously known as “Rancho Solano Private School,” was now “Rancho Solano Preparatory School.” This name change, in itself did not seem to affect the school’s image nor functioning at an operational level, however, it was an early indication of the strategic direction the school would head within the next few years. In 2008, RSPS attempted to enter into the high school business at its Union Hills campus, but that initial attempt was not as successful, as would have been anticipated. This was probably a contributory factor to the relocation of the high school to a new state-of-the-art campus in Scottsdale known as the Ventura campus. A high point for RSPS came in 2010 when it launched its international Baccalaureate program (IB program), closely followed by its first graduating class in May of 2012. However, that same year, 2012, was when RSPS decided to close both the Union Hills campus and the Missouri campus. At the time of the Missouri closure, families were informed that low enrollment was the reason behind the closure and that all other campuses (Hillcrest, Gilbert, Greenway and Ventura) would remain open. However, that period was relative tumultuous in the United States. The economic recession in the country between 2005 and 2011 led to many organizations going out of business, and the education sector was not exempt (U.S. Department of Labor, 2013).

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In addition to the economic recession, private schools in Arizona have faced intense competition from Charter schools (charter schools are independently run public schools). Between 2011 and 2013, two top-rated charter schools opened campuses within five miles of RSPS Hillcrest in Peoria. Basis Schools, which has been consistently ranked in the top 10 high schools in United States (Hansen, 2011), opened its Peoria campus in 2011 while Glendale Preparatory Academy (one of the Great Heart Schools) opened a 75,000 square foot location in Peoria in 2013 (Youwestvalley.com, 2012). Subsequently, some RSPS (Hillcrest campus) students transferred over to those schools. In 2013, an e-mail was sent out to parents in error, informing them that the Hillcrest campus middle school would be discontinued. That e-mail was withdrawn on the same day, and shortly afterwards, the head of the school retired. A new head of school, Dr. Audrey Mernard, was appointed by Meritas in 2013. Dr. Mernard, a well-educated and experienced administrator, worked with “strategic planning experts” to create a niche and a new mission for the school. The school was set on a path to pursue an intentionally international focus (Stanton, 2014). Strategically, RSPS was headed in a new direction. Mernard was quoted as stating “We have to change the way we teach as the world becomes more interconnected," and that “this will pave the way for accelerated investment that continues to build a school recognized for a rigorous, personalized approach to learning ... as well as state-of-the-art facilities and technology” (Creno, 2014). Dr. Mernard embraced her new role and continuously assured parents that the Hillcrest campus (pre-K through middle school) would remain open. Parents who attended the PTSA in mid-December 2013 affirmed that she offered assurances at the meeting.

January 2014

Winter break started on December 23, 2013 and students were scheduled to return to school on January 7, 2014. The resumption date struck some parents as odd because January 7 was a Tuesday rather than a Monday. The reason soon became evident. Early on Monday morning (January 6), the principal of the Hillcrest campus received information that the Hillcrest campus was closing down at the end of the semester. This news had to be conveyed to faculty and staff at the school. Within a few hours, Creno (2014) reported that “parents of 170 students at Rancho Solano Gilbert and 260 at Rancho Solano Hillcrest received letters stating the company would close the two schools to ‘align our resources to the changing market dynamics.’” Only two campuses would remain open: the Greenway campus and the high school in Ventura (both campuses are located in Scottsdale). The letter stated “we’ve made the decision to move all Early Learning and Lower School education to Greenway and all Middle School and High School education to Ventura” (Rancho Solano 2014-2015, 2014). Parents were outraged, students were in disarray, and faculty and administration were in shock. The dilemma was that parents and faculty were left scrambling to find jobs and schools for the 2014-2015 academic year. The timing of the announcement, according to a parent, “showed poor judgment on behalf of RSPS” Benson (2014). This was because most schools had already completed their hiring for staff and faculty; likewise, open admissions for students who would have registered at the surrounding schools had closed in December (a few weeks prior to the announcement). If parents were informed earlier, it would have been possible for them to try to secure a spot for their children at one of the schools nearby. They attempted to place their children on waiting lists, but most lists had already filled up. Some surrounding schools had a waiting list in excess of 800 students.

Trend in the State of Arizona and USA

As it turns out, RSPS was not the only school closing campuses down. That period was a difficult time for schools in Arizona in general; with the Center for Education Reform (2011) reporting that 22 charter schools in Arizona closed down between 2010 and 2011. The data showed that the major reasons those schools closed down included financial, mismanagement, and academic issues. But it was not only Charter schools that were shutting down. In 2012, Huicochea reported that Tucson Unified School District was closing down 11 schools due to financial reasons. This trend continued into 2013, when the news Channel ABC15 reported the closure of 11 public schools in December in the West Valley of Phoenix. In the 2014-2015 academic year, yet another school, Hillcrest academy closed its doors on its Phoenix campus to K-4th grade students in September 2014. Shortly thereafter, parents of its 5^th -12^th grade students received a letter in January of 2015 informing them that the campus would be closing down in 2 days. The closure was attributed to low student enrolment and financial reasons. Students who wished to continue were offered a bus ride to their Mesa campus. The trend in school closure has continued even into 2015, with Dale (2015) reporting the possible closure of three charter schools which all received F grades on their state report cards in 2014. Anne Ryman, in a news article, stated, “Nationally, the percentage of school districts closing schools doubled from 3 percent in the 2008-09 school year to 6 percent in 2009-10, … Eight percent of districts closed schools for this school year [2010/2011]; 15 percent anticipate closing schools in 2011-12” (2011, para. 15). Private schools were also affected. Creno (2014) reports that during 2009-2014, enrollment in private schools in Arizona declined by about 9 percent. Recently, Faller (2015) reported that Tesseract school, one of the private schools in Arizona, was in danger of being closed due to a deficit of more than 3 million dollars.

National and Local Trends:
The National Center for Education Statistics (NCES) in a May 2012 publication titled The Condition of Education, shows the projected trend of registration in public schools through 2023/24 as well as the trend in charter and private school from the 1990s through 2011-12. (National Center for Education Statistics, 2012) Their data is presented below:

Public Schools: NCES Projections

Overall, the NCES projects an increase of 5% across the United States in public school enrollment from 2011–12 through 2023–24 academic years. The state of Arizona is projected to be one of the 45 states that will experience the largest increase (a 23% estimate). Arizona is also projected to be the state with the second highest projection in numbers of preK-8th grade enrollment in public school with a projected enrollment of 20% (National Center for Education Statistics, 2015).

SOURCE: U.S. Department of Education, National Center for Education Statistics, Common Core of Data CCD),"State Nonfiscal Survey of Public Elementary/Secondary Education," 2011–12; and Public State Elementary and Secondary Enrollment Model: 1980–2012. See Digest of Education Statistics 2013, table 203.20.

Figure 1. Projected percentage change in public school enrollment in grades prekindergarten (pre-K) through 12, by state or jurisdiction: Between school years 2011–12 and 2023–24

Charter Schools:

According the NCES, from school year 1999–2000 to 2011–12, the number of students enrolled in public charter schools increased from 0.3 million to 2.1 million students. During this period, the percentage of public school students who attended charter schools increased from 0.7 to 4.2 percent” (National Center for Educational Statistics, 2012). In the 2009/10 academic year, only the District of Columbia and Arizona had the highest number of students registered in charter schools (10% or more). Similarly, the total number of charter schools increased from 1.7% in 1999/200 to 5.8% in 2011–12, (that is from 1,500 to 5,700 schools). NCES reports that in school year 2012-2013, “After the District of Columbia, Arizona had the second highest percentage (14 percent) of charter school enrollment as a percent of total public school enrollment” (2015, para. 5).

SOURCE: U.S. Department of Education, National Center for Education Statistics, Common Core of Data (CCD), "Public Elementary/Secondary School Universe Survey," selected school years, 1999–2000 through 2012–13. See Digest of Education Statistics 2014, tables 216.20 and 216.30..

Figure 2. Number of public charter schools, by school level: Selected school years, 1999–2000 through 2012–13

SOURCE: U.S. Department of Education, National Center for Education Statistics, Common Core of Data (CCD), "Public Elementary/Secondary School Universe Survey," 2012–13. See Digest of Education Statistics 2014, table 216.90.

Figure 3. Percentage of all public school students enrolled in public charter schools, by state: School year 2012–13

Private Schools:

In 2009/10 academic year, 10% of elementary and secondary school students were in private schools. This number however represents a drop of about 800,000 students relative to the 2009/10 academic year. The NCES (2014) reports that “the percentage of all students in private schools decreased from 12 percent in 1995–96 to 10 percent in 2011–12.”

SOURCE: U.S. Department of Education, National Center for Education Statistics, Private School Universe Survey (PSS), 1995–96 through 2011–12. See Digest of Education Statistics 2013, table 205.20.

Figure 4. Private school enrollment in preK through grade 12, by grade level: School years 1995–96 through 2011–12

Corresponding to the decline in private school enrollments, the number of private schools in the nation has also seen a steady decline between 1995/96 through 2011/12.

SOURCE: U.S. Department of Education, National Center for Education Statistics, Private School Universe Survey (PSS), various years, 1995–96 through 2011–12. See Digest of Education Statistics 2013, table 205.20.

Figure 5. Number of private school students in preK through grade 12, by school type: Selected years, 1995–96 through 2011–12

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Back to RSPS: Parent Meeting: January 8, 2014

Parents were invited to a meeting on January 8, 2014 to meet with the head of the school and a Meritas official. Parents invited the media to the meeting, but the media was denied access. At the onset of the meeting, Dr. Mernard took the podium and began by praising the Hillcrest campus and its community. These statements bothered some of the parents, who demanded to know why the school was closing if it had all these great attributes. The environment was heated, and, at one point, Dr. Mernard stated that she would walk out if parents did not take turns asking questions. This further irritated some parents, many of whom were highly educated and professionals in their fields. They took offense to what they interpreted to be a very condescending tone. The situation seemed to intensify. Parents felt betrayed because of the timing of the closure announcement, particularly the loyal families who were planning on their children continuing their education with the school on the affected campus. When presented with this, Dr. Mernard stated that buses would be provided to shuttle children (ages 2-12 years old) to the new locations. Parents noted that the closest campus would require at least a 40-mile trip on a school bus twice every day. It was evident that this would not be a viable option for most parents. Many parents felt that the announcement timing left them no option but to send their children to the Scottsdale campuses. Some parents tried to reason with the administration, others asked if the closure was due to financial reasons, but Dr. Mernard replied that the finances were not a factor, and the closure was for “demographic reasons.” Other parents tried to negotiate more compassionate terms, asking the administration to run the school for one more academic year so families would have enough time to transition their children. RSPS administrators did not agree. Some parents offered to pay more in terms of tuition, but administration again did not agree, and no resolution was reached. While Dr. Mernard stated that the reason for the closure of the two campuses was not financial in nature, Moody’s analytics reported that the parent company (Meritas Family of schools) was experiencing some strain (it should be noted that the ratings of Moody’s analytics is a representation of the analysts’ opinion of the creditworthiness of an organization). A quick Internet search revealed that in August of 2012, a Moody’s report affirmed Meritas’s B2 CFR and stated that the ratings outlook changed from stable to negative (Moody’s, 2012). About 10 months later (in June 2013), “Moody’s downgraded Meritas’s CFR to B3” (Moody’s, 2013). Then in 2014, Meritas’s rating was further downgraded to Caa2 (Moody’s, 2014).

Following the parent meeting in January, some families pulled their children out of RSPS immediately, even prior to the completion of the academic year (with no financial reimbursement as parents had signed a contract for the academic year). Others families decided to complete the academic year and withdraw from the school afterwards. By the end of the year, student population had dwindled on the affected campuses. Of the students who remained at RSPS Hillcrest, some planned to transfer to surrounding schools, few decided to continue at the RSPS Greenway and Ventura campuses, while others registered at a new nonprofit private school, the Bayer school.

The Bayer School was opened by some parents who were previously affiliated with RSPS Hillcrest. A new principal, Kelly Lovelady, was appointed, but to Lovelady, this was not just a job. Lovelady is the daughter of Rancho Solano's original founders. A quote from the Bayer school website reads:

Bayer Private School was founded by a core group of parents and professionals seeking a school with high standards of education, a strong sense of values, and a commitment to community. The core parent group, in conjunction with the Freesmeyer and Lovelady families, established Bayer Private School, the school they all envisioned in the northwest valley. (Bayer, 2015b)

Vanek (2015) reports that Lovelady came out of retirement to take up this position, and, in an interview with Creno (2014), Lovelady declared “…the point is saving our legacy.” In addition to her role as principal of the school, Scott (2015) stated that Lovelady is also the president of the nonprofit corporation that owns the school.

Moving forward

Following the closure of the Hillcrest campus, Creno (2014) reported that The Bayer School hired 12 teachers/staff from RSPS Hillcrest who were described as “invested, passionate, and innovative” (Bayer, 2015a). The Bayer school began with an enrollment of about 100 students (preschool through eighth-grade) rising to 120 students by the end of the year. Most of the initial 100 students, according to Lovelady, were from the Hillcrest campus of RSPS. The school leased a church for its first year. Parents describe Bayer as a “happy place,” and Lovelady is also quoted as saying that “the school's first year [was] a success, with about 90 percent of students re-enrolling for [the] next school year, and some classes already reaching capacity” (Vanek, 2015).

K-8 tuition to Bayer is estimated to be about $12,000 a year compared to RSPS’s basic annual tuition (which ranges from $14,800 for elementary-school students to $18,875 for high school). Tesseract’s tuition ranges from $13,750 for Pre-K to $20,500 for high school (Tesseract, 2015) and Phoenix Country Day School ranges from $19,300 for Pre-K to 24,200 for high school (Phoenix Country, 2015). Estimates for the build-out of The Bayer School permanent site range from $4m (Scott, 2015) to $5M (Creno, 2014). The fall, 2015 start at Bayer is estimated to have about 190 children (pre-K through eighth grade) and Lovelady stated that Bayer hopes to have about 440 students at build-out (Scott, 2015).