Aug. 4 (Bloomberg) -- Sue Duncan has taught poor kids at her after-school center on Chicago’s South Side for 48 years. She says her son Arne spent seven days a week there as he was growing up.

“It was absolutely formative,” Arne Duncan, 44, said of working with his mother. He learned that “kids from totally dysfunctional home situations, total poverty, can do extraordinarily well if we give them a chance.”

What he absorbed matters because Duncan is now U.S. education secretary, in charge of improving a public school system that ranks below those of other developed nations in some studies. He’s armed with $100 billion in stimulus money from his friend, President Barack Obama, more than twice the budget of any of his predecessors.

“We want to put unprecedented resources out there, but the tradeoff is unprecedented reform,” said Duncan, who ran Chicago’s public schools before taking on the U.S. job in January. He said in an interview he wants to “fundamentally change the status quo” by raising academic standards, holding states and schools more accountable, and luring “the best and the brightest” into teaching.

Obama and Duncan stepped up their efforts on July 24, announcing plans to withhold $4.35 billion in grants from states that bar using student test scores to help set teacher pay.

Duncan also is pushing states to increase the number and quality of charter schools, and says he wants to go national with his most controversial Chicago initiative, “turnaround” programs for schools that consistently fail to meet minimal goals. In some cases, he replaced entire staffs.

‘Lying to Families’

He has visited 23 states fielding suggestions for changing No Child Left Behind, the signature education effort of the George W. Bush administration. Duncan says the law has led many states, including Illinois, to “dumb down” tests so schools will meet the program’s federal benchmarks.

States are “basically lying to children and families,” he said in the interview. He wants tougher, nationwide standards while giving states more flexibility in meeting them.

Duncan’s plans are triggering interest in his seven years as head of Chicago schools, the nation’s third-largest system. A report released in June by the Commercial Club of Chicago, a group of business and civic leaders, questioned the success claimed by him and Mayor Richard M. Daley.

While there has been “modest improvement” in elementary schools, the “performance of Chicago’s high schools is abysmal,” according to the report, partially titled “Still Left Behind.”

‘Jury Still Out’

Peter Cunningham, a spokesman for Duncan, said Chicago schools made “significant gains” under him. “While we still have a long way to go, it is absolutely misleading and irresponsible to suggest that there has not been progress,” Cunningham said in an e-mailed statement.

“The jury is still out on his tenure in Chicago,” Michael Petrilli, vice president of the Thomas B. Fordham Institute, an education research group in Washington, said of Duncan. “But he did put in place a lot of important reforms that there’s reason to believe are going to bear fruit over time.”

Among Duncan’s fans is Louis Gerstner, the former chief executive officer of International Business Machines Corp. who has worked to overhaul U.S. education and has discussed Duncan’s ideas with him.

“Now we have a secretary of education who may drive national transformation,” Gerstner said in an interview. Gerstner is co-author of a 1995 book on improving schools and chairman emeritus of Washington-based Achieve Inc., a nonprofit group pushing for higher academic standards.

Sue Duncan

Fourth graders in the U.S. rank 15th in international reading scores and 11th in math, according to the Amsterdam- based International Association for the Evaluation of Educational Achievement. Russia, Kazakhstan and Latvia were among the countries that outperformed the U.S. in one or both subjects.

The U.S. failure to match student performance in other countries is the economic equivalent of a “permanent national recession,” New York-based consulting firm McKinsey & Co. said in a report in April. Last year’s U.S. gross domestic product could have been as much as 16 percent higher if the achievement gap had been closed between 1983 and 1998, the study found.

Duncan’s efforts in Chicago, and now nationally, were set in motion at the Sue Duncan Children’s Center, started by his mother in 1961 in a poor community a few blocks from the more affluent Hyde Park neighborhood where the Duncans lived.

“We were the outsiders moving into the ghetto and had to figure out the best way of behaving, what worked and what didn’t work,” Sue Duncan, now 74, said in an interview.

Pickup Basketball

Arne Duncan and his younger brother and sister, who all went to the private University of Chicago Lab Schools, helped out. A stranger once threatened to shoot Sue Duncan if she kept working in the neighborhood, said Arne’s brother Owen, 39, who is now the center’s assistant director.

Gang members played basketball against Arne Duncan and his friends from the program. Duncan, who is 6-foot-5, went on to be co-captain of the basketball team at Harvard University, where he studied sociology, and played professionally in Australia from 1987 to 1991.

While there, he met his future wife, Karen. The Duncans live in Arlington, Virginia, with their two children, 7-year-old Clare and 5-year-old Ryan. Clare attends a public school.

Duncan got to know Obama through Craig Robinson, the president’s brother-in-law and current head basketball coach at Oregon State University, with whom Duncan started playing in tournaments in the early 1990s. Duncan and Obama played pickup games in Chicago and still do occasionally in Washington.

‘Turnaround’ Schools

In Chicago, Duncan revamped some of the worst-performing schools, cut the system’s dropout rate almost eight points to 43 percent, and helped boost college enrollment to 53 percent of graduates last year from 44 percent in 2004, according to the district’s research office.

Duncan wants to use his “turnaround” program as a model for improving what he calls “dropout factories.” He is pressing states to use stimulus money for innovations that can be replicated to revive 5,000 such schools in the U.S. He targeted 12 in Chicago.

Orr Academy on Chicago’s West Side became one of his first two turnaround high schools last year, when he replaced the principal and most teachers. Academic gains have been modest so far, according to Jammie Poole, the new principal.

Poole offered a free laptop to students who scored at least 20 out of 36 on the ACT college-entrance exam, typically enough to merit consideration for admission. Of more than 200 juniors who took the test, Poole handed out seven computers.

‘Everyone Else Accountable’

Serious disciplinary infractions did decline, to 104 from 160 the previous year, while average daily attendance rose to 74 percent of students from 69 percent.

The track record of the overhauled schools doesn’t match proponents’ rhetoric, say critics such as Julie Woestehoff, executive director of Chicago-based Parents United for Responsible Education.

“They want to hold everyone else accountable to test scores,” Woestehoff said. “But now with their own pet schools, created by firing teachers and displacing children, they want us to look at other measures besides test scores.”

One gauge Duncan cites is teacher interest in Chicago schools. “We went from two teacher applicants to 10 teacher applicants for every job,” he said. “So we were creating a climate where people really wanted to teach and felt they could make a difference.”

Success in Tennessee

Duncan also collaborated with the Chicago Teachers Union to develop a federally funded merit-pay program. Thirty of the city’s 666 public schools have joined the venture, which rewards teachers as well as support staff, including cafeteria workers and custodians.

Pushing the idea nationally may be difficult. The National Education Association, the biggest U.S. teachers’ union, opposes paying teachers based only on student test scores, said Bill Raabe, NEA director of collective bargaining and member advocacy in Washington.

“Putting children in the middle of the pay equation is not a good idea,” Raabe said in an interview. Duncan and Obama have pledged to work with union leaders, as Duncan did in Chicago, to ensure that test scores will be just one criterion for evaluating teachers.

Charter Schools

Unions also have opposed charter schools, which are publicly financed but exempt from many state and local regulations.

There too, Duncan is using the power of the purse along with persuasion. In June, he successfully pushed Tennessee lawmakers to pass a bill expanding charter schools in the state.

State Representative Tommie Brown, a charter school critic, said she switched her vote to support the expansion after Duncan told lawmakers the state might lose stimulus money otherwise.

“We could have gone to battle with him,” Brown, a Democrat like Duncan, said in an interview. “But we wouldn’t have had the other dollars we need to assist the rest of the education system in Tennessee.”

To contact the reporters on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net; Flynn McRoberts at at Fmcroberts1@bloomberg.net

Last Updated: August 4, 2009 00:00 EDT