SEATTLE - It looks like it came from a storybook, this sturdy brick school on a hill overlooking the waters of Puget Sound.

And in ways far beyond its appearance, Gatewood Elementary School stands apart as an unusual tale of modern education.

Here, unlike most schools in California, public dollars flow clearly and sensibly, with the bulk of the instructional budget controlled by the principal. And here, unlike most schools in California, the hiring and the books and the rules of the learning game all lie in the hands of the principal and his staff rather than with distant bureaucrats.

To visit Gatewood is to glimpse what California's new governor, Arnold Schwarzenegger, wants to do across the state: simplify payments to schools, shift more money to the school level, and hold principals directly accountable for student achievement.

It would be a monumental change for California, one that would require a major shift in funding practices, and mean huge new responsibilities for principals. Not all of them could handle it - or would even want to.

But on the western edge of this striking port city, in one of Seattle's oldest neighborhoods, a determined principal has staked out this new ground like a homesteader. He is using his budgeting freedom to turn what was once an academic outback into a thriving center of learning.

"Come on up," Dan Barton said over the phone recently. "We'd love to show you what we're doing here at Gatewood."

Vibrant atmosphere

The state of Washington can be a cold, dark place in the spring.

But inside the walls of Gatewood Elementary lies a world warm and bright with learning. Every page turned, every dollar spent, every moment of every day has been meticulously measured to make sure children learn at a strong pace. Test scores, once far below average, show students meeting and even exceeding statewide standards.

In these vibrant classrooms, children with autism and Down syndrome flourish alongside other kids. Classes are uniformly small and teachers work in teams, providing far more individual instruction than can be found in most schools. The principal and two assistants float from classroom to classroom, critiquing teachers - sometimes with video cameras - to make sure no children slip through the cracks.

There are lessons even on the way to recess.

"If your name begins with a vowel, you may get your coat and line up," a young and forceful teacher named Karmen Nordhougen told her students one recent morning.

"Christian? Does your name begin with a vowel? No, it's a consonant. You need to wait."

It wasn't always like this at Gatewood. Eleven years ago, Barton walked in and found a school in disarray.

"Gatewood was one of the worst schools in the district," he recalled. "Achievement was low. It was a dumping ground for teachers."

At the time, Barton was giving low-performing schools a lot of thought. During the 1980s, he had been a teacher, and then an elementary principal in Patterson, a small town in Stanislaus County. While he enjoyed the work, he felt frustrated by low levels of achievement that wouldn't budge.

Barton decided to take a break and headed north to the University of Oregon to work on a doctorate in education.

"I left California dazed and confused," he said. "I just wanted to think for a while."

Three years later, Barton landed at Gatewood Elementary in West Seattle, and set about applying what he had learned about critical thinking, effective teaching and different ways of organizing schools.

He found it slow, hard going.

The school building, a 1910 architectural jewel with wide hallways and soaring windows, was in good shape. But discipline was a disaster. And the 400 students - more than half poor and minority - were seriously lagging in every subject. Barton witnessed teachers yelling at children and ignoring fights in the halls. He discovered fifth-graders being sent to study with kindergartners because they couldn't read.

Barton is a tall man of 48 who wears a neat beard and soft wool sweaters. His voice is deep, and he has a relaxed way about him as he leans back in his chair during a staff meeting or teases kids on their way to the bus.

He is also one of the most intense educators you will ever meet. Barton believes deeply that when children fall behind, the fault lies not with them, but rather with those entrusted to teach them.

He began talking about changes at Gatewood - in discipline, in the curriculum, in the way people taught. He wrote one "unsatisfactory" evaluation after another of teachers, aides, even custodians, and soon became a most unpopular principal.

Many left. Others filed union grievances. At one point, the superintendent asked him to stop writing so many negative reviews.

Barton almost quit: "I was as low as low can be."

Then something changed. A new superintendent, the late John Stanford, began talking about principals becoming "CEOs" of their buildings.

And in 1997, a new chief financial officer, Joseph Olchefske, started a different funding process known as "weighted student formula."

"When Joseph did weighted student formula, I was unbelievably thrilled," Barton said. "I had already been trying to get more control from downtown over the budget. It was so important to what we were trying to do."

Other cities signing on

Under the weighted formula approach, Seattle began doling out even allocations for students directly to their schools. Poor children, limited-English speakers and those in special education generated larger amounts - or "weights" - to cover their greater learning needs.

Currently in Seattle, about half the money that comes into the district from all sources is allocated directly to schools in this fashion. Each regular elementary child generates about $2,900 for his or her school, while the most severely disabled students bring as much as $20,000 apiece. The district hangs onto the remaining money to cover busing, payroll, insurance, training and a variety of other district-managed tasks.

Weighted formulas are catching on across the country, with varying levels of success. Versions are being used in several cities, including Houston, Washington D.C., and San Francisco, as well as in Oregon. The Canadian city of Edmonton, Alberta, was a pioneer of the process, having begun it more than 20 years ago.

In December, Richard Riordan, Schwarzenegger's point man on education, announced that he wanted to bring the strategy to California. No decisions have been made, but if the approach were to take hold, it would mark a radical change.

California has the nation's most convoluted system of school finance - one where funding varies widely from district to district with little rhyme or reason, and where there are so many confusing cash streams that even school finance experts can't keep track of them.

The weighted process, and the additional autonomy it offers principals, has not been universally loved - particularly by teachers unions.

John Dunn, president of the Seattle Education Association, said the system can work when finances are healthy. When dollars fall short, as they have in recent years, it can create divisiveness among staff members as jobs go on the line.

But to Barton and others, the weighted strategy is a more sensible way of paying for schools because the money directly follows kids to the schools, rather than being routed through detached district offices. Even when times are tight, the school-level decisions can help create an atmosphere of unity and purpose, he said.

"My staff and I vote together on every decision," he said.

Weighted formulas are not, however, an end-all fix for public education.

"It's a tool for organizational change," Barton said. "It provides great flexibility. But the real question is what you do with that flexibility."

At Gatewood, the answer is: A lot.

Newfound freedom

Before the weighted student formula, the Seattle district had routinely provided Gatewood with a standard 15 regular teachers and other staff, and about $50,000 to spend on supplies. Suddenly, Barton found himself in charge of a budget exceeding $1 million.

The new system offered unprecedented freedom for principals, and Barton took advantage of every new inch. Principals could design new programs, buy their own books and materials as long as they met state and district standards, and hire teachers who best fit a school's philosophy. A contract change with the Seattle teachers union eliminated seniority as a major hiring criteria, enabling principals further flexibility in assembling their staffs.

A visit to Gatewood reveals what Barton and his staff have done with the money and the freedom.

Standing three stories, the red brick building looks like something out of a fairy tale. Classrooms are spacious, with floors of wood, high ceilings and deep window ledges.

That's where the old-fashioned stuff ends, though.

At Gatewood, you will not find orderly rows of desks, filled with silent children filling in worksheets. Teachers don't stand at the front of the room lecturing. And kids don't carry backpacks loaded down by textbooks.

Instead, the school follows a philosophy in which children are taught to become "independent learners." They work together, do original research and conduct experiments. At every step, they are encouraged to question and discuss what they are learning.

Or make a drawing. Or write a story. Or build an entire village.

"Now, village leaders were not like kings," Donna Rodenberg was explaining to her fourth-and fifth-graders on a recent afternoon. The 17 boys and girls were gathered in a tight circle around their teacher.

The kids were studying the early days of the Pacific Northwest, and had already created models of cabins, totem poles, forests and streams. Now, firmly planted in a bygone era, they were choosing a classmate as chief of their imaginary village.

A boy named Patrick: "So the leader can't be bossy?"

Rodenberg: "Right. You have to be agreeable. Austin, what other skills does the leader need?"

Austin: "You have to be understanding. Or all the villagers are going to hate you."

Gatewood Elementary serves grades kindergarten through five. Largely because of demographic changes in the neighborhood, enrollment has fallen since Barton arrived in 1993 to just over 300 students. Yet, the school has more classroom teachers now than when it had 400 kids.

The reason for the counterintuitive numbers: Gatewood is hooked on low class sizes. Under the union contract, Seattle classes cannot exceed 28 to 30 students, depending on the grade. At Gatewood, they rarely top 17 or 18 kids.

The school doesn't have the usual cadre of instructional aides found at many schools. Instead, money that formerly went for nine such positions pays for more credentialed teachers. And last year, facing a budget reduction, Barton and his staff decided to give up a vacant library position to preserve the low student-teacher ratios.

"A librarian costs $70,000," Barton said. "Teachers would bring their kids to the library for 30 minutes and the kids would learn the Dewey Decimal System or hear a story. We would rather use the money to hire classroom teachers and keep class sizes low."

All teachers receive $1,000 a year in weighted formula money to stock libraries in their rooms. And Gatewood still has a thriving central library tended by teachers and volunteers.

But at this school, the main focus is the classroom.

Multigrade classrooms

The school is designed around multiage classrooms with teachers who work closely together, usually in teams of three. The set-up means all children have multiple adults regularly watching out for their progress.

Kindergartners and first-graders are grouped together, as are second-and third-graders, and those in fourth and fifth. The kids stay with a teaching team for two years, enabling them to work at their own pace without the traditional labels of "behind" or "accelerated."

The small class sizes virtually guarantee that each child will receive individual attention daily.

Nancy Carney is a master at making sure every one of her 17 kindergartners and first-graders stays on task. On a recent morning, during "literacy time," her wiggly students sat on the floor as she held up flash cards. They pronounced the words, spelled them, pronounced them again, then spelled with sign language.

"Much," came the voices. "M-U-C-H. Much. M-U-C-H."

Most fell easily into the groove. But not all. One by one, the teacher brought in the strays.

"Emma, you can't see the words if you're lying down."

"Cece, you are not participating so please come up here and sit by me."

"Hiatt, if you're sitting on your hands, how can you do sign language?"

Teachers are so focused on individualized instruction that lesson plans routinely list children by name. Some teachers write them out on tablets of paper. Karmen Nordhougen does hers on a laptop.

"Here I'll show you," she said, snapping it open. She pointed to the plan for a Tuesday morning:

"Taje, Monique, Amy - sounds y, e, i, u. Shelby, Max, Zoie - work on decoding."

Such lesson plans get regular scrutiny from on high. In a major departure for such a small school, Gatewood Elementary has chosen to have three administrators - the principal, an assistant principal and a head teacher who soon will become an assistant principal. Normally a school this size would make do with just a principal.

The three spend their days working alongside teachers in classrooms, coaching their teaching styles and helping design lessons.

They also assist with discipline problems, but not in the usual way. Instead of kids getting sent to the principal's office, the administrators head for the classroom, often taking over instruction so the teacher can deal with the unruly child.

"I don't think of them as administrators," teacher Donna Rodenberg said, after receiving several pages of notes on lined yellow paper from an administrator who had critiqued her "village" lesson. "They're fellow teachers. They're my teachers."

It's all part of Gatewood's emphasis on staff development. The school uses a complex system of teaching, one that pushes children to master the state's standards in all subjects through critical thinking exercises and real-life problems. Most textbooks are considered too rote and limiting.

In a typical year, Gatewood will spend $100,000 of its weighted-formula money on training and conferences - over and above the teacher training the district annually provides throughout Seattle.

Teachers attend training

Nancy Carney is the only Gatewood teacher who was there before the Barton revolution. Once an instructional aide, she decided to stay and renew her teaching credential because she believed so strongly in the changes.

"The first couple of years that Dan was here, he cleaned house. It was difficult," she recalled.

Since then, like all teachers at Gatewood, Carney has undergone extensive training. One year Barton videotaped her so she could study ways to improve.

"I have had such a transformation," Carney said. "Before, I was someone who just kind of went along with things. Now I am filled with a passion and a commitment to kids and learning."

That commitment extends to a group of children often shunted aside in other places: special education students. At Gatewood, rather than placing disabled children in an isolated special-ed class, the two special-education teachers go to them in the regular classrooms. There, the two work closely with classroom teachers to adapt lessons to differing needs.

The focus on individual children and their needs is a major draw for Gatewood.

Seattle's system of open enrollment allows parents to choose schools rather than being automatically assigned to one nearby. Nearly all families receive their first-or second-choice school, according to the district.

Trish Montemayor, the co-president of Gatewood's PTA, has two children attending and one more who will start kindergarten in the fall. Their neighborhood school sits just three blocks from their home, but the family decided to travel several miles to Gatewood instead.

"They teach to the child here," she said. "They don't just say, 'Here's the curriculum; deal with it.' "

Montemayor likes something else, as well. Under the weighted formula process, budgeting is done in the open.

"Anyone can walk into Dan Barton's office," she said, "and say, 'Show me the budget, I want to know where the money is going.' "

Parents, teachers, even the school's two secretaries all are part of the process. For the upcoming year, they will jointly spend $1.4 million on the children of this classic brick schoolhouse