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By Gabriel Stargardter and Lizbeth Diaz
NEZAHUALCOYOTL, Mexico, March 6 (Reuters) - "Alcatraz jail" is scrawled in graffiti by the compound's entrance. Inside, tales abound of drug abuse, bribes and beatings doled out by mini-mafias who charge for access to the toilets.
But this gray block an hour east of Mexico City is no prison.
The stories that filter out of Jose Maria Morelos, a 1,000-student high school in Nezahualcoyotl, a ragtag, million-strong town on the edge of Mexico City, highlight the problems of an education system that languishes near the bottom of proficiency tables among advanced economies.
"The system's rotten from the inside out," said Ivon Romero, a 35-year-old former public school teacher, as she left her 12-year-old daughter at the school's drab white gates.
In interviews with dozens of parents, students and teachers at the school and others like it, a picture emerges of crumbling facilities, a lackluster, protected teaching corps and a scrappy student body left largely to its own devices.
"My daughter tells me they have to pay three pesos ($0.25) at the door to the toilets or they won't let them in," said housewife Jazmin Saavedra, 32, as she dropped off her daughter, a witness to the beatings dished out for lack of payment.
"I hear they're also selling 'la mona,' which is paint thinner, in the toilets for 15-20 pesos, so they can get high."
Last week, a day after the government signed into law an education reform that seeks to wrest power from a powerful teachers' union which many say deserves much of the blame for the state of Mexico's schools, union boss Elba Esther Gordillo was arrested on fraud and embezzlement charges.
Gordillo is accused of siphoning around $200 million from union coffers, and using the money to buy expensive U.S. properties, luxury clothing, plastic surgery and works of art.
She was once the most powerful woman in Mexican politics but her lavish lifestyle made her a symbol of corruption in the eyes of many and she is now the first high-profile target of new President Enrique Pena Nieto's vow to stamp out graft.
Gordillo has repeatedly denied accusations of corruption. A judge ruled on Monday there was enough evidence for her to be tried and ordered her to remain in jail.
Yet despite the education reform and Gordillo's arrest, few parents, students or teachers at the Jose Maria Morelos school expect much improvement. Under-investment, union corruption, poor teaching standards and parental apathy are formidable obstacles to better schools, they say.
Mexico's record on student achievement is one of the worst among countries of the Organisation for Economic Cooperation and Development, or OECD, despite dedicating more than a fifth of its budget to education.
With scarce assessment or teacher training, Mexico's 15-year-olds lag behind those in Romania and Azerbaijan in basic math, according to the OECD's 65-country PISA measurement.
About 40 percent fall below proficiency when assessed on reading, and less than 1 percent reach PISA's top literacy level. Economic peers Brazil and Poland have both outperformed Mexico in recent years.
"We're creating a generation of mediocrity," said 32-year-old housewife Angelica Martinez, who plans to pull her son from Jose Maria Morelos high school and put him in a different school in the next few weeks.
Not all schools present as bleak a picture as Jose Maria Morelos, and between 2003 and 2009, Mexican reading and math levels improved, according to the PISA study. The OECD said Mexico was likely to reach its 2012 PISA performance target.
Still, most Mexicans who can pay for private schools do so, removing pressure on the public sector to improve.
Pena Nieto is trying to push through reforms to open up Mexico's oil sector to private investment and broaden the country's paltry tax take.
Education reform was also a key goal because lifting education standards and creating a more skilled workforce are seen as vital to hopes of boosting long-term economic growth.
As head of the 1.3-million strong National Union of Education Workers, Gordillo opposed the government's plan to overhaul schooling, which has been in disarray for years.
Some teachers often skip classes themselves and teaching jobs can be passed down through families, sold under the table or even bartered for cars or other big-ticket items.
Former teacher Romero says the union asked her for 60,000 pesos ($4,700) when she wanted to move from her job at a private school to a public one. Public school teacher wages are often better than those offered in private schools, she said.
She said she could not afford to pay so she quit teaching. A trained psychologist, Romero is now a housewife and rails against the profession's culture of graft.
"They don't get rid of bad teachers, they just move them about so they can keep working. That's how little they care."
In a poll published in the newspaper Excelsior on Monday, 80 percent of teachers backed Gordillo's arrest, while nearly 90 percent of the wider public was in favor.
Union leaders did not reply to interview requests. A union source told Reuters that union officials had been ordered not to give interviews.
Waiting in the cold morning light for the school to open, students at Jose Maria Morelos spoke of absentee teachers and putrid toilets with no running water.
"Almost every day some teacher doesn't show up, and if they do, they spend the whole time on their cell phones," said 13-year-old Martin Valencia.
Adelfo Marquez, a union teacher at the school who is also an outspoken critic of Gordillo, said low teacher pay was a root cause of corruption.
"I have colleagues, former principals, who have had to become market sellers, flogging baby clothes on a bike just to make ends meet," said Marquez. After 42 years in the job, he said he earns 24,000 pesos ($1,900) a month and that less experienced teachers with stronger union ties earn double that.
The national average wage is a little over $600 a month.
In a concrete-hemmed playground in Observatorio, a low-income Mexico City neighborhood, Nilo Victoria, a 43-year-old primary teacher, said he had heard of jobs changing hands for 300,000 pesos. He is skeptical the system will be repaired.
"It's like trying to block out the sun with your thumb," he said. "There will be another Gordillo." (Editing by Simon Gardner, Kieran Murray and Claudia Parsons)