Tag: private schools

The Real Problem with Highly Regulated “School Choice”

A Fordham Institute paper released today seeks to answer the question: do private schools really refuse to participate in heavily regulated school choice programs? Its authors tell us that “many proponents of private school choice… take [this] for granted,” citing two examples—one of them being the Cato Institute, whose Center for Educational Freedom I direct. The authors even cite a relevant commentary by former Cato policy analyst Adam Schaeffer.

The only problem is that the cited commentary says precisely the opposite. Describing Indiana’s voucher program, Schaeffer writes: “Because participating schools will have a significant financial advantage over non-participating schools, lightly regulated [non-participating] schools will face increasing financial pressure to participate.” This captures Schaeffer’s concern as well as my own (which I expressed over a decade ago in the political economy journal Independent Review): We do not fear that private schools will refuse to participate in heavily regulated school choice programs. We know that they ultimately will participate, or be driven out of business by their subsidized counterparts.

We know this because there is extensive evidence to that effect from all over the world and across history. Everywhere that private elementary and secondary schools are eligible for government subsidies, the share of unsubsidized school enrollment falls. The higher the subsidy and the longer it has been in place, the more the unsubsidized sector is generally diminished. The Dutch enacted a heavily regulated nationwide voucher program nearly a century ago. Unsubsidized private schooling remains legal, but has been reduced to a statistical asterisk—now making up less than one percent of enrollment, compared to roughly 70 percent for subsidized private schools.

Our reason for concern over this pattern is also grounded in empirical evidence: it is the least regulated, most market-like private schools that do the best job of serving families. That is the consensus of the worldwide within-country research, which I reviewed and tabulated for a 2009 paper in the Journal of School Choice. The Fordham paper does not discuss this evidence.

Despite imputing to Cato scholars the exact opposite of the view we hold, the paper does include some interesting data. In particular, it offers a new corroboration that voucher programs are more heavily regulated than tax credit programs (a difference whose magnitude and statistical significance was previously established here). This will make it even harder for objective observers to cling to the notion that vouchers and credits are functionally equivalent.

The Charter School Paradox

Is it possible for charter schools to increase educational options and diversity in the public school system but decrease it overall; to spend less money than regular public schools but cost taxpayers more overall; and to outperform regular public schools but decrease achievement overall?

Unfortunately, it is possible, and this mix of intended and unintended outcomes is the “Charter School Paradox.” But it is only a paradox if we take a narrow view of charter school effects. Rigorous new research concludes that public charter schools are seriously damaging the private education market, adding to the taxpayer burden, and undermining private options for families and healthy competition in the education sector.

Fortunately, we have a solution in education tax credits …

Take a look at the full paper by Richard Buddin, my short companion piece, and our brief video on the findings and implications of this path-breaking new research.

Market Structure & Barriers to Entry in Education Tax Credit Programs

I want to thank John Kirtley for his gracious reply to my criticism of his policy guidelines. He has spilled a tremendous amount of blood, sweat, and tears on the ground fighting to establish, protect, and expand the largest private school choice program in the country, and I, quite simply, have not. I think this kind of policy debate is good for the health of the school choice movement, however, so on it goes …

Andrew Coulson posted a response to many of John’s points, but I think some areas deserve an expanded treatment. One of the primary issues in our discussion is centralization vs. diversification of scholarship organizations. I did not claim there was a “mandated” monopoly, which I take to mean government-mandated. Step Up for Students is, however, the only active scholarship organization in the state. It became the sole scholarship organization through hard work and good performance. John mentions Microsoft in his defense of market dominance, but Microsoft never fully monopolized any product or service. There is, however, a literal monopoly of the education tax credit system that was produced and is maintained by problematic provisions in the credit program that create a very high barrier to entry. The structure of the education tax credit in Florida all but ensures a monopoly in the education tax credit program.

For the first six years of the program, scholarship organizations were required to spend 100 percent of the credit funds they raised on scholarships. In other words, they had no money for overhead, which made establishing and running a scholarship organization difficult and expensive … a non-profit would need to seriously cannibalize its established charitable funding, likely already committed, and/or fundraise along two separate tracks for administrative and scholarship funding.

To put this in context, Charity Navigator, which rates non-profits, considers it acceptable for a charity to spend close to one-third of its revenue on non-program expenses. Even the 4-star rated Inner-City Scholarship Fund spends over 13 percent of its revenue on overhead expenses.

Scholarship programs, especially ones with relatively high compliance costs such as requiring detailed checks on a family’s income, require significant but entirely normal overhead spending. Furthermore, local scholarship organizations in a decentralized system act as more than a high-volume processor of financial applications. They act as community organizations that consider the needs and struggles of individual families and children, which requires spending more time and resources on each family. A 10 percent overhead allowance is eminently reasonable, indeed, within the bounds of best practices for such charities. Denying any overhead to non-profits ensured that few charitable organizations would be capable of fundraising and processing scholarships under the law.

Exacerbating this problem, scholarship organizations are not allowed to target the use of scholarship funds they raised to particular kinds of educational environments. What this means is that a non-profit would have to a) cannibalize money raised from other sources and for other purposes, and b) possibly fund educational environments that directly conflict with their conscience, mission, or best judgment. For instance, a Catholic charity would be required to fund an atheist, Wiccan, Protestant fundamentalist, Lutheran, Islamic, or any other school which met the basic requirements of the legislation. Even a non-sectarian scholarship organization is required to issue scholarships to any school, regardless of quality, as long as it meets the basic legal requirements.

In addition, the Florida tax credit applies only to corporate taxes, the vast majority of which are paid by large corporations based outside of the state of Florida. This means that fundraising is relatively difficult and time-consuming, not to mention extremely volatile, as large corporations shift revenue and expenses to minimize their tax burden year to year. It can take two years for a large corporation to begin disbursing funds after first being solicited. And fundraising requires expensive out-of-state traveling.

The corporate-only credit acts as an additional barrier to entry that grows over time and with centralization. Step Up for Students entered this constrained market efficient and well-capitalized, and spent the next decade bringing on the biggest corporate taxpayers in Florida as donors. A new entry into the credit scholarship realm would need to raise very substantial funds for fundraising for years before they saw a return in credit donations. Even should the very high quality of Step Up decline in the future, its relationships with the biggest donors, scale, and general dominance would pose a very formidable wall to climb for any non-profit. Indeed, it is far more likely that the state government would intervene long before any non-profits entered the market to impose the discipline of competition.

With extremely high start-up costs, low return for many non-profit missions, a fully established monopoly, and no profit motive or access to investment funding, the Florida education tax credit scholarship organization opportunities are all but nonexistent under current law.

Here’s Where Better Schools HAVE Scaled Up…

Earlier this summer, I released a study comparing the performance of California’s charter school networks with the amount of philanthropic grant funding they have received. The purpose was to find out if this model for replicating excellence was consistently effective. The answer, regrettably, was no.

But a new study we are releasing today finds that there is at least one place where better schools HAVE consistently scaled-up: Chile. Thanks to that nation’s public and private school choice program, chains of private schools have arisen, and they not only outperform the public schools, they also outperform the independent “mom-and-pop” private schools.

For anyone interested in replicating educational excellence, this study by a team of Chilean scholars is worth a look.

Are Unions Really Good for Democrats?

Charles Krauthammer’s latest column is titled “The Union-Owned Democrats.” In it, he recounts a litany of economically ruinous actions being pursued by unions around the country, from blocking free trade agreements to hobbling Boeing’s efforts to compete with Airbus. He writes that “unions need Democrats — who deliver quite faithfully,” and that “Democrats need unions.”

Like a hole in the head.

Yes, it’s been a politically and financially symbiotic relationship for many decades. Unions get rents, Democrats get elected. But, as I argue in a cover story for The American Spectator this month (now on-line: “A Less Perfect Union”), it can’t last.

The biggest unions of all are the public school employee unions—the AFT and the NEA—with well over 4 million members between them. As I point out in my Spectator piece, these unions have become too successful for their own good—and for the good of the Democratic party.

In their game of Monopoly with American kids and taxpayers they have created staggering bloat in public school employment (which has grown 10 times faster than student enrollment over the past 40 years), and they have wheedled total compensation packages worth $17,000 more per year than those of their private sector counterparts (who, according to most of the research, outperform them in the classroom).

But the union-led public school spending spree has nearly bankrupted states all over the country. If California’s public schools had just maintained the same level of efficiency they’d had in 1970 (not gotten better, as other fields have, just stagnated), it would turn the state’s $26 billion deficit hole into a surplus.

Americans are rapidly running out of money to pay for their states’ school monopolies, and they are rapidly introducing school choice bills (42 states have done so this year), to give families alternatives. But as families escape the highly unionized monopoly and send their kids to school in the largely non-unionized private sector, teachers union power will implode. And resentment at having been gored for so long by the now bankrupt and discredited system will focus on the party that fought to preserve it until the bitter end… Democrats.

In my Spectator piece, I explain why that would be a bad thing, and what Democrats could do to avoid that fate. “Public schooling” is just a tool, and an ineffective, unaffordable one at that. Public education is a set of goals and ideals that can be advanced much more effectively by other policy mechanisms. The sooner Democrats realize that, the less likely they are to be dragged to the bottom of the political sea by the sinking union-helmed school monopoly.

Jay Greene’s Great New Manifesto

Education scholar Jay Greene has a great new pamphlet called Why America Needs School Choice. Concise and very readable, it does a fine job of introducing the general public to the arguments and evidence in favor of market forces in education. In the process, it debunks six “canards” put forward by defenders of the status quo school monopoly.

Of particular value is Jay’s explanation of why existing “school choice” policies, while often producing positive results, have not yet transformed American education. He notes that these existing programs are hobbled by enrollment limits and regulations, and thus represent only dim shadows of what truly free and competitive education marketplaces would offer. I couldn’t agree more! In fact, the manifesto might more precisely be called Why America Needs a Competitive Education Marketplace, though perhaps that would have narrowed its appeal.

One minor quibble: On page 46, Jay writes that:

No private school choice program has been eliminated legislatively. Aside from a few adverse state court decisions, every choice victory is permanent, and every defeat is temporary.

The implication is that legislative and court action are the only avenues by which choice programs can be overturned. A third, public referendum, exists–and was responsible for the repeal of a Utah school voucher program in 2007. Would-be reformers should remember that lesson: unless the public understands and accepts the value of a policy, it may well overturn it before the first student ever participates. Manifestos like Jay’s are a good way to help spread that understanding.

A more significant problem with this particular passage is that it seems to imply that every “choice” program is a victory, and it asserts every victory is permanent. There is good reason to conclude that neither is the case.

The worldwide historical and modern evidence indicate that private schools will ultimately accept government funding no matter what strings are attached, and that such subsidized schools can consume the unsubsidized sector. This has happened in the Netherlands, for instance, which no longer has an unsubsidized private school sector after a century of government-funded private schooling. And since subsidized schools may not be operated for profit, it has no entrepreneurial chains of private schools.

So what happens if the subsidies eventually accumulate so much regulation that government-funded “private” schools become indistinguishable from today’s government schools? The result would be a move from the current 90% government monopoly to a 100% government monopoly. Not a victory at all, as the international evidence shows that the least regulated, most market-like education systems enjoy the greatest advantage over centrally planned school systems such as our own.

Last year, I ran a statistical analysis of the level of regulation imposed on private schools participating in voucher and education tax credit programs. I found that vouchers impose a large and statistically significant burden of extra regulation on private schools, whereas tax credits do not.  There are other issues with vouchers and charter schools as well. So all “choice” programs are not created equal.

Still, these concerns aside, Jay has written one of the best introductions to the case for educational freedom I’ve seen. I hope it gets a wide readership.

Family Friendly DISCO Moves

I like the nightlife, and I’ve got to boogie, so I’m pleased to hear of a new organization called DISCO: Democrats Impatient for School Choice Organization.

There are many ways to shake, shake, shake that education policy booty, however, and if DISCO really wants to be family friendly, they would be better off skipping the voucher element of their choreography.

The organization’s goal is to extend real school choice to low income families. A crucial element in achieving that goal is to ensure that parents, not influential lobby groups or entrenched interests, get to decide the kinds of education they can choose.  Based on both my review of the historical evidence and my recent regression study of modern school choice programs, vouchers are prone to regulatory proliferation. They centralize authority over what a voucher can buy, so that parents who need financial assistance cannot escape whatever limits the politically powerful wish to impose on them.

Tax credits are different. Scholarship donation tax credit programs, such as the one that already exists in Pennsylvania (and which the state House has voted 190 to 7 to expand) create a proliferation of different sources of financial assistance for low-income families. So if one of those sources decides to impose a particular set of rules on how the money is used, it doesn’t affect any of the others. Parents can choose to seek financial assistance from whichever scholarship granting organization most closely matches their own values and preferences, thereby preventing them from being forced into a particular set of choices.

I made this argument in a little more detail in Cato’s amicus brief in the ACSTO v. Winn case, in which the U.S. Supreme Court recently upheld Arizona’s scholarship donation tax credit program.

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