Tag: school choice

Celebrating Milton Friedman

Today is the 100th anniversary of Milton Friedman’s birth and wonderful pieces have appeared all over the Web to commemorate the occasion. I particularly like Stephen Moore’s editorial in the Wall Street Journal, and economist Bryan Caplan’s brief but thoughtful blog post.

To add to the celebration, we’ve put together a brief interview with Bob Chitester, producer of Milton’s “Free to Choose” documentary series, and provided a link to the site where you can watch the whole thing for free. I’ve also added a few thoughts of my own on Milton’s impact on the school choice movement, and the high standards he set in his life and work.

School Choice Right Focus for African Americans

This morning Republican presidential candidate Mitt Romney spoke to the NAACP – not a group traditionally friendly to GOP pols – and made school choice a focus of his address. It was a politically smart message to deliver (though, importantly, federal vouchers outside of DC would be unconstitutional). School choice is very popular with African-Americans, who are often saddled with the worst public schools.  Indeed, according to a 2011 Education Next poll, 50 percent or more of African-Americans either “completely” or “somewhat” favor vouchers for students to attend private schools, versus just 23 percent or fewer who oppose the idea. (The results depend a bit on question wording). When presented with tax credits for individual and corporate donations for private school scholarships, “somewhat” or “complete” support hits 57 percent.

It’s a not-so-well-kept secret that the strongest opposition to school choice comes not from the people it would most directly benefit, but the wealthier “soccer mom” demographic that doesn’t seem to realize that though they may like their public schools, not everyone can afford to choose a school by buying a house. Of course that’s an incredibly inefficient way for anyone to choose a school, but it goes from an efficiency afterthought to a life-altering problem when you can’t get your child into a place that is safe and able to maximize his or her potential.

Many Americans don’t grasp that. Most African-Americans do.

Obama on DC Vouchers. No ‘June Surprise.’

Reports circulated yesterday that President Obama had reached an agreement with House speaker John Boehner (R-OH) and Sen. Joseph Lieberman (I-CT) to not only sustain the DC school voucher program for another few years but to eliminate the legislative cap on student enrollment—theoretically allowing it to grow without limit. Based the program’s performance to date, this would dramatically improve the graduation rate city-wide, likely boost performance academically, and save hundreds of millions of dollars from the bloated DC K12 budget.

But I didn’t write about it, because I didn’t believe it. Sure enough, later in the day, Secretary of Education Arne Duncan offered a clarification. Far from allowing unlimited growth in the program, the president only intended to allow another 85 students to participate—and still opposes the program in principle.

There is simply no way—no way—that President Obama could support an unlimited expansion in this successful, fantastically cost-effective education program. If he did, he would demoralize the most powerful force within the Democratic Party, the teachers’ unions, in the run-up to this fall’s election. Clearly he has no intention of doing that, given his recent advocacy of using federal dollars to grow the public school workforce (despite the fact that public school employment has already grown 11 times faster than enrollment over the past four decades).

We have a president who, for political reasons, cannot throw his full support behind the only federal education program in the nation’s history that is constitutional, successful, and cost-effective.

State Rep. Balks at Voucher Funding for Muslim School

Just as Louisiana’s legislative session was wrapping up earlier this month, state Rep. Kenneth Havard refused to vote for any voucher program that “will fund Islamic teaching.” According to the AP, the Islamic School of Greater New Orleans was on a list of schools approved by the state education department to accept as many as 38 voucher students. Havard declared: “I won’t go back home and explain to my people that I supported this.”

For unreported reasons, the Islamic school subsequently withdrew itself from participation in the program and the voucher funding was approved 51 to 49. With the program now enacted and funded, nothing appears to stand in the way of the Islamic school requesting that it be added back to the list, and it is hard to imagine a constitutionally sound basis for rejecting such a request.

This episode illustrates a fundamental flaw in government-funded voucher programs: they must either reject every controversial educational option from eligibility or they compel taxpayers to support types of education that violate their convictions. In either case, someone loses. Either poor Muslims in New Orleans are denied vouchers or taxpayers who don’t wish to support Muslim schools are compelled to do so.

It doesn’t have to be that way. Education tax credit programs can ensure universal access to the education marketplace without violating anyone’s freedom of conscience. That’s because tax credits extend choice not only to parents but to taxpayers as well. Taxpayers in Arizona, Pennsylvania, and a half dozen other states can choose to donate to nonprofit tuition-assistance organizations that serve the poor. If they do make a donation, they pick the organization that receives their funds, whether it be Catholic, Muslim, Jewish, secular or entirely indifferent to religiosity.

Similarly, direct education tax credits for parents who pay for their own children’s education compel no one to support those parents’ choices. Such personal education tax credits, which already exist in Illinois and Iowa, merely let parents keep more of their own money. Far from increasing the tax burden on their fellow citizens, parents who pay for their own children’s education with the help of a credit save other taxpayers from having to pay for their children’s state schooling.

The school choice movement does not need to throw taxpayers’ freedom of conscience under the bus to secure freedom of choice for parents.

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.

Education Tax Credits Aren’t New and Aren’t Just a Work-Around for Voucher Failure

Among the many things that were wrong or at least grossly misleading in Stephanie Saul’s hit piece on education tax credits is her claim that credits were invented in the late 1990s as some underhanded work-around for political and constitutional problems with vouchers. Here’s Saul’s creation myth for tax credits:

Vouchers … were unpopular among many voters and legislators, and several state courts had found them unconstitutional. Proponents decided to reposition themselves, and in 1997, Arizona’s Legislature adopted the first tax-credit scholarship program.

Credits are much more popular and legally protected than vouchers, but these characteristics are the result of important differences in function and principles. Moreover, the credit concept goes back more than forty years (more for deductions) and dominated the school choice landscape for over a decade. What changed in the late 1990s was an equity-focused twist on the concept, bringing the benefits of education tax credits to families without significant tax liabilities.

Reporters often mistake this relatively recent policy innovation for the origin of the credit approach and overlook credit advantages in policy principle and function in favor of the practical/cynical drivers of support for the policy. Sadly, Saul and many other reporters skip serious research in favor of collecting anecdotes that help drive their predetermined narrative.

So, a bit on the origins of education tax credits that Saul and even many school choice proponents miss entirely. (Note: Much of this material comes from my dissertation, which relies heavily on an excellent chapter in The Future of School Choice by Martin West, 2003.)

Despite the pedigree of vouchers as the first school choice proposal and the preferred mechanism of Milton Friedman, and despite the rise of progressive voucher plans in the late sixties and early seventies, education tax credits were arguably the dominant school choice policy from the 1970s through the mid-1980s.

Education tax credits first entered the federal agenda during the Nixon administration, during which he assigned the problem of the struggling private school sector to be studied by a panel within the President’s Commission on School Finance. The attention came in response to growing financial problems among the private school sector—in particular, among Catholic schools pressed by the rapidly declining numbers of priests and nuns who had traditionally provided a quality, low-cost labor pool.

Voucher policies, despite their libertarian lineage, were typically framed in progressive equity terms. Tax credits were typically been framed as a fiscal matter, a way to bring tax relief to the middle class. In taking up a proposal for a federal education tax credit, Nixon explicitly framed the issue as a matter fiscal prudence in support of middle-class families, placing “particular emphasis on the dire fiscal consequences should the nonpublic sector be allowed to collapse” (West 2003, 161). A subsequent panel report released in 1972 included a recommendation for a Federal income tax credit for private school tuition, but legislation would not be introduced until four years later. In 1976, a maximum $1,000 education tax credit for tuition at any school from elementary school to college and vocational school was defeated in the Senate by a surprisingly close 52-37 vote that included support from over a third of the Democrats and half of the Republicans. The fiscal argument for tax credits lacked the power it might hold at the state level, as the overwhelming burden of financing education was shouldered by state and local governments.

Efforts at the state level during this period were sporadic and uncoordinated. The attention of school choice supporters was directed toward federal policy and nothing approaching a school choice “movement” had yet developed.  Many of the state-level efforts throughout the 1970s attempted to enact tax credit and voucher policy through ballot initiatives and referenda (Catterall 1984).

The tax credit issue came back at the federal level during the Carter presidency with a bill introduced amidst discussion of a similar proposal for higher education. Although the bill passed narrowly in the House, it was defeated 56-41 in the Senate and faced a veto by Carter in any case. It was during this battle over k-12 tax credits that opposition from the government education establishment coalesced and began to flex to full extent its considerable power. Literally hundreds of lobbyists descended upon Capitol Hill to argue the interests of the recently formed National Coalition to Save Public Education and the National Education Association (West 2003).

The school choice issue was a relatively stable fixture on the national education agenda during the 1980s, first in the form of tax credits and shifting back to vouchers again in the mid-1980s. The hopes for school choice success at the national level peaked with Reagan’s arrival in the White House. Reagan and the Republican Party gave strong and explicit support for education tax credits throughout the 1980’s—with tax credits, but not vouchers, mentioned specifically in the Republican Party platforms of 1980, 1984, and 1988. Tax credits were the primary focus for the conservative policy world as well. The Heritage Foundation, an influential conservative think-tank, published a book in 1983 assessing the failures and accomplishments of the Reagan administration that had an education chapter proposing tax credits to help the middle-class supplemented by vouchers to help low-income parents (White 1983).

Tax Credit Policy Design for School Choice: A Response to John Kirtley

There are few people with whom I am so much in agreement on the goals of education policy as John Kirtley. To the extent that we differ, it’s chiefly about the best ways of achieving those shared goals. With that in mind, here are my thoughts on his recent post on Education RedefinEd.

Regulation of Private Schools under Education Tax Credit Programs

I’ve no reason to think that the customary financial reporting requirements imposed on scholarship-granting organizations (SGOs) are problematic, but the same cannot be said about regulations imposed on the private schools themselves. In response to an earlier post by Adam Schaeffer, John writes that “Adam is absolutely correct that you can only drive so much excellence through top-down accountability.” But Adam actually goes further, arguing that there is no evidence you can drive any excellence through “top-down accountability” (read: “government regulations”) on private schools. The purpose of noting the corruption in state schools (e.g., in Florida and Atlanta) is to show that even the vast array of government regulations imposed on public schools fails to curtail such defects. And, as I found in reviewing the worldwide literature comparing different types of government, pseudo-market, and market education systems, it is the least regulated, most market-like systems that consistently do the best job of serving families across all measured outcomes.

If there were compelling evidence that government regulations on schools could reduce corruption or boost academic achievement, there might be a case for such regulations being added to tax credit programs. But no such evidence exists to the best of my knowledge. In addition to failing to achieve its intended goals, regulation inhibits the educational freedom and diversity that are responsible for the market’s efficiency and responsiveness to families—undermining the whole purpose of a choice program.

The one and only empirically defensible argument in favor of regulations of schools under tax credit programs is political: in some states, it may not be possible to enact tax credit programs without such regulations. In that case, a judgment call has to be made on whether the regulations are so bad as to compromise the program and make it unworthy of passage, because it would fail to produce positive results and give the movement a black eye that would mistakenly be carried over to better, freer programs.

But that argument does not apply to states that have already enacted relatively free school choice programs, by definition: the bills have already passed, so the regs weren’t politically necessary.

Multi-SGO vs. Single SGO Tax Credit Program

 John also argues that a proliferation of SGOs increases the risk of a financial or other SGO scandal in any given year. It’s a plausible argument. If the probability of a scandal breaking out at any one SGO is fixed, and that probability is equal to x, then the probability of a scandal breaking out at any one of a group of SGOs would be = 1 – (1 – x)^N, where N is the number of SGOs. As N goes up, so does the likelihood of at least one scandal occurring.

On the other hand, it seems likely that the probability of a scandal breaking out at an SGO is not fixed, but rather is proportional to the number of people the SGO employs. Hiring more people raises the chance that you eventually hire someone crooked. Tempting as it is to develop a full-blown mathematical model for scandal risk based on the number and size of the SGOs, it seems sufficient to say that the two factors probably cancel each other out to a considerable extent. In other words, it is not obvious that scandal risk would be appreciably different in single SGO vs. multi-SGO environments.

But the absolutely crucial factor that the above discussion omits is that the impact of a scandal also varies with respect to the number of SGOs. If you have 200 SGOs, each of limited size, and one of them has a scandal, it’s no big deal. Donors will just stop giving to that SGO and it will go out of business unless it manages the Herculean task of convincing the public it has mended its ways. Parents that had gotten scholarships from it will then seek scholarships from one of the SGOs that is now receiving the donations that the corrupt one used to get. In fact, this is just what would have happened in the case of the errant donation that John mentions, whether or not any new regulations were imposed.

Indeed, we see this with charities in general. Charitable giving is hugely popular in the United States, but every year some charities are found to be fraudulent or mismanaged. This has had little or no effect on the popularity of charitable giving over time. The system has proven extremely resilient as former donors to the fallen charities have simply shifted their giving to better-run institutions. There has been no move to winnow down America’s charitable landscape either overtly or indirectly (such as by drastically limiting the share of donations that can be used for operational overhead, and thereby driving most institutions out of business).

John likens the probability of a scandal at an SGO in a multi-SGO tax credit program to “giving the enemy a hand grenade.” Extending that simile, the single SGO model is like giving opponents a nuclear time bomb. What happens if there is only one SGO that accepts all the donations in a state and it succumbs to a scandal? Donors have nowhere else to turn. Many will likely stop donating and poor families who were depending on those scholarships will suffer. That, in turn, will not sit well with legislators or the public, who would likely act to re-open the flow of funds to those families.

But how would they go about trying to do that on short notice? One way would be for the state to take over the corrupt SGO and promise to set it aright. As we’ve seen, state control of education does not prevent scandals, so that won’t work—but it would destroy the independence of the program. Another alternative would be for the state to create its own SGO alongside the corrupt one, with much the same effect. Yet another option would be for the state to impose a passel of new regulations on the corrupt SGO, promising that these would solve the problem—which, as we’ve seen, they’d be highly unlikely to do. And finally, the state could simply shut the program down entirely, forcing all those families back into the state school monopoly, which they had deliberately chosen to flee. Every one of those outcomes is far worse than the outcome in a state with many SGOs. Indeed, even without a scandal, a single-SGO system represents a vastly easier and more tempting target for a state takeover than a distributed, multi-SGO system.

I am both very happy and very relieved to grant that John’s organization, Step Up for Students, is impeccably run and is not likely to suffer a scandal in the foreseeable future. But, as Adam asks, what happens if/when John and the organization’s current top executives are gone? And similarly, what happens in states that don’t have a John Kirtley to create and brilliantly staff and oversee their one and only SGO? I’ve been around long enough to know that John Kirtleys do not grow on trees. The school choice movement is astonishingly lucky to have him as one of its leading lights. And because of the rarity of his invaluable qualities, it is unwise to design a policy that relies on similarly exceptional individuals to lead every SGO in every state in perpetuity.

Some SGOs will inevitably be overseen by less experienced, capable and honorable people (just as some public school districts are today) and so our education policies must systematically minimize the damage that mismanagement and corruption can do. Giving donors real choice among a panoply of different SGOs is the only mechanism yet suggested to accomplish this task, and one that has proven its value for generations in the broader charitable sector.

Preserving Parental Choice

There is another important reason to prefer the multi-SGO model, a goal that John and I deeply share: preserving real parental choice. A central conclusion of my journey through education history from classical Greece to modern America, England, Canada and Japan was that parents generally make better choices for their own children than even “expert” third parties make on their behalf. That is true whether the third parties are government bureaucracies or private institutions. And in my reading of that history I failed to find a single education system in which third parties who were paying for children’s education indefinitely restrained themselves from shaping what or how those children were taught. Ultimately, the money came with strings attached. (The G.I. Bill, sometimes presented as a counterfactual to this observation, is actually not relevant, since the pattern I’m describing is for elementary and secondary education. It is when children are young and their minds most malleable that the temptation is greatest to shape them in whatever image the third party wishes.)

We’d be wise to expect that pattern to continue. But if all third party payment ultimately comes with strings, how do you preserve the maximum level of parental choice? You prevent any single individual or organization from gaining a monopoly in third party education subsidies. By ensuring that a multiplicity of funding sources exists, you make it possible for parents to seek assistance from whichever organization most closely comports with their needs and preferences.

The freedom of donors to give to different SGOs that match their different educational ideals thus offers unique protection to families against being forced to accept strings they object to.

The alternative John suggests, legislatively forbidding SGOs from attaching any conditions to their scholarships, is unlikely to achieve its intended aim in the long run. Certainly there is no precedent for it, and it is easy to think of cases that would undermine it. What happens when schools begin to open that refuse to serve gay students? Or that exclusively serve them? What about Wiccan schools? What about “Marx’s Manifesto Middle School”? What about “Hayek High”? For each one of these schools, there is a distinct and sizable constituency that would deeply object to funding it. So what happens if all SGOs have to fund all of them? Do angry, coerced donor/taxpayers roll over and go gently into that good night of compulsion? No. They demand that their representatives impose restrictions on the eligibility criteria for private schools. But since we live in a pluralistic society, that ultimately will result in a gradual accretion of homogenizing restrictions on the kinds of education schools can offer, winnowing down the range of choices available to families—precisely the opposite of the intended goal.

Nor is this merely a hypothetical. I suspected this phenomenon would exist based on my research for Market Education: The Unknown History, but recently tested it statistically by comparing the level of regulation imposed on private schools under voucher versus education tax credit programs. Under vouchers, every taxpayer is compelled to pay for every government-approved private school. Under tax credit programs (with the partial exception of Florida’s) donors have very broad latitude in choosing the kind of SGO they will support, and SGOs have similar latitude. So, based on my theory, we would expect vouchers programs to result in more heavily regulated private schools than tax credit programs because of the compulsion that vouchers perpetuate but tax credits avoid. After crunching the numbers using two different statistical methods and allowing for thousands of different randomized ways of measuring regulatory burden, I found that vouchers do impose a large and statistically significant extra burden of regulation on private schools that tax credits do not. This evidence is not dispositive, but it is consistent with the analysis outlined above, and it’s the only evidence we have. I suggest that we ignore it not so much at our own peril as at the peril of the children we seek to serve.

One Model to Rule Them All?

In any discussion of the “best” policy, I think it’s wise to consider the possibility that any one of us (or even all of us) could be wrong. Education policy is hard. We can of course do our best to collect the widest possible body of relevant evidence, and to test our recommendations empirically whenever possible. We can and should have more discussions like this one, which are hugely valuable. But after all that, we could still be missing something.

Given that reality, there is one other step we can consider to maximize our chances of getting education policy right: we can let different models coexist side by side for a few decades and watch how well they perform, rather than trying to homogenize them up front. If one program doesn’t work quite as well as another, we will see that and be able to learn from it. But if we insist on conformity in the short term, we may never learn those important lessons. And if we settle on a fundamentally flawed model, the results could fall very far short of our hopes and expectations.

Of course, in any state that is just adopting a school choice program for the first time, there has to be a decision as to which program is best. But in states where programs have already been implemented, it seems far wiser to allow them to mature independently rather than to try to “fix” them or even supplant them with new and different programs simply because we believe that they may suffer shortcomings in the future.

Almost anything is better than the status quo monopoly, and yet we’ve had this awful monopoly for a century and a half. It’s hard to correct mistakes once a policy monoculture has established itself and crowded out the alternatives.