October 31, 2013 11:33AM

Is It Too Easy to Start Private Voucher Schools?

Interesting story today in Wisconsin’s Journal Times about the ease with which someone can start a private school with state voucher funding:

[as] the system works now, a new voucher school can enroll children after simply attending a short fiscal training session, writing the state a $900 check and filling out a few simple forms.“You basically fill out a letter of intent. There’s not much else there,”

Low barriers to entry are crucial to a well‐​functioning market; they allow people with new and innovative ideas to easily offer their services to the public. This, in fact, is how economic progress often takes place—not by the incremental improvement of existing providers, but rather the entry of new ones.

But “low” is a relative term. If your business requires any up‐​front capital at all you have to put your own money on the line, find willing investors, or both. Entrepreneurs typically don’t or can’t do that without first developing a sound business plan and convincing banks and other investors of their ability to execute it. And once they’ve begun operating, entrepreneurs still have to earn the public’s trust. People can be leery of dealing with new companies they’ve never heard of.

Not only can voucher schools be started with less up‐​front due diligence, they also get the government’s seal of approval absolutely free. What difference does that make?

For instance, a weekend Journal Times story explained how a student lost her voucher spot when St. John Fisher, 2405 Northwestern Ave., closed in 2012 after its first year in operation when it ran out of money.

Kandy Helson, whose daughter went to the now‐​defunct school, said she thought the school was sound because the state put it on a list of participating voucher schools in February. She didn’t know how little is actually known about participating schools when the list gets released.

Naturally, the solution is to impose a whole bunch of quality‐​assurance regulations on new vouchers schools, right? That’s certainly the answer that many people would give. But, of course, traditional public schools are absolutely coated in such regulations and their productivity has collapsed over the past 40 years.

So how do we ensure universal access to the education marketplace without facilitating the creation of poorly managed schools? One way is to provide low‐​income parents with financial assistance from an array of different private scholarship granting organizations (SGOs)—organizations that must compete with one another to attract philanthropic donations and to attract families seeking assistance. In order to appeal to donors, these organizations would have to show that they are truly helping low‐​income families and not throwing their money at mismanaged schools.

This is precisely the sort of system that arises under well‐​designed scholarship donation tax credit programs. Under those programs, businesses and/​or individuals can donate to the SGO of their choice, and they receive a tax cut in the amount of the donation (or close to it). Just as normal charitable organizations have to compete to attract donors’ interest, so do SGOs, and this gives them an incentive not to fund badly‐​managed schools. A dozen or so states already have such programs, including Pennsylvania and Arizona.