School choice programs will hit a low ceiling without the creation of new and better schools.
Education reformers have spent a great deal of time and energy over the past decade trying to fix failing schools. While there have been some success stories, results on the whole are mixed. At the local level, attempts to fix or close failing schools have met intense political resistance. On the national level, we are seeing support for the "reform agenda" falter as upper-middle class parents turn against policy measures that weren't designed with their children's schools in mind.
“Charter schools and voucher-based private school choice programs hold greater promise for allowing new and better schools to take root and flourish.”
For the next decade, a better strategy would be to focus less on fixing failing schools and more on creating new, better schools. Efforts to take public schools from good to great run into the same obstacles as efforts to take schools from bad to mediocre: hidebound bureaucracy, inflexible labor agreements and the force of inertia.
Charter schools and voucher-based private school choice programs hold greater promise for allowing new and better schools to take root and flourish. At this point, charter schooling is knocking the socks off of private school choice; charters enroll almost 10 times as many students as private school choice programs. This is due in large part to the faster pace of policy victories for charter school advocates in the past two decades. But the past few years have seen a surge in private school choice legislation, from the first statewide voucher program in Indiana in 2011 to the first statewide education savings account program in Nevada passed this year.
As private school choice advocates break through the political logjam that has long stifled growth, they'll soon find that their programs have a lower ceiling than they might have hoped. Simply put, there are only so many quality seats available in existing private schools. Take the example of the Indiana voucher program. In 2014, the Friedman Foundation released a study of Indiana private schools that found about 41,000 private school seats available to voucher students. In the 2015-16 school year, more than 30,000 students will participate in the program, and if trends continue, the demand will overwhelm the supply of private school seats in the very near future.
Fundamentally, school choice can do three things: fill existing seats, help good schools expand and help foster new and better schools. Charter schooling has managed to do all three reasonably well, but private school voucher programs have only been able to pull off the first. This is because the voucher money that private schools receive might be enough to cover the marginal expense of each student, but it's far from sufficient to fund the expansion of a new school wing, much less a whole new school.
“School choice can do three things: fill existing seats, help good schools expand and help foster new and better schools. ”
Unlike private choice schools, charters enjoy not only their state's annual per pupil funding allotment, but also many special policy measures to help finance expansion. According to the Local Initiatives Support Corporation, states have developed eight types of programs to help provide facilities for charters, ranging from giving charter schools space in underutilized public schools, to offering capital grants, to offering credit enhancement and special bond programs. This allows charter networks to finance the major capital investment necessary to open new schools. To date, no voucher, tax credit, or education savings account provides specific funding for capital costs. Given the funding level of such programs, it's hard to see how a school would be able to do anything other then defray the marginal cost of adding a student with that voucher.
To help policymakers and private school choice advocates think through financing mechanisms to foster the growth of new and better schools, this week AEI released a white paper by adjunct fellow Michael Q. McShane entitled "Funding Growth, Expanding Opportunity: Novel Funding Mechanisms for School of Choice." For state policymakers, McShane identifies two simple levers that could yield significant growth opportunities for private choice schools.
First, policymakers could allow private schools to access bonds and other low-cost financing mechanisms. Colorado and Utah have both allowed some qualifying charters to use the state's moral obligation pledge, an assurance that the state will pay off the school's debt should it default. This pledge dramatically increases the investment grading of schools' bonds, allowing them to raise more money at lower cost. States could allow qualifying private schools to participate, so long as they contribute some of their savings into the default pool.
Second, policymakers could allow social entrepreneurs to leverage new forms of incorporation to harness private sector investment. Twenty-eight states allow for the creation of "B-Corps" – corporations where officers are given the dual bottom line of maximizing profit and social impact – and held accountable on their progress towards both. Low-profit limited liability companies, known as L3Cs, function similarly to B-Corps, and philanthropic foundations can count their contribution as part of their yearly spend-down, even though they might eventually see a return on investment. B-Corps and L3Cs would allow for the best of both worlds, with the ability to acquire capital and scale like for-profits, but with the social mission and philanthropic support of non-profits.
Unfortunately, B-Corp designations are only available in 28 states and L3C in 10. More states should consider allowing these forms of incorporation, so that choice schools could better leverage the private and philanthropic sectors to expand.
"Funding Growth, Expanding Opportunity" also has a raft of other suggestions for educational entrepreneurs and philanthropists. School choice advocates have grown adept at passing voucher programs, but to truly succeed, they need to focus not only on the demand side by getting vouchers into the hands of more parents, but also on the supply side by getting betters means of financing into the hands of school entrepreneurs. If they don't, school choice programs are bound to hit a disappointingly low ceiling. But, if a few enabling conditions are met, it's possible to imagine a thriving private school choice ecosystem that could rival, or even someday exceed, charter schooling as a means for creating new and better schools.
This piece originally appeared in U.S. News & World Report
This piece originally appeared in U.S. News and World Report