Less Money for Public Schools Makes Them Better - EdChoice

Less Money for Public Schools Makes Them Better

Despite the message of those adorable AT&T commercials that “more is better,” there is evidence to the contrary regarding money for public schools.

In a little-discussed report, issued by the Federal Reserve Bank of New York in September 2007, economist Rajashri Chakrabarti, Ph.D. presented a highly quantitative and rigorous analysis of the effect of school choice competition on student performance at public schools.

Ms. Chakrabarti’s results really weren’t too surprising. Her conclusion: Incentives matter!

But what makes her findings so significant is they directly undercut the most basic argument of school choice opponents – that money “following” voucher students leaving public schools hurts the remaining students. Ms. Chakrabarti shows the loss of money for public schools (or the threat of loss) is actually the catalyst to better student performance there.

But what makes her findings so significant is they directly undercut the most basic argument of school choice opponents – that money “following” voucher students leaving public schools hurts the remaining students. Ms. Chakrabarti shows the loss of money (or the threat of loss) is actually the catalyst to better student performance at public schools.

In her report, she examines results from the Milwaukee Parental Choice Program (MPCP). Zeroing in on a 1998 Wisconsin Supreme Court decision, which cleared the path for a dramatic expansion of the MPCP, she conducted a controlled comparison of student performance at Milwaukee Public Schools both before and after the MPCP’s expansion. The “before” period ran from the program’s inception in the 1990-91 school year through the 1997-98 school year. During that period, private school eligibility was tightly restricted. Thus, public schools still faced very little competition. After the state Supreme Court ruling, the city’s numerous church-affiliated schools became eligible to accept vouchers. Immediately, the number of eligible private schools quadrupled (from about 20 to more than 80) and students using vouchers simultaneously jumped from about 1,500 to about 5,800. Within a couple years, there were more than 100 eligible private schools accepting vouchers in Milwaukee and more than 11,000 students using vouchers.

Of at least equal economic significance, the Wisconsin legislature changed funding rules for the MPCP and Milwaukee Public Schools after the state’s 1998 Supreme Court ruling. Starting with the 1999-2000 school year, the public schools began to feel a financial pinch for each student departing with a voucher.

Under the original program design, the Milwaukee Public Schools continued to count the MPCP participants in their enrollment. In other words, they received tax revenue for each of these voucher students as if they were still attending Milwaukee Public Schools. Though MPS was then docked for the State’s cost in funding the vouchers, in the early years, this reduction was very small when compare the benefit of including the students in their enrollment count. Hardly an incentive for them to change their behavior.

Under the new program design, MPCP participants were no longer included in the enrollment count of Milwaukee Public Schools. The Wisconsin legislature’s rationale for this change was that it was too expensive to allow Milwaukee Public Schools to continue to receive funding for students they were no longer serving, as they were already being relieved of the financial burden for these students. The obvious economic effect of this major change was to raise the stakes for the public schools when they lost students to the voucher program.

What Ms. Chakrabarti found was the Milwaukee Public Schools changed their behavior in response to this new, heightened competition and revenue loss exposure. She points out, anecdotally, that the school officials negotiated a new teachers’ union contract allowing hiring and retention decisions to be made based on merit. Under prior contracts, seniority was the sole authorized criterion. More importantly, her comprehensive statistical analysis shows that student test scores on the Wisconsin Knowledge & Concepts Examination improved by one to two grade levels within four years after competitive pressure on the public schools was increased.

Stated more succinctly, the Milwaukee Public Schools started getting better after their funding wasreduced.

So, for public schools, less money can make them better…but only when coupled with the pressure of competition for students and funds. As state policymakers continue to deal with limited resources, Ms. Chakrabarti’s ongoing work, examining how best to design school choice programs to generate the greatest gains at the least cost, deserves much closer attention.

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