School Choice Economics
Consumer-directed spending for education has seen rapid expansion and success in the United States. According to the Washington Post: “Since 2006, 27 states have opted for one of three methods that transfer public tax dollars to private schools: Vouchers for students from low- and middle-income families or disabled students; tax credits, up to 100 percent of tuition, for donations to private school scholarships; and education savings accounts, which allow qualifying families to use public funds to pay for private school tuition, tutoring, online education and other services.”
The reasons for this expansion can be attributed to multiple factors. First, there is a widespread perception that the traditional method of funding and delivery of educational resources is failing, and that innovative policy solutions are needed. Second, states are facing massive budgetary shortfalls that can be partly plugged with consumer-directed “school choice” (to the extent that voucher awards or tax credits are usually statutorily defined as at-or-below prevailing costs in the area) and that can be ameliorated over the long-term as market forces put downward pressure on educational costs. Third, new statistical techniques, greater data collection, and innovation in welfare economics have facilitated better analysis and service delivery of educational resources (think education savings account [ESA] debit cards, for example).
Educational financing involves four possibilities. You can: (1) spend your own money on yourself; (2) spend your own money on someone else; (3) spend someone else’s money on yourself; and (4) spend someone else’s money on someone else.
Traditionally, elementary school funding has followed the fourth model: school boards and state legislators (and, increasingly, the federal government) have imposed benchmarks and appropriated monies to improve the education of students. The problem with this model is that there is little incentive to keep costs down (you’re not spending your own money) and little incentive to ensure the money is spent efficiently (you are not spending the money on yourself).
School choice options seek to move education policy into option #3 (as a second-best solution), and, to a lesser extent, options #1 (the optimal solution if all could afford it) and #2 (to the extent that we envisage private charity still playing a role). By giving parents and students a pot of money to spend as they see fit, one could expect school choice would cause consumers to pay close attention to outcomes. And, in fact, where school choice exists, we see higher rates of parental involvement and satisfaction, and often higher rates of student academic success, than where school choice does not exist.
Average US spending per elementary and secondary school pupil is currently $12,401 per year, but the costs vary widely across the country. It turns out that outcomes rely heavily on the proportion of spending that goes towards instruction, as opposed to things like security, administration, and student services. Compared with other nations, the United States spends a disproportionate amount of money on non-instructional spending—and it is precisely this non-instructional spending which one would expect that consumer-directed school choice would limit.
Now, there is a major problem with option #3, which is that it involves spending other people’s money. To really bring the market to bear on education costs and quality, one would hope to bring the system into option #1. One novel way of doing this is through Education Savings Accounts (ESAs). There are numerous ways to structure such programs, but they all involve partial buy-in from consumers: the state provides a tax benefit, and the consumer has something of a property interest in that benefit because of the control they exercise over it. In such programs, parents have control over spending (as with vouchers), and because parents direct where the account funds go and can roll over any unused funds from year to year, they also have incentives to keep overall costs down.
Given the rather clear economic benefits of school choice, why is it still controversial? As with most areas of the law, failure of good government in education policy is a function of democratic failure: the public choice phenomenon of regulatory “capture.” Specifically, teachers’ unions opposed to school choice have captured the political process through which public education is provided.
In theory, there are certainly economic benefits to having unions. Unions are supposed to aggregate the disparate interests of apolitical workers to correct for market failures. Unsafe working conditions, for example, are something that any particular worker might not put his job on the line to correct: the potential harms are very great but often unpredictable, and would likely affect only a small group of people. Counting on this, an employer, the story goes, can pay suboptimal wages and extract value from workers. In this case, a union would lobby to correct the unsafe working conditions in the same way that a mass tort action would help correct for disparate harms that no one plaintiff would find economically feasible to bring in court.
All this is well and good, except that once a union has performed its socially useful function, like the Golem of Prague, it goes on living, causing unintended destruction. So it is with teachers’ unions. Able to harness funding from often-indifferent union members, these unions go beyond lobbying for improvement in working conditions to maintaining an industry-wide cartel. They do this, for example, by lobbying school boards and legislatures to create high barriers to entry and strangling possible competition in its crib. (Incidentally, the U.S. Supreme Court will soon consider an important First Amendment case dealing with public sector union ability to require dues from all employees, including non-union members, and requiring union opt-out: Friedrichs v. California Teachers Association).
The Louisiana Case
One example of this strangulation is the lobbying by the Obama administration to kill Louisiana’s school voucher program. Back in 2013, the Civil Rights Division of the U. S. Department of Justice filed a motion in federal court to block the program, which allows poor students - 90 percent of whom are black - to take what funding they would have had at a failing public school and switch schools, or use the money towards tuition at a private school.
Adding insult to injury, this motion was filed pursuant to a 40-year old desegregation case that dealt with blocking Louisiana state funding for racially discriminatory private schools, and clawing back funds which had previously gone to those schools.
Incredibly, a federal district court in Louisiana bought the argument and enjoined the Louisiana program, but earlier this month the United States Court of Appeals for the Fifth Circuit reversed that decision, allowing the successful Louisiana program to continue, and perhaps limiting DOJ’s misuse of open desegregation orders going forward.
One part of the holding is very important, not just for school choice, but for the legal status of other consumer-directed social programs in the future. Citing the Supreme Court’s decision in Zobrest v. Catalina Foothills School Dist., 509 U.S. 1 (1993), the majority opinion held (and it was an essential part of the holding) that the Louisiana program, which allowed parents to direct educational funding as they saw fit, represented not “aid to private schools” but rather “aid to poor children.” In the context of the case, this part of the holding is a rehashing of the pre-theoretical public-private distinction upon which all libertarian legal theory relies.
In Zobrest, the Supreme Court reversed a dismissal of claim that had been filed under the Individuals with Disabilities Education Act (IDEA) against a student’s school district based on a violation of the Establishment Clause. James Zobrest, attending a Roman Catholic high school, had requested a state-sponsored sign language interpreter pursuant to the IDEA, but the request was denied on the grounds that providing the interpreter would be an impermissible subsidy of religious education, violative of the First Amendment’s Establishment Clause. Rejecting this argument and allowing the claim to go forward, the Supreme Court held that the funding to the Catholic school was “only incidental.” The Court emphasized that “any attenuated financial benefit that parochial schools do ultimately receive from the IDEA is attributable to ‘the private choices of individual parents.’”
Citing this portion of the opinion, the Fifth Circuit noted in the Louisiana case that but-for the child’s choice to attend a specific school, the relevant state funding would not accrue to that school. The consumer-directed funds, therefore, are not state aid for the service provider, but for the consumer. It follows that educational and other consumer-directed social programs are not bound by all the limitations on public funding.
This is important, because it allows the market to experiment with forms of service delivery that states and the federal government might shy away from. It enables experiments testing such questions as what is it about parochial schools that makes them successful? Do students and parents self-segregate along socioeconomic or racial lines, and does this help or harm educational outcomes and costs? Are brick-and-mortar institutions necessary? What correlation is there between unionization and educational outcomes? All of these questions are important, but each is fraught with political and legal difficulties if undertaken directly by the government.
No general counsel for a school board would authorize creating two statistically-identical cohorts of students and sending one to a parochial school and another to a public school in order to collect data. But this type of data may well be necessary to ultimately improving educational opportunities for all students. Allowing private consumers to make their own decisions through consumer-directed funding will enable valuable controlled experiments that public choice economics might not otherwise allow.
*Andrew Kloster, a former NYU Journal of Law and Liberty Senior Articles Editor and NYU Law graduate, is a legal fellow at the Heritage Foundation.