The Next Step in School Choice

We know little about how to improve the cost-effectiveness of K‒12 spending, and our ignorance is not likely to diminish under the status quo. Paul Hill, of the University of Washington’s Center on Reinventing Public Education, succinctly summarizes our situation:

Money is used so loosely in public education—in ways that few understand and that lack plausible connections to student learning—that no one can say how much money, if used optimally, would be enough. Accounting systems make it impossible to track how much is spent on a particular child or school, and hide the costs of programs and teacher contracts. Districts can’t choose the most cost-effective programs because they lack evidence on costs and results.

In a few states, policymakers have taken a creative step toward solving this problem by giving public-education money directly to K–12 parents in a liberal but use-restricted and monitored account that encourages families to treat the money as their own. Known as Education Savings Accounts, these young programs represent a possible path out of our ignorance.

The founders of American public education promised fantastic returns on investment from Prussian-inspired schools run by local governments. This system has worked well for many children, but for others, not so much. It’s a safe bet, however, that public education is here to stay. Every state constitution guarantees state funding for K‒12 education, and the public broadly and deeply supports it. Sadly, though, our current public-school practices fall far short on equity, efficiency, and overall effectiveness. A 19th-century institution cannot fulfill the needs of 21st-century America.

Policymakers have engaged in a series of decentralized efforts to improve education outcomes by increasing choice for families. “First-generation” choice programs such as open enrollment, magnet and charter schools, and voucher plans have indeed increased the number of schooling options available. However, these models provide no incentive for parents to consider the issue that Hill rightly spotlights: cost-effectiveness. Building on the success of charters and vouchers, supporters of Education Savings Accounts hope to overcome the inherent limitation of those choice strategies. The next generation of choice programs must not only give parents and guardians the freedom to try different methods but must also incorporate incentives for them to consider academic benefits and financial costs.

A small but growing number of states (Arizona, Florida, Mississippi, Nevada, and Tennessee) have created ESA programs, which enable parents to choose educational services for their children from among a wide range of offerings. Parents enroll in the program by agreeing to provide their children with an alternative education that replaces the one the public school would provide. In return, the parent receives a state-funded account that can be put toward multiple but limited uses: private-school tuition, tutoring from certified tutors, individual public-school courses, online programs, community college and university tuition, standardized testing fees, curriculum costs, and saving for future higher-education expenses in a tax-advantaged federal Coverdell Account. ESA program details vary by state, but the core features generally include parent-managed accounts, a range of allowed uses, and the option to save funds for future educational use.

The first ESA program in the nation, Arizona’s Empowerment Scholarship Accounts, aims for a system of “ordered liberty.” Parents can freely mix education methods and providers, but while their options are many, they are not infinite. Accounts operate under state supervision, with safeguards in place to ensure the appropriate use of funds. Arizona’s lawmakers initially crafted the ESA program for families of children with disabilities and have since expanded it to other groups, including children in foster care, military dependents, children who attend low-rated schools and districts, children living on Native American reservations, and the siblings of otherwise eligible students. Lawmakers in Florida, Mississippi, and Tennessee chose to limit eligibility to students with special needs, while Nevada lawmakers, facing extreme overcrowding in public schools, made all public school students (if previously enrolled for at least 100 days) eligible to participate in an ESA.

A Better Mousetrap and Why We Need It

The British coined the phrase “quasi-market mechanism” to describe policies that replace state service monopolies with a roster of independent providers who compete for business. The American experiments with charter schools, school vouchers, and now ESAs fit comfortably within this definition. High-quality evaluations of charter and voucher programs demonstrate greater parental satisfaction, along with higher graduation rates, often at lower overall taxpayer cost. Account-based programs, the most recent of these innovations, may offer the greatest potential benefits yet for students and taxpayers. Assuming that ESA administrators can successfully develop oversight techniques, ESAs could become the most powerful and flexible mechanism we have for customizing education to individual student needs.

Charters, vouchers, and tax credits have had some impact on cost-effectiveness. The available evidence suggests they provide a bigger bang for the education buck and have contributed to the evolution of our K–12 delivery and governance models. But these market-based reforms lack an incentive for consumers themselves to consider cost—a crucial element for market efficiency and effectiveness. Value seeking in the process of voluntary exchange has driven human material progress, but until now it has been all but absent in public education. An ESA system incorporates competition and thus encourages service providers to create and offer the best possible product at the lowest possible price.

Despite the success of the charter school enterprise, such schools have not faced pressure to improve their product while continuously lowering costs. Applying such a principle to the education sphere may sound Darwinian, but in the rest of the world—whether in manufacturing, technology, energy, or agriculture—it is simply the way things are done. Innovators have developed amazing devices and services whose prices continue to fall. Meanwhile, in both voucher and charter models, schools simply spend the maximum amount the state provides them.

The Future and Her Enemies

My forum partner Nelson Smith has leveled a number of critiques against the Nevada legislation—by far the boldest of the ESA experiments. It is true that ESAs remain a learn-by-doing experience. No legislation (ESA or otherwise) passes in perfect final form, and an undertaking as ambitious as Nevada’s will require further refinement.

Smith’s concerns range from serious to poorly considered. Let’s start with one of the latter. Smith expresses concern that the Nevada ESA law does not employ a means test. This is an odd objection, given that nothing in American K–12 education (or higher education for that matter) employs a means-test. A student is never told, “Sorry, Susie, but your parents are too wealthy so you aren’t allowed to attend this school.” Everyone pays the taxes that support public education, and everyone is eligible to participate. Polling by Education Next and others continues to find that the public prefers universal programs to means-tested approaches—responding more positively, for instance, to the notion of vouchers for all than to vouchers for low-income families only (see “The 2015 EdNext Poll on School Reform,” features, Winter 2016).

Smith notes that the education reformer Howard Fuller opposes Nevada’s ESA program because it could reinforce the advantage of the rich over the poor in gaining access to a scarce supply of private school seats. In states where private schools are a major presence, this could be a legitimate concern. However, a phase-in starting with lower-income families would be preferable to a marginalizing means test. For instance, the Cleveland Scholarship Program gives enrollment preference to low-income students, but includes students of all income levels. Large Midwestern cities in the 1990s had a significant number of inner-city private schools with available seats, making for a valid concern in terms of their distribution. In Nevada’s case, the preexisting stock of private schools is simply too small to cause much concern.

Nevada public schools are badly overcrowded, and the school-age population projects to grow further still by the hundreds of thousands. The New York Times quoted the Clark County (Las Vegas area) superintendent as saying that he could build 23 new elementary schools and they would quickly become overcrowded. Las Vegas schools are surrounded by portable buildings manned by substitute teachers. The current Nevada private schools, however, will not be riding to the rescue for many. Few private schools exist in Nevada, and those that do mostly (and predictably) operate in areas with enough high-income families to support them. In 2010, the Nevada Department of Education estimated K–12 private-school enrollment in the state at a whopping 3 percent of the total. Let’s assume those schools could clear out their basements and make room for an additional 1 percent of the students. This limited number of new seats would barely move the needle on coping with overcrowding, requiring us to look elsewhere.

Success or failure for the Nevada ESA program lies in innovation—new private schools, new micro-schools, new Cristo Rey-model schools (students sharing office jobs to generate revenue), blended schools, co-op arrangements drawing from the home schooling experience, combinations of the above, and who know what else? As one of many reforms promoted by the Nevada legislature, the ESA program is not a magic cure-all, nor does it represent a “fire-it-and-forget-it” missile. The program will need considerable philanthropic investment if it is to realize its full potential—especially for low-income children.

Nevada’s ESA program does, however, provide every low-income student with schooling options they previously lacked—professional tutoring, textbooks, therapies, university, college or community college tuition, transportation, curriculum, distance education, testing, individual public school courses, and extracurricular activities, in addition to private school tuition. What uses will Nevada parents make of this new freedom? There is only one way to find out.

Nevada lawmakers chose to reflect equity concerns by providing additional resources to disadvantaged students. The law provides $5,700 to participants whose families qualify for free or reduced-price lunch or who have an Individual Education Plan, and $5,100 to all other students. Critics have been quick to criticize both the relatively low level of funding overall and the amount of the additional assistance (about 12 percent more) given to low-income children and children with disabilities.

These relatively low allotments would have been higher, something close to the full amount of per-pupil spending, if not for a late amendment to the enabling legislation. The amendment grew from the lawmakers’ desire to protect the interests of school districts rather than an indifference to equity concerns on the part of school choice supporters.

A tendency to view locally generated funds as the entitlement of districts rather than the entitlement of the child, however, is a problem that afflicts both charter and private choice programs. Many states, for instance, attempt to make up for the lack of local funding for charters with additional state assistance on a per-pupil basis. Such assistance is very much needed, but it also creates a growing strain on state general funds. This is an issue that both charter and private choice supporters must soon confront; but it is hardly unique to the Nevada ESA program.

The additional funds provided to special-needs children stand as clearly inadequate, but that is because Nevada overall does not use a weighted funding formula that would provide extra money for special-needs children. The state should develop such a system for funding the public schools and apply it to the ESAs as well.

Additional assistance to low-income children would also be most welcome, but much of the criticism on this front sorely lacks context. The Nevada public school system routinely gives the most to the kids born on third base. If you attend Incline High School in the upscale town of Incline Village, for instance, you in effect “receive” more than $13,248 in public funds—that is, the per-pupil expenditure in that community, which is far above the state average of $8,274 per pupil. I agree that giving low-income students just 12 percent more funding in an ESA program is not enough, but it’s important to note that few people balk at students in communities such as Incline Village receiving some 60 percent more funding than average. Compared to the general Nevada funding formula or the formulas that govern most district and charter schools nationally, the Nevada ESA program looks positively progressive in giving more money to kids starting off with less.

Investments and Institutions Needed to Make ESAs Work

Fortunately, governments and private enterprise have been developing techniques applicable for ESA account oversight for decades. ESA implementation efforts must adapt and customize techniques and lessons learned from programs such as food assistance (which transitioned from a voucher system to an account mechanism) and health savings accounts. A system of public oversight and controlled reimbursement for expenses can ensure public confidence in proper use of funds.

Many will rightly worry about the possibility of charlatans duping parents with education snake oil. Smith correctly notes that start-up enterprises are of uneven quality. Once again, practices outside of education suggest a way forward. Online rating systems such as Yelp that aggregate customer reviews could easily be adapted to ESAs. If I were an ESA parent, I would have zero interest in what my state education officials had to say about the quality of, say, the online courses offered by a given university. On the other hand, I would be very interested in whether other ESA parents and students found such courses useful, appropriate, and worthwhile. With an online consumer rating system, parents themselves could evaluate the programs and services of the vendors, such as tutors, universities, schools, and community colleges. Such a system could be a valuable resource for ESA parents and might help them avoid the rip-off artists and sub-standard providers.

Account mechanisms such as ESAs could well become our most powerful tool in reengineering the way we provide public services, not only in education but also in health care. There is much to be gained from incorporating voluntary exchange as a core principle of public education. Those of us who support ESAs recognize how little we know. We don’t have the answer to Paul Hill’s cost-effectiveness puzzle, but we do have an idea about how to empower parents to figure it out themselves. Experience is the best teacher, so let’s get on with it. We just might learn something.

Matthew Ladner is a senior advisor for policy and research at the Foundation for Excellence in Education.

This is part of a forum on education savings accounts. For an alternate take, please see “Expand Choice, but Keep the Public Interest in Mind,” by Nelson Smith.

This article appeared in the Summer 2016 issue of Education Next. Suggested citation format:

Ladner, M., and Smith, N. (2016). Should Reformers Support Education Savings Accounts? Education Next, 16(3), 62-68.

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