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Published in Print: September 27, 2006, as School Finance vs. School Choice

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School Finance vs. School Choice

The ‘65 percent solution’ is no solution at all.

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Over the past 30 years, one of the country’s biggest free-market success stories has been the introduction of market-based reforms to K-12 education. Putting the focus on outcomes and choice, rather than on inputs and geography-based attendance, advocates for such reforms are beginning to do what many cynics thought would be difficult, if not impossible: reform American schools using market principles. The progress they have made is now being threatened, however, by a new school-finance regulation, known as the “65 percent solution,” that seems to be sweeping the nation, from statehouse to statehouse. ("Group’s ‘65 Percent Solution’ Gains Traction, GOP Friends," Oct. 12, 2005.)

The potential toll of this type of measure is apparent from a review of the recent growth of market-based reforms. Estimates from the Alliance for School Choice suggest that at least 90,000 students participated in school choice programs in 2005, with a projection of more than 125,000 participating in 2006. Last year, 17 bills supporting school choice were passed in 11 state legislatures, though not all of them were signed into law. Charter schools, offering families both public and private alternatives to regular schools, have shown even more impressive growth. Figures from the Center for Education Reform indicate that, as of the fall of 2005, nearly 1.1 million students attended some 3,617 charter schools.

Granted, out of the roughly 49 million children in K-12 public schools, few are exercising choice. But each year, more states offer school choice options, and the growth in the number of families taking advantage of them is impressive and likely to continue. Personally, I favor public school choice (open enrollment) over public-private choice. But any well-meaning effort to help students is worth considering.

The use of choice as a vehicle to promote competition and efficiency, in combination with a shift in focus from inputs to outputs, is starting to have the desired effects. In one large East Coast city, for example, teachers have demanded that public schools do a better job of marketing themselves. In the Midwest, a large urban district has responded to vouchers by improving the quality of its schools. I have had many conversations with public school superintendents who are starting to view charter schools and vouchers (at least of the public variety) as a viable, attractive strategy for improving education and providing more options to parents.

The federal No Child Left Behind Act should encourage more choice for children and families in the coming years. In my home state of Indiana, the state teachers’ union has worked with the legislature to create the state’s charter school legislation, providing evidence that unions can be proactive participants in the introduction of educational choice. All of this is good news for market-based reformers. Choice appears to be producing increased competitiveness and accountability, which bodes well for American education.

At the same time, however, much still needs to be done to realize the benefits of choice. Regulations remain a burden in many states, many families still do not have access to anything closely resembling choice, and the research on choice—from vouchers to charters to home schooling to alternative education programs—is disappointingly thin. Choice proponents, moreover, tend to be excessively thin-skinned when it comes to any evaluation of their efforts (some of which work well, but many that do not). Without good research and evaluation, identifying best practices for choice (and determining which avenues are dead ends) is nearly impossible. One would expect advocates of choice to be focusing on these issues.

To an extent they are. And yet, the biggest reform fad in many legislatures this year is increased regulation in the form of the 65 percent solution. Confused? Join the club. Simply put, the idea behind these regulations is to require districts to spend at least 65 percent of their funds “in the classroom.” Makes sense, right? It certainly polls well, which is why many policymakers trip over themselves to rush 65-percent-solution legislation into law. But a more careful—and more responsible—look at the data raises many questions about these school finance regulations.

Voices from both the right and left have pointed out the problems with such mandates, ranging from the arbitrary nature of 65 percent (Why not 60 percent, or 70?) to the categories often used to determine instructional vs. noninstructional expenditures (Is athletic coaching really a “classroom” expense, and is spending on professional development and school libraries “noninstructional”?). Most important, these observers have noted, regulations and mandates limit education leaders’ flexibility in determining how money can best be used.


While many have pointed to such empirical and logistical difficulties, though, few have singled out what may be the best reason for running away from this expenditure-control initiative: It is wholly incompatible with free-market education reforms. Because of this, the so-called solution threatens much of the progress made by proponents of choice.

Consider, by way of example, the Internet-based business Overstock.com, whose chief executive officer, Patrick Byrne, is one of the most vocal proponents of these funding regulations. Overstock’s financial woes have been well reported. Yet, in response to them, did the government demand strict limits on how the company’s officers ran their business or used their resources? Of course not, because in business we generally trust market forces to encourage greater efficiency and improved performance. If a company (and, more directly, its board of directors) doesn’t respond accordingly, shareholders have a variety of options at their disposal, including replacing the company’s leadership or moving their capital elsewhere.

Either we encourage greater competition or we give up on choice altogether and return to school reform via mandated and regulated inputs. We can’t have it both ways.

Why should schools be any different? In a competitive environment, an inefficient, poorly performing school would face similar consequences, with parents considering school outcomes and levels of service as they decide where their children should attend. School boards, acting as a board of directors, would also need to focus on outcomes, and the efficiency with which services are delivered to reach those outcomes.

In areas where competitive educational markets exist, we already see this starting to happen. The choice is obvious: Either we encourage greater competition, thereby letting market forces create efficiency and improved performance, or we give up on choice altogether and return to school reform via mandated and regulated inputs. We can’t have it both ways.

Critics routinely accuse conservatives of plotting to control, and eventually dismantle, public education. This has always struck me as a bit paranoid. But I am starting to worry that the blind pursuit of the 65 percent solution will hand critics of choice the evidence of a conspiracy they have sought so long. When you push silly price controls like the 65 percent solution rather than constructive deregulation, you can’t complain about the conspiracy theories being tossed in your direction.

Vol. 26, Issue 05, Page 30

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