The Cost of Choice

A new study finds that charter school expansion in Michigan has meant financial chaos for a growing number of school districts…

detroit_damage2_640-900x570.jpg (900×570)EduShyster: Your new study looks at why certain school districts in Michigan have descended into a state of, as I like to describe it, *smoking ruin.* To keep the suspense alive, tell us what you found DID NOT contribute to the severe financial distress of these districts.

David Arsen: The question we looked at was how much of this pattern of increasing financial distress among school districts in Michigan was due to things that local districts have control over as opposed to state-level policies that are out of the local districts’ control: teacher salaries, health benefits, class size, administrative spending. We also looked at an item that the conservative think tanks are big on: contracting out and privatization. We found that, overwhelmingly, the biggest financial impact on school districts was the result of declining enrollment and revenue loss, especially where school choice and charters are most prevalent. We looked at every school district in Michigan with at least 100 students and we followed them for nearly 20 years. The statistics are causal; we’re not just looking at correlation. 

EduShyster: There’s a table in your paper which actually made me gasp aloud—which I’m pretty sure is a first. I’m talking, of course, about the chart where you show what happened to Michigan’s *central cities,* including Detroit, as charter schools really started to expand.

Arsen: We have districts getting into extreme fiscal distress because they’re losing revenue so fast. That table in our paper looked at the central cities statewide and their foundation revenue, which is both a function of per-pupil funding and enrollment. They had lost about 22% of their funding over a decade. If you put that in inflation adjusted terms, it means that they lost 46% of their revenue in a span ten years. With numbers like that, it doesn’t really matter if you can get the very best business managers—you can get a team of the very best business managers—and you’re going to have a hard time handling that kind of revenue loss. The emergency managers, incidentally, couldn’t do it. They had all the authority and they cut programs and salaries, but they couldn’t balance the budgets in Detroit and elsewhere, because it wasn’t about local decision making, it was about state policy. And when they made those cuts, more kids left and took their state funding with them.

EduShyster: As you followed the trajectory of these school districts, was there a *point of no return* that you could identify? A tipping point in lost enrollment and funding from which they just couldn’t recover?

Arsen: When we looked at the impact of charter schools we found that overall their effect on the finances of districts statewide was modest. Then we looked to see if there were nonlinear, or disproportionate, impacts in those districts where charters enrolled very high and sustained shares of resident students. And then the results got huge. We saw very significant and large impacts of charter penetration on district fund balances for different thresholds, whether there were 15, 20 or 25% of the students going to charter schools. That was really striking. At every one of those thresholds, the higher the charter penetration, the higher the adverse impact on district finances. They’re big jumps, and they’re all very significant statistically. What’s clear is that when the percentage gets up to the neighborhood of 20% or so, these are sizeable adverse impacts on district finances.

EduShyster: You often hear the argument that, as charter schools expand, the students they leave behind in district schools cost more to educate. That seems to have been a clear finding of your study.

We also found that as the share of students in the district that are going charters increases, there is a causal relationship of a larger share of the students who are left behind in the district who receive special education services.

Arsen: We found that as the district’s share of special education students increases, it has quite a negative impact on district fund balance. We also found that as the share of students in the district that are going charters increases, there is a causal relationship of a larger share of the students who are left behind in the district who receive special education services. So there is a direct impact from charters on the loss of enrollment in the district, but there’s also an indirect impact on the changing composition of the children who remain in the district. There are federal laws that stipulate the educational services that are due to children with special needs, but the feds don’t fund it fully and leave it up to the state to come up with a funding arrangement. Michigan is kind of chintzy with this; for the state as a whole, they cover less than 30% of the required costs of special education. So if you get a high concentration of students who require special education services, these are costs that have to be absorbed by the school district’s general fund or through other local or county-level revenue sources.

EduShyster: Michigan has a now infamous emergency management law that allows the state to take over school districts that are in severe financial distress. But it sounds like what you’re saying is that state-level policy choices are causing the distress that the state is now stepping into *fix.* Do I have that right?

Arsen: The law presumes that financial problems in these districts are caused by poor decision making of local officials, and this justifies their displacement through emergency management.  Yet our findings suggest that state school finance and choice policies were in large part responsible for the underlying financial problems. Once in control, however, emergency managers have moved aggressively to change district operations, closing schools, laying off administrators and teachers, cutting employee compensation, outsourcing services, and in two cases transferring the operation of the entire district to private charter management companies. The municipalities and school districts that have been taken over are predominantly African American and poor. The optics are not good, especially in the context of the long civil rights struggle for voting rights. In most of the districts in which the state has taken over the district, very substantial portions of students are now attending charter schools. In Detroit more students attend charters than district schools, the second highest percentage in the country after New Orleans.

EduShyster: My adopted home state of Massachusetts is in the throes of a heated debate over whether to lift its cap on charter schools. Any advice for how we can avoid the *smoking ruin* course of urban districts in Michigan?

On the funding side, you have to have a system in which the revenues that schools receive are adjusted to correspond to the costs over which local districts have no control.

Arsen: Michigan has a very strong charter constituency and lobby, and we’ve made a series of policy choices that put districts that are obliged to educate low-income children, especially urban kids, at a disadvantage. If you have an education system with a lot of choice, it has to be well structured and regulated. On the funding side, you have to have a system in which the revenues that schools receive are adjusted to correspond to the costs over which local districts have no control. We don’t do that in Michigan and the result is that you give schools an incentive to orient themselves towards educating lower-cost kids. Revenues need to match the costs. If the funding follows the kids, you need policies that cushion districts from having very precipitous declines in revenue. On the choice policy side, you need a system that regulates the supply of choice schools better than what we have. A place like Detroit is just chaotic. It’s the foremost example nationally of the adverse consequences of a poorly regulated education market.

EduShyster: One can’t help but notice that, when the name *Michigan* is uttered, charter advocates turn a special shade of green—let’s call it Flint River green. But where others see a cautionary tale, I see the future, where education is provided by people with the biggest stake in its outcome: for-profit companies.

Arsen: Our charter sector in Michigan is unusual nationally in the extent to which the schools are run by for-profit management companies. For years and years I said that I didn’t have a problem with for-profit management companies so long they’re obliged by state rules to be responsive not just to their owners or shareholders but to the public taxpayers and children. But I’ve actually stopped saying that because we have a situation in Michigan where the charter interests are very influential in the state legislature. It makes it much harder in this state to reach consensus not only on coherent choice and finance policies, but also on policy relating to all sorts of education issues, whether its curriculum, assessment, or employment practices. That is very tricky turf.

David Arsen is a professor of education policy in the Michigan State University College of Education. Which Districts Get Into Financial Trouble and Why: Michigan’s Story will appear in the fall edition of the Journal of Education Finance.

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6 Comments

  1. Jennifer: “My adopted home state of Massachusetts is in the throes of a heated debate over whether to lift its cap on charter schools. Any advice for how we can avoid the *smoking ruin* course of urban districts in Michigan?”

    Arsen’s reply seems wise, but doesn’t provide much sense of how much the safeguards he alludes to may in fact already be in place in Massachusetts. I see that “Accountabity for All: 2016. The Broken Promise of Michigan’s Charter Sector” makes some cogent distinctions between Michigan and Massachusetts in respect to charter school authorization and accountability procedures. There are quotations further below.

    But that report doesn’t also address Arsen’s points about funding. I guess in that respect it’s reassuring to know that Massachusetts apparently pays traditional school districts at a much higher rate (about 15 times higher?) than Michigan for students that have already departed the traditional school districts in order to attend a charter school. And Boston, at least, has a sophisticated weighted student funding formula. As described in “Boston Public Schools: Weighting What Matters”, a Georgetown University EduNomics Lab report:

    “Fundamentally, the BPS formula weights students according to two key components: age and need. Unlike most SBA districts, Boston Public Schools does not allocate a singular base amount of funding to all students. Instead, the district assigns a weight for every grade, and prioritizes funds for the youngest students…. Beyond grade level allocations, the district distributes resources for additional student needs including students with disabilities, English-language learners, high-schoolers deemed at risk of dropping out, low-income students, vocational students, and students with interrupted formal education (SIFE)—a category especially developed for immigrant students whose gaps in formal education left them far behind academically compared to their age peers.”
    https://drive.google.com/file/d/0B4tfC0EXkes8dTBIdHZhcjNzTnc/view

    Though I’m inexpert in the intricacies of Massachusetts education budgets, I’d presume that that greatly lessens schools’ “incentive to orient themselves towards educating lower-cost kids.” But am unclear to what degree similar weighted student funding formulas are in place elsewhere in the Commonwealth.

    Below are a few selections from the June 2014 report I mentioned above that indicts major inadequacies of the Michigan charter sector:

    […]
    “By committing to strong accountability from the very beginning, Massachusetts ensured only stellar charter schools opened and thrived. Michigan went in the opposite direction on accountability, and the state has learned a hard lesson: school choice alone does not produce high-achieving public schools. Twenty years of data has shown that the overall charter sector’s impact on student outcomes too often has fallen far short in high-poverty communities such as Detroit, where charter schools—many of them low-performing—make up a significant portion of the public school infrastructure. If we are ever to reach the status of a top ten education state like Massachusetts—a state that competes with the highest performing countries across the globe—we need top ten
    education state policies, including a rigorous accountability system throughout the charter sector.
    […]
    “A leading education state like Massachusetts shows that it doesn’t have to be this way. When done right, the charter sector can indeed provide students a high-quality education for students who most need it. Consider, charter academic growth in Massachusetts. When looking just at charter and traditional schools in the city of Boston, Stanford researchers found that more than 90 percent of Boston charters have better learning gains than Boston
    traditional public schools in math. What makes this significant is that Boston’s schools rank near the top of the country among urban districts, while Detroit ranks at the bottom.
    […]
    “LIKE MICHIGAN, Massachusetts opened its doors to charters in the 1990s. But the two states couldn’t be more dissimilar when it comes to academic outcomes.
    What is behind the differences in performance between Massachusetts and Michigan?
    One of the most important factors is state leadership and the role of public policy. Unlike Massachusetts, when Michigan opened its doors to charter schools, the state did not have an unrelenting commitment to accountability—nor the regulatory and legal framework that Massachusetts used to ensure only high-caliber schools opened in its state. Since then, and despite data that has shown the need for change, Michigan leaders have not acted to fix this problem. Rather, they have exacerbated the problem. In 2011, under pressure from state charter organizations—and despite vocal objections from education advocates across the state—the Michigan Legislature voted to lift the cap on the number of charter schools without putting into place performance standards, stronger oversight and other regulations to guide the sector to best serve children.
    […]
    “Michigan’s lack of oversight is compounded by differences in its authorizer landscape. Currently, Michigan has about forty charter authorizers in the state—one of the highest numbers in the country—making it much more difficult to regulate for quality. In contrast, in Massachusetts, the state board of education is the sole authorizer.
    […]
    “In Massachusetts, all potential charter schools undergo a rigorous application process, covering everything from instructional models and teacher qualifications to student retention plans and parent involvement strategies.

    “In contrast, Michigan charter contracts have very few consistent requirements, including no minimum academic performance bar for openings, renewals or expansions of school
    […]
    “Understanding that the lowest performing districts are in the most need of quality schools, Massachusetts prohibits operators from opening in these already vulnerable communities unless they have a proven track record of academic success. Unlike Massachusetts, Michigan operators have more or less had free rein to open and manage schools, including some of the worst performing operators nationwide.”
    http://midwest.edtrust.org/wp-content/uploads/sites/2/2013/10/The-Education-Trust-Midwest_Accountability-for-All-2016_February-11-2016.pdf

    1. Sorry for my laggardly response to this. Arsen’s study isn’t about charter quality or about the authorizing process – both of which are YUGE issues in Michigan. His study is focused on the financial impact of charter school proliferation upon urban school districts. Since it’s only recently that we’ve moved from having charter schools be laboratories of innovation to playing the role of parallel school systems in cities, there aren’t many studies that look at what happens to districts from a financial point of view as charter schools proliferate and district enrollment begins to plummet. And while we think of this as primarily a “schools” issue, one thing that really came out in my conversations with Arsen was that this is actually a “cities” issue. Because most city budgets are consumed by big ticket items–schools, pensions, health care, etc–the emergence of a fast expanding parallel school system represents a major financial problem for whole cities now. Which is why when Boston officials presented their budget presentation a few weeks ago, they warned that lifting the cap could have a devastating effect on the city’s finances (see page 2). Not just the finances of the Boston Public Schools.

      As for Arsen’s recommendations for how Massachusetts might avoid the “smoking ruin” course of Michigan’s cities, it’s important to note that Massachusetts has the most generous charter school reimbursement in the US. (I’m helpfully including a link here) But this is a bit of a double-edged sword too. The rapid charter expansion that Question two allows for means that the state will have to come up with $1 billion of additional money within the first six years after the cap is lifted. Charter proponents don’t like to talk about this because it’s a hard case to make that in a time when Massachusetts is raising tuition at state colleges and slashing full-day kindergarten, and w/ more than 17,000 families on pre-k wait lists, that the #1 education spending priority in the state is charter reimbursement. Which is why charter advocates don’t talk about this piece of it, and some seem to genuinely believe that charter expansion is “free.” Listen closely and you’ll also hear rumblings that Massachusetts shouldn’t reimburse districts when students leave to go to charters. Why I believe that’s the position of our own Secretary of Education, James Peyser!

      I’m going to skip over Arsen’s findings re the rising tide of special education students in the schools of last resort as that’s a surprise to no one and proceed to one final takeaway that I took away from my interview with him. In my final question to him about the out-sized role played by for profit charter operators in Michigan, he talks about what a problem it is for the state that the charter lobby has amassed such influence in the legislature. One benefit of a cap that never gets mentioned is that the influence of the charter lobby, which is, uh, not always about the kids, gets capped too. (If you want to argue about the powerful teachers union lobby, you’ll have to find me an example of something they’ve one in recent memory as I’m currently drawing a blank!)

      Thanks for reading and opining.

      1. “Arsen’s study isn’t about charter quality or about the authorizing process…”

        He wrote: “In recent years, the state’s charter school policy implementation has been sharply criticized for poorly regulating the supply, business operations, and quality of schools (Education Trust-Midwest, 2015; Detroit Free Press, 2014)” and, while you’re correct, that he doesn’t drill down on the “quality of schools” aspect of that, he does focus a good deal on “the supply,” and related school choice policies. The authorizing process, with its bizarre lack of coordination, is central to the supply problems in low-income urban districts in Michigan.

        Arsen: “With no coordination of the total supply of schools, some urban areas are characterized by a chaotic excess supply of public schools ”

        Opponents of raising the cap in Massachusetts like to highlight, as if it were inevitable, what they would consider the worst case scenario if the ballot question passes… what would happen if charter seats were chronically at the maximum allowable. How realistic is that? I would think not at all realistic, particularly absent a massive new inflow of state revenues targeted at education. There’d still only be a single authorizer and that one would remain closely attuned to what the state could likely afford in respect to payments to district schools for emptied seats.

        Arsen writes: “After all, districts could implement expenditure reductions in a variety of ways to avoid deficits even as real revenues decline.”

        In respect to any impact on Boston finances, certainly a crucial question is whether the administration has the courage and conviction to implement appropriate expenditure policies at BPS as may be warranted by declining enrollments, whether or not the cause is an increase of alternative free public options that are highly appealing to parents of local schoolchildren.

        “One benefit of a cap that never gets mentioned is that the influence of the charter lobby, which is, uh, not always about the kids, gets capped too. (If you want to argue about the powerful teachers union lobby, you’ll have to find me an example of something they’ve one in recent memory as I’m currently drawing a blank!)”

        Yikes, perhaps you underestimate the ongoing power and influence of the teachers union lobby. Did you at all look over the State Senate education bill? There were core aspects that seemed highly deferential to the teachers union interests and, unfortunately, to the extent that academic researchers have tended to come to conclusions regarding the highly complex subject, they tend to concur that the impact of teachers unions may be adverse, on balance, to relatively disadvantaged, low academically-achieving students. While not all bad, that Senate bill was loaded with examples of weights disproportionately placed, in deference to the teachers unions, on the wrong side of the balance. If the charter lobby in Massachusetts has a relatively benign impact on such students relative to the teachers union, then shifting the balance of power may be helpful in this state. Yes?

        1. I’m going to add the lobbying question to my long list of “topics to be addressed at some future date.” I asked a few people if they agreed with me about teachers unions having very little sway on Beacon Hill these days and the answers were varied enough to convince me that I need to think about this some more. For example, while neither teachers unions was directly involved in the RISE act (they boycotted negotiations because the legislation was sure to contain a cap lift), you’re right that there was definitely stuff in there that reflected their influence. The larger issue you raise is whether the charter lobby is a necessary counterweight to the union. I’d say that the two aren’t in anyway equivalent. (And I’ll explore this more at some point.) The complaint about teachers unions is that they advocate only for their own members – but that’s a caricature. By using their collective power to advocate for things like better school funding, smaller class sizes, etc, unions contribute to the greater well being of all kids. See for example the recent Harvard study that found that children born to low-income families typically ascend to higher incomes in metropolitan areas where union membership is higher. The charter school lobby, by contrast, advocates for more charter schools. And what you see in a growing number of cities and states where the charter lobby is ascendant, is that they push for more schools and more funding even when it comes at the expense of the majority of kids in a city. If there is a body of research that shows, as you say, that the “impact of teachers unions may be adverse, on balance, to relatively disadvantaged, low academically-achieving students,” I am not familiar with it.

          As for highlighting the “worst case scenario,” there aren’t a lot of “best case scenarios” to point to these days. If charter advocates in Massachusetts have figured out a way to greatly expand the “alternative free public options that are highly appealing to parents of local schoolchildren,” without reducing the district to a smoking ruin or leaving the majority of kids in Boston worse off, they should explain. I’d be all ears! And I’d encourage you, if you’re really interested, to take a peek at what’s happening in some of the cities that are much further down this road than Boston as. It’s a road pitted with cautionary tales and not a lot of beacons.

          And thanks, as always, for your thoughtful questions and comments – and for giving me much fodder for future posts!

          1. “See for example the recent Harvard study that found that children born to low-income families typically ascend to higher incomes in metropolitan areas where union membership is higher.”

            That 2015 report referencing membership density for any and all unions calls to mind a 2015 study more specific to the case at hand: “The Long-run Effect of Teachers Unions on Educational Attainment and Earnings.” It’s conclusion: “Taken together, our results suggest laws that support collective bargaining for teachers have adverse long-term labor market consequences for students. ”
            https://aefpweb.org/sites/default/files/webform/aefp40/LR%20Union%20Effects%20-%20AEFP.pdf

            But given the complexity of the subject matter and my limited research/statistics skills, I’m disinclined to be much swayed by any individual study and instead tend to rely on others’ summaries of the overall body of most-relevant research literature, as I indicated here:
            https://dianeravitch.net/2016/07/22/eunice-han-how-teachers-unions-raise-teacher-quality-and-student-achievement/#comment-2578144

            “The complaint about teachers unions is that they advocate only for their own members – but that’s a caricature. By using their collective power to advocate for things like better school funding, smaller class sizes, etc, unions contribute to the greater well being of all kids. ”

            I’m guessing that both of us, loath to caricature, can agree that there are considerable convergences, but also divergences of interests between teachers and students. I’m especially disappointed when unions construct obstacles to implementation of low-cost, intensive tutoring programs. In respect to the Eberts and Stone research I referenced at ravitch.net, here’s some of what Carini stated: “Eberts and Stone find that unionism tends to standardize math instruction and math programs for fourth-graders. Specifically, students spend less time learning math with specialists, tutors, or in independent study programs in unionized schools. Standardization in the classroom tends to enhance the performance of middle-range students. Standardization may also lead to the funneling of resources away from specialized programs and techniques that would benefit the lowest- or highest-achieving students. The upshot is that, while standardization may boost achievement of middle-range students in unionized environments, similar gains do not accrue to those outside the middle-range. In fact, the achievement gains of the many may come at the expense of the lowest and highest achievers. Given that disadvantaged students are disproportionately represented among the lowest-achieving students, unionization will likely have disproportionately harmful effects for these students.”

            Presumably we can also agree that unions greatly vary from one locale to another in respect to their relative emphasis on areas of convergent vs. divergent teacher/student interests. And Boston’s teacher’s union has been relatively praiseworthy over the decades.

            “If charter advocates in Massachusetts have figured out a way to greatly expand the ‘alternative free public options that are highly appealing to parents of local schoolchildren,’ without reducing the district to a smoking ruin or leaving the majority of kids in Boston worse off, they should explain. I’d be all ears!”

            Oh dear, you’re a hard taskmaster. I do think it would be helpful for those intimately involved in the Massachusetts charter authorizing process to draft, and make publicly available, contingency plans for either passage or failure of the ballot initiative in order to help facilitate realistic expectations.

  2. There was lots of money to be made in schools and the republican criminal campaign donating people wanted a way to get access to that money no matter which children it hurt (especially if it is just black children). Charter schools are just another way to disenfranchise and take advantage of the poor and voiceless. And emergency managers take away the right of people who have voted in their board of education. And now they want to allow less qualified teacher to teach in the schools they have robbed of their funding and local control. What a sin!!!

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