Money and the Market for High Quality Schools

Posted on October 16, 2010



This post is a revised version of my previous post – If money doesn’t matter…

Here is a draft set of slides to accompany this post: Resource Heterogeneity across Sectors

The theme du jour is that reform (very narrowly defined reform), not money will fix our schools. We’re already spending a lot, the pundits say. Too much in fact, for what we’re getting. We need more charter schools – which obviously do more with less – we need to treat teachers like workers in the private sector (?) by publicly ranking them based on their students’ test scores – and in general, we need to adopt “market” oriented strategies. But…

If money doesn’t matter then why do private independent schools (market driven schools?) spend, on average, so much more per child than nearby public schools?

First off, I am a supporter of private independent schools and former teacher in a private independent school in New York City – An exceptional school where tuition is now about $35,000 per child (where tuition covers only a portion of expense) in a city where the public system is being chastised by politicians and the popular media for spending about $20,000 per child. This despite the fact that the city school system must serve a more diverse and complex student population than the very selective private school where I taught.

About a year ago, I published a study on the private school marketplace in which I compiled the IRS financial filings of about 1,600 private schools around the country. And what did I find in this study? Among many other things, I found that private independent schools, a relatively large diverse sector of schools which includes many elite schools, and also some pretty average ones, spent on average 196% of public school average on same labor market (excluding boarding schools).

I also found that the pupil to teacher ratios in private independent day schools are about 8.8/1 (consistently from 2000 to 2008) compared to those of public schools at about 16.7/1 over the same period.

That is, private independent schools – ON AVERAGE – not just the elite of the elite – spend nearly double what public schools in the same area spend, and private independent schools leverage that money to purchase nearly double the teachers per child, offering much smaller class sizes, deeper and broader elective options, music, arts and other “frills” many public schools have seen evaporate with recent budget cuts.

I am by no means criticizing the choice to provide one’s own child with a more expensive education. That is a rational choice, when more expensive is coupled with substantive, observable differences in what a school offers. I am criticizing the outright hypocritical argument that money wouldn’t/couldn’t possibly help public schools provide opportunities (breadth of high school course offerings, smaller class sizes) more similar to those of elite private independent day schools, when this argument is made by individuals who prefer private schools that spend double what nearby public schools spend.

Private School Spending Study: http://nepc.colorado.edu/publication/private-schooling-US

If money doesn’t matter then why do venture philanthropists continue to throw money at charter schools while throwing stones at traditional public schools?

The standard rhetoric, touted in the media these days is that charter schools are not only doing better than traditional public schools, but that they are doing so with far fewer financial resources. The reality is that charter schools have widely varied resources, from state to state and even from block to block within New York City. Let’s focus on New York City charters for a moment, because New York City charter schools have received so much media attention.

A New York City Independent Budget Office report suggested that charter schools housed in public school facilities have comparable public subsidy to traditional NYC public schools, but charter schools not housed in public school facilities have to make up about $2,500 (per pupil) in difference. In forthcoming report, I explain how the much lower need populations served by NYC charter schools, compared to nearby NYC traditional public schools, more than offsets this difference.  That is, from the start, NYC charter schools are on relatively level financial playing field with the traditional public schools against which they supposedly compete. In fact, charters provided with physical space have a head start, and serve fewer low income children, few or no ELL children and fewer children with disabilities.

And then there’s the philanthropy. Kim Gittleson of Gotham Schools points out that in 2008-09, NYC Charter schools raised an average of $1,654 per pupil through philanthropy. In 2009, Venture Philanthropists granted over $30 million to 77 NYC charter schools, excluding major gifts to management organizations associated with many of the NYC charter schools.

Some NYC charter schools raised more than $8,000 per pupil, and depending on how you calculate it, Harlem Children’s Zone comes in as high as $60,000 per pupil. As a result, some charters – those most favored by venture philanthropists – spend on a per pupil basis much more than traditional NYC public schools.

One might argue that the Venture Philanthropists are trying to spend their way to success – To outspend the public schools in order to beat them!

In fact, a recent study funded by the New Schools Venture Fund indicated “The average CMO relies on philanthropy for approximately 13 percent of its total operating revenues, but many CMO central offices could not exist today without philanthropy.” That is, they need this level of infusion just to stay afloat, running each year in the red, with no sign of break even years in the near future.

But here’s the disconnect – These same Venture Philanthropists – who are committed to spending whatever it takes on charters in order to prove they can succeed, can be frequently heard arguing that public schools a) don’t need and b) could never use effectively any more money. They are trying to argue that charters are doing more with less, when some are doing more with more, others less with less, and some may be doing more with less, and others are actually doing less with more. Shouldn’t traditional public schools be given similar opportunity to do more with more? Blasphemy! Eh? And don’t give me that … “we’ve already tried that and it didn’t work” claim. I’ll gladly provide the evidence to refute that one!

If money doesn’t matter then why do affluent – and/or low poverty – suburban school districts continue in many parts of the country to dramatically outspend their poorer urban neighbors?

Last but not least, why do affluent suburban school districts in many states continue to far outspend poor urban ones? If there is no utility to the additional dollar spent and/or no effect produced by that additional dollar then why spend it?

In a recent article, co-author Kevin Welner and I point out that many pundits have prematurely argued that states have done away with – erased – differences in resources across wealthy and poor districts (article here: http://epaa.asu.edu/ojs/article/view/718) Really, anyone with a grain of information on this topic knows this assumption to be patently false. See also www.schoolfundingfairness.org.

Among other things Kevin Welner and I point out that nationally, there remains a positive relationship between school district spending per pupil and median household income but some progress was made through the early 1990s. It leveled off since. More importantly, that progress varies widely by state, with some states like New Jersey and Massachusetts providing more support in higher poverty settings, but many like Illinois or New York maintaining systems where affluent, predominantly white school districts continue to far outspend poor urban and urban fringe districts.

For example, in the New York Metropolitan area including only New York State districts (2007-08), lower poverty districts (those with fewer than 10% children below the poverty line) had state and local revenues per pupil ON AVERAGE, at about $23,000 to $24,000 per pupil, compared to those with over 20% poverty (census poverty rate) at just over $18,000 per pupil in state and local revenues in that same year. Yet pundits pick the $18,000 per pupil number out of context, call it too high, and argue they should get no more! No more I tell you! The waste is egregious! Kevin Welner and I identify 9 downstate suburban districts that spent more than $10,000 more per pupil than New York City in 2007-08.

If the waste in New York City, or in Newark, New Jersey is so gosh darn egregious – if we’re spending way beyond reasonable levels in poor urban districts, what about those districts spending so much more on kids who would do just fine on so much less? Isn’t that just a massive freakin’ waste? The people in these communities don’t seem to think so.

In conclusion…

Here’s the thing – I don’t believe that private independent schools or affluent local public school districts are just throwing money away. I believe they are trying to provide a high quality product to consumers who demand such a product and who expect such a product, be it through a system of local public financing or through a private market based system.

That’s the interesting twist in all of this. The “reformers” who are choosing expensive private schools for their own children and throwing money at charters are invoking the language of “market based reforms” for traditional public schools – market based reforms as a substitute for more money – because market based reforms will ALWAYS drive down per pupil spending. That’s what competition does, right?

Well, the one set of schools in this mix that are arguably most responsive to “market pressures” are the private independent schools. The schools most responsive to market pressures are the ones that a) spend the most, b) have the smallest class sizes and seem to use small class size in particular as a primary selling point, and c) I would venture to guess are least likely to be moving down the road of evaluating all of their teachers on the basis of test scores alone (most actually have relatively traditional experience driven step-scales). Yeah… yeah… but those are the luxury market products? Are small class sizes and diverse high school curriculum luxuries that should be reserved for only the few? I find this argument most offensive.

Really good education is expensive – and far more expensive than “reformers” are willing to admit or understand. If the “reform movement” is really about mimicking successful business models, these entrepreneurs should be paying close attention to the money being spent producing a high quality product – benchmarking against the “best” public and private schools, and then realizing that achieving comparable outcomes with more needy student populations will cost more – a lot more – not less. For some reason, in this case, they’ve ignored that conversation entirely!


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