Journalists must take the lead in separating fact from fiction in the debate on charter schools' fiscal impacts on districts.
Assessing Charter Schools' Impact on Districts: Too Important to Get Wrong
Several months ago I critiqued a report by Dr. Gordon Lafer and published by In the Public Interest (ITPI). Unfortunately, the report continues to inform policy deliberations in California, where a commission is weighing charter school policy changes and lawmakers are considering a five-year moratorium on new charter schools. The author has said that he does not believe I raised one specific methodological concern. I thought I had raised several, but let me be more specific.
The new methodology, which has not been peer reviewed, measures the “hypothetical alternative” budget for three districts, assuming that charter students attended district schools instead and calculating "how much more revenue that would bring in to the district, and how much it would cost to educate these additional students in district schools. The difference between the cost and revenue is the net fiscal impact.”
In other words, the study assumes that if there were no charter schools, all the students attending charter schools within a district would attend that district’s schools instead, meaning districts would receive funding for each of those students—and that new revenue would exceed the costs of educating these additional students, so districts would be better off.
There are many highly problematic elements to this hypothetical, but here are the most egregious:
First, the central method to determine cost is biased toward districts. The analysis claims that if Oakland Unified School District had the additional students now served by charters, the district would receive a “net benefit” of $57 million because the additional revenue the district receives for each new student would exceed the costs of educating that student. This assumed net benefit then becomes the “fiscal impact” that charter schools reportedly cost the district.
How does the author figure this? He assumes districts would not hire any new staff in their central offices and that district enrollment could grow by 15,000 new students—with no new costs for facilities and transportation. He also relies mainly on the judgment of district staff to say what the new school-level costs would be. As a result, the analysis produces a relatively low cost of educating students currently enrolled in charter schools. That, in turn, overstates the hypothetical benefit districts would receive if students left charters to enroll in the district. In reality, the district’s past spending patterns provide no basis for these assumptions. Oakland’s overall enrollment in 2000–2001 was as high as it would be if all charter students returned to district schools today; the district was bankrupt and beleaguered and schools were poorly resourced then, just as now. Moreover, when enrollment grew previously in districts like Oakland, spending increased at a higher rate than revenues, not at a lower rate.
By taking current district spending patterns as a given, even for districts that have failed for decades to cut overhead costs as enrollment declined, the author turns an institutional failure into an advantage. A district that is already spending more than it should on its central office and operating too many underenrolled schools can easily claim it would become more efficient if it grew significantly, leaving a lot of new money to be spent on class size reductions and other good things. Dr. Lafer claims that his “new” approach solves the problem that other analyses have grappled with: how to determine which costs can’t be reduced directly in proportion to enrollment declines. But his solution is to assume all of a district’s current costs are fixed—meaning they can’t rise or fall as enrollment numbers change. This ignores long-standing definitions of what is a justifiable fixed cost and diminishes the real challenges districts face when they lose enrollment for any reason.
Second, the author focuses his “fiscal impact” analysis on charter school growth, ignoring the many other causes of district enrollment loss. He acknowledges that enrollment loss has many causes, including demographic changes, students moving to other school districts, and students choosing private schools. In many districts, charter school enrollment growth—for a few years an obvious driver of enrollment loss—has now slowed dramatically, but district enrollment loss continues. In other districts, enrollment is growing even while charter enrollment grows.
The author presents an argument for what is so unique about district enrollment loss to charter schools that warrants singling them out in a cost analysis. He claims districts must maintain all of their unused building space in case charter schools close and districts must absorb their students. But a district’s facilities needs might fluctuate for other reasons. There may be higher birth rates someday, for example. And districts elsewhere in the country have assumed control of charter schools slated for closure—including the buildings they occupy. School districts across the country are looking for ways to efficiently manage their facilities, as well as those managed by the charter schools they oversee. But addressing this policy challenge requires a balanced analysis that accounts for the building needs of districts and charter schools alike.
Third, the author’s analysis is inexplicably confined to school districts: only one type of public institution that serves students. Why, for example, are imagined scale economies relevant to school districts and not to charter schools, another public institution? If the public policy concern is to make public schools as efficient as possible, charter school networks might argue districts impose the same “costs” on them as Lafer argues they impose on districts. Focusing a cost analysis on one type of public agency is simply cherry-picking and has no justification in a policy framework.
Fourth, the author asserts that his is a “cost-benefit” analysis. But a true cost-benefit analysis would 1) consider an interagency (charter to district or vice versa) revenue move a transfer, not a “cost,” and 2) consider academic benefits to students who transfer to charter schools. These benefits are not merely hypothetical. A Stanford University analysis found urban charter schools in the San Francisco Bay area, for example, significantly boosted student achievement in both reading and math. The author fails to do either.
Fifth, the author assumes that all students attending charter schools had transferred from district schools. This is not an accurate reflection of how families choose among schooling options. Some families whose children currently attend charter schools might have opted for homeschooling, private schools, neighboring districts, or other options if charter schools were not available. In some Oakland charter schools, more than 35 percent of all students came from outside the district (including private schools). Overall, 15 percent of Oakland’s charter students came from outside the district, a fact that would have affected the author’s cost calculations, had he bothered to consider it.
Sixth, the author highlights the fact that the loss of a few students sprinkled across the various grades cannot be solved by laying off any single teacher—a point that economists refer to as a “lumpiness” problem. This is a challenge for districts every fall, whether or not they have charter schools, and applies whether enrollment is growing or falling. It is caused by the inflexibility of teacher roles and compensation, as well as rigid rules about school staffing. But the author uses it to bump up his estimates of charters’ fiscal impact.
I’ve outlined specific methodological problems, but there are several other inconvenient facts that undermine Lafer’s implied claim that charter schools are to blame for district financial problems:
- Oakland, one of the three districts profiled in Lafer’s study, has had stable enrollment for the past five years—and rising expenditures.
- Many California districts with financial problems do not have any charter schools.
- Many districts are financially stable, despite having a large number of charter schools.
- Most California districts that encounter fiscal problems stabilize over a few short years. Long-term fiscal distress is unusual—confined to a few districts with a history of gross financial mismanagement.
- California’s own Legislative Analyst’s Office finds that the key predictors of fiscal distress in school districts are unsustainable collective bargaining agreements, failure to maintain healthy reserves, and flawed enrollment and income projections.
School districts are built on a financial model that requires continued growth. This is thanks to constraining state rules and often irresponsible district fiscal management decisions. This reality makes it difficult for districts to adjust to any enrollment losses.
This is a challenge for school systems all over the country, and California has the chance to lead the way in developing new solutions—such as transition funding that helps districts make the necessary adjustments when they lose enrollment, and state policies that help them deal with particularly troublesome expenses, such as the long-term costs of school buildings, or retiree health care and pension costs.
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