Pulling the Purse Strings: Choice and Competition in Public Schools

School choice is becoming a prominent feature of the education landscape. In 2010, over 1.8 million students were enrolled in charter schools and nearly 190,000 participated in voucher or scholarship tax-credit programs. Here at the University of Chicago, we have a thing or two to say about consumer choice and competition, but how are public schools actually responding to this new form of consumer choice? Are school districts upping their game, responding to the competition, and making smart investments to win over parents? Or are they going about business as usual?

In “Response to Market Threats: How Michigan Public Schools React to a Growing School Choice Movement,” [pdf] authors Tamara W. Linkow, Francie Streich, and Brian Jacob investigate one way school districts can respond to competition: by changing how they spend public funds. Using district budget data from 1995 and 2008, the authors examine the responses of Michigan school districts to competition from charters and inter-district choice programs. The authors find that larger urban districts make financial changes in response to competition, but that rural districts do not (see our previous post “Where Are Charters the Answer?“).

According to the paper’s findings, between 1995 and 2008, a one percent increase in charter enrollment caused urban districts to increase funding for instructional support and student support services by three percent and support for athletics programs by four percent, per pupil. In the average Michigan school district, that’s about $28 per pupil for every 30 students enrolled in a charter school.

Interestingly, competition from inter-district choice had a different impact on urban districts. In response to inter-district competition, urban districts actually reduced spending on student support services and left other areas unchanged. A one percent increase in inter-district competition led districts to reduce spending on student support services by about two and a half percentage points per pupil. The paper’s findings are inconclusive regarding why competition from charters and inter-district programs have different outcomes, though the authors posit that media coverage of charter schools could explain why districts respond more forcefully to increases in charter enrollment.

Although urban districts made changes because of competition, neither charter nor inter-district competition had a significant impact on funding in rural districts. The authors suggest that size might play a role in how districts respond to competition. In Michigan, the average urban district is more than four times larger than the average rural district. As a result, an urban district might have more flexibility to take advantage of economies of scale and other cost savings. The authors note, “With large budgets and greater personnel capacity, urban districts have the capacity to respond to competition while smaller, non-urban districts are more constrained in their potential for a competitive response to increased choice.”

Hopefully, urban districts are spending more on changes that will lead to better student outcomes. However, while urban districts are responding to competition, the authors’ findings suggest that competition is not having the wide-reaching impacts that some charter proponents expected.