Data from the Bureau of Labor Statistics (BLS) show that school district costs for teachers’ health insurance rose at an average annual rate of 4 percent above inflation from 2004 to 2012. In 2004, health insurance costs tacked 11.4 percent onto teacher earnings; in 2012, they added 15.5 percent. At roughly $560 per pupil per year, the national average masks wide variation across states, as districts in some states have relatively low insurance costs while costs borne by districts in other states are quite high. The data do not include health costs for other school employees and retirees, which can be quite substantial.

In this study, we examine BLS data to compare the costs to districts for teacher health insurance with similar costs to private-sector employers. We find that insurance costs for teachers are 26 percent higher than they are for private-sector professionals, and this is partly explained by greater unionization in the public sector. We also examine data newly available from Wisconsin to quantify the impact of that state’s recent change in collective bargaining law: we find a reduction in district costs of 13 to 19 percent, the result of lower-cost policies and higher teacher contributions.

Comparing Employer Costs

We begin with a basic, high-level question: How do employer health care costs for teachers compare with those for private-sector professionals? The most comprehensive national data published on employer costs, the BLS National Compensation Survey (NCS), provide estimates of employer insurance costs on a “per-hour-worked” basis for 180 groups of employees, broken down by occupational groups, industries, ownership (private industry or state and local government), and other characteristics. These data do not separate health from other insurance costs (life and disability) for teachers, but these other components are small (approximately 5 percent of the total), so this does not significantly affect our results.

We focus our comparisons on K–12 teachers and private-sector professionals. Using unpublished data provided to us by the BLS, we multiply the hourly employer insurance costs by the number of hours worked to obtain annual costs for each group of workers. Some 97 percent of K–12 teachers work full-time, while 83 percent of private-sector professionals do so. Because part-time workers are less likely than full-time workers to have health insurance from their employers, we adjust the private-sector comparison data to match the percentage of teachers who work full time.

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We estimate from these data that the national average of annual employer insurance costs in 2012 was $8,559 for K–12 teachers, and $6,803 for private-sector professionals. The difference between the figures has increased since 2004. Annual employer insurance costs for K–12 teachers rose 67 percent, compared to 49 percent for private professionals. The gap between employer costs was just 12 percent in 2004 but rose to 26 percent by 2012 (see Figure 1).

Our estimates for employer insurance costs average the expenditures across those employees who are covered by an employer’s plan and those who are not. Employees may not be covered either because no plan is offered (an issue for part-time employees in particular) or because the employee chooses not to participate (e.g., because coverage is available through a spouse’s employer). According to the NCS Employee Benefit Survey (EBS), 87 percent of K–12 teachers participate in a health insurance plan (medical, dental, vision, or prescription drug) through their employer, compared to 80 percent of private-sector professionals (our estimate, adjusting for the part-time percentage). Consequently, the difference between teachers and private-sector workers in employer health cost per participating employee is 16 percent ($9,838 vs. $8,492).

The EBS also collects data on premiums for medical insurance (a slightly narrower category than health insurance). The medical premiums are broken out by single and family coverage, so these data allow us to examine the cost of comparable policies. We find that for single coverage, employer costs for private-sector professionals are 82 percent of those for teachers ($4,496 vs. $5,494), but for family coverage, private-sector costs are 104 percent of those for districts ($11,116 vs. $10,728), slightly higher. This is a notable shift in the last few years. As recently as 2009, the employer cost for single coverage was $1,361 higher for teachers than for private-sector professionals, compared to $998 today, and for family coverage it was $29 higher for teachers instead of $388 lower. This suggests that some school districts have begun to adjust their policies toward private-sector norms.

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Employee Contributions and Total Premiums

The EBS data on medical insurance also include information on employee contributions. Together with employer costs, these data indicate that, for both single and family plans, total premiums are higher for teachers than they are for private-sector professionals. For single coverage, teachers pay a smaller share (13 percent) than do private professionals (19 percent). For family coverage, teachers contribute more (34 vs. 29 percent), which is enough to cover the higher cost of their plan. In other words, the total premium for teachers’ family coverage is more expensive than it is for private-sector professionals, but the share coming from teachers more than covers the difference (see Figure 2).

In addition to premiums, employees incur out-of-pocket costs, such as deductibles and co-payments. The EBS data indicate that one reason teachers’ insurance plans are more expensive is that features of the plans (such as lower deductibles) reduce out-of-pocket costs. Although it is accurate to say that teachers pay more to get more in the way of family coverage, it is more precise to state that they pay more up front in premiums and then pay less out-of-pocket.

Union vs. Nonunion Employees

The NCS data allow us to compare medical insurance coverage and premiums for union vs. nonunion workers, where union status is defined by whether the employee belongs to a collective bargaining unit. These breakouts are not available for K–12 teachers or private-sector professionals, but they are available for the state and local government (public) sector and the private sector. The comparisons are still informative because teachers’ health care costs track those of the public sector to some extent.

These data indicate that about 95 percent of union workers have access to employer-provided medical insurance in both the public and private sectors, and their participation rate is essentially the same in both sectors (78 to 79 percent). Nonunion workers are less likely than union workers to participate in a medical plan through their employer, in large part because their employer is less likely to offer them one. The difference from union workers is smaller in the public sector, however, where the nonunion participation rate is 68 percent, compared to 48 percent in the private sector.

In the public and private sectors, for both single and family coverage, the employer cost is higher for union workers than for nonunion workers. The total premium is significantly higher in all cases except for family coverage in the private sector, where it is about the same for union and nonunion workers. Finally, employee contributions are lower for union workers, except for single coverage in the public sector.

These patterns are the same for the state and local government sector vs. the private sector, with union and nonunion combined: higher employer costs, higher total premiums, and lower employee contributions, for both types of coverage. The unionization rate is higher for the public sector than for the private sector (50 percent vs. 14 percent in the EBS data), suggesting that unionization explains some portion of each of these patterns (see Figure 3).

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But these are not the patterns we observed between K–12 teachers and private-sector professionals: they are similar for single coverage but not for family coverage. Whatever impact unionization may have, there are other factors at play.

There is one state in which we have a seemingly natural experiment in changing teacher union strength: Wisconsin. If union strength results in higher employer costs, higher total premiums, and smaller employee contributions, then the removal of teacher health benefits from collective bargaining in Wisconsin might be expected to have the opposite effect: lower employer costs, lower total premiums, and larger employee contributions. This is exactly what happened.

Wisconsin Before and After Act 10

Wisconsin was the first state in the nation with public-sector collective bargaining and has long had one of the nation’s strongest teachers unions. It has also long been a state with very expensive teacher medical insurance. Average district costs in 2011 were $8,311 and $19,356 for single and family coverage, respectively. These costs were about 50 percent and 80 percent higher than the 2011 national averages for teachers, which were $5,500 and $10,723. Although Wisconsin is in a region with higher-than-average medical premiums, this geographic factor accounts for only a minor part of the gap between Wisconsin’s district costs and the national average.

Wisconsin’s high district costs reflected both the choice of expensive plans and low teacher contributions. In 2011, teachers made no contribution at all for single coverage in 43 percent of the state’s districts, nor for family coverage in 31 percent. By comparison, the noncontributory rates in 2011 among teachers in the national data discussed above were 39 percent and 16 percent, respectively. Among private-sector professional employees, the noncontributory rates for single and family plans were lower yet, 17 percent and 9 percent.

Act 10, proposed by Governor Walker and enacted by the legislature in 2011, removed benefits from local collective bargaining, thereby giving districts greater freedom to shop for less-expensive plans and to negotiate premiums. The law also allowed districts to establish higher employee contributions. Among the provisions of Act 10 was a 12 percent floor on the employee contribution rate, which applied directly only to the state-administered plan, but now serves as a benchmark that many school districts have followed.

These changes were intended to achieve savings on district benefit costs, through adoption of plans with lower premiums and increased teacher contributions. We examine the change in medical insurance costs for the school year ending in 2012, the first to be affected by Act 10, using data from the Wisconsin Association of School Boards (WASB). These results may not represent the total impact, as not all districts have renegotiated insurance contracts. Some are under contracts with insurers predating Act 10, including those with pre–Act 10 collective bargaining agreements that have not yet expired.

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We calculate estimates of yearly changes using only districts for which data are available in consecutive years. The main finding from the WASB data is a sharp drop in employer costs in 2012 after years of steady growth. District payments for their employees’ medical care increased every year from 2003 to 2011. But from 2011 to 2012, average district costs for family coverage fell by an estimated $2,010, while district costs for single coverage declined by $1,042 (see Figure 4).

These figures underestimate the district savings attributable to Act 10, since premiums were steadily rising prior to Act 10 and were expected to continue doing so. When we account for this expected growth (using average growth from 2007 to 2011), we estimate savings of $2,614 for family coverage and $1,304 for single coverage. These estimates represent declines of 13 to 19 percent from the projected district costs for 2012.

Districts saved on teacher medical insurance costs in 2012 for two reasons: reductions in total premiums and increases in the portion paid by teachers. As discussed above, Act 10 did not directly raise teacher contributions, but the 12 percent minimum it established for the state plan set a standard that districts were now free to follow. For single coverage, between 2003 and 2011 the average share of medical insurance paid by teachers drifted up slightly, from about 3 to 4 percent, followed by a jump to more than 10 percent in 2012. Similarly, for family coverage, the average teacher contribution drifted up slightly over the period, to about 5 1/2 percent, and then jumped in 2012 to more than 10 percent. These figures now place Wisconsin in the vicinity of the national average contribution rate for teachers with single coverage of 13 percent, but still far below the average for family coverage of 34 percent.

In dollar terms, teacher contributions for family coverage rose by $939 in 2012, relative to the previous trend, while total premiums for family coverage declined by $1,674. Our estimate of $2,614 for the impact of Act 10 on district costs reflects these changes. The estimated impact on total premiums accounted for two-thirds of the reduction in district costs, and the act’s impact on employee contributions comprised the other third. We find a similar breakdown for single coverage.

These data have two important limitations. First, they likely understate the share of district savings attributable to higher employee costs because some (maybe most) of the reduction in total premiums is due to a rise in employee out-of-pocket payments (such as higher deductibles). Second, these data do not tell us anything about the quantity and quality of health care provided. Efficiency may have been enhanced as employees paid more of the cost and as employers became free to shop around, but we have no hard data on this.

As a check on the WASB data, we examined data from the Wisconsin Department of Public Instruction (DPI) on districts’ fringe benefit costs for teachers. Unlike the WASB data, these data are available for all districts but do not separate out health benefits from other fringe benefits, including retirement contributions, Social Security, and life insurance. The impact of Act 10 captured by these data will therefore include not only the effect on health insurance, but also the shift of about one-half of retirement contributions from employer to employee as mandated by Act 10.

The DPI data show a steady rise in fringe benefit costs from 1998 to 2011, in both dollar amounts and as a percentage of teacher salary, with the latter measure rising from 34 percent to 51 percent over the period. After Act 10, the average benefit rate dropped 8 percentage points to 43 percent. This is still quite high by comparison with the private sector, but markedly reduced. It is likely that at least one-half and perhaps two-thirds of the $4,500  drop in district fringe-benefit costs reflects the shift in retirement contributions, but virtually all of the remainder represents the reduction in district health-benefit costs. Thus the DPI data suggest a drop of $1,500 to $2,200 in average annual district health costs per teacher.

The DPI and WASB estimates show broadly consistent evidence of a large first-year impact of Act 10 on district costs for teacher health insurance, but we can only speculate on what the future effect will be. As mentioned above, some districts have not yet been able to use their new powers because of unexpired collective bargaining contracts or insurance policies, so there are more savings to be had. Many of the underlying drivers of rising health-care costs are independent of Act 10, and over the long term these will push Wisconsin employer costs back up, but from a significantly lower starting point. Moreover, as districts gain more experience in the open health care market, unfettered by collective bargaining, it is possible that they will be able to lower the rate of growth.

It is important to note that even with the dramatic savings from Act 10, district costs and total premiums in Wisconsin are still well above the national average for teachers. Indeed, by some estimates, prior to Act 10, a number of Wisconsin districts had insurance plans that were set to trigger the federal tax on “Cadillac plans” under the Affordable Care Act of 2010, scheduled to begin for 2018. This may still be true. Thus, there will be continuing pressure to reduce costs toward the national average, especially if and when the luxury tax is implemented.

Conclusion

The national data from the Bureau of Labor Statistics indicate that annual employer insurance costs are 26 percent higher for teachers than for private-sector professionals; adjusting for higher participation rates among teachers reduces the difference to 16 percent. Direct estimates of employer costs for medical plans present a mixed picture: higher employer costs for single coverage but not for family coverage. For both categories, total medical premiums are higher for teachers than they are for private-sector professionals, but for family coverage the teachers incur the extra expenditures themselves.

Unionization is associated with higher total premiums, higher employer costs, and lower employee contributions in both the public and private sectors. This suggests that the high unionization rate among teachers plays an important role in their employers’ higher average cost. Equally important, differences in teacher union strength across states help explain the wide variation in employer and employee health-insurance costs. In some nonunion states, teacher medical benefits are not particularly generous, owing to either low-cost plans (e.g., those with high deductibles) or high teacher contributions. In Arkansas, teachers typically pay 65 or 70 percent of the premiums for family coverage (the national average is 34 percent). In other states, with strong unions, such as Wisconsin, district insurance costs can be very expensive. It is in those states that the opportunities for district cost reduction are most promising, as data from Wisconsin so clearly show.

District cost reduction would ideally derive from changes that enhance efficiency, such as greater competition for health insurance. There should be no illusions that such efficiencies will come easily. In all likelihood, a great deal of any district cost reduction will take the form of higher teacher payments toward their health care through higher contributions and increased out-of-pocket expenses. This raises the question of the role of teacher health benefits in the total compensation package. The overall size of the package will continue to be the subject of debate. It is worth briefly commenting, however, on the importance of the structure of the package.

There are three reasons that efficiency might be enhanced by reallocating some of the compensation package from employer-paid health benefits to salary. First, efficiency in health-care expenditures is more likely enhanced when employees pay for services, since price signals provide the consumer with appropriate incentives. Second, shifting compensation back to salary (in the aggregate) provides greater opportunity for districts to use salary differentials to retain and recruit higher-quality teachers. Finally, as a matter of consumer choice, not all employees may want their employers to devote, say, $20,000 out of a $70,000 compensation package to medical insurance. Take-up rates well below 100 percent suggest that many teachers ascribe less value to the medical benefits offered than they cost. Thus, both efficiency (in attracting recruits) and equity (toward non-participants) might be enhanced by such a shift. Employers can offer greater choice among health plans of varying cost, with lower subsidies, fixed in size, and higher salaries that allow employees to choose how much they want to spend on higher-cost plans. As districts under fiscal distress increasingly turn to cost-cutting measures, such potential efficiency enhancements will become all the more important.

Robert Costrell is professor of education reform and economics at the University of Arkansas and fellow at the George W. Bush Institute. Jeffery Dean is distinguished doctoral fellow at the University of Arkansas. This paper is drawn from a chapter in A Bigger Bang for Education’s Bucks (George W. Bush Institute, forthcoming).

In the following essays, we identify some of the key findings from the sixth annual Education Next-PEPG Survey, a nationally representative sample of U.S. citizens interviewed during April and May of 2012 (for survey methodology, see sidebar). Highlights include

• the Republican tilt of the education views of independents

• the especially high marks that Hispanics give their public schools

• strong support among the general public for using test-score information to hold teachers accountable

• lower confidence in teachers than has previously been reported

• the public’s (and teachers’) growing uneasiness with teachers unions

• the shaky foundations of public support for increased spending

• majority support for a broad range of school choice initiatives.

In addition to the views of the public as a whole, in this year’s survey special attention is paid to Hispanics, African Americans, parents, and teachers, all of whom were oversampled in order to obtain a sufficient number of observations. And in an effort to assess the sensitivity of respondents’ opinions to information and question wording, we embedded in this survey, as we have done in previous ones, various experiments. Responses to all questions are posted on our website, educationnext.org.

Independents lean Republican in their views of teachers unions and school spending—and support private school choice.

With Barack Obama and Mitt Romney running neck and neck, the nation’s eyes are trained on independent voters, who will likely decide the presidential election. And in the days leading up to the national conventions, education policy, though hardly at the top of the public agenda, did assume a more prominent role in both campaigns. Which candidate is best positioned to use education to bring undecided voters into the fold? The answer may be surprising.

Just one-third of independents report that President Obama has done an “excellent” or “good” job of handling education issues, while the rest assign him a “fair” or “poor” rating. And on the education policy issues that most clearly divide the parties—the role of teachers unions and support for school spending—the views of independents hew closer to those of Republicans than of Democrats. Moreover, independents are more supportive than members of either party of expanding private school choice for disadvantaged students, the centerpiece of Governor Romney’s proposals for K–12 education reform.

Whereas 25 percent of respondents to the EdNext-PEPG survey report that they are Republicans and 34 percent say that they are Democrats, fully 41 percent claim no affiliation with either major party. Of this group, 52 percent claim that they lean Democratic, while just 40 percent lean Republican. On key education issues, however, these independents express views that better align with Republicans.

No single education issue divides Republicans and Democrats more sharply than the role of teachers unions (see Figure 1). Seventy-one percent of Republicans report that the teachers unions have a generally negative effect on schools, as compared to just 29 percent of Democrats. Though independents come down in between, a majority of them (56 percent) agree with Republicans that unions have a negative effect.

Republican and Democratic voters also diverge in their preferences on school spending and teacher salaries. Figure 2 shows that when not provided with information about current spending levels, 79 percent of Democrats say that spending on public schools in their local district should increase, as compared with 50 percent of Republicans. Among independents, 57 percent support increased spending, again placing them closer to Republicans in their view of the issue. And when respondents are informed about current spending levels, the gap between Republicans and independents vanishes: 39 percent of both groups support spending increases, compared to just 51 percent of Democrats.

The same pattern holds for teacher salaries: when respondents are not provided with information about current salary levels, 60 percent of independents support increasing teacher salaries, placing them closer to Republicans (54 percent of whom support increases) than to Democrats (75 percent). Providing information on current teacher salaries in their state reduces support for salary increases among independents to 34 percent—exactly the same as among Republicans. Information also shrinks the share of Democrats supporting salary increases to 41 percent.

Governor Romney has made the expansion of school choice for disadvantaged students central to his campaign, calling for the expansion of the Washington, D.C., voucher program and for allowing low-income and special education students to use federal funds to enroll in private schools. It is perhaps surprising, then, to find that Republicans are less supportive of this concept than are Democrats (see Figure 3). Just 42 percent of Republicans express support for the idea, compared to 52 percent of Democrats. Voucher support among independents appears to be as high as (or greater than) it is among Democrats, at 54 percent.

Hispanics like public schools but not all union demands in contract negotiations.

Increasingly, both the Republican and Democratic parties have sought ways to court Hispanics. Though they lean Democratic—63 percent of Hispanic adults approve of the way President Barack Obama is handling his job as president—they are not as blue as is the African American community, 92 percent of whom give Obama a thumbs-up.

Those seeking the Hispanic vote in 2012 should know that education is an issue that resonates with the Latino community. Almost 60 percent of those we surveyed say they are “very” or “quite a bit” interested in education issues, as compared to less than 40 percent of African American and white voters.

On many topics—including school vouchers, charter schools, digital learning, student and school accountability, common core standards, and teacher recruitment and retention policies—the views of Hispanic adults do not differ noticeably from those of either whites or African Americans.

But in certain domains—estimates of school costs and school quality, support for teachers unions, teacher tenure, and teacher pensions—the views of Hispanics differ rather substantially. Their judgment of the American school is generous, perhaps because they compare public schools in the United States to much less effective institutions in Mexico, Cuba, and other parts of Latin America. They also underestimate the costs of running public schools, though they revise their thinking rather substantially about the merits of spending increases once they learn the facts. They are less supportive of unions and union demands than are African Americans.

Nearly 40 percent of Hispanic adults give the nation’s public schools a grade of an “A” or a “B” on the traditional scale used to evaluate schools (see Figure 4). When asked about the public schools in their community, no less than 55 percent give such favorable assessments. By comparison, whites and African Americans express significantly less enthusiasm about the nation’s schools. Less than 20 percent of whites and African Americans accord the nation’s schools an “A” or a “B,” and only around 40 percent give the schools in their community one of these two top grades.

Hispanic respondents think American students perform better academically than is actually the case. American 15-year-olds ranked no better than 25th among the 34 developed democracies participating in the latest round of international tests. Yet nearly 45 percent of Hispanics say student math performance in the United States ranks among the top 15 countries in the world in math. Only 30 percent of white and African American respondents place the United States that high.

Hispanic respondents also think the public schools cost a lot less than they actually do. While annual per-pupil expenditures run around $12,500, Hispanics, on average, estimate their cost at less than $5,000. Whites and African Americans estimate the costs to be more than $7,000.

The same goes for teacher salaries, which average about $56,000 a year. On average, Hispanics think teachers are paid little more than $25,000 a year; blacks, on average, think they are paid around $30,000 a year; and whites estimate salaries at $35,000.

When told just how much schools cost, however, Hispanic respondents adjust their thinking quite dramatically. When informed about actual per-pupil expenditures, Hispanics’ support for higher taxes to fund spending increases drops from 46 percent to 25 percent. When given the actual amount teachers receive, their support for higher salaries plummets nearly in half—from over 60 percent to little more than 30 percent.

Although learning the truth about costs and salaries has a similar impact on white opinion, African Americans remain more committed to higher spending. Thirty-seven percent of African Americans favor higher taxes, even when told how much is currently being spent, only a slight dip from the 42 percent favorable when that information is withheld. When given the facts about teacher salaries, African American support for higher salaries drops 20 percentage points—from 74 percent to 54 percent.

Like other ethnic groups, Hispanics do not appear especially sympathetic to teachers union demands in collective bargaining negotiations. Sixty-two percent of Hispanic adults think teachers should pay 20 percent of their pension and health care costs, as do 56 percent of African Americans.

By an overwhelming margin (87 percent), Hispanic respondents favor proposals to condition teacher tenure on their students’ making adequate progress on state tests. Whites and African Americans also favor such proposals but not to the same degree (75 percent and 80 percent, respectively). When it comes to whether teachers unions are playing a more positive or a more negative role in their local community, Hispanic adults come out in the middle—at 59 percent in support, they are more supportive than whites (45 percent) but less supportive than African Americans (75 percent).

Use test scores for evaluations, says the public (but not the teachers).

Teachers have long been paid primarily on the basis of their academic credentials and years of experience, creating in most parts of the country a lockstep pay scale that does not account for a teacher’s classroom performance. This approach is often justified on the grounds that it precludes favoritism on the part of principals, school board members, and other administrative officials.

As teacher effectiveness has become an increasingly visible policy issue, standard approaches to salary and tenure decisions are undergoing substantial change. More than 20 states now require that student test-score gains be used in key personnel decisions, often including tenure and salary determinations. Four states go so far as to prohibit a teacher from receiving a top rating if students do not exceed a certain level of accomplishment, while another 10 require that achievement gains constitute at least 50 percent of each teacher’s evaluation.

Is the public onboard with these changes? And what do teachers think about them? To find out, we randomly divided those interviewed into two groups (see Figure 5). The first group was given a stark choice: How much weight should be given to test scores and how much should be given to principal recommendations?

Given this simple dichotomy, the public says test-score gains should be given more than half the weight (62 percent) in making salary and tenure decisions. Teachers, by contrast, are prepared to place only a quarter of the weight (24 percent) on this information, with the other three-fourths of the weight being given to principal recommendations.

The second half of the sample was asked a more complex question, which required giving weights to test scores and evaluations from four different sources: principals, parents, students, and fellow teachers.

When the question was posed this way, the public and the teachers once again disagree. The public would place about one-third of the weight (32 percent) on test scores, but teachers would assign them less than one-fifth (19 percent). Conversely, teachers would give principal recommendations nearly half the weight (44 percent), while the public would give their recommendations less than one-quarter (23 percent).

Perhaps surprisingly, teachers are unenthusiastic about being evaluated by their fellow teachers. Like the rest of the public, they divide up the remaining weight more or less equally among the three remaining sources of evidence (students, parents, and fellow teachers).

An even bigger gap between teachers and the public emerges on the desirability of releasing information about teacher performance to the public at large. In both New York City and Los Angeles, newspapers have published such information, provoking an outcry among teachers, who felt their privacy had been invaded. When we asked respondents about this as a general practice, 78 percent of the public expresses support, compared to just 33 percent of teachers (see Figure 6).

When given the option of expressing neutrality on the issue (as another randomly chosen half of the sample was), 60 percent of the public still says it supports the publication of information about teacher performance, while only 13 percent is opposed, the remaining 27 percent taking the neutral position. Teacher opinion is almost the mirror image. Fifty-four percent oppose making information on test-score impacts publicly available, 30 percent express support, with the remaining 16 percent not taking a clear position either way.

Are teachers unions undermining teacher popularity?

Teachers have long held a cherished place in American popular culture. In such films as Blackboard Jungle, Stand and Deliver, and Dead Poets Society, Hollywood has highlighted the power of teachers to utterly transform the lives of their students.

But is this now changing? Are Waiting for Superman, Bad Teacher, and Won’t Back Down (forthcoming “A Takeover Tale,” cultured, Winter 2013) harbingers of a new, more skeptical depiction of teachers? At first, it would seem that public trust in teachers is widespread. When we asked half of the respondents in our survey whether they “have trust and confidence in the men and women who are teaching children in the public schools,” no less than 72 percent say “yes” (see Figure 7). This is almost exactly what Phi Delta Kappan (PDK), a publication sympathetic to teachers unions, found in its 2012 poll and about the same as in PDK polls in previous years.

When we expand the possible response categories, however, a somewhat different picture emerges. Only 4 percent of the American public has “complete” trust and confidence in teachers, and just 38 percent has “a lot” of trust and confidence in them. Meanwhile, 49 percent has “some” trust and confidence, and 9 percent has “little” trust and confidence. In other words, 58 percent of those surveyed express less than “a lot of trust and confidence” in the teaching force.

Since this is the first time the public has been asked to break its assessment of teachers into four categories, we cannot document any trends over time. But we do know that public opinion toward teachers unions—and teachers’ opinions of them, too—has turned in a negative direction. The portion who thinks that teachers unions have had a positive effect on their local schools has dropped by 7 percentage points over the past year. Among teachers, the downward shift is no less than 16 percentage points.

In this year’s survey, as we have done in the past, we asked the following question: “Some people say teachers unions are a stumbling block to school reform. Others say that unions fight for better schools and better teachers. What is your opinion? Do you think teachers unions have a generally positive view on your local schools, or do you think they have a generally negative effect?” Respondents could choose among five options: very positive, somewhat positive, neither positive nor negative, somewhat negative, and very negative.

In our polls from 2009 to 2011, we saw little change in public opinion. Around 40 percent of respondents took the neutral position, saying that unions had neither a positive nor a negative impact. The remainder were divided almost evenly, with the negative share just barely exceeding the positive.

This year, however, the teachers unions lost ground. While 41 percent of the public still takes the neutral position, the portion with a positive view of unions dropped 7 percentage points in the last year, from 29 percent to 22 percent.

The drop is even greater, in both magnitude and significance, among our nationally representative sample of teachers. At a time when, according to education journalist and union watchdog Mike Antonucci, the National Education Association has lost 150,000 members over the past two years, and projects to lose 200,000 more members by 2014, teacher discontent appears to be rising. Whereas 58 percent of teachers had a positive view of unions in 2011, only 43 percent do so in 2012. Meanwhile, the percentage of teachers holding negative views of unions nearly doubled during this period, from 17 percent to 32 percent.

But when that same question was posed in either/or terms to the public as a whole, respondents split down the middle: 51 percent say unions had a negative impact, while 49 percent say their effect was positive. Teachers, meanwhile, offered a more positive assessment. When forced to choose between just two options, 71 percent of teachers claim that unions are a force for good, whereas 29 percent see them as a stumbling block to reform.

Support for school spending is shaky.

With the U.S. economy trying to crawl back to recovery, an unemployment rate above 8 percent, and state and local governments facing the prospect of insolvency, many school districts have found it necessary to cut expenditures and personnel. In California, the cities of Stockton and San Bernardino have declared bankruptcy. In Michigan, the financially bankrupt Muskegon schools have been handed over to a for-profit charter organization. Cuts in arts programs and extracurricular activities are becoming commonplace. Nationwide, the number of school employees has drifted downward by as much as 5 percent in the past few years.

Still, the American public continues to support increasing spending on local public schools. Or at least it appears to do so (see Figure 8). Sixty-three percent of the general public says it prefers an increase in school expenditures in the local district, well up from levels in 2007 when only 51 percent of the public called for expenditure increases. Not surprisingly, teachers are even more enthusiastic about increasing expenditures, 68 percent of whom like the idea.

When one investigates the issue just a bit further, however, fractures can be detected in the public’s willingness to spend more on public schools. Though most Americans still offer their support for spending increases in the abstract, their enthusiasm ebbs rather substantially when the taxes needed to pay for the increased expenditures are broached and when information about actual expenditures and salaries is provided.

Part of the explanation for this is the widespread ignorance on the part of the general public about just how much already is spent on public schools. When asked to estimate per-pupil expenditure in their district, Americans guess that expenditures are about $6,500 annually, when in fact they are around $12,500. That is only a slightly better set of estimates than the ones given in 2009, when Americans thought $4,231 was being spent per pupil and the reality was closer to $10,000 (see “Educating the Public,” features, Summer 2009).

When respondents are told the correct figure, support for spending on public schools shifts sharply downward. Support for increased spending on our standard question drops by 20 percentage points, a much bigger drop than what was observed in 2009, when support for increased spending fell only 8 percentage points (from 46 percent to 38 percent).

In another sign of less-than-wholehearted support for an education spending spree, only 35 percent of the public says taxes should increase to fund the schools. Support drops by another 11 percentage points—to just 24 percent—when those interviewed were first told how much was currently being spent.

Teachers, who stand to benefit from increased expenditure, remain committed to more spending when told the realities of the expenditure situation in their district. Their support slips only 8 percentage points from the high of 68 percent when no information is supplied about current expenditures. But even teachers are 17 percentage points less likely to support higher taxes to fund increases in education spending.

When the subject turns from per-pupil expenditures to teacher salaries, the same pattern emerges (see Figure 9). When asked without any accompanying information, nearly two out of three Americans think that teacher salaries should go up. Among teachers, support for a salary boost registers at no less than 85 percent.

As they do on per-pupil expenditures, however, Americans hold markedly inaccurate views about actual teacher salaries. When asked to hazard a guess, Americans estimate that public school teachers in their states receive, on average, about $36,000 in salary annually. The true figure, even without accounting for benefits, pensions, and the like, sits at about $56,000 nationwide.

Support for higher salaries plummets, however, when Americans are told how much teachers actually make in their states. Of those given the facts, only 36 percent favor an increase, which amounts to a whopping 28-percentage-point decline from the 64 percent favoring an increase when no information is supplied.

When teachers were given accurate information about salary levels in their state, their support slips by only 10 percentage points, probably because they are thinking about their own paycheck. Also, they have a better sense of teacher salaries in their state than the public has, estimating them to be about $44,000 annually.

Is public support for charters really that much higher than for vouchers and tax credits?

As a policy reform, school choice shows no signs of slowing. The number of states with school-voucher and tax-credit programs has escalated since 2010, the number of students attending charter schools climbs steadily year by year, and new technologies for online learning are being promoted by a cascade of new entrepreneurs.

The contours of elite debate about school choice, however, are not replicated in the larger public. While charter schools and digital learning are thought to be the safest choice options for political elites to promote, tax credits are even more popular than charters, and vouchers, the most controversial proposal, also command the support of half the population when the idea is posed in an inviting way.

Vouchers and tax credits. When it comes to school vouchers, apparent levels of public support turn on the wording of the question. For the past two years, PDK has asked whether respondents “favor or oppose allowing students and parents to choose a private school to attend at public expense.” Even with the rather loaded “at public expense” phrasing, PDK reported that support shifted upward from 34 percent to 44 percent between 2011 and 2012.

If one asks the question in a more inviting manner, as we have, support jumps further still (see Figure 10). Told about a proposal “that would give low-income families with children in public schools a wider choice, by allowing them to enroll their children in private schools instead, with government helping to pay the tuition,” 50 percent of the American public comes out in support and 50 percent expresses opposition.

Still, support for vouchers does not match public willingness to back tax credits, even though most economists think the difference between vouchers and tax credits more a matter of style than substance. Nearly three-fourths (72 percent) of the public favors a “tax credit for individual and corporate donations that pay for scholarships to help low-income parents send their children to private schools.” We find little evidence that support for tax credits has changed significantly since 2011.

Charters. Figure 11 shows that when given a choice of supporting or opposing charter schools, 62 percent of the public says it favors ”the formation of charter schools,” nearly identical to what PDK finds (66 percent favoring ”the idea of charter schools”). Support for charters, however, is softer than it might seem. When respondents are given the opportunity to take a neutral position that neither supports nor opposes charters, no less than 41 percent choose that option. Among the remainder, the split is nearly three to one in favor of charters.

Meanwhile, public knowledge about charters remains as impoverished as ever. As our survey did two years ago, we asked respondents a variety of factual questions: whether charter schools can hold religious services, charge tuition, receive more or less per-pupil funding than traditional public schools, and are legally obligated to admit students randomly when oversubscribed. We found little change in the level of public information over the past two years. Large percentages of respondents still say they don’t know the answers to these questions. Among those who hazard a guess, they are as likely to give the wrong answer as the correct one. Although teachers do a better job of accurately identifying the characteristics of charter schools, even a majority of teachers get many of the answers wrong or say they don’t know.

Online education. As major universities—Harvard, Stanford, MIT, and others—are joining community colleges and state universities in a nationwide dash toward online learning in higher education, many states are exploring ways of incorporating new digital technologies into secondary schools.

A substantial share of both the public and the teaching force seems ready to consider the expansion of online learning. When asked if high school students should be allowed to take “approved classes either online or in school,” opinion splits down the middle, with a bare majority (53 percent to 47 percent) favoring the idea. Teachers are more enthusiastic, among whom no less than 61 percent feel students should be given an online option.

The public, however, is not equally enthusiastic about all uses of the online tool, nor is support for the idea gaining strength. The most popular uses are for rural education and advanced course taking. Fifty-eight percent of those surveyed think students in rural areas should have online opportunities, with only 14 percent opposing the idea. That is down modestly from the 64 percent who supported this use in 2008. Similar percentages of support and opposition are expressed for advanced courses taken online for college credit. But once again, levels of support have slipped since 2008 (from 68 percent to 57 percent in 2012).

Less popular are online courses for dropouts and home schoolers. Only 44 percent favor, and 30 percent oppose, using public funding to help dropouts take courses online. Many home schoolers find online courses to be a valuable tool, but the public remains dubious. Only 28 percent favors public funding for such uses, and 38 percent opposes it. Those percentages have not changed materially since 2008.

William G. Howell is professor of American politics at the University of Chicago. Martin R. West is assistant professor of education at the Harvard Graduate School of Education and deputy director of Harvard’s Program on Education Policy and Governance. Paul E. Peterson is the director of Harvard’s Program on Education Policy and Governance and senior fellow at the Hoover Institution.

Not all relevant financial figures are available yet, but reasoned extrapolations from private- and public-sector employment data suggest that U.S. schooling may be on a historic glide path toward lower per-pupil resources and significant labor-force reductions. If not thoughtfully considered, budget-balancing decisions could damage learning opportunities for schoolchildren.

Education managers are typically inexperienced in and often reluctant to initiate cost-savings actions. Budget cuts may be poorly targeted, and students, particularly economically disadvantaged students, are swept up in the process as collateral damage.

In California and Washington, bad budget cutting has already begun. Governors in these two states have acquiesced to employee demands and have protected educator jobs at the expense of students’ time to learn.

The greatest risk of all is to the past quarter century of efforts to render America’s schools more effective. Unless means are identified for making schools more productive, that is, doing better with less, reform momentum is in serious jeopardy.

Evolving Context

Many members of the general public and the policy community believe that school districts are going bankrupt, teachers are underpaid, and educator layoffs are rampant (see “The Compensation Question,” forum, Fall 2012, forthcoming). Inaccurate media reporting, naive celebrity comments, education-advocate laments, social-media babble, and talk-show dialogue reinforce this view.

What are the facts? Total K–12 public-school spending approaches $700 billion annually. Inflation-adjusted per-pupil school spending has increased over the last century by, on average, 2.3 percent per year. There have been a few plateau years during recessions, but never a significant decline (see Figure 1).

As a consequence, the United States now spends more money on K–12 schooling than any other nation in the world. More is spent by the United States, in the aggregate, than by hugely populous nations such as China and India. Spending per pupil is higher in the U.S. than in every country except Switzerland.

Achievement levels in the U.S. are not commensurate with spending, however. Many nations exceed the United States in science and math test scores, for example.

Spending increases have been directed overwhelmingly toward adding school employees. Professional-to-pupil ratios have become ever more favorable. Whereas 30 years ago there was one professional educator employed for every 18.6 public school students, the equivalent figure today is one for every 15.4 students. When other personnel are added to the mix—cafeteria workers, custodians, clerks, and so forth—the ratio falls to one employee for every 7 students.

School productivity, measured as educational outcomes divided by labor or financial inputs, has declined dramatically. Indeed, relative to sectors such as communication, finance, manufacturing, and agriculture, the public schools are highly labor-intensive. The productivity picture is made worse by the resistance of schools to augment teachers’ efforts with new instructional technologies.

Why School Productivity Matters

A new normal of public-sector fiscal austerity is emerging.

Forty-two states and the District of Columbia face budget shortfalls. (Only a few fossil fuel–rich or agricultural states are able to sidestep the issue.) Although federal tax revenues are far short of anticipated spending, the federal government is not about to step in with still another stimulus package. Congress and the president are deadlocked over a path to economic recovery. Eurozone economies are in disarray and have had their credit ratings lowered, which jeopardizes U.S. exports.

Through deep and painful experience with cyclical growth and recession, U.S. private-sector firms have learned to deal with contraction. There have been nine recessions in the United States since 1955. During each of these, employment in the private sector declined. Employment subsequently turned up, but conventional private-sector response to recession has been workforce contraction. Private-sector managers know how to hone their labor force to balance cost cutting with the retention of scarce skilled talent and how to invest in labor-saving technology. These dynamics render the private sector ever more efficient, sustaining the production of goods and services with lower labor costs.

Here is an example of just how productive the private sector has become during the most recent recession: By the final quarter of 2011, gross domestic product (GDP) had returned to its 2008 prerecession level. It did so, however, with 5 million fewer private-sector employees.

School districts demonstrate the flip side of this dynamic. Cost-saving actions in public education, such as layoffs, school closures, salary freezes, benefit reductions, and decreasing school days, are possible but unusual. Taking such uncomfortable steps is legally cumbersome and politically treacherous. Cutbacks frequently fail to generate anticipated savings and can trigger hard-to-heal labor-management wounds. In recent recessions, when the private-sector workforce was contracting, school-district hiring continued apace.

It is important to note that much of the employment decline in the private sector during recessions is the result of firms going out of business. In difficult economic times, private firms must either become more efficient or fail. The public-school sector faces no such threat, which may be why schools have historically added jobs, regardless of economic conditions.

Figure 2 depicts growth in private-sector and public-school employment. Here one can see that from 1955 to the start of the most recent recession, the private sector experienced nine labor-market contractions—on average, one downturn per decade. Conversely, until the current recession, employment in public schools had only one downturn, in 1982–83.

The downturn in public-school employment in the early 1980s came on the heels of two recessions, one that stretched from January to July 1980 and the other from July 1981 to November 1982. The fact that teaching jobs were shed after these recessions were officially over should not be surprising, given that school budgets are set, teacher contracts are made, and federal and state funding are allocated ahead of time, causing the public-school sector to respond to tough economic times more slowly than the private sector.

The same condition prevailed in the wake of the most recent recession. Following 2009, when the private sector began adding wage earners, the public schools began to shed teachers. Figure 3 shows this in greater detail.

From June 2008 to March 2012, public schools shed more than 250,000 jobs, 3 percent of their total workforce. It is of particular note that this shrinkage in the public-education workforce took place in spite of the added revenues from the American Recovery and Reinvestment Act (ARRA), which were intended to prevent such a decline.

Nonetheless, as Figure 3 also indicates, a larger share of school employees who were working in 2008 were still on the job in 2012 than the share of workers still employed in the private sector in 2012.

Impact of Revenue Decline

There is no overstating the painful consequences of organizational downsizing, be it private or public. Closing a manufacturing plant, shutting down a large distribution center, and curtailing hours at a backroom financial operation trigger layoffs, and, depending on the context of the contraction, can imperil an entire community. Individuals, parents, children, and even a geographic region can be hurt.

Serious and sustained school revenue declines are at least as bad and in some ways worse. Layoffs almost always involve the least experienced or most recently employed teachers and other staff. If the financial situation necessitates the closure of one or more schools, then the pain spreads wider and may threaten the survival of a community.

School cutbacks may also disproportionately affect low-income students. As mentioned previously, California and Washington have reacted to budget shortfalls in ways that harm students: reducing the length of the school year and the number of days that schools operate. While this saves money and jobs, as teacher salaries are reduced and layoffs avoided, time in school is most important for disadvantaged students. Middle-class families can compensate for the loss of school hours with enrichment activities such as trips to museums and libraries. Low-income students are seldom so insulated from schooling adversity.

If the entire public-education system could be rendered more productive, that is, if higher levels of achievement could be coaxed from existing resource levels, some of the pain could be avoided or at least mitigated.

Improving Productivity

Several integrated strategies offer the prospect of protecting, possibly promoting, education reform in the face of a new fiscal austerity. These strategies involve 1) accurately informing the general public and the policy community regarding the condition of schools, that is, their financing, their achievement, and the relationship between the two; 2) conducting empirical research aimed at understanding issues of productivity in education; 3) informing policymakers and school managers regarding means by which budget cuts can be made without eviscerating instructional effectiveness; and 4) solving challenges to wider adoption of instructional technologies.

Federal and state governments have expended hundreds of millions of dollars to ensure that local schools have Internet access and plentiful computing hardware. Grants have also been available for purchase of software and teacher training.

These efforts have seldom proved sufficient to transform America’s public schools. Instruction continues to rely almost exclusively on labor-intensive practices. Government policies have ignored the savings that private firms have shown can result from technological innovation. Put bluntly, why should a tenured classroom teacher go to the effort of altering her long-standing instructional protocols to adopt new technologies when her pay, professional status, and job security are only remotely related to improving her effectiveness or her clients’ satisfaction?

Strategies must be constructed that will attract classroom teachers to the use of technology to enhance their effectiveness. Whatever strategy emerges in this regard is likely to have to involve teacher and school performance evaluations linked to student achievement gains. If teachers, principals, and entire schools see that their professional status and remuneration are becoming more tightly linked to student achievement, then they will be more open to seeking technologies that will enhance instructional effectiveness.

There are those who contend that online learning will simply bypass schools, that conventional school classes will be disrupted by new digital models that operate outside the brick-and-mortar school. But there is only a modest chance of this happening. A state initiative in Florida, the Florida Virtual School, is promising in this regard. So is the spectrum of well-constructed subject-matter units that can be found at the Khan Academy web site. But the obstacles are almost too numerous to mention. Among them are the monopolistic nature of many public-school systems, the custodial function entrusted to schools by law, and the attractiveness to students of the social interactions that take place in school. If in fact conventional schools are to be disrupted by technology, it is unlikely to happen soon.

While waiting for technologies to augment the work of a teacher, what can be done by state and district officials to wring the maximum effect out of every dollar they have?

First, states and districts can discontinue costly practices that have not been shown to enhance student achievement, including paying educators for out-of-field master’s degrees and salary premiums for experience; following “last in, first out” personnel provisions; relying on regular classroom instructional aides; and adhering to mandated limits on class size. Regulations that mandate inefficiency, such as legislatively precluding outsourcing, requiring intergovernmental grants to “supplement not supplant” existing spending, and prohibiting end-of-budget year surplus carryover, can also be revised to encourage smarter spending.

In place of the practices above, states and districts can adopt strategies that foster efficiency at both the school and district level, such as adopting “activity-based cost” (ABC) accounting; empowering principals as school-level CEOs; adopting performance-based dollar distribution formulas and school-level financial budgeting; centralizing health insurance at the state level; and outsourcing operational services where proven to save money. By adopting these practices, districts and states may be able to ease the burden of the transition to the coming period of fiscal austerity and increase long-term efficiency in schooling.

James W. Guthrie, currently superintendent of public instruction in Nevada, is senior fellow and former director of education policy studies at the George W. Bush Institute, where Elizabeth Ettema is research associate in education policy.

When students decide to take a course online, should all the state funding for the course go to the organization that offers the course, or should some funding also go to local school districts to help defray other school costs?

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Read our top favorite online learning and technology related posts here.

Read the outcome of last week’s EdNext Reader Poll here.

Every few weeks, a group of education reform advocacy organizations (ERAOs) gathers in Washington, D.C., to compare notes and plot strategy in what is (half in jest) referred to as “fight club.” Like the subject of the 1999 David Fincher movie, this fight club sees itself as the underdog in an epic struggle for freedom and equality. While the target of the film’s ire is consumerism, these national ERAOs and their counterparts at the state level are focused on enacting sweeping education policy changes to increase accountability for student achievement, improve teacher quality, turn around failing schools, and expand school choice. As Terry Moe documents in his recent book, Special Interest, for decades the politics of school reform have been dominated by the education establishment, the collection of teachers unions and other school employee associations derisively called the “blob” by reformers. But the past two years have witnessed an unprecedented wave of state education reforms, much of it fiercely opposed by the unions. The ERAOs played an active role in pushing for these changes, and it is clear that they are reshaping the politics of school reform in the United States in important ways. But does the reform blob really stand a chance of defeating the education blob?

What Are the ERAOs?

Interviews with ERAO leaders reveal that the challenges of implementing No Child Left Behind (NCLB)—in particular, states’ efforts to game its accountability, choice, and school restructuring mandates—spawned the creation of policy advocacy organizations that could push for reform in state capitols. As Joe Williams, executive director of Democrats for Education Reform (DFER) explained, “There was recognition over time that good ideas alone weren’t enough and weren’t going to get us across the finish line in terms of systemic reform. There needed to be a significant investment of time and resources in advocating for political changes that would enable and protect reform.” The largest of the ERAOs (in terms of staff, budget, and reach) are Stand for Children, StudentsFirst, the 50-State Campaign for Achievement Now (50CAN), DFER, and the Foundation for Excellence in Education (FEE), but this remains a relatively decentralized and fragmented movement. Different groups embrace somewhat different policy agendas and tactics, from grassroots mobilization to lobbying policymakers and operating political action committees.

Another way that ERAOs differ is in their scope and where they operate. Groups such as Advance Illinois and the Tennessee State Collaborative on Reforming Education are independent operators that focus explicitly on a single state or city. Stand for Children, 50CAN, DFER, and FEE are national organizations that work in multiple states. Stand for Children currently has affiliates in 9 states, 50CAN operates in 4 states (originating from its flagship ConnCAN, which operates in Connecticut alone), and DFER has 11 state chapters (see sidebar). How do the ERAOs decide what states to operate in? Marc Porter Magee, president and founder of 50CAN, talks about a “vetting process” that centers on figuring out what the “advocacy value-add score” would be in a potential state. Collectively, the ERAO leaders I spoke with identified three critical factors: 1) Is there a void to fill (no existing organization already doing the work)? 2) Is there sufficient local support for reform, and are local champions in place to lead the effort? 3) Is state philanthropic support available to fund the effort and sustain it over time?

While the groups vary considerably in tactics and geographic base, several common elements are apparent. The first is a connection to school choice, and, in particular, to the charter school movement. Many of the ERAOs emerged from the frustration of charter school operators—and their supporters in the business and civil rights communities—at the restrictions placed on charter operations and growth. In addition, ERAOs generally embrace test-based accountability, reforms aimed at improving teacher quality, and aggressive interventions in chronically underperforming schools. One of the most important developments in recent years, in fact, has been the coming together of two previously separate strands of the education reform movement: “system refiners,” who embrace accountability, and “system disrupters,” who advocate choice. Many reform groups are funded by the same foundations, particularly the “big three”—Walton, Gates, and Broad. The support of conservative foundations and the embrace of market-based school reforms have led some observers—and many critics in the education establishment—to label the ERAOs “corporate school reformers.” StudentsFirst CEO Michelle Rhee called this description “bizarre” and noted that she, like many others in these organizations, is a lifelong Democrat with a deep concern for social justice. Suzanne Tacheny Kubach, executive director of the Policy Innovators in Education Network (PIE Network), emphasizes that a focus on partisan orientation or funding sources obscures that “almost all the advocacy groups working in the country were either founded by or are advised by civic boards made up of state leaders concerned about the direction of their public schools.”

The ERAO Playbook

Marc Porter Magee, president and founder of 50CAN

A critical first page in the playbook for reform groups is to increase the amount of information available about school system performance. Virtually all of them support reforms to improve the quality and transparency of state standards and assessments and the creation of state report cards that enable policymakers and parents to view school-level data on student achievement. The increased availability of this information—one of the most important legacies of NCLB—in turn helps the groups to highlight the need for school reform in state capitols and build support among parents and community groups. ERAOs use these data to create a sense of urgency and to craft detailed evidence-based policy recommendations. 50CAN, for example, releases a detailed “State of Public Education” report prior to launching a new state branch. The groups also build momentum for change—and help policymakers make tough political choices—by documenting community support for reform through public opinion polls. In Indiana, for example, Stand for Children hired an independent firm to survey teachers about proposed reforms and was able to report that many reforms had strong teacher support despite the opposition of their union.

There is both a public and private dimension to ERAO work. Behind the scenes the groups work to cultivate relationships and build credibility with governors and state legislators and their professional staff as well as with state education-agency folks. They hold regular briefings for these insiders—often bringing in nationally recognized experts—to make the case for reform and report on how other states have tackled similar challenges. They also wage a very public campaign for the hearts and minds of average citizens by organizing town hall meetings with parents and publishing op-eds in state and local media. They publicize the report cards developed by national research organizations—such as the National Council on Teacher Quality’s “State Teacher Policy Yearbook” and the Thomas B. Fordham Institute’s “State of State Standards,” which enable comparison of one state’s policies with those in the rest of the country. ERAOs organize phone banks, rallies in state capitols, and online petitions to build momentum behind reform.

While newer reform advocacy organizations often partner with older groups like the Education Trust, they differ in approach and tactics. Older groups have tended to confine their efforts to research and lobbying, while the newer groups are more explicitly political, creating public pressure for reform to make it easier for policymakers to embrace difficult changes and then rewarding those who advance their agenda. Robin Steans, executive director of Advance Illinois, observed that “in the past the SEA [state education agency] was often alone in pushing reform in the state but now we are able to help lead the charge, to bring media attention and change the stakes and get folks to the table.” Central to this effort, as Bruno Manno has noted, is the quest to mobilize parents (see “Not Your Mother’s PTA,” features, Winter 2012). The perception that older parent groups such as the Parent Teacher Association are closely aligned with teachers unions and wedded to the status quo has led to the formation of new reform-oriented parent groups (such as Parent Revolution) and parent advocacy campaigns by groups like Stand for Children. The ERAOs take advantage of data microtargeting capabilities to identify potential supporters and use social media like Twitter and Facebook to regularly inform and mobilize them for advocacy.

A Coordinated Movement?

Suzanne Tacheny Kubach, executive director of the Policy Innovators in Education Network

It is tempting to see the patchwork of state and national school reform organizations as a fully integrated and coordinated movement. Yet, as a January 2012 study from the PIE Network concluded, “The most common thread across these states that enacted reforms was actually a lack of tight coordination among the varied members of these coalitions.” While many ERAOs share goals and move on parallel paths, and coordinate where it makes sense, no one group dominates or is in charge. One reason is the significant variation in political context. The unique policy landscape of each state necessitates that reform coalitions and agendas be built state by state. In Colorado, for example, the coalition that successfully pushed for the “Great Teachers and Leaders Act” comprised 22 different stakeholder groups and 40 different community and business leaders. While many members of state reform coalitions are education-specific groups, others focus on civil rights or business issues. Coalition size and diversity ensure considerable variation in the groups’ education agendas, and often even greater variation in their noneducation agendas. Civil rights and business groups, for example, often find themselves on the same side of school choice debates but on opposite sides of collective bargaining and taxing-and-spending issues. As a result, a standing coalition of ERAOs is difficult to build or sustain across different policy proposals.

Many of the groups talk to one another frequently, through a regular conference call organized by the Education Trust, at meetings organized by funders such as the Walton Family Foundation, and at conferences convened by groups such as the NewSchools Venture Fund. To the degree that there is an organizational home for ERAOs, it seems to be the PIE Network, which held its first meeting in 2007. The PIE Network emerged, according to executive director Kubach, because of “the growing realization that the arena of state policymaking matters a lot for school reform and you can’t just do everything at the federal level. We needed to connect the conversation in Washington with a coalition of different kinds of groups at the state level—business leaders, civic leaders, and grassroots constituents.” The 34 organizations in the network operate in 23 states and Washington, D.C. Network members include affiliates of Stand for Children and 50CAN, business groups like the Massachusetts Business Alliance for Education, the Oklahoma Business and Education Coalition, and Colorado Succeeds, and civic groups like Advance Illinois and the League of Education Voters (Washington). The PIE Network is also supported by five “policy partners,” which span the ideological spectrum but agree on the network’s reform commitments: Center for American Progress, Center on Reinventing Public Education, Education Sector, National Council on Teacher Quality, and Thomas B. Fordham Institute. Like many ERAOs, PIE Network is funded by the big three (Walton, Gates, and Broad) along with the Joyce and Stuart foundations.

The PIE Network facilitates regular communication among its members: it distributes a bimonthly newsletter, hosts a monthly conference call for leaders of its member groups, and convenes two face-to-face meetings each year—one with about 40 participants for group leaders and another larger, invitation-only meeting designed to bring the advocacy group leaders together with policy experts and policymakers. The organization also uses Twitter to act as an information clearinghouse by retweeting/aggregating all of the posts from its member organizations. Kubach argues that it is extremely difficult for individual state reform organizations to do this work by themselves and that the PIE Network has worked to encourage cross-state collaboration and the “cross-pollination” of reform ideas, and enable the “acceleration of the school reform movement.” One tangible example is that PIE Network members share legislative language for school reform bills (such as to improve teacher evaluation and tenure) that are being pushed in state legislatures, obviating the need for groups to undertake this time-consuming and technical work on their own. Nonetheless, despite the increasing communication among ERAOs, it appears to be too early to speak of them as constituting a coordinated movement, and given some of the challenges and divisions identified below, they may never become one. Indeed, Kubach explained that, at least for the PIE Network, centralized coordination has never been the goal: “There’s a pretty clear understanding across the sector that states are where most of reform policy is made and that local actors concerned about their schools are the most credible voices to lead that change. Our goal is to strengthen those local voices—not to overshadow them with a single-minded, nationally orchestrated campaign.”

ERAO Victories

The ERAO leaders I spoke with praised the Obama administration’s Race to the Top (RttT) competitive grant program for creating momentum behind reform at the state level and providing political cover for reformers. Rhee observed that “RttT was a brilliant idea. It really helped us build bipartisan coalitions. Right now Republicans are being more aggressive on education reform than Democrats at the state level, but being able to say that a Democratic president and education secretary were supportive really helped to convince Democrats to do more courageous things.” As Steven Brill noted in Class Warfare (see “Great Teachers in the Classroom?” book reviews, Spring 2012), school reform advocates seized the momentum created by RttT to mobilize and collaborate in advancing their agenda in state legislatures. PIE Network director Kubach observed that it “created urgency, a moment of real comparability across states and pressure to change.” ERAOs helped to facilitate state-to-state comparisons and develop legislative agendas by assessing existing state policies against the RttT criteria. They then lobbied state policymakers and created grassroots campaigns to mobilize support.

It is difficult to precisely gauge their impact, but it is clear that ERAOs are having a large—and increasing—influence on education debates at the state and national levels and that their efforts have contributed significantly to the passage of important legislation. Indiana governor Mitch Daniels recently remarked that he has seen a “tectonic shift” on education in states and that “more legislators are free from the iron grip of the education establishment.” Hari Sevugen, communications director at StudentsFirst, noted that “what we’ve lacked and what those fighting for the status quo had was an organized effort that decision makers had in the back of their mind as they put together education policy. That equation was highly imbalanced, but is now changing.” StudentsFirst claims to have signed up a million members in its first year and to have helped change 50 different state education policies.

The recent wave of teacher quality reforms offers perhaps the best evidence of ERAO impact, as no area of education reform has been more strongly resisted by the unions. Nearly two-thirds of states have changed their teacher evaluation, tenure, and dismissal policies in the past two years: 23 states now require that standardized test results be factored into teacher evaluations, and 14 allow districts to use these data to dismiss ineffective teachers. While in 2009 no state required student performance to be central to the awarding of tenure, today 8 states do. ERAOs have been hailed for playing a pivotal role in the passage of these new laws, with Stand for Children leading the effort in Colorado and Illinois. Former Illinois board of education chairman Jesse Ruiz said that the group was “an instigator, a catalyst, you might say.” In fewer than 100 days, Stand raised about $3.5 million in the state and used $600,000 of that to make contributions to seven House and two Senate campaigns. This kind of hardball political organizing and lobbying has long been employed by the unions to defeat school reform legislation but increasingly is being utilized by the ERAOs to drive change.

Democratic Divides

Joe Williams, executive director of Democrats for Education Reform

While the ERAOs emphasize bipartisanship so that they can work effectively with policymakers on both sides of the aisle, the groups confront two very different challenges related to partisan politics. First, the Democratic Party is divided over school reform—particularly on school choice, test-based accountability, and teacher quality. One of the most important and unresolved issues is how the groups will navigate their complicated relationship with civil rights organizations and teachers unions. Teachers unions are a crucial part of the Democratic Party’s base and yet have long been resistant to the kinds of reforms the ERAOs are advocating. But the unions themselves are also in flux. Harvard’s Susan Moore Johnson has noted the rise of “reform unionism”: support for reform is increasing inside the unions, particularly in the American Federation of Teachers (AFT) and among younger teachers. This trend has spawned such pro-reform teacher organizations as Teach Plus and Educators 4 Excellence.

Collectively, civil rights groups have assumed an ambiguous and fluid position in the school reform debates, though with major groups at times supportive of elements of the ERAO agenda. As Jesse Rhodes observed in a 2011 article in Perspectives on Politics, a number of civil rights groups have “played a central role in developing and promoting standards, testing, accountability, and limited school choice policies in order to achieve what they view as fundamentally egalitarian purposes.” Yet these groups have historically been closely aligned politically with the teachers unions and continue to find common ground given the large number of minority teachers, particularly in urban areas. This helps to explain why the NAACP sided with the unions against school closures and charter school expansion in New York City and Newark, for example, even as the group supports the ERAOs’ call for closing achievement gaps. There is also a major generational and racial gap between the leaders of groups like the NAACP and ERAO leaders, who are an overwhelmingly young, elite-schooled, and “white” bunch and as such are often viewed skeptically by people of color. Figuring out how to create state-level alliances with civil rights groups and mobilize urban communities—which are disproportionately minority and poor—remains an ongoing challenge.

The Need for a “RFER”

The second challenge is preserving over time the fairly broad bipartisan consensus on the ERAO agenda. As DFER’s Williams observed, “There are times where we agree with Republicans, but also plenty of times where we disagree—especially at the federal level and about funding.” While ERAOs generally support an active role for the federal government in promoting school reform and accountability, the rise of the Tea Party has highlighted how many conservatives continue to oppose such activism. And while ERAOs have led the charge to reform teacher evaluation and tenure policies, they have generally opposed more fundamental changes to collective bargaining pushed by Republican governors in places like Wisconsin. Similarly, while many Democrats (as well as many of the ERAOs) support the expansion of charter schools and school choice, there is much greater ambivalence over the school voucher proposals that Republicans are pushing in many states.

The creation of DFER has shifted the politics of education inside of the Democratic Party and provided cover for reform-minded Democrats in Congress and state capitols from the more liberal, union-friendly base. But a Republican counterpart to DFER—which insiders jokingly refer to as ReeFER—has yet to emerge. The Foundation for Excellence in Education (FEE) serves that role to an extent, but it does not currently lobby or make political contributions. FEE was started by former governor Jeb Bush to help spread the accountability reforms he enacted during his time in office and has been very active in the South and West. The organization hosts an influential summit every year for state policymakers and also sponsors Chiefs for Change, current and former state education superintendents who advocate for school reform. FEE has concentrated its work on six states (Florida, Indiana, Oklahoma, New Mexico, Louisiana, and Arizona) but is active in more than 20.

Winning Battles or the War?

Over the past two years, ERAOs have shown that they can mobilize quickly and effectively on behalf of reform. But as FEE’s Patricia Levesque warns, education reform is a long-term endeavor where “success is incremental” and “progress can be torn down quickly if momentum is stopped.” The recent struggles of the winning Race to the Top states have demonstrated that ensuring that policy reforms are implemented effectively on the ground and sustained over time is crucial, though less “sexy” than winning legislative victories. Major policy victories can quickly be undone by a new governor or legislature or undermined during the rule-making process, what Levesque called “death by a thousand cuts.” Battles over implementation occur in different venues (state boards, task forces, and education agencies), are more technical and less visible, and demand different tactics than legislative fights. ERAOs’ roles must include technical assistance, reporting, and watchdog vis-à-vis state education agencies.

To date, ERAOs have focused on states they consider hospitable to their efforts. There are important limitations to this approach, as it leaves many states unserved; 27 states, for example, are not represented on PIE Network’s membership list. Indeed, this strategy may actually ensure that states most in need of reform advocacy (and perhaps with the worst-performing school systems) will be ignored. The hope among ERAOs is that laggard states will feel pressure to follow reform-oriented states, but there is no guarantee that this will happen. It is also important to keep in mind how new the ERAOs are and how small their staffs are, often just a handful of folks. Sevugen at StudentsFirst remarked that despite ambitious goals, the group is essentially a “start-up” and that “we are trying to fly the plane while we build it.” Clearly, to be successful over the long haul, ERAOs will need to better coordinate their efforts within and across states. Rhee is optimistic on this front, noting that “more critical masses of reform-oriented folks are being built up, and I’m seeing more leaders of education reform organizations saying ‘we need to figure out how we can align our efforts in a more effective and efficient way than in the past.’ It’s not going to happen overnight, but I’m very hopeful that it will happen in the next two to three years.”

Though the groups are still young, the “reform blob” is providing a counterweight to the teachers unions in school reform debates at the state level. The ability of the ERAOs to overcome the unions should not be overestimated, however. The unions’ extensive resources—and large staff—enable them to be present everywhere, and it is unclear whether the ERAOs will be able to match their efforts in every venue. Kubach commented that “in California, there are reform groups like EdVoice, California Business for Education Excellence, and the Education Trust West that among them have maybe 25 employees working in rented office suites. The number of employees working for the teachers unions and administrators associations is much, much larger, and they all own multi-story buildings near the capital. [Even with] StudentsFirst there, that doesn’t come close to tipping the scales. The suggestion that the reform movement is the ‘big money game’ in any state capital is simply laughable.”

Still, the unprecedented state school reform activity of recent years—and, in particular, the enactment of a large number of teacher quality and school choice bills—testifies to the role these groups are playing in mobilizing political support behind reforms that even five years ago faced long odds. Several ERAO leaders recalled how few reform organizations there were, and how few local or state politicians were willing to take up the mantle of reform. Today, it is clear that a new club of reform organizations is itching for a fight and that politicians in both parties are increasingly willing to join them in the ring.

Patrick McGuinn is associate professor of political science and education at Drew University.

Unemployment insurance is supposed to help those unfortunate workers who lose their jobs as the result of an economic contraction or their own company’s need to regroup.  But those who work for the public schools, institutions that only seldom need to retrench and that hardly ever close their doors, have nonetheless found a way to convenient way to collect unemployment benefits.

As those who have followed the school battles in Wisconsin and Indiana know well, school employees enjoy generously funded health-care benefits and handsome defined benefit pension plans that are driving many state and local governments to the edge of bankruptcy.  Now, add still another give-away to the public employees of the nation’s schools—unemployment benefits for those weeks when kids are given their spring break.

I learned all this simply because the number of people seeking unemployment benefits went up last week, which may signal that the U. S. economy is at risk of falling back into another recession.

But, says the Wall Street Journal’s “Marketwatch” (April 19), we can’t be sure these numbers tell us much about the direction of the economy. “The weekly claims data is often hard to decipher in April because of the Easter holiday and spring break,” it reports, “when many school workers such as bus drivers and cafeteria workers are eligible to receive temporary benefits.”

I leave it to you, dear readers, to tell me just how bus drivers and cafeteria workers pull off this scam.  I had always thought the wages and salaries paid to public employees take into account school vacation times as well as the days they are on the job.  I thought the unemployed had to prove they had been fired from their job to get those marvelous (to coin a phrase) unemployment benefits.  How did bus drivers get access to those unemployment funds during holiday week?  Does this also happen in late December?  How about summer time? Who else gets them?

I’ve also heard the rumor that teachers are delighted when they get the spring pink slip in those years when the state legislature has yet to vote state aid for the schools the following fall.   Everyone knows that the legislature will eventually pony up the dollars, but school districts hand out pink slips to teachers anyhow, telling them they are fired, at least for now, because no one knows when the state dollars will flow.

Although sob stories about frightened teachers appear in the local paper, the truth, I’ve been told, is that the slip gives them the right to collect unemployment benefits even if they use the money to take a European tour prior to returning to school in the fall.

That’s the rumor I once heard.  Tell me it’s not so.  Tell me the wages and salaries and benefits that school employees officially receive are all that they get.

- Paul E. Peterson

Make no mistake: The “new normal” of tougher budget times—as Secretary of Education Arne Duncan calls it—is here to stay for American K-12 education.

Tight budgets should encourage districts to spend smartly and stretch funds, rather than harm education with shortsighted cuts. Photo by blognd

While that presents plenty of hardships, it also offers local officials a golden opportunity to rethink the way we run schools and to boost productivity and efficiency, a point I make in my new policy brief, “How School Districts Can Stretch the School Dollar.”

How?

Let’s start with a few key principles to keep in mind when weighing cuts:

Solving our budget crisis shouldn’t come at the expense of children. We should do everything we can to protect students’ learning opportunities and boost their achievement.

Nor can it come from teachers’ sacrifice alone. Suppressing teacher salaries forever isn’t a recipe for recruiting bright young people into education—or retaining the excellent teachers we have now.

Quick fixes aren’t a good answer; we need fundamental changes that enhance productivity. The reforms—and investments—with the greatest payoff are those that will maximize student outcomes at lower cost. And since education is overwhelmingly a people business—and most of the system’s costs are in personnel—the most promising reforms are those that rethink our staffing model.

So how can school districts dramatically increase productivity and stretch the school dollar?

Aim for a leaner, more productive, better paid workforce.

In a people business like education, it’s next to impossible to cut costs without letting some people go. But the answer isn’t just to lay off teachers and let class sizes rise (though, in most grades and subjects, modest increases aren’t the end of the world). In the last two decades, school systems have hired all manner of instructional coaches, teachers’ aides, program administrators, support staff, counselors, psychiatrists, specialists, and so forth. Redefining these roles—and those of classroom teachers—provides great opportunities for increased productivity. None of this is easy, but districts should consider:

• Asking classroom teachers to take on additional responsibility in return for greater pay. Can they do without aides? Handle larger classes (or student loads)? Take on mentoring roles along with classroom instruction? Where these additional responsibilities enable the system to operate with fewer staff (even if that means the remaining staff work a longer year), the system can justify higher pay while still realizing savings.
• Eliminating some ancillary positions. Can districts manage with fewer specialists, instructional coaches, teachers’ aides, support staff, and the like? If classroom teachers can take on some of these jobs, not only will this save on salaries (some of which could be reallocated to bonuses or salary enhancements for teachers), it will save dramatically on benefits.
• Redesigning their approach to special education. Many of the specialists that districts have hired in recent decades serve special populations—mostly students with disabilities but also English language learners. Districts should consider whether their approaches to educating these high-need students are as cost-effective as they could be. (That doesn’t mean cheap—it means effective, at a reasonable cost.) For example, if a district uses a “co-teaching” model with regular teacher and a special education teacher in the same classroom—which is hugely expensive—could it try a pull-out approach instead? Or if the best model has these students staying in the classroom, could the extra services be provided over the summer, or after school?  

Pay for productivity. The best way to increase productivity is to ask fewer people to do more work in order to get better results. And they should be compensated fairly for it. Here’s how:

• A more aggressive salary schedule. Teachers improve dramatically in their first few years on the job, and their salaries should rise dramatically along with their effectiveness—reaching the maximum base salary much sooner than is now the case. This would help with retention of young teachers—a huge opportunity for saving money (on training, recruitment, etc.)—and with raising student achievement, while eliminating the spiked pay at the end of a career that drives up pension obligations.






To learn more, download the full policy brief, How Districts Can Stretch the School Dollar.

• Prioritize salaries over benefits. It’s no secret: School districts have to get their health care costs under control. Every dollar going into health insurance is a dollar that can’t go into higher salaries. Plans should be redesigned so that employees have more skin in the game—and incentives to keep their own healthcare costs down. Co-pays, employee premiums, out-of-network fees, and the rest should be brought into line with what workers in the private sector expect.

Integrate technology thoughtfully. Online and “blended” school models—where students spend all or part of the day learning online—are coming to K-12 education. These can be catalysts for greater pupil engagement, individualization, and achievement. If organized right, they can also be opportunities for cost-cutting. Why couldn’t students learn foreign languages via Rosetta Stone, for example, instead of in a traditional classroom?

Rather than hope for revenue increases that are unlikely to materialize, smart leaders can turn the present budget crisis into an opportunity. Most of the school dollar goes toward instructional staff and the people who manage them. Rethinking whom we hire, what they do, how we pay them, and how to incorporate technology—that’s where the big payoff is. Local officials need to reconsider the core business of schooling—and get key stakeholders to buy into a new, more cost-effective, more productive vision. That’s no small thing. Are they up to the challenge?

-Michael Petrilli

This post originally appeared on the Fordham Institute’s Flypaper Blog

The overall idea of weighted student funding—that some students require more resources than others because they require extra educational services—makes sense intuitively and provides a sensible way for states to think about pieces of their school finance systems. The usual categories of students requiring “weights” are those in special education, disadvantaged students as generally defined by family income, and English-language learners.

Indeed, every state in the union currently uses some version of weighted funding, either through explicit inclusion in its funding formula or through allocations using “weighted students” instead of actual students. The federal government’s most significant K-12 spending programs target disadvantaged students (through Title I) and students with disabilities (via the Individuals with Disabilities Education Act).

Given that, why is weighted student funding such a common element of reform? The prevailing idea that drives the somewhat surprising alliance of right and left goes beyond simply funding districts according to assessments of needs based on poverty status, special education, language deficiencies, and the like. The reform envisioned is not so much about providing differential dollars based on student needs, but about changing who makes funding decisions. The supporters also importantly call for dollars to go directly to individual schools based on these categorizations of student needs, with individual budget decisions being made at the school level. The unstated goal is to bypass any decisionmaking at the district level—where each group sees intractably bad political outcomes.

But hoping that a new distribution of funding that goes directly to the school level—call it school-based weighted funding—will create the right incentives appears both misguided and possibly harmful.

Let’s dig deeper here. Liberals like the concept of school-based weighted funding because they believe it would push money to schools that serve more-disadvantaged populations, and they tend to focus most on funding variations within urban districts. The highest-poverty schools in urban areas traditionally have received less funding than more-advantaged schools, not because of programmatic disparities, but largely because they employ more rookie teachers who come with lower salaries than more-senior educators.

These liberals ignore the fact that local schools have no control over teacher salaries or, for the most part, over the choice of teachers. Thus, the added dollars from the weighted student funding seldom empower them to make choices that improve the quality of teachers. As a result, the benefit of additional funding in a world where the quality of teachers is unrelated to the salary of individual teachers is murky at best.

By contrast, conservatives like the idea because, in their vision, it would push funding to charter schools that traditionally have received less-than-equal shares of federal, state, and local aid. Conservatives focused largely on the federal and state dollars ignore the fact that local funding would not necessarily flow with the child to the charter school under a weighted system. Redirecting the revenue stream would not achieve the parity they seek for charter schools without altering significantly the varied arrangements nationwide for state and local school finance.

At their heart, both positions rely upon an untested view of politics: If only the actual flow of dollars were more transparent, political forces would be inescapably set in motion that would in turn eliminate the current shackles on schools and allow them to make the decisions needed to improve achievement.

We should have absolutely no reason to believe that such a vision will come to fruition. For one, for the vision to hold, we must ignore any questions about decisionmaking capacities at the school level.

The underlying motivation for weighted student funding is built on a presumption that districts are making patently bad decisions, either because of a lack of capacity or distorted incentives. Is it the case that these problems appear just at the district level, but not the school level? Why do we believe that school-level personnel—without any prior training and experience—will become better stewards of resources or better judges of personnel, curricula, or instructional techniques?

“The reform envisioned is not so much about providing differential dollars based on student needs, but about changing who makes funding decisions.”

Additionally, we must believe that public pressure set in motion by this formulaic funding of schools will sweep away the rigidities of contracts, the desire to insulate the system from competitive pressures, and the interests of current personnel, and will lead to better solutions. Neither of these underlying presumptions appears plausible. What appears to be happening is that we are attempting to produce fresh approaches to regulating the process of education, only at a different level of governance.

Liberals and conservatives both want improved achievement of all students, but achieving that seems much more likely through rewarding success, rather than relying on the hope that a naive model of political reaction would work better. In simplest terms, weighted student funding does little or nothing to alter incentives for performance in the schools unless the vague hopes behind these ideas are realized.

A contrasting perspective can be seen in funding ideas that change incentives, developed in a book by Alfred Lindseth and me, Schoolhouses, Courthouses, and Statehouses. Provide funding to districts that adjusts the base amount for each student—disadvantaged students, English-language learners, or special education students—to reflect differences in education needs. But, having provided funding that recognizes different needs, reward districts that promote greater student achievement. And, don’t reward schools and districts where students fail to improve their performance. In other words, provide incentives for greater achievement, and do not reward failure. The different levels of funding compensate districts and schools for different demands on them, but the hopes for improved achievement come from providing incentives directly related to student achievement.

One premise of this alternative is that it is necessary to be clear about what outcomes need to be, but to allow districts to decide how to achieve those goals. Districts may find it useful in their management to employ some sort of weighted student funding for individual schools, but they might alternatively rely on strong district leadership and more-centralized funding decisions. It simply doesn’t make sense to try to dictate management rules from the state or national capital.

Schools will not improve until there are greater incentives for improving student achievement. Redistributing funds across schools or increasing the funding to schools by themselves will not magically put us on this path.

-Eric Hanushek

This commentary also appeared in Education Week.

Washington is at a crossroads on K–12 education policy. Policymakers can 1) continue down the path of top-down accountability; 2) devolve power to states and districts, thereby returning to the status quo of the mid-1990s; or 3) rethink the fundamentals, do something different, and empower parental choice.

The federal government’s involvement in K–12 education has accelerated through the Clinton, Bush, and Obama administrations. The best evidence indicates that this substantially heightened federal role has had only modest impact on student achievement, far short of what had been hoped. It might be that further centralization would yield more benefits, but it is doubtful that more federal control is politically possible, and, in any case, any additional yield is uncertain.

The second option—devolving recently accumulated federal power to the states—underlies recent reauthorization proposals for the Elementary and Secondary Education Act (ESEA) that allow each state to establish its own accountability system and that require teeth only for the very lowest-performing schools. It is unclear to us how releasing states and school districts from federal accountability and granting them maximum flexibility is anything more than a return to the status quo. It is the regrettable consequence of that approach that motivated increased federal involvement in the first place.

The Koret Task Force at the Hoover Institution (see sidebar, page 16), of which I am a member, believes that an evolved form of the ESEA that retains rigorous accountability is preferable to returning control of public schooling to local public-school monopolies and states, which will fall into old habits all too quickly. But we believe that the best interests of the nation require something other than either a return to the happy days of local school governance or evolutionary improvements to the type of top-down accountability found in No Child Left Behind.

We need a fundamentally new approach.

We propose to reform the nation’s schools on the basis of two principles that have served the nation exceedingly well throughout its history: federalism and choice. The federal structure of our government offers an opportunity to specify the role of Washington strategically, to leverage what it clearly can do best, while allocating to states and locales what they are best suited to do. Our particular view of federalism is disciplined by the laws of economics and empirical experience, a perspective known as fiscal federalism. The second organizing principle is choice. Much has been written and studied regarding choice in education—on charter schools, vouchers, choice among district schools, and much more—but the idea, so powerful in our economy and in other enterprises, including higher education, has rarely been examined in the context of federalism and the appropriate roles of Washington and lower levels of government.

A New Framework

What is fiscal federalism? Fiscal federalism argues that government services are most efficiently delivered if provided closest to the taxpayers or consumers receiving them, and that competition among local governments for residents and taxpayers will improve those services. In the context of public education, the challenge is to identify the areas of constraint for local providers of education services, determine which can be best addressed by state government, and assign the remainder to Washington.

But there is a fundamental flaw in fiscal federalism theory as it applies to education: the ability of taxpaying parents of school-age children to vote with their feet (leave school districts with which they are dissatisfied) is severely constrained for the low-income populations that are most likely to find themselves served by low-performing schools. This lack of geographical mobility for large segments of the population undermines the competitive pressure that low-performing schools and school districts would otherwise expect to face. This leaves those districts vulnerable to the interests of whoever is powerful at the local level, more often than not organizations that represent teachers who are employed by school districts, rather than to the influence of parents and taxpayers.

One way to correct the strong tendency of local school bureaucracies to cater more to adult than student interests is to intervene from above, the course of action taken by Washington over the last 15 years. We argue that this has been only weakly effective while imposing a heavy regulatory burden on schools. We propose instead to create real competition for students and the public funding that accompanies them among the providers of K–12 education services. Considerable research indicates that schools respond to competitive pressure. In a systematic review of 41 empirical studies on this topic through 2002, Columbia University researchers Clive Belfield and Henry Levin found that “a sizable majority report beneficial effects of competition.”

In our proposal, funding must follow students and be weighted to compensate for the extra costs associated with high-need students if schools are to compete for students and if parents are to have real choice. Parents must have the widest possible choice of schools for their children and be armed with good information on the performance of schools. Informed choice that is accompanied by financial consequences for schools will create a marketplace for schooling that will evolve toward greater responsiveness to what parents want, will be more innovative, and will become more productive.

A Role for Washington

The federal government currently funds a wide range of K–12 education initiatives (see Table 1). The task force has identified just four functions that are essential to its role in education: creating and disseminating information on school performance in each classroom and program effectiveness, including information on individual student performance; enforcing civil rights laws; providing financial support to high-need students; and enhancing competition among providers.

Information: The provision of information on the condition of education and on the results of education research is primarily a public service. In such situations, a serious free-rider problem exists: because it is impossible to prevent a class of consumers who have not paid for the information from consuming it, far too little evidence will be produced if it is not supported by an organization with the entire nation’s interests at heart. The free-rider problem is one reason that state and local authorities cannot be entrusted with the task of knowledge production. Furthermore, evidence does not merely need to be produced; it needs to be based on high-quality data. Gathering and auditing data are almost pure public services. Thus, it is easy to justify federal support for research, data gathering, and dissemination of information. Without valid information on the performance of students at each school relative to that of their peers across the country, the entire education enterprise flies blind, leaving parents, teachers, school managers, and policymakers with nothing more than intuition and consensus as the basis for making decisions.

Civil Rights: When state and local actions in education are discriminatory, the federal government should step in to enforce civil rights laws. Acts of unjust discrimination, such as those that would deny a student an educational experience for which the student is qualified based solely on race, gender, disability, or other protected status, are costly to society. Students who fail to be educated may need cash transfers as adults; they might take up crime or engage in other antisocial behaviors. Owing to mobility and society-wide redistribution, we all suffer in these cases. Thus, the federal government, and not merely state and local governments, has an obligation to curb discrimination.

Compensatory Funding: Regardless of whether the underlying cause is disability, lack of English proficiency, or poverty, high-need students are more expensive to educate than other students. Failure to provide additional resources can provide an incentive for other students to move to another school if they are able. The burden that the high-need student produces will thus be disproportionately borne by those who are too immobile to avoid it, most likely other high-need students. The federal government can counteract these inequities through cash transfers. The difficulty is figuring out the right financial supplement and the best mechanism for distributing it.

Title I of the ESEA and the Individuals with Disabilities Education Act (IDEA) are designed to disburse funds to states and school districts for the education of high-need students. Rather than the complicated federal schemes under which funds are currently disbursed to districts, funds should be attached to the student. Individual schools would receive federal funds based on student counts, with a weighting formula to adjust for factors such as the increased burden of educating high-need students and for regional differences in costs. Sometimes called “backpack funding,” weighted funding that follows the student has been shown to direct proportionally more funds to schools that serve needy students than traditional distribution schemes.

Choice and Competition: The federal government can and should restrict education monopolies and support school choice for parents and students. The current system, which relies on residential mobility to drive school districts to improve education services, does not work well enough to improve education outcomes or to ensure equity. Such a system consigns the poor and immobile to inferior schools and leaves the control of schools in the hands of those who benefit most from the status quo. The simple feature of eliminating a default school assignment by the school district—thus requiring every parent to engage in school choice—eliminates socioeconomic differences in the likelihood that parents will shop for schools. Further, if parents could exercise school choice through web-based portals that highlight the important variables of school performance, socioeconomic differences in knowledge could be muted. Here, again, the federal government has a role to play, for example, by funding open competitions for designers and implementers of school-choice portals.

Market-based competition cannot prevail in public education unless the consumers of public education can choose where to be schooled. We propose that as a condition of the receipt of federal funds to support the education of individual students, schools be required to participate in an open enrollment process conducted by a state-sanctioned authority. Such a process would maximize the matches between school and student preferences. Unified open-enrollment systems that encompass as many choices as possible from the regular public, charter, private, and virtual school universes are essential to the expansion of choice and competition in K–12 education. These systems have to be designed so that all schools have the same time frame for applications and admission decisions, and so that they cannot be gamed by either schools or applying families.

The federal government has a legitimate role in overseeing the marketplace for schooling, including the architecture of parental choice systems. It is in the interest of society that the concentration of high-need students not increase in particular schools. Choice systems have to be carefully and explicitly designed to avoid students being sorted by race, economic background, and other conditions. Several options exist for ensuring that schools cannot discriminate against groups of students, including a lottery system (currently required in federal regulations for start-up charter schools), controlled choice (in which algorithms are used to maintain balanced enrollment), and a financial or fee supplement attached to students in protected classes.

Charter Schools

To ensure a supply of schools from which families may choose, states should establish a system for authorizing charter schools that enables the charter sector to expand to meet demand; that provides funding under the same weighted formula that applies to all other publicly supported schools; and that offers charter schools access to capital commensurate with district school funding. Where there are charter schools, they are frequently the only alternative to regular public schools for low- and moderate-income families. Relative to statewide averages, charter schools tend to attract a disproportionate number of students eligible for free or reduced-price lunch as well as minority students, especially African Americans. Initial test scores of students at charter schools are usually well below those of the average public-school student in the state in which the charter school is located.

Research on the effectiveness of charter schools in raising student achievement presents a mixed picture. In general, charter schools that serve low-income and minority students in urban areas are doing a better job than their traditional public-school counterparts in raising student achievement, whereas that is not true of charter schools in suburban areas. Charter schools do require careful oversight through appropriately funded authorizing bodies, equitable funding via a backpack model, and the opportunity to grow based on their ability to attract students. Fulfilling the latter condition means that states that do not allow charter schools, or that arbitrarily cap their growth, or that turn their authorization over to the very school districts with which charters compete should reform their practices. The Obama administration included these conditions in Race to the Top. They should be incorporated into the reauthorization of ESEA.

Cybercharters and Other Choice Schools

Bringing the provision of K–12 education services into the 21st century by unfettering technology as a delivery mechanism will substantially enhance competition and productivity. Unfortunately, virtual courseware and distance learning providers often must make their sales to school districts rather than to individuals. School districts are likely to be reluctant customers because their operations are disrupted by distance learning. The result is that market demand is suppressed and investment in new technologies for K–12 education curtailed.

Much of the anticompetitive force of local school districts is exercised through requirements that link publicly supported education services to geographical constraints. A leading example is restrictions on cybercharter schools, i.e., schools that offer most or all of their instructional programs over the Internet and do not have brick-and-mortar physical locations where students assemble. To the extent that such schools are allowed to operate at all, they typically do so in the context of charter school laws. These laws include conditions such as a minimum number of hours of daily instruction that do not make sense for courses that are delivered over the Internet, can be taken at a student’s own pace, and frequently define completion in terms of mastery rather than seat time. Further, there is currently no provision in any state’s laws or at the federal level for students to attend cybercharter schools that are out of state in the sense of having no physical place of business within a state. States and school districts should be prohibited from establishing policies that unreasonably interfere with the provision of education services by out-of-state or out-of-district providers, including online charter schools and distance learning providers. They should, instead, make enrollment in such schools readily available.

The federal government has a long history of promoting interstate markets through its authority under the U.S. Constitution’s commerce clause. As the judicial interpretation of the commerce clause has evolved over time, it has come to include the federal authority to nullify state or municipal laws whose object is local economic protectionism (the so-called dormant or hidden commerce clause). The dormant commerce clause could be applied to the provision of education services through the Internet, that is, the federal government could take legal action or support legal claims against states and local school districts that restrict or prohibit access to Internet-based education services that are provided outside district or state borders.

In cybereducation, as in many areas of school administration and performance, it is useful to compare K–12 with postsecondary education. In 2006, the most recent year for which national data are available, postsecondary institutions reported more than 12 million separate distance-learning course enrollments. Two-thirds of all postsecondary institutions offered distance learning courses, and there were more than 11,000 individual programs of study that could be completed entirely online. The contrasts with K–12 education are stark; there were only about 1 million distance-learning enrollments in K–12 in 2007.

Cybereducation for postsecondary students is a national rather than a local marketplace. A student can take a distance learning course from the University of Arizona, and the course credit can apply to graduation requirements at a large number of colleges and universities, without geographical restrictions. Further, if the student has qualified for federal student grants or loans, those are attached to the student, i.e., backpacked. The federal government is indifferent to distance learning versus place-based learning and to geographical boundaries in the provision of financial aid to high-need postsecondary students, whereas in K–12, that aid is funneled through local public-service monopolies that hold captive the students in their geographical catchment area. The federal government also recognizes regional and national accrediting bodies for higher education institutions. By simply shifting its policies on K–12 education to match those it has adopted for postsecondary education, the federal government could provide to parents something nearly every parent wants—the right and opportunity to choose where their child is schooled—and create a powerful engine for innovation and productivity.

Although the promise and potential of parental choice is nowhere more evident than in the realm of technology, the arguments for allowing students ready access to cyberschools extend to interdistrict school choice, charter schools, private schools, and vouchers as well. When combined with the availability of good information on school performance to parents and backpack funding, these options could create a dramatically different landscape for schooling than is currently available in the United States.

Moving Forward

The approach we recommend places the federal government in a central role in providing information and compensatory funding and in promoting a competitive and information-rich marketplace for education services. Mechanisms we espouse, such as student-based funding, open enrollment systems, charter schools, and virtual education, are having some success in breaking open the current system, but they require very special circumstances at the state and local level. We understand that our proposals, if adopted, would represent a fundamental shift in the federal government’s role in K–12 education. An attempt to reauthorize ESEA, IDEA, and Head Start to conform to our recommendations may well fail, in part because what we propose will appeal more to some states than to others. There is nothing wrong with such differences. Indeed, the federalism we espouse is built on the advantage that is conferred to citizens by having government policies and services determined as close to home as possible. There is a legislative way forward consistent with our proposal and federalism, one with a rich legislative history and experience of success at the federal level:

Let states opt out of the statutory and regulatory requirements of ESEA, IDEA, Head Start, and other relevant federal laws in exchange for creating a marketplace of informed choice and competition. Some states will find throwing off the federal yoke in exchange for providing maximum education choice for their citizens politically attractive and viable. Those states can serve as the laboratory for the proposals we have put forward. If these initiatives fail to advance student achievement, social equity, and education productivity, and if they lose the support of a state’s electorate, they will be abandoned, and the state will return to the federal fold. If, instead, some states experience the success we think is likely, other states would find the risk of coming onboard manageable and, we think, face escalating demand from their citizens.

The education system clearly has vast consequences for this nation’s economy, society, and world leadership. The federal government has a crucial role to play in protecting and promoting precisely those national interests that lower levels of government cannot. We believe the most promising approach is to move decisionmaking closer to the consumers of K–12 public education by unleashing pent-up demand and empowering parents to choose schools for their children.

Grover J. “Russ” Whitehurst is a member of the Koret Task Force on K-12 Education and director of the Brown Center on Education Policy at the Brookings Institution.

The full report of the Hoover Institution’s Koret Task Force on K-12 Education is available at www.choiceandfederalism.org.

Teacher benefits, once a sleepy question primarily of interest to actuaries, have become a flash point in the education debate. With individual states on the hook for tens or hundreds of millions in unfunded pension and health insurance obligations, state leaders are trying to determine the severity of the situation and the appropriate response. In this forum, Robert Costrell of the University of Arkansas and Mike Podgursky of the University of Missouri argue that the situation is critical, but offer an opportunity for overdue reform, while Christian Weller of the University of Massachusetts-Boston argues that measured steps will put teacher pensions on sound footing.

Education Next: How bad is the teacher pension crisis?

Christian Weller: The states’ fiscal crisis necessitates that they address pension underfunding. Underfunding means that pension assets are lower than liabilities, or those benefits promised to beneficiaries. The underfunding often seems staggering. The Center for Retirement Research at Boston College, for instance, estimated the gap at more than $700 billion in 2009. The aggregate underfunding reflects the money that states will need to come up with over several decades. But the CRR also estimates that an additional 2 percent of payroll would cover the expected shortfall, making the problem manageable without ruining governments.

Christian Weller

States can take a balanced approach to managing pension underfunding that fits their particular circumstances. Thirty-nine states reduced benefits, increased contributions, or both between 2001 and 2009, according to the Pew Center on the States. The exact combination of benefit and tax changes depends on several factors, including public employees’ Social Security coverage, current benefits and contributions, and states’ human resource needs. States still want to make sure that their benefits allow them to hire the most-effective employees.

Robert Costrell and Michael Podgursky:

Indeed, educator pension systems are becoming increasingly expensive and, in many states, are seriously underfunded (see “Teacher Retirement Benefits,” research, Spring 2009). One major source of this problem is the massive increase in benefits from several decades of legislative enhancements. The key to understanding this is the concept of “pension wealth,” the current dollar value of the expected stream of future benefits, in other words, the cash value of a retiree’s annuity. Pension wealth encompasses both the annual pension payment and, importantly, the number of years it is collected.

The two solid curves in Figure 1 show pension wealth for a typical Missouri teacher in 1975 and today. Each curve is calculated under the current salary schedule for teachers in the state capital, so the growth represents only pension rule changes. The bottom curve shows that under 1975 rules a teacher entering at age 25 would have accrued just under $400,000 in pension wealth by age 55. Today, the same teacher would have accrued pension wealth of just under $900,000 by the same age. Not surprisingly, these enhancements have come at a substantial cost: Combined contributions for teachers and districts increased from 16 to 29 percent of salary over this period. However, even this is inadequate; the portion of salary required to pay for pension wealth accruals of current teachers and to pay off the unfunded liability is 31.3 percent.

EN: What steps should states take to address the crisis?

RC & MP: Given concerns about cost and long-term sustainability, a number of states have cut benefits, usually for new teachers, and others are considering doing so. However, in making these changes, policymakers should carefully consider their labor market effects. Some of the proposed cuts reproduce, and even exacerbate, undesirable features of current systems. These shortcomings stem from a fundamental flaw: the failure to tie benefits to contributions. Thus the fix must expose and eliminate the gaps between the two. Below are three recommendations for reforming teacher pensions:

Robert Costrell

1. Report the gaps between contributions and pension wealth. In many respects, current defined benefit (DB) pension plans for teachers are opaque. Teachers rarely know what their plan is worth. By contrast, holders of 403(b) or 401(k) accounts typically know exactly what their account is worth at any point in time. To provide the same transparency for teachers, plans should not only disclose the projected annual pension payment, they should also report pension wealth. For comparison, the plan should disclose the cumulative value of contributions, both the employee’s and the employer’s, along with accumulated returns. In this way, each educator could see how the value of her accrued benefits compares with the value of the contributions. In the typical teacher pension plan, these are going to be very different numbers. Early in a teacher’s career, the value of the contributions will far exceed pension wealth, whereas for more senior teachers, the reverse is true. The dotted line in Figure 1 illustrates this point. It represents the cumulative value of contributions that is fiscally equivalent to the current pension plan, showing that the cumulative value of pension contributions exceeds pension wealth until age 50. However, between ages 50 and 62 pension wealth is typically well in excess of contributions. Not surprisingly, this is when the vast majority of full-career teachers choose to retire.

Michael Podgursky

2. Close the gaps between contributions and pension wealth. To make pensions more equitable and effective tools for staffing schools, we propose that retirement benefits paid to any teacher should be tied to the lifetime contributions made by or for that teacher. If $300,000 has been contributed on behalf of a teacher (including accumulated returns), then the cash value of an annuity provided to this teacher should also be $300,000.

Unfortunately, as we have seen, this fundamental principle is routinely violated in teacher plans. The gap (positive or negative) between the value of benefits and contributions is rarely considered in plan design. Instead, legislatures tinker with complex and arbitrary pension rules, such as the calculation of final average salary (how many years included, what counts as “salary”), the annual service “multiplier,” and the eligibility rules to receive the pension (“rule of 80,” “25-and-out,” etc.). Since these benefit rules are not tied to contributions, legislatures have, over the years, enhanced them, without regard to equity or efficiency, and often without adequate funding. These complex rules also encourage “gaming” by educators and districts in order to increase the gap between benefits and contributions.

Our analysis shows that current systems typically result in very large implicit transfers from young teachers working short spells to “long termers,” who work full careers in the same system (see “Golden Handcuffs,” research, Winter 2010). In our view, a teacher who works 10 years or 30 years should accrue pension wealth roughly equivalent to total pension contributions (with accumulated returns). Thus, in Figure 1, the pension wealth curve would coincide with the contributions curve depicted, for a fiscally equivalent plan, or with a lower curve if costs are to be reduced.

In addition to improving equity, tying benefits to contributions would have important workforce benefits. First, it would provide rational incentives for retirement versus continued work. Each year, an educator would accrue pension wealth in a smooth and transparent way, providing a steady addition to the annual salary she is earning. This would generate neutral incentives to work or retire based on individual preferences and effectiveness. That is not the case with current systems. In our own work, we have shown sharp “peaks and valleys” in pension wealth accrual, which distort incentives for retirement (see “Peaks, Cliffs, and Valleys,” features, Winter 2008). Some years (e.g., at 25 or 30 years of service) yield increases in pension wealth that are several times the teacher’s salary. This provides a huge incentive to stay on the job until that pension “spike,” regardless of classroom effectiveness. There is no economic rationale for favoring one year of work over another in this way. Nor should an additional year of work reduce pension wealth (net of employee contributions), as is the case in current teacher plans after a certain point, often at relatively young ages. This penalizes good teachers who wish to stay.

Tying benefits to contributions would also eliminate the massive penalties for mobility in current systems. It is well understood in the private sector that in order to recruit and retain talented young employees it is necessary to provide portable retirement benefits. This is accomplished by defined contribution (DC) or cash balance (CB) plans that vest immediately or nearly so. Current teacher plans typically have 5- and even 10-year vesting. Our research finds that even for vested educators, the loss in pension wealth for those who split a teaching career between two traditional plans is massive. In a system where benefits are tied to the cumulative value of contributions, it does not matter whether contributions have all been made in one or many jobs: Penalties for mobility are eliminated.

3. There is more than one way to do it right—and to do it wrong. We favor CB plans. These are a form of defined benefit plans that generate individual retirement accounts in bookkeeping form within the pension fund. They are funded by contributions from employer and employee just like most current teacher plans and carry an investment return guaranteed by the employer. Such plans resemble a DC plan, but without transferring investment risk or asset management to the teacher. They are transparent, offer smooth wealth accrual, and are readily turned into annuities at retirement, like traditional teacher plans. However, no one year of retirement is favored over any other. Large private employers such as IBM have converted to such plans, as have a few public employers. The TIAA guaranteed-return plans that are common in higher education are similar in operation. They have provided retirement security for generations of college professors, who often spread careers over multiple institutions.

By contrast, Illinois is a cautionary example of how not to reform teacher pensions. Illinois recently implemented a two-tiered plan, placing teachers hired after January 1, 2011, in the second tier. Tier 2 teachers make identical contributions (9.4 percent) as their Tier 1 colleagues, but take a drastic cut in pension wealth accrual over their work lives, as shown in Figure 2. The Tier 2 plan retains the same basic structure while raising the retirement age. This exacerbates the back-loading and mobility penalties, and widens the gaps between benefits and contributions. A new teacher entering the Illinois plan at age 25 will accrue no pension wealth, net of employee contributions, until age 51. This is not an attractive offer for young, mobile teachers. Indeed, the Tier 2 package is not actually a net “benefit” for entering teachers, since the teacher contributions are nearly double the cost of the average benefit they accrue; the rest is basically a tax to pay for benefits accrued but not funded, by previous cohorts of teachers.

As states grapple with the current pension crisis, a window of opportunity is open to implement more modern and strategic plans, or to make matters worse. Fundamental reforms are needed to fix these broken systems. Systems should first be required to report the gaps between benefits and contributions for all members. Then, as a matter of equity and efficiency, the plans should be restructured to close these gaps by tying benefits to contributions. This would give young teachers their fair share of the retirement benefit pie and rationalize the retirement incentives for all teachers.

CW: States can take a number of steps to alleviate the pension crisis:

1. Spread the pain of addressing underfunding, if adjustments are unavoidable. Changes to pension plans generally only apply to new hires. State constitutions and courts typically hold already-earned benefits and future not-yet-earned benefits for existing employees and beneficiaries inviolate. This protection is also occasionally applied to employee contributions. Governments cannot reduce benefits and raise contributions for current employees, even if they want to. Hence, adjustments fall disproportionately on new hires.

Private-sector pension benefits also enjoy substantial protections, but to a lesser degree than public-sector benefits. The Employee Retirement Income Security Act of 1974 protects from reductions benefits that have already been earned, but it does not protect future benefits not yet earned. Private-sector employers can thus lower future benefits when a crisis requires a drastic change.

States should change their public benefit protections to permit adjustments to be distributed across a broader range of employees, if such adjustments become necessary. States could guarantee already-earned benefits but not those not yet earned, as the private sector does. States could also ease older employees’ distress about potential benefit changes by allowing future benefit reductions only for employees under a certain age.

There are several advantages to this approach: Current beneficiaries would remain fully protected, already-earned benefits could not be taken away, and older employees would receive the retirement benefits that they had earned. Arbitrary divisions in younger employees’ compensation arising from whether they were hired before or after the benefit change went into effect would also be eliminated.

2. Prevent underfunding in the future. The current underfunding resulted from massive stock and real-estate market declines. Public pensions were prudently managed before the crisis, as Jeff Wenger and Christian Weller have demonstrated elsewhere.

But many governments did not contribute as much as necessary to their pension funds, making them vulnerable in a crisis. The problems of pensions are more a result of low employer contributions than poor pension management. Governments often avoided paying the full amount of what was necessary to cover benefits earned in a given year. Even in 2011, Governor Chris Christie (R-NJ) considers the state’s contributions to its pension plan an optional expense. Governments, as employers, have exacerbated, and continue to exacerbate, their pension plans’ financial challenges.

One solution is to make governments pay the necessary amount to their pension plans. States could set a floor under employer pension contributions. The employer contributions could never fall to zero, commonly known as “taking a contribution holiday,” and employer contributions could never fall below the “floor” rate. DB pensions would receive money more regularly than is currently the case and thus underfunding would become less likely, particularly during a crisis.

If they set a floor for employer pension contributions, states would simultaneously have to change the rules that govern pension funding. Strong financial market performance could easily translate into overfunded pensions, which is desirable, since it means that DB pensions are prepared for a rainy day, such as the recent crisis. But overfunded plans could feed appetites for benefit improvements or contribution cuts, unless the law states that better benefits and lower contributions could only be considered if a DB pension has a minimum buffer for emergencies. Weller and Baker (2005) suggest a buffer of 20 percent of liabilities, which could be even smaller for state DB pension plans, since states cannot go bankrupt.

3. Beware of unintended consequences with alternative benefits. The wrong changes could have serious adverse effects. This would be the case if states also changed their retirement plans from DB pensions to an alternative design, particularly defined contribution (DC) savings accounts such as 403(b) plans, but also a cash balance plan. Cash balance plans look like DC plans to employees but operate like a DB pension for employers. Employers offer a guaranteed rate of return on current and past contributions to a cash balance plan and take the risk of higher contributions if the actual rate of return falls below the promised one.

Alternative benefits are less efficient than DB pensions. First, the average teacher effectiveness will likely decrease, as much higher employee turnover will easily offset any potential effectiveness gains. Second, alternative benefits come with substantial costs.

One unproven assertion about alternative benefits is that they would result in greater teacher effectiveness. Alternative retirement benefits are attractive to their proponents because these benefits would offer more compensation earlier in a teacher’s career and promote turnover later in a teacher’s career relative to a DB pension. Higher compensation earlier would attract to the profession people who could potentially become more-effective teachers, while fewer financial incentives to stay would supposedly lead ineffective teachers to leave earlier than they otherwise would.

The literature on teacher effectiveness and employee turnover associated with benefits shows that average teacher effectiveness will likely decline with alternative benefits. Higher early compensation will offer only a small incentive for promising though untested teachers to enter the profession. And the link between teacher pay and student achievement has been shown to be tentative at best. Since a benefit change would only marginally increase beginning teachers’ compensation, any initial bump in overall instructional effectiveness would be both fleeting and faint, if it exists at all. Any small initial improvement in teacher effectiveness will be quickly offset by higher turnover among more-experienced teachers. Experienced teachers who leave will be replaced by inexperienced teachers, who will need time to build their classroom skills. Small turnover increases can quickly offset small productivity gains to ultimately lower average teacher quality. The literature, in fact, shows that we can expect substantial increases in turnover with a switch to DC and cash balance plans from DB pensions so that higher turnover will eliminate any possible gains from higher initial compensation. We estimate, for instance, that the chance of worsening teacher effectiveness is about 60 percent with a cash balance plan and 70 percent with a DC plan under optimistic assumptions that favor alternative benefit designs based on the existing long-standing literature on pensions and turnover and the much smaller literature on initial compensation and teacher effectiveness.

Teacher turnover can be expected to increase with alternative benefits because employees will understand that their economic security is less well protected with a DC or cash balance plan than with a DB pension. National opinion polls routinely find very strong support for DB pensions, as individuals who do not like risk prefer to have some income guarantees for themselves and their families when they retire, become disabled, or pass away. Fewer income guarantees, or insurance, lead people to leave employment more quickly than they otherwise would. Thus, under these circumstances, teacher turnover would increase and average teacher effectiveness would fall.

Private-sector employers without DB pensions often use other tools to mirror the human resource effects, i.e., long tenure of skilled workers, of DB pensions, exactly because they are worried about turnover. Employers in the field of information technology, especially, offer, for instance, stock options and stock grants to recruit and retain skilled workers for long periods of time. States simply cannot offer these benefits and hence have no way to lower turnover among effective employees.

Alternative benefits also cost more. First, DB pensions would have to operate with a finite investment horizon, increasingly moving money to secure, low-return assets so that lower investment earnings would lend less of a helping hand to pay for benefits. Second, employers may have to cover any underfunding more quickly for closed plans than for ongoing ones, raising employer contributions. Third, higher turnover increases cost due to more recruitment and training of new hires. Fourth, there are substantial transition costs. Older employees will continue to earn DB pensions, they will earn more benefits as they stay longer on the job, and there will be more long-term employees under the DB pension, raising the cost per employee of the DB pension. New employees, in comparison, would be more prevalent in the new plan, earn initially higher benefits than with a DB pension, and thus raise costs relative to a DB pension. These transition costs would last for about four decades and could average 1 percent of payroll for many years, even if the costs of retirement benefits are the same before and after the transition. Fifth, DC plans offer fewer insurance benefits than DB pensions. The insurance exists largely because employees who happen to live through a prolonged period of prosperity share some of their gains with less fortunate employees. Researchers at the National Institute on Retirement Security estimated in 2008 that the loss of insurance features meant that each dollar invested in a DC plan generated 46 percent less in retirement benefits than a dollar invested in a DB pension. Finally, there are higher administrative costs due to a large number of small accounts, especially in DC plans, and increased movement of money between retirement plans.

The two states that have switched from DB pensions to DC plans, West Virginia and Alaska, had severe cases of buyers’ remorse. West Virginia eventually switched back to a DB plan for their teachers in 2008, and Alaska’s policymakers have been investigating the possibility of making a similar reversal.

The lessons from the evidence are clear: States can manage the financial challenges of their pension plans. The proposal to use the current crisis as an opportunity to switch retirement plans, though, will leave states with a much less efficient compensation system. The average effectiveness of teachers will likely drop, and costs will go up substantially. States will be better off managing the financial problems of their DB pensions by putting mechanisms in place that will prevent future underfunding instead of engaging in costly retirement-plan experiments that offer no benefits.

EN: What, then, are the main areas of disagreement?

RC & MP: We disagree on structure. We argue that benefits should be tied to contributions. Professor Weller believes this would have adverse consequences.

Weller assumes a shift to CB or DC would raise annual exits at all ages by a hefty rate, between 22 and 220 percent, according to his recent but as yet unpublished paper on which his efficiency claim is based. Thus, the share of novice teachers in the workforce would rise and average effectiveness would fall. However, the 22 percent estimate is drawn from a 1993 paper by Allen, Clark, and McDermed that compares private-sector workers “covered by a company retirement plan” to those who were not covered by any plan, so there are no implications for CB or DC. The 220 percent assumption is drawn from a 1996 paper by Even and MacPherson that actually shows no difference in quit rates between DB and DC.

Economic theory suggests mixed effects of CB on teacher quit rates, raising them for mid-career teachers who would otherwise hang on for early retirement and lowering them for late-career teachers, otherwise driven out by negative accrual. It might also lower quit rates for young teachers, since they accrue more pension wealth under CB than under current plans. This mixed pattern is supported by Costrell and McGee’s findings, in their 2010 peer-reviewed econometric study of teacher response to pension wealth accrual. Their simulation of a shift to CB, based on their behavioral estimates, found a slight rise in average teacher tenure, not a large fall.

Turning to transition costs, Weller claims that new plans raise costs on old plans by forcing changes in investment strategy or amortization schedules. However, pension plans often introduce new “tiers” without these effects, as new and old funds are commingled. Introducing CB as a new tier would be no different.

Weller’s simulation of transition costs, also from his unpublished paper, makes a different argument. He claims costs will rise for decades because entering cohorts have a different time pattern of pension wealth accrual than previous cohorts. But the time pattern is irrelevant here. Each cohort’s cost is the present value of its lifetime accruals, however they are distributed. Costs cannot rise unless some cohort enjoys higher benefits and, hence, higher lifetime accruals of pension wealth. Yet Weller assumes each cohort accrues the same pension wealth—10.25 percent of the cohort’s lifetime payroll. That is the cohort’s “normal cost,” the contributions required to fund the cohort’s lifetime benefits and accruals. The system’s required contributions are a blend of each cohort’s normal costs, but these are the same, 10.25 percent for each cohort. Thus, the system’s contributions are unchanged, and there are no transition costs.

Costs and contributions would fall if benefits were cut, as Weller recommends. Indeed, they would fall more quickly under his reasonable proposal to cut normal costs of current teachers, as a matter of equity between generations. However, we also favor equity for mobile young teachers, who will continue to receive benefits worth far less than contributions, absent fundamental reform.

CW: The evidence shows that defined benefit pensions work for education. Professors Costrell and Podgursky do not address the fact that both employers and employees prefer defined benefit pensions over other retirement benefits.

The vast majority of states underwent pension reforms in the past decade to address the financial challenges of pension underfunding and none abandoned their defined benefit pensions. And private-sector employers in key growth industries, such as information technology and banking, offer either defined benefit pensions or other forms of deferred compensation, such as stock options, to their employees to mimic the retention benefits of pensions when pensions are absent. A substantial literature both develops the theory and shows the supporting evidence for the efficacy of deferred compensation as a retention and recruitment tool for skilled employees. There is a clear economic rationale for deferred compensation, since it allows employers to recoup the investments made in hiring and training skilled employees, such as teachers.

Teachers equally prefer pensions. Opinion polls routinely show a preference for defined benefit pensions, even among younger employees. And when teachers (and other public employees) have been given a choice between defined benefit pensions and defined contribution plans, the vast majority typically chooses the defined benefit pension plan. The evidence contradicts Professors Costrell and Podgursky’s key assertion that alternative plans that offer more immediate compensation are more attractive to younger teachers.

Finally, transition costs from a defined benefit pension to a cash balance plan would quickly drain public coffers. There would be a growing concentration of more-experienced teachers under the defined benefit pension that favors more-experienced teachers and a high concentration of inexperienced teachers under a cash balance plan that favors inexperienced teachers. A long-standing literature has regularly shown that DB pensions substantially reduce turnover compared to other retirement benefits, suggesting that a benefit switch will increase turnover.

The increase in turnover will raise costs and pose the threat of lower average effectiveness, as my own simulations for a switch from DB pensions to cash balance plans show. The costs are predictable and substantial, while any benefits are highly uncertain and likely nonexistent.

Let us look at what is happening, since this might be a direction in which other states consider moving.  As most people are aware, the budget problems in California were clear even before the recession put added pressure on the state.  The traditional California way to deal with these budget problems has been to shroud them in smoke and mirrors – doing budgetary manipulations that make it look like the budget is balanced but that only move the problem into the future.

This year, the new Governor, Jerry Brown, set out to deal with the budget honestly, including putting in place contingency spending reductions if revenues did not come in at the level anticipated in the budget.  This action leads to uncertainty in school district budgets, because there is a reasonable chance that the state may reduce funding midyear.

And here is where the California legislature showed the kind of leadership that makes a mockery of the idea that school policy is about the kids.  At the behest of the California Teachers Association, the legislature declared that to deal with the fiscal situation, none of the thousand school districts in California is permitted to lay off any teachers.  What can it do?  By this legislation, it can eliminate up to seven days from the school year (as long as the local union agrees to that action).

California is the 47^th ranked state in terms of achievement, and it educates one-eighth of the nation’s students.  Perhaps the ranking is more obvious to everybody after we see the kind of policies that are being made.

Nationally, the fiscal problems of schools have left many districts scrambling to figure out how to deal with budget shortfalls.  Hopefully no other state will follow this precedent.

-Eric A. Hanushek

The proposal would also convert Medicaid, the health program for the poor, into a series of block grants to give states more flexibility. And it is expected to suggest significant cuts in Social Security, while proposing fewer details on how to achieve them.

No doubt this will enrage the senior lobby—who will declare all of this dead on arrival. But to my eye, it puts Republicans firmly on the side of the young. If we don’t address these entitlements, we’ll have no choice but to devastate K-12 education budgets (and other social spending for children) for decades to come. Even huge tax increases won’t be enough to address the long-term fiscal challenges (and most economists would tell you that those would be counterproductive anyway, as they would cripple the economy).

As for Medicaid, as we know from our home-state of Ohio, it has become the major competitor to K-12 funding—and more often than not is winning that fight.

I understand the downside to declaring generational warfare, but still, let’s be honest: We can’t keep spending so much on lavish retirement and health-care benefits for the old if we want to do right by the young. So before you reflexively deride this week’s GOP budget proposal consider this: It just might pave the way for greater investments in our schools.

—Mike Petrilli

According to an Associated Press report on the Kansas decision,  allowing individual jurisdictions to set their own tax “could bring down the state’s entire school financing system.” The parents in Shawnee Mission wanted just the right to ask local voters if they wanted to pay more. The court said No. (Read the 21-page order here.)

As the pressure to hold down school costs mounts, property tax caps have become a favored option because they remain a favorite form of funding local government agencies, including school districts.  But the objections from wealthier communities, which can afford to pay more, are also mounting.  Twelve towns in New Jersey have announced plans to have votes on exceeding the Garden State’s new property tax cap, a local opt-out option that the new cap law allows.

Though there is more to learn about this case and its legal implications,  if the press reports are accurate, the Kansas ruling appears to mean that there can be no opting out of the cap, even if local voters wanted to.  This hits hard at some core American principles. “The local option tax is capped so wealthy districts do not have an unfair advantage over poorer ones,” reports the A.P.  In the battle to get poor school districts adequate or equitable funding, at least there seemed a moral purpose to the argument.  But the Kansas case seems to issue a different kind of challenge,  especially as more states opt for centralized funding mechanisms.  Will we allow the kind of inequity which allows for excellence?  I predict a new Lake Wobegon, where  all the children and their teachers are average.

–Peter Meyer

Merit pay proponents argue that monetary incentives for better teaching can improve the quality of instruction in our nation’s classrooms. Yet only a handful of studies have evaluated the impact of teacher merit pay on student achievement. These studies offer no conclusive recommendations regarding the optimal role of merit pay in U.S. school systems, leaving policymakers largely dependent on studies on other countries for information about how best to implement merit pay programs.

Recently, the New York City Department of Education (DOE) conducted a policy experiment to test whether merit pay given to all teachers at an effective school could increase student achievement. The city’s School-Wide Performance Bonus Program, launched in 2007 and endorsed by both the DOE and the teachers union, was implemented in a randomly selected subset of the city’s most disadvantaged schools. The randomized design of school selection makes it possible to separate out the causal effect of this form of merit pay from myriad other influences on student learning.

Our analysis is based on data from the first two years of the bonus program. In interpreting our findings, it is important to appreciate the key features of the program’s structure. Teachers received bonuses based on the overall performance of all tested students in their school, rather than just on the performance of students in their own classrooms. According to proponents of group incentives, this design can minimize conflicts and foster a spirit of cooperation among teachers at participating schools. However, under group incentive schemes, individual teachers may not have sufficient motivation to improve their own performance if they know that their success in attaining a bonus depends heavily on the efforts made by other teachers. Especially in schools with a large number of teachers, it may be difficult to sustain a school-wide push to mobilize the efforts of most teachers. The New York City bonus program thus provides valuable information on the effects of a school-wide bonus plan.

Other specific characteristics of the bonus plan and the New York City context may also have influenced its effectiveness. If a school won a bonus, money was distributed among teachers and other school personnel by a committee consisting of two administrators and two teachers union representatives at the school. The bonus program was implemented alongside a new citywide accountability system that provided strong incentives to improve student achievement, regardless of whether a school was participating in the bonus program. Also, over the period we examine, all schools experienced increases in student achievement on the New York state test, leading some to suggest that the exam had grown easier (or at least easier to teach to). Roughly 90 percent of participating schools received a bonus in the second year of the program.

Did the group bonus program operating in this policy environment have an impact on student achievement? We find very little effect overall, positive or negative. There is some evidence, however, that the program had a positive impact in schools where teachers were few in number, an environment in which it may be easier for teachers to cooperate in pursuit of a common reward. This study leaves open the question of whether a bonus program that rewards teachers for their own specific effectiveness would be more successful.

The Program

In November 2007, the New York City DOE launched the School-Wide Performance Bonus Program, randomly selecting 181 schools serving kindergarten through 8th grade to participate from a group of 309 high-need schools. (Disadvantaged high schools were also randomly selected into the program; we focus only on elementary and middle schools since these are the grades for which we can measure math and reading achievement.) The remaining 128 schools that were not selected serve as the control group for the purposes of our evaluation. The 309 schools included in the study differed from other city schools in the following ways: They had a higher proportion of English Language Learners (ELL), special education, minority students, and students eligible for the Title I free or reduced-price lunch program, as well as lower average math and reading scores. Teachers in these schools had slightly less experience and slightly more absences than teachers in other schools. The schools were smaller and had fewer teaching staff than other New York City schools.

The bonus program was the product of lengthy negotiations between district administrators and the teachers union. As a result of these negotiations, schools had to gain the support of 55 percent of their full-time United Federation of Teachers (UFT) staff each year in order to participate. Out of the 181 schools selected for the program, 25 schools voted not to participate in the first year of implementation or withdrew from the program following an initial vote of approval, and three more schools pulled out before the second year. Additionally, at the discretion of the DOE, two schools initially assigned to the treatment group were moved to the control group, and four schools initially designated as control schools were moved to the treatment group and subsequently voted to participate in the program. Of course, the schools that elected not to take part in the program and those moved by the DOE may differ in important ways from schools that chose to participate. We therefore consider the treatment group to include all 181 schools originally deemed eligible for bonus payments and take into account the fact that not all of them were actually participating in the program when interpreting our results.

Schools that implemented the program could earn a lump-sum bonus for meeting school-wide goals. These goals were tied to the New York City accountability system and were mainly determined by student performance on state math and reading exams. Under this accountability system, schools receive scores and grades that summarize their overall performance on three sets of measures: school environment, student performance, and student progress. The school environment measure incorporates student attendance and the results from surveys of parents, teachers, and students. Student performance measures include average student achievement on reading and math exams, along with median proficiency and the percentage of students achieving proficiency. The student progress measure considers the average change in test scores from year to year and the percentage of students who made progress from one year to the next. The accountability system also gives “extra credit” for exemplary progress among high-need students. Schools received target scores based on their accountability grades, and schools with lower accountability grades needed to make larger improvements to reach their targets.

Schools participating in the bonus program received awards based on their progress toward meeting target scores. Schools that achieved their goals received bonuses equal to $3,000 per union teacher. Schools that fell short but manage to meet 75 percent of their goal received $1,500 per union teacher. Schools that did not achieve their target faced no consequences from the bonus program beyond the absence of incentive pay. For a sense of the strength of the incentive provided by the bonuses, the full $3,000 award represents a 7 percent increase in the salary of teachers at the bottom of the pay scale and a 3 percent increase for the most experienced teachers. In other words, these bonuses provided a substantial monetary benefit to most recipients.

Each participating school was required to develop a plan for distributing any lump-sum bonus awarded to the school. In the first year of the program, plans had to be submitted to the DOE after students took the state math and reading exams but before exam results were released and, thus, before schools knew whether they would receive a bonus. In every school, a four-member compensation committee, consisting of the principal, a second administrator, and two teachers elected by the school’s UFT members, determined how bonuses would be distributed. The DOE program guidelines placed only two restrictions on the schools’ bonus distribution plans: all union teachers had to receive a portion of the bonus payment and bonuses could not be distributed based on seniority. Otherwise, the committees had full discretion over bonus amounts and over whether other school employees would also receive funds. About half of the school committees chose to divide the award roughly equally among all recipients. In these schools, the difference between the highest and lowest bonus payment was less than $100. In the rest of the schools, the difference between the highest and the lowest bonus ranged from a low of $200 to a high of $5,000.

Of the 158 schools that voted to participate in the first year of the program, 87 (55 percent) received bonus payments. The bonus pool totaled $14.0 million in the first year and averaged $160,500 per school. In the second year of the program, the 2008–09 school year, 139 participating schools (91 percent) earned bonus awards, averaging $195,100 per school and totaling $27.1 million.

Little Difference for Students

Before we get to the detailed findings of our study, it is important to make clear the nature of the incentives NYC teachers and administrators faced over the period we examine. First, the 2007–08 school year was the first year of both the bonus program and a new citywide accountability system. The accountability system provided strong incentives to improve student achievement, regardless of whether a school was participating in the bonus program. For example, schools that earned A or B accountability grades were eligible for principal bonuses and additional funds when students transferred from schools receiving a poor grade. Schools that received D and F grades faced potential consequences, including principal removal and school closure. With this in mind, we see the results of our study as representing the effect of group-based teacher merit pay for schools that are already under accountability pressure. However, given that all school districts in the United States are subject to No Child Left Behind and many states have implemented their own accountability systems, this may be the most appropriate context in which to study the consequences of merit pay.

The second thing to keep in mind is that the power of the bonus program incentives was likely muted in the first year because of the timing of the program announcement. Eligible schools were notified in November of 2007, leaving relatively little time for teachers and administrators to alter their educational plans before accountability exams were administered in January for reading and March for math. As noted above, the percentage of schools that hit their achievement targets increased between the first, truncated year of the program and the second, when schools had more time to respond to the program incentives. But we caution readers to remember that this leap in bonus payouts is not, by itself, evidence that merit pay worked. It may instead reflect citywide performance improvements or, more pessimistically, that the New York state tests decreased in difficulty over this period. The most important comparison to make is between the treatment group schools eligible for the bonus program (most of which actually participated in the program) and the schools in the control group. Treatment-group schools need to at least outpace their counterparts in the control group over these two years for us to say that merit pay made a real difference for student achievement. It is this comparison that is at the heart of our analysis.

How did bonus program schools fare compared to schools in the control group? Both groups of schools saw an increase in the average math and reading scores during the first two years of the bonus program; treatment-group schools, however, did not experience a statistically significant improvement in average test scores relative to the schools in the control group. Nor did these results change notably when we 1) made adjustments for the small differences in treatment and control school characteristics that existed despite randomization between treatment-group and control-group schools, or 2) took into account whether treatment-group schools elected to participate in the bonus program. It is possible, of course, that looking at average student achievement could divert our attention from changes for particular groups of students. Were teachers, we wanted to know, focusing their attention on either high-achieving or low-achieving students in an effort to meet target scores? We used statistical techniques similar to the one we employed to examine changes in average scores to assess the effect of the bonus program on the percentage of students achieving proficiency on math and reading exams. Once again, we found no evidence that the bonus program led to changes in this measure of student achievement. Participation in the bonus program did not, for example, boost the percentage of students who scored at or above the level designated as “proficient” under New York state accountability standards. Bonus-program schools fared no better than schools in the control group, and in the second year of the program, treatment schools experienced a statistically significant, although quite small, decrease in math proficiency.

On a related note, the New York City accountability system and, as a byproduct, the bonus program, contain incentives to focus on particular groups of students, since improvements for some student groups matter more in the calculations of a school’s accountability grade. In addition to calculating overall achievement for all students in a school, components of the New York City accountability system take into account changes in the achievement of students who were in the lowest third of their grade in the prior year, those on the cusp of proficiency, and those close to the school’s median score, along with students who are designated as ELL and students who are enrolled in special education programs. Again, we found no evidence to suggest that the bonus program led to achievement gains for any of these groups of students. On average, students in these groups fared just as well whether they attended a school that was participating in the bonus program or one in the control group.

Limitations of Group Bonuses

Does evidence that the New York City bonus program did not lead to marked gains in student achievement, at least in the program’s first two years, mean that merit pay for teachers in general does not work? That is certainly one possible conclusion to be drawn from our findings. Another possibility is that this particular type of merit pay program, where bonuses are based on school-wide performance and teachers expect to receive bonus payments regardless of their effort, does not work in all schools. Group bonuses may weaken the incentives for individual teachers to increase effort devoted to raising student achievement to the point that the programs become ineffective. And perhaps this problem would be mitigated in programs in which rewards are more tightly coupled to the effort an individual makes in the classroom.

Think about two schools, one with many more teachers than the other, both participating in a school-wide merit pay program. In each school, the impact of an individual teacher’s effort on the expected bonus is determined by the number of other teachers with tested students, since bonus receipt is primarily based on student performance on math and reading exams. Because of this, a very good teacher with a large number of teaching colleagues can do less to raise school-wide student performance than a teacher of the same quality in a school with fewer teachers. In the school with more teachers, the diffusion of responsibility for test-score gains across many teachers may erode the incentive that any individual teacher has to increase effort in the classroom. Some teachers may conclude that exerting additional effort will produce little difference in the overall performance of the school. The central idea here is that teachers could face relatively strong or weak incentives under the same merit pay program as a result of the number of teachers at their school. With this logic in mind, we examined the effect of the New York City school-wide merit pay program at schools with different numbers of teachers with test-taking students. Did schools with fewer teachers show signs that teachers were responding to merit pay incentives?

We conducted a statistical analysis similar to our method for estimating the average effect of the bonus program across all New York City schools in the experiment. But this time, we looked for different effects on math scores in schools with more and fewer math teachers and different effects on reading scores on schools with larger and smaller cohorts of reading teachers.

It turns out that the effectiveness of school-wide bonus programs may, in fact, depend on the number of teachers with tested students in a school (see Figure 1). For schools in the bottom quartile of the number of teachers with tested students, that is, schools with approximately 10 or fewer such teachers in elementary and K–8 schools and five or fewer in middle schools, school-wide merit pay did lead to improved student achievement. We estimate that the New York City bonus program had a positive effect on student math achievement in these schools in both program years, although the estimated effect in the second year fell just short of conventional levels of statistical significance. Conversely, this analysis also indicates that the program may have slightly lowered student achievement in schools with larger teaching staffs. Math achievement gains attributable to the bonus program in schools with smaller teaching staffs were modest in size but meaningful. In the first year of the program, the bonus program boost to math scores was, by our estimates, 3.2 points on the New York state test, or 0.08 student-level standard deviations. To benchmark this effect against the magnitude of other familiar results, it is slightly smaller than the estimated 0.1 standard deviation gain in achievement that results from being assigned to a teacher at the 85th percentile of the effectiveness distribution rather than a teacher at the median.

The Devil in the Details

The New York City bonus-pay program provides us with a valuable opportunity to study the effect of merit pay for teachers in an experimental setting. We are a long way from amassing a convincing body of research on either side of the debate over merit pay in education, but what this experiment makes frustratingly clear for merit pay proponents is that the structure of the payment scheme can make a large difference. For merit pay to improve student outcomes, teachers must face strong incentives to improve their performance. Our study indicates that school-wide bonus programs may be able to provide those incentives in schools with relatively small teaching staffs. They may also be appropriate for schools characterized by a high degree of staff cohesion, in which teachers work collaboratively to improve student learning and it is difficult to isolate the performance of a single teacher. The early experience with the New York City School-Wide Performance Bonus Program suggests, however, that a heavy reliance on school-wide rewards may hamper the effectiveness of merit pay programs in schools with large teaching staffs that are not highly collaborative.

Sarena Goodman and Lesley Turner are PhD candidates in Columbia University’s Department of Economics. The randomization of schools participating in the School-Wide Performance Bonus Program was designed and conducted by Harvard University economist Roland Fryer.

An unabridged version of this article is available here.

To many education reformers,  the passage of the federal government’s massive stimulus plan, the American Recovery and Reinvestment Act (ARRA), appeared to be a final bright star falling into alignment.

For years, consensus had been building across the political spectrum that the nation’s schools, especially those in urban America, were in urgent need of fundamental change. The election of reform-friendly Democrat Barack Obama presented the opportunity for K–12’s Nixon-goes-to-China moment. The subsequent selection of Arne Duncan, the battle-tested former Chicago schools chief, as secretary of education provided a trusted, steady hand to lead the charge and take the flak.

The ARRA seemed to complete the constellation: an astounding $100 billion of new federal funds—nearly twice the annual budget of the U.S. Department of Education—to jump-start and sustain the improvement of America’s schools. When Duncan expressed his intention to make the very most of this once-in-a-lifetime “moon shot,” some advocates eagerly prophesied an epochal shift for reform.

The ARRA’s results to date, however, have been soberingly quotidian. So far, the vast majority of its funds have served to sustain the status quo, funding the most traditional line items and actually helping schools and districts go about their everyday business. With one notable exception (spurring long overdue changes in some state laws), the implementation of this mammoth statute has confirmed several humbling, hoary lessons of federal policymaking, including the limited ability of Uncle Sam to drive education reform.

Though deflating (not to mention terribly expensive), these bumps and bruises, if taken to heart, could help build a better understanding of the federal government’s inherent strengths and weaknesses in K–12 education policy, a particularly valuable exercise as NCLB reauthorization looms. As important, they could still have a critical influence on the ARRA itself—helping to salvage its crown jewel of reform, the vaunted Race to the Top (RTTT).

Easy Money

The ARRA was crafted during the darkest stage of the recession and signed into law in February 2009. To help revive the nation’s flagging economy, Congress and the administration were determined to have funds enter the financial bloodstreams of states and districts as quickly as possible. So about $75 billion of the $80 billion the law designated for K–12 schools was funneled through formula-based programs, including the Individuals with Disabilities Education Act (IDEA) and Title I, two of the nation’s oldest and most familiar federal education funding streams. Simply by virtue of having students, states and districts would begin receiving funds. No grant competitions, no long, complicated applications, no review teams with complex scoring rubrics.

The lion’s share of these ARRA education dollars was appropriated through the new $50 billion State Fiscal Stabilization Fund (SFSF), a population-based program created to expeditiously replenish education budgets decimated by declining tax revenue.

Despite the priority placed on getting lots of money out on the double, some policymakers were determined to see that these funds were also well spent. So the legislation required that, in advance of receiving their SFSF allocations, governors sign “assurances,” statements promising that their states were taking action to improve teacher quality, develop better data systems, enhance standards and assessments, and address low-performing schools. Duncan went even further, repeatedly telling state leaders that these formula dollars had to be used to improve student learning and innovate, not merely fund more of the same.

States that spent the funds unwisely, the secretary warned in March 2009, would seriously compromise their ability to vie for the $5 billion of ARRA competitive grants. “States that are simply investing in the status quo will put themselves at a tremendous competitive disadvantage for getting those additional funds,” Duncan said. “I can’t emphasize strongly enough how important it is for states and districts to think very creatively and to think very differently about how they use this first set of money.” The department also took the unusual step of creating a document for state and district leaders that explained how these funds could be used in reform-oriented ways.

Had everything gone according to Hoyle, this massive infusion of federal funds would have protected state and district education budgets from major cuts while advancing invaluable reforms by supporting new, innovative, and promising programs. But as is often the case in education policy, the best laid plans of Uncle Sam went awry.

Reality Check

In a July 2009 report to Congress, the Government Accountability Office (GAO) found that SFSF dollars were being used to protect the status quo. After studying a sample of 16 states and select jurisdictions within them, GAO reported that federal funds were in fact being used for “retaining staff and current education programs.” Instead of advancing important reforms, states and districts were addressing a “more pressing” matter—their fiscal needs. In discussions with district leaders, GAO found that “most did not indicate that they would use [SFSF] funds to pursue educational reforms”; instead, they wanted to fill their existing budget holes. For example, officials in Flint, Michigan, decided to use SFSF funds to “cope with budget deficits rather than to advance programs.” Miami-Dade planned to save 2,000 teaching jobs; Richmond County in Georgia funded teachers, paraprofessionals, media specialists, and other existing positions.

Then, in an August report that the Washington Post referred to as a “reality check,” the American Association of School Administrators (AASA) also found that funding was being used to protect jobs and programs. The survey of administrators reported that most of the funds were merely repairing budget holes and that little if any reform was being accomplished. “Everybody appreciated getting the money,” the association’s executive director told the Christian Science Monitor, “but primarily all the money did was help to backfill the budget deficits they were already facing.”

The single-minded focus on jobs and the status quo was confirmed by hard numbers. In September, the U.S. economy lost 190,000 jobs, but the education sector gained nearly 11,000 jobs. In October, the Obama administration announced that more than half of the 640,000 jobs created or saved across the entire economy by the ARRA were in education. In November, after studying states’ quarterly stimulus reports, Education Week found that 96 percent of the ARRA education funds spent to that point had been “focused on creating and saving jobs.”

How did one of the ARRA’s education goals (reform) get completely displaced by the other (job and program preservation)? The answer can be found in two sets of factors, one mostly economic and beyond the federal government’s control but the other legislative and fully within it. Combined, they offer an unmistakable overarching lesson: local dynamics, not the will of Washington, determine the pace and scope of education reform.

Survival Instincts

The greatest confounding factor was the severity and duration of the nation’s financial decline. Revised 2009 figures indicated that the U.S. economy had contracted twice as much as previously estimated, amounting to the largest downturn since the Great Depression. Nationwide, unemployment topped 10 percent in October, considerably higher than most experts had anticipated.

State budgets were drastically affected. California famously faced a $26 billion shortfall, but many other states, including Ohio and Illinois, confronted multibillion-dollar deficits as well. A University of Denver study declared that Colorado’s government had been hit by a “budgetary tsunami.” The chair of Alabama’s finance committee called the state’s financial crisis “worse by far than we’ve ever seen it.” One estimate predicted that, were the recession to end in 2009, the states would still have combined deficits of $230 billion, comparable to the entire gross domestic product of Singapore.

Regrettably, but predictably, education systems went into self-preservation mode. Part of the explanation can be found in districts’ DNA. Local education systems, particularly the largest urban districts, are infamously Byzantine, change-averse organizations. They are also generally among their communities’ largest employers. Notably, both the GAO and AASA studies reported that local school officials felt compelled to disregard the calls for reform given “the realities of strained federal, state, and local budgets,” and the resulting likelihood of layoffs and other cuts.

External forces exacerbated these internal tendencies. In some cases, unions pressured policymakers to direct funds toward job protection. The California Teachers Association organized a “Pink Friday” rally to protest pink slips and furloughs. In Michigan, a local union sued a district over layoffs. Some in Montana sought to use stimulus funds to shore up teacher pensions, and the Utah Education Association ran television ads urging legislators to dedicate ARRA dollars to restoring education programs.

As a number of commentators have noted, the economic downturn offered school systems the opportunity to alter expensive, outdated practices such as strict salary schedules, protective tenure rules, and bloated pension programs. Though sensible in theory, this was probably wishful thinking when applied to the often confounding realities of K–12 politics and policy. Indeed, Kevin Carey, of the Washington-based think tank Education Sector, has written that there is no evidence that districts “implement a whole suite of needed reforms” in response to recessions.

Carey’s argument is strongly supported by recent events. In instances where stimulus funds failed to fill budget holes completely, states and districts generally did not blaze a trail for reform, instead opting for temporary, shortsighted cuts designed to help them hunker down and ride out the current storm. A number of states instituted flat reductions in district aid, while others made across-the-board cuts to programs. California’s Saddleback Valley district cut athletic programs, while districts from Houston to Boston to Atlanta slashed bus service. Seattle-area schools eliminated groundskeeper positions, Prince George’s County in Maryland cut “parent liaisons,” and Illinois reduced spending on bilingual and early-childhood programs. There was a nationwide trend in summer-school reductions, and Hawaii cut school days. Lake Washington School District in Washington had teachers remove microwaves from their rooms to reduce energy bills. In total, it appears that when education budgets wane, schools’ survival instincts, not their reform inclinations, kick in.

Policy Matters

Though the course of the recession, local political dynamics, and district preferences were beyond the reach of federal policymakers; the contours and implementation of the ARRA were not. They could have factored in these considerations to craft and administer a plan more likely to bring about reform. Astonishingly, however, the legislative language and departmental pronouncements enabled—actually, all but guaranteed—this $75 billion investment in the status quo.

While the use of formula-based programs certainly facilitated the speedy distribution of funds, it also set the stage for conventional spending patterns. In the case of Title I and IDEA, states were provided grants under their existing program agreements, meaning the federal government provided billions without extracting new reform promises.

Guidelines made clear that these funds had to be used in ways consistent with long-established program requirements. But over decades, tens of billions of dollars have flowed through these programs, failing to generate the improvements needed. Instead of tying new dollars to specific reform-oriented strategies, the law required that they fund more of the same.

Even more trouble was embedded in the SFSF. The law stipulated that states first use their allotments to fill budget holes and, instead of giving states the opportunity to reconsider their allocation of resources, it mandated that they use their existing funding formulas. So, rather than requiring or even encouraging state leaders to use this $50 billion investment to pursue new projects and ways of thinking, the ARRA prioritized preservation of the current order.

If dollars remained after budget holes had been filled, states were not allowed to invest them in new reform initiatives; they had to distribute what was left to the districts by formula. Districts then had nearly unfettered control over how these funds were spent; activities merely had to comport with four major federal education statutes, including the Elementary and Secondary Education Act—laws that, despite many years and billions invested, hadn’t adequately improved our schools.

Congressional leaders could have empowered governors, often among the nation’s leading education reformers, to direct how portions of these funds were used. Instead, federal guidance made clear that governors and state superintendents were prohibited from doing so.

Finally, meaningful federal oversight was lacking. States were not required to provide advance details of how dollars would be spent. The applications approved by the department are staggeringly devoid of specifics. While governors had to sign a form committing their states to pursuing four general areas of reform, these assurances carried little weight. States could receive their first allotments without explaining how the funds would actually be spent, and, amazingly, states could receive their second allotments even if they hadn’t followed through on their promises. In an April 2009 letter to governors, Secretary Duncan wrote, “States are not required to demonstrate progress in order to get phase two Stabilization funds. We are only asking…that states have in place systems to report on final metrics that are developed through rulemaking so that parents, teachers, and policymakers have clear and consistent information about where our schools and students stand.”

In retrospect, it’s easy to see why the new federal funds didn’t lead to reform. Though $75 billion now appears to be a lost cause, it did buy important lessons. If properly applied, these lessons could contribute mightily to the ARRA’s final major education initiative.

Racing to the Top?

As expectations for the formula-based stimulus funds have rightfully abated, hopes for the reform-driving Race to the Top fund have risen. At $4.35 billion, RTTT is petite compared to other ARRA programs, but as a competitive grant program, it represents by far the largest amount ever at the discretion of an education secretary (see Figure 1).

The administration has tried to make the most of this opportunity by identifying specific reform priorities and requiring interested states to craft proposals that respond to each (see Table 1). While some roundly criticized the department’s audacity—former assistant secretary of education Diane Ravitch called the strategy embedded in the department’s draft documents “coercive” and North Carolina governor Beverly Perdue described it as “prescriptive”—others believed this would ensure the wise investment and use of these funds. That is, if a state doesn’t agree with the department’s favorite reforms, it simply won’t apply; if a state does agree, it will devise the strongest possible plan that faithfully responds to all priorities.

Unfortunately, that’s unlikely to be the case. First, because states are still desperate for money, it’s doubtful they will take a pass on the opportunity to compete for several hundred million dollars. In fact, a month before the first filing deadline, no state had announced that it would forgo the entire competition. Moreover, states’ financial fortunes are expected to get worse.

State budgets typically suffer most in the year after a recession ends. The Rockefeller Institute has found that education spending remains depressed several years after economic growth returns. These effects could be even more pronounced this time. Nationally, property taxes still account for 30 percent of all school revenue. The recession and associated housing crisis have significantly depressed property values; according to one widely used index, home prices declined continuously for three years beginning in July 2006. As rolling assessments catch up with these reduced prices, property tax revenues are likely to be adversely affected. An August report from the National Conference of State Legislatures noted, “While Fiscal Year 2009 can be summed up in one word: dismal, FY 2010 can be characterized by two words: even worse.” The National Governors Association and National Association of State Budget Officers concur: governors’ 2010 budget submissions showed the largest general fund reductions since 1979.

Second, federal dictates don’t alter local preferences; they only force them into temporary hiding. Yes, governors signed the ARRA’s reform assurances but states didn’t use SFSF dollars for reform. Yes, states developed standards and assessments as No Child Left Behind (NCLB) required, but many adopted weak standards and set low cut scores. Yes, districts developed policies for NCLB public school choice and supplemental education services, but they cleverly thwarted the full implementation of these programs, evidenced by the shockingly low student participation rates. As others have noted, the federal government can make states and districts do what they don’t want to, but it can’t make them do it well.

We know that states and districts desperately need money, that they have a preference for preserving the status quo, and that when the federal government asks them to do things they’re not fond of, they may just go through the motions. So when the U.S. Department of Education places $4.35 billion on the table during a serious recession and tells states to respond to Washington’s favorite ideas, it would be wise to anticipate their responses with a stockpile of skepticism.

Trust but Verify

The ultimate challenge for the administration will be reducing the gulf between reforms promised and reforms delivered. Among actions deserving a raised eyebrow are the modifications made to state laws since the passage of the ARRA. Duncan ingeniously used Race to the Top to induce states to improve their policies. If you want a grant, said the secretary, your state had better be hospitable to reform. The swift and positive response from the states amounts to the greatest achievement of Secretary Duncan’s tenure: Illinois, Louisiana, and Tennessee lifted charter school caps. California and Wisconsin ended prohibitions on linking student performance data to individual teachers. Delaware passed legislation making the state more hospitable to Teach For America, and Rhode Island put a stop to all seniority-based teacher assignments. A number of states, including Massachusetts and Michigan, were hurrying to make legislative changes before the first submission deadline in January, and others, including Maine, Maryland, Nevada, and Washington, were planning to apply in the second round to give their legislatures time to pass reform laws.

But as discussed above, there’s considerable daylight between a reform-oriented policy and its faithful implementation. The department should remember that while many states permit linking teachers to student test scores, few districts actually do so, and that while Virginia and Mississippi have each had a charter law for more than a decade, combined they have only five charter schools. In November, Tennessee provided a perfect and alarming example of how this might play out with regard to RTTT: though the state lifted its charter cap as Duncan desired, in the span of two days Memphis and Nashville denied all 24 charter applications submitted to them.

A good leading indicator of whether a state’s heart will actually be in its reforms is whether it sees the RTTT as an engine for change or as bags of cash. Secretary Duncan has said that the program “is not about the money,” and that “If folks are doing this to chase money, it’s for the wrong reasons.” But there have been numerous indications that the potential for a titanic federal payday is a huge, if not the decisive, consideration for many. Maybe the starkest case came from Massachusetts, where Governor Deval Patrick, after years of consistent charter school antagonism, conducted a high-profile volte-face and announced his support for lifting his state’s restrictive charter cap. This occurred after a visit from Secretary Duncan and a reminder that the Bay State was on the brink of disqualifying itself from RTTT consideration.

There are plenty of other examples. Illinois governor Pat Quinn said, “We want to get Illinois in that race and make sure we get as much money as possible from Washington.” The spokesperson for Idaho’s department of education noted, “Race to the Top is the only opportunity for education to get additional funding over the next two to three years.” A lobbyist for the California School Boards Association said, “The money would be nice because of our budget situation.” Even Ohio’s reform-minded Senator John Husted said, “During these tough and uncertain financial times, I believe it is imperative that Ohio be in a strong position to take advantage of the Race to the Top dollars.” A Wisconsin legislator angry about the lack of teeth in an ostensibly reform-oriented piece of legislation may have spoken for many when he said, “This is basically a race for the money, not a race for the top.”

Also to be approached with suspicion are the promises that will appear in state applications. To satisfy the administration’s requirements, states will have to change policies affecting teachers, intervene in failing schools, support charters, and more. With so much money at stake, we should expect carefully assembled plans that convey earnest guarantees of reform. But the SFSF assurances taught us the hard way that reform commitments plus a governor’s signature do not necessarily equal real reform.

So when state proposals hit Arne Duncan’s desk, the secretary must become the toughest schoolmarm in America. The first step is to not reflexively reward the states that improved their policies in response to the RTTT carrot. The department should instead view such moves cynically. Had these states really believed in reform, they would have adopted these measures ages ago. Deathbed conversions are always suspect.

Lifting a legislated charter cap shouldn’t be enough. There should be proof that state and district officials are not inhibiting charter growth, that new schools are opening, and that they have the requisite flexibility and funding to thrive. Likewise, a new law that brings down a “data firewall” should be coupled with affirmative policies that link individual test scores to individual teachers in the state data system and watertight district policies that tie this new information to tenure and evaluation decisions.

When a state promises in its RTTT application to develop a new teacher-preparation system, the administration must pry: Is this really a new initiative or just a renaming of your existing certification process? When a state proposes to create a major new intervention for failing schools, the department must confirm that this isn’t just gussying up an old and meek school improvement strategy.

As important, the department must insist that all reform proposals be completely shovel-ready upon submission. A state’s promise to launch a performance pay system is meaningless unless all pieces of the supporting architecture are already in place. That means the state legislature has authorized the program, union contracts have been modified to allow it, data systems have been updated to support it, and a state disbursement process is prepared to allocate funds as soon as the federal grant arrives.

Watch and Wait

There is some reason to wonder just how tough the department will be. Though the final documents released in November are still laudable, they certainly represent a step back from the publicly released draft versions. States can score points for a charter law with a cap. A state without a charter law can score points with a pale facsimile of one. A performance-pay system plays a smaller role than many expected. The door was opened to weak interventions for failing schools. And, possibly most curiously, despite Duncan’s earlier warning that a state’s unwise use of early ARRA funds would cause it to be tremendously disadvantaged in the RTTT competition, this issue only comprises 1 percent—5 of 500—of the total points available (by comparison, not signing on to the common standards initiative would cost a state 8 times the number of points). These shifts were widely noticed. In an editorial titled “School Reform Retreat?” the Wall Street Journal noted that the administration had eased requirements, and the Washington Post editors wrote bluntly, “draft regulations have been weakened.” Equally instructive was the national teachers unions’ support for the changes.

Despite these shifts, hope remains that the department will stand firm for reform. Joe Williams, executive director of Democrats for Education Reform, told the New York Times, “The administration clearly listened to the unions, but they haven’t backtracked.” As the first competition got underway in the fall, Secretary Duncan maintained that the bar will be “very, very high,” telling Education Week, “There will be a lot more losers than winners.”

In hindsight, perhaps Washington should have crafted a different education package for the ARRA. Under alternate circumstances, federal leaders might have recognized that stabilizing and reforming our schools are quite different goals and that the complications associated with driving education reform from the nation’s capital are at least equal to the opportunities. But in early 2009 the economy’s condition didn’t afford much time for deliberation, and in the wake of the historic 2008 elections, few ascendant federal policymakers were overflowing with modesty and prudence.

Much will be learned from these experiences in the years ahead, but for the time being one immediate takeaway merits repeating: Local policy prerogatives and dire financial conditions trumped federal pleas for reform and led to the spending of massive amounts of aid on preserving the status quo and protecting existing jobs and programs.

With similar factors coalescing around RTTT, the administration should be wise to the potentially regrettable outcomes absent additional protections. Moving forward, the administration might reconsider talk of “moon shots” and transformational change and instead adopt a more humble creed: Fool me once, shame on you; fool me twice, shame on me.

Andy Smarick, a former U.S. deputy assistant secretary of education, is a distinguished visiting fellow at the Thomas B. Fordham Institute and adjunct fellow at the American Enterprise Institute.

Greenfield is a term of art typically used by investors, engineers, or builders to refer to an area where there are unobstructed, wide-open opportunities to invent or build.

— Chapter 1, Education Unbound

New ventures can neither launch nor grow without money. In the absence of funding, greenfield efforts become soul-sucking endeavors for their founders, proceed much more slowly than necessary, or never get off the ground at all. The famous KIPP academies almost died before seeing the light of day because founders Mike Feinberg and David Levin had trouble assembling the few thousand dollars they needed to get started. Raising those funds required the two to write scores of letters and make countless appeals to Houston-area donors. As Washington Post reporter Jay Mathews has wryly recounted in his colorful history of KIPP, Work Hard, Be Nice, “Out of more than one hundred letters, only about a third responded. Most said, in polite corporate language, that they had never heard of KIPP and didn’t like the sound of it. None promised money.”

Teach For America’s Wendy Kopp also struggled to find funding when launching TFA. She has described [in Public Affairs] being schooled by Princeton faculty in just how hard it would be to raise the requisite funds, remembering, “What [Professor Bressler] really wanted to know, he said in his booming voice, was how in the world I planned to raise the $2.5 million…. He didn’t seem convinced. ‘Do you know how hard it is to raise twenty-five hundred dollars?’ he asked.”

Kopp has described sitting down with Texas billionaire and former presidential candidate Ross Perot, trying to get that $2.5 million:

All I remember is Mr. Perot talking. He talked a lot, and I had trouble following much of what he was saying. I was mostly just thinking ‘I need to stay here until I get $1 million from this man.’ When Mr. Perot suggested that I contact Sam Walton and other philanthropists instead, I insisted that he himself was the best possible prospect. Finally, after two hours of back and forth, Mr. Perot agreed to offer us a challenge grant of $500,000. We would have to match his money three to one. I’m not sure what ultimately led Mr. Perot to this idea. He must have realized that I wasn’t planning to go anywhere until he committed to something.

Kopp remembers that Perot’s grant was “the catalyst we needed,” with other donors following his lead and supplying the remaining funds “in relatively short order.”

Only the most hard-headed or selfless of entrepreneurs muscle through. Those with less stomach for frustration, as well as those interested in doing well in addition to doing good, will steer their energies elsewhere. It’s not just about dollars, though. The impact of venture capital  in entrepreneurial hotbeds like Silicon Valley is also a product of the personal networks, mentoring, and expertise that come with it. These networks help new enterprises get a foot in the door, and mentors provide assistance with mundane, but crucial, tasks like organizational bookkeeping, strategic planning, and governance.

Equally crucial is the quality control implicit in venture funding. Those who worry that greenfield efforts may not be publicly run, or who are hesitant to give funds to new ventures with unproven quality, often overlook the fact that competition for venture funding in the private sector comes with intensive screening. In a community like Silicon Valley, as a general rule only 10 percent of business plans that venture capitalists receive warrant any response at all, and only 1 percent are ever funded. To be sure, venture investment also has its share of blemishes. During the late-1990s dot-com bubble, for instance, investors frequently left their skepticism behind as they flocked to a slew of dubious ventures. So, it is not that this process is flawless, but only that it tends to exert a healthy discipline overall.

A particular challenge for schooling is that venture capital is not geographically dispersed. While schools operate in every corner of the country, venture capital is highly concentrated. In 2006, one-third of all venture capital investments were made in California’s Silicon Valley. That figure increases to about half of all investments if Los Angeles, Orange County, and San Diego are included, and to three-fourths of all U.S. venture investment if one adds the Route 128 corridor outside Boston, New York, and metropolitan Washington, DC. In other words, about three-fourths of all investment is made in a few California locales and in the Boston–New York–Washington nexus. Given this natural dynamic, we cannot expect 15,000 school districts to become hotbeds of educational entrepreneurship. Instead, the expectation should be that the requisite funding, infrastructure, and networks will likely emerge in some limited number of locales. Greenfielders need to invest in and build these hubs, and then take care to encourage and support the ventures that are able and willing to deliver their services more broadly.

The quality control and support that the investment process provides are driven by investors tending to their self-interest and happen naturally and invisibly in places like Silicon Valley. They impose a certain flexible but hardnosed quality control even while creating an entire ecosystem and equipping promising new ventures to take root. For too long, these quality assurances and development processes have been overlooked by both K–12 reformers who wonder why innovations fizzle and school choice enthusiasts who seemingly expect manicured flowers to spring from a barren, rubble-strewn plain.

The Three Phases of Investment

Though all education entrepreneurs need financing to get off the ground (venture capital) and to support expansion (growth capital), the capital market for for-profit organizations is markedly different from the one that nonprofit organizations can access (see Figure 2). While for-profit ventures can theoretically rely on their profits, nonprofits rely on a continuous funding stream (sustaining capital) even once they mature.

Startup Capital
Education entrepreneurs creating for-profit enterprises traditionally raise their initial capital from individuals (“angel investors”) or venture capital firms. As explained in the sidebar, these investors put up cash in exchange for an ownership stake (“equity”) in the new organization, and they expect that their investment will eventually yield a profit.

In 2004, just over $50 million was privately invested in businesses addressing the Pre-K–12 sector. With success stories like Amazon, Apple, and Google, one might think that early venture investors typically do quite well for themselves. But the reality is much more complex. In Fool’s Gold, Scott Shane, a professor of entrepreneurial studies at Case Western Reserve University, argues that observers focus on fabulously successful entrepreneurs, but what they do not realize is that these success stories are incredibly rare. Only a small number of entrepreneurs are really, really successful—and, by extension, only a small number of venture investors see large returns. The media contribute to this misperception because it is easy to tell the story of Google and of early Google investors, but it is much less interesting and more difficult to write stories about failure.

Nonprofit education entrepreneurs generally raise their startup capital from venture philanthropy firms like NewSchools Venture Fund and the Charter School Growth Fund, or from individual donors and foundations. Only a few foundations are comfortable with taking a risk on entrepreneurial education organizations. Those that do make these early funds available—usually multimillion-dollar grants over the course of several years—tend to be younger foundations, like the Eli & Edythe Broad Foundation, the Milton Friedman Foundation, the Michael and Susan Dell Foundation, and the Bill & Melinda Gates Foundation, that have embraced the modern school of venture philanthropy.

Before the relatively recent emergence of these new foundations, funders tended to provide these early grants in only small increments, forcing entrepreneurs to spend enormous amounts of time and energy on fundraising from multiple donors. In addition, foundation officials found it far more palatable to support a host of small, capacity-building grants than to make concentrated bets on greenfield ventures. Foundation officials rarely get in trouble for failing to have an impact, but can quickly get into hot water for supporting politically contentious measures. For this reason, traditional funders have historically preferred to support professional development, curricular reforms, mentoring programs, and similar efforts that are broadly popular and appear to be risk-free.

Growth Capital
For an education entrepreneur, finding startup capital is challenging, but fundraising for growth can be even tougher. For-profit companies that have a good track record may find that venture capital firms such as Quad Ventures are willing to invest in growth for later-stage education organizations with promising early results. Even venture capital firms that don’t focus on education are willing to entertain the notion if they see a successful business emerging.

Nonprofits, on the other hand, have a much more difficult time attracting growth funds. They struggle to raise the kind of large, multiyear investments needed to support expansion because even terrific nonprofit ventures cannot deliver a handsome return to investors. In addition, there is a perverse incentive for growing nonprofit organizations: The better the organization is doing, the more likely donors are to drop their support, believing they have done their part or are no longer needed. As such, many foundations seem willing to support strong nonprofit organizations and help them expand on a limited scale, but few are willing to sustain an organization as it grows over time.

It is especially difficult to raise large amounts of funding from foundations because, according to federal regulations, program officers need only spend 5 percent of the foundation’s total assets each year in the form of grants and other expenses. Except in unusual cases, the other 95 percent of a foundation’s assets are not used to fund grantees but instead are invested for the long term to preserve its endowment. If foundations are to seek a bigger impact, they may need to tap these endowments more aggressively.

One possible strategy for augmenting the available funding relies on program-related investments, which are loans that come from endowment funds. Several foundations, including the Walton Family Foundation and the Annie E. Casey Foundation, have made program-related investments to help charter school entrepreneurs secure facilities for their schools. There is room for more such investment: According to the Foundation Center, foundations nationwide hold nearly $500 billion in their endowments, but use just over $200 million of that for charitable loans or program-related investments—less than one-twentieth of 1 percent.

Nonprofits and philanthropies that have taken on the explicit mission of helping other nonprofits grow include the Growth Philanthropy Network, the Draper Richards Foundation, the Robin Hood Foundation, and the Tipping Point Community. The Draper Richards Foundation, for instance, was founded by famed venture capitalist Bill Draper and seeks to give nonprofits both management knowledge (a Draper Richards board member sits on participating nonprofits’ boards) and capital in their infant stages ($100,000 per year for three years).

Another foundation that is doing things differently is SeaChange Capital Partners, which makes multimillion-dollar infusions to help established nonprofits grow. SeaChange was founded by Chuck Harris, a retired Goldman Sachs partner. Harris had previously worked with nonprofit organizations and noted a serious problem. He explains [in Philanthropy News Daily]:

I was involved with a couple of non-profit organizations that had fantastic management, good results, a fair amount of financial discipline, and were ambitious. And if they had been for-profit businesses at a similar stage of development, they would have gone out and raised a multi-million-dollar, multi-year round of funding tied to their business plan. Instead, they were sending out scattershot proposals for relatively small amounts of money over short periods of time. In other words, there was no financial certainty…[and] the most senior people in the organization were spending a disproportionate amount of their time fundraising as opposed to driving the ship. It seemed to me to be a very ad hoc, inefficient, and restrictive way to grow.

SeaChange adopts Wall Street methods to support proven nonprofits with ambitious growth plans. Harris explains the key shift is “seek[ing] to fund the business plans of these nonprofits rather than [to] fund a piece of their program…. We plan to conduct the financing much like a private placement in the business sector, with the goal of raising $5 million, $10 million, $15 million for organizations on the threshold of a growth phase.”

Sustaining Capital
Entrepreneurial K–12 ventures launch and grow with private capital or philanthropic support. Once up and running, however, sustainable ventures seek to rely on earned income from fees or the sale of products or services. However, despite increasing acceptance of income-generating for-profit and nonprofit organizations, few education entrepreneurs have built models that sustain themselves on these revenues alone. And, as Dan Katzir and Wendy Hassett of the Eli & Edythe Broad Foundation have observed [in Hess, With the Best of Intentions], “Many foundations will not support a grantee for more than a specified number of years, regardless of where the organization is in terms of its growth cycle.” This means that nonprofits scramble to offset the loss of philanthropic support by finding ways to sell their services or by finding new funders, while for-profits seek to achieve a scale that makes them economically viable. One of the few successful school builders to have addressed this challenge is National Heritage Academies, a for-profit charter operator that enrolls 35,000 students in 57 schools across 6 states and has managed to attain profitability while generating impressive academic outcomes. Even academically successful ventures, however, have found it challenging to mimic NHA’s financial success.

Although some nonprofit education entrepreneurs can support their organization’s ongoing operations through public funding—such as by per-pupil dollars that flow to charter management organizations—most rely, at least in part, on fundraising from individuals and foundations. The limits to this approach are legion, however, as scholars estimate that total philanthropy to K–12 probably amounts to less than $3 billion a year—or less than 1 percent of all K–12 spending [as shown in Figure 1]. To date, entrepreneurial ventures have been disproportionately funded by this tiny sliver of funding—and especially by funds from younger foundations with roots in the 21st-century economy.

Some leading “new” philanthropies, like the Gates, Walton, and Broad Foundations, have attempted to adapt the venture investment mind-set to the social sector. Funders have begun to weigh criteria like scalability and financial sustainability more heavily, have taken seats on nonprofit boards, and have requested regular performance updates. This marks a shift in thinking—though it’s a development that has also encountered skepticism as to how willing these funders actually are to take bold chances and whether their efforts sometimes cross from smart oversight into micromanagement. Whatever one makes of such concerns, it is clear that support from philanthropic funders has proven instrumental in launching or expanding heralded greenfield ventures like KIPP, New Leaders for NewSchools, Aspire Public Schools, College Summit, Green Dot, and Achievement First.

In education circles, the two best-known venture philanthropies may be the decade-old NewSchools Venture Fund and the much younger Charter School Growth Fund. The San Francisco-based NewSchools Venture Fund secures investments from both for-profit and nonprofit sources and then seeks to provide startup capital to ventures—both nonprofit and for-profit organizations—that are sustainable and designed to achieve scale. The Colorado-based Charter School Growth Fund, with over $150 million in support, provides grants and loans to promote the growth of high-quality charter management and support organizations. These venture philanthropists accept that some investments will fail, so long as the failures are the product of efforts to address hard, important challenges. As the Broad Foundation’s Katzir and Hassett have explained, “We do not regard our grantmaking as charity…[but] think of our work as making investments in areas in which we expect a healthy return.”

The warm greetings given by both Republicans and Democrats on the committee reflect Duncan’s reputation as a centrist in the ideologically fraught battles over education reform. He has received national attention for moves favored by reformers, such as opening 75 new schools operated by outside groups and staffed by non-union teachers; introducing a pay-for-performance plan that will eventually be in 40 Chicago schools; and working with organizations, including The New Teacher Project, Teach For America, and New Leaders for New Schools, that recruit talented educators through alternatives to the traditional education-school route.

At the same time, Duncan maintained at least a cordial working relationship with the Chicago Teachers Union, and both the National Education Association (NEA) and the American Federation of Teachers (AFT) backed his nomination. He supported the No Child Left Behind law (NCLB), but also called for dramatic increases in spending to help schools meet the law’s targets, and additional flexibility for districts like his own. In nominating Duncan, Obama said, “We share a deep pragmatism about how to go about this. If pay-for-performance works and we can work with teachers so it doesn’t feel like it’s being imposed upon them…then that’s something that we should explore. If charter schools work, try that. You know, let’s not be clouded by ideology when it comes to figuring out what helps our kids.”

Given the strong union support for the Obama presidency, there was great speculation within education circles throughout the fall as to whether the new president would turn out to be a reformer—willing to challenge existing practices and the teachers unions in order to achieve dramatic changes in schools—or play it politically safe by backing programs that brought only marginal changes. A sharp divide among Democrats was in full view at the party’s national convention in Denver, where urban mayors and educators, gathered at a forum sponsored by Democrats for Education Reform (DFER), challenged the dominant role of teachers unions in shaping policy. Newark mayor Cory Booker told those assembled, “We have to understand that as Democrats we have been wrong on education, and it’s time to get it right.”

Even before the national convention, conflicts between the unions and Democratic reformers were intensifying. At a New York fundraiser in 2007, Obama reportedly made a similar point. According to Joe Williams, DFER’s executive director, Obama incriminated the teachers unions when the director of a Harlem charter school asked the then candidate why Democrats threw up so many obstacles.

Williams explained, “We’re at this point where the nation wants to change education more than the unions and the unions are going to have to decide if they’re going to be part of the change or be left out of it entirely.”

Two manifestoes issued during the Democratic primaries laid out competing philosophies on improving student achievement that were intended to influence the eventual Democratic nominee. A “Broader, Bolder Approach to Education,” a letter issued by the liberal Economic Policy Institute, signed by national leaders across much of the political spectrum, and endorsed by the AFT, argued that improving schools alone would not close achievement gaps between disadvantaged and advantaged students. It called on policymakers to provide preschool, afterschool programs, and summer school, and take steps to improve students’ health and social development. Another letter, issued by a coalition called the Education Equality Project, advocated addressing school system failures through greater accountability, school choice, and changes in compensation that would promote teacher quality. Those who signed on to the project, a diverse group of leaders in education, philanthropy, and public service, vowed to “challenge politicians, public officials, educators, union leaders and anybody else who stands in the way of necessary change.”

Obama has allies in both camps. Arne Duncan was one of only a handful who signed both statements. Yet in his confirmation hearing, Duncan left little doubt that the administration wants to make systemic changes.

“We must do dramatically better,” Duncan told the Senate committee. “We must continue to innovate. We must build upon what works. We must stop doing what doesn’t work. And we have to continue to challenge the status quo.”

Advisors to Obama say the rhetorical distinction was overdrawn and that the thrust of the president’s strategy is to make progress without causing further polarization. His education platform reflected that approach. Like many Democrats, he wants to spend more money: on helping students attend college; early childhood care and education; and improving teaching through mentoring and professional development for both principals and teachers. He has criticized NCLB for encouraging teaching solely focused on preparing students to pass tests. But in line with many Republicans and more conservative Democrats, Obama, like Duncan, supports school choice, charter schools, performance-based pay, and alternatives to education schools for teacher preparation (see sidebar). He and his opponent, Senator John McCain, both praised the work of Washington, D.C. schools chancellor Michelle Rhee, who has fought the local union as well as the AFT over tenure and teacher pay.

Economic Stimulus

Widespread agreement that only a massive stimulus package could rescue the U.S. economy presented the new administration with the opportunity to placate both sides of the Democratic divide. The unions and their allies would get a massive infusion of federal funds into the schools that would help offset state and local budget cuts. And this would give Obama cover to push for tougher reforms down the road.

House Democrats, after negotiations with Obama’s team, in mid-January proposed a stimulus package of $825 billion that included between $120 billion and $140 billion for public schools and colleges. Most of the money would have few strings attached.

The spending package would boost federal spending on Title I programs for low-income students and for special education, distributing the money according to current formulas. It would also provide at least $39 billion to offset state cuts in education budgets and $20 billion for capital improvements at schools and colleges. About $15 billion would be available to states as bonuses for efforts such as ensuring that low-performing schools and districts have effective teachers and that the performance of English-language learners and special education students is properly assessed (see Figure 1). One Obama aide said similar incentives would be incorporated into education programs to be introduced later in the spring.

The stimulus package also proposed to boost funding for the Teacher Incentive Fund (TIF), a Bush-era program that provides financial incentives to teachers and principals who raise overall student achievement and close achievement gaps. After Democrats took control of Congress in 2006, they zeroed out funding for TIF but restored $100 million for the following year. In his last budget, Bush requested $200 million for the program, the same amount Obama’s team has proposed.

Thirty-six states plus the District of Columbia already have local or statewide teacher compensation systems that add some sort of financial incentive to the standard step-and-column pay plan, according to the NEA. Former NEA president Reg Weaver cautioned that “while we can be open to alternatives, we should always oppose politically motivated, quick fixes designed to weaken the voice of teachers and the effectiveness of education employees. If they want to talk about changing the way we’re paid, they need to do that with us, not to us.”

In Obama’s platform, he agreed that such plans should be developed in consultation with teachers. Among the promising models is a voluntary pay-for-performance program in place in districts in a dozen states, funded in part by TIF, and implemented by Duncan in Chicago. The Teacher Advancement Program (TAP) provides teachers with professional support, helps them to use data in instruction, holds them accountable for results, and provides bonuses. Teachers in 10 Chicago schools voted to participate in TAP starting in the fall of 2007, and bonuses totaling $340,000 were given out the following year for improved test scores at 9 of the schools. “This is a landmark event for Chicago’s schools—recognizing and rewarding educators for exemplary work and compensating them accordingly,” Duncan said at the time.

The scale of the proposed spending on education is stunning, more than doubling the federal contribution. Of course, even an increase of that magnitude would leave the feds as the junior investors in public education, their contribution dwarfed by current state and local spending. But the funds proposed to offset cuts in state funding would mean that, for the first time, the federal government would be directly covering the cost of basic school operations. That kind of money could buy a lot of goodwill, especially if it helps states avoid laying off thousands of teachers. By December 2008, 19 states had cut K–12 education spending, according to the Center on Budget and Policy Priorities, a liberal research group. Even with the infusion of federal support proposed so far, states may have to make further cuts in their education budgets if the economy does not improve quickly. States spend between one-third and one-half of their budgets on elementary and secondary education, and the revenue available to state and local governments is shrinking fast. By January 2008, states had reported deficits of $350 billion. “If the economy doesn’t get better, schools are in trouble,” said Jack Jennings, founder and CEO of the Center on Education Policy. “For the sake of the schools it’s important that Obama pay attention to the economy.”

Even if the economy recovers and the stimulus package goes through intact, some observers question whether the proposed spending will do enough to address persistent disparities in achievement. Despite past federal support directed toward the needs of low-income students, African American 4th and 8th graders did not make measurable progress on the National Assessment of Educational Progress between 2005 and 2007. “Is the stimulus going to benefit kids in ways that are palpable and real and that improve achievement?” asked Dianne Piche of the Citizens Commission on Civil Rights. As the House was passing its version of the stimulus package (see Figure 1), Frederick Hess of the American Enterprise Institute noted that most of the money simply gave states dollars to keep intact the programs of the past: “It’s like an alcoholic at the end of the night when the bars close and the solution is to open the bar for another hour,” he told a New York Times reporter.

No Child Left Behind

The pressing economic issues, as well as difficult politics, will likely push reauthorization of NCLB into 2010 or even 2011. California Democrat Representative George Miller, who was one of four members of Congress who worked with the first Bush administration on the original NCLB, wants to see it revised and reauthorized. Yet Miller acknowledged to the Washington Post that “at the end of the day, it may be the most tainted brand in America.”

NCLB has been a great success in the sense that no one disagrees with its goals: accountability for results, addressing issues of teacher quality, putting a spotlight on the learning of all students, and better targeting of funds to districts serving the most disadvantaged students. Still, its detractors argue that the law has had unfortunate side effects: too much time spent teaching to narrow tests, schools focused on boosting the scores of students who are just below the proficiency threshold, and some states lowering their standards to reduce the number of schools missing their achievement targets.

“We’ve learned over the past five to 10 years that we have to align curriculum, align standards, and align tests with professional development,” Jennings said. “We’ve also learned that it is very, very hard to do. We’ve also learned that if we really set certain goals…teachers will pay attention to those students who are just below the goal and not pay attention to those who are further down or further up.”

Obama spoke during his campaign at length about the ins and outs of testing and decried teaching to the test. Rather than abandon the testing in NCLB, he has said he wants to invest in improving assessments, so that they measure a broader range of skills than just the basics.

The battle fought over reauthorization of NCLB in 2007 offers a preview of the challenges the Obama team will face. In a speech at the National Press Club outlining his priorities for reauthorizing the law, Representative Miller said, “Throughout our schools and communities, the American people have a very strong sense that the No Child Left Behind Act is not fair, not flexible, and is not funded. And they are not wrong.”

Hope for Reform
Despite the challenges, many in Washington are hopeful that public schools may in fact improve under an Obama administration. Although he cannot ignore the unions that form a key part of the party’s constituency, Obama owes less to them than did past Democratic presidents. The unions did not support him in the primaries and, because he raised so much money on his own, Obama was not as dependent on their money as others have been. Of course, he is hugely popular with teachers, and the staggering amount of money he appears to be willing to spend on education will only make him more so.

In addition, the leaders of the two unions at least appear more willing to be flexible on some long-standing issues. AFT president Randi Weingarten has said several times that “nothing is off the table” except vouchers. Not that much is known about Dennis Van Roekel, the Arizona math teacher who became president of the NEA last summer (see “Same Old, Same Old,” features, Winter 2009). But he was among those who supported Bob Chase, an earlier NEA president, when he tried to get the union to endorse what he called the “new unionism.” Chase wanted the union to experiment with new forms of performance pay and peer review of teacher performance, but the rank-and-file members nationally were reluctant to go along. It remains unclear how far Weingarten and Van Roekel will be able to push their members now to accept changes in compensation, evaluation, tenure, and so on.

Weingarten finds it “very sad” and frustrating that unions are always blamed for opposing reforms. “There’s a lot of demonizing and blame-mongering going on in education and it’s ridiculous…because it just creates excuses,” she said. “It says to me that they don’t think anything can be done because they are looking for the fall guy rather than helping all kids achieve.”

Weingarten expressed hope that Obama would push for more rigorous standards, better curricula, more valid assessments, and investments in helping teachers improve. “You can’t buy it by putting money out there and saying to teachers, ‘if you don’t do it, you’re fired,’” she said, referring to her opposition to Michelle Rhee in Washington, D.C. “We have the responsibility…to recruit and support and retain teachers if they’re doing a good job, and if not, to counsel them out of the profession.”

But Kate Walsh, president of the National Council on Teacher Quality, counters that the unions have resisted that course of action. “I think the unions are up against the wall,” she said. “The whole movement toward the notion that teachers don’t have a basic right to be in the classroom unless they are effective is proving so powerful as an idea that they’re weakened because they’ve run away from it rather than embrace it.”

It is well known that one of the strongest threads in the narrative of Obama’s journey from his childhood to the White House is educational opportunity (see “The Early Education of Our Next President,” features, Fall 2008). Schooled first in Indonesia, he returned to Hawaii because his mother wanted him to get a better education. There, his maternal grandmother and grandfather enrolled him in the private Punahou School, where he studied with the island’s elite. Then, it was on to Occidental College, Columbia University, and Harvard Law School.

“I wasn’t born with a lot of advantages, but I was given love and support, and an education that put me on a pathway to success,” Obama said during a major campaign speech on education last September in Dayton, Ohio. “The reason Michelle and I are where we are today is because this country we love gave us the chance at an education. And the reason that I’m running for president is to give every single American that same chance.”

Joe Williams believes that all of those factors, as well as Obama’s personal commitment to improving education, create a real opportunity to bring about systemic, long-lasting changes. “Everyone says they support the goals of NCLB and if that’s real, then he can use his bully pulpit to say that we’ll do in education the equivalent of saying we’ll put a man on the moon in 10 years.

“He can say that we will make sure that every kid who starts the race will cross the finish line and it will give everyone goose bumps and start a new type of discussion about what the game is. But it only has the potential to change the game if he treats it as an opportunity to wipe the slate clean and inspire people to think very big about what is possible,” adds Williams. “Obama is the only person I’ve seen in the last 20 years who may be up to that job.”

“His vision of education is as a foundation not just of the economy but of a society in which people take care of each other,” explained Stanford University education professor Linda Darling-Hammond, who advised Obama during the campaign and handled education policy for the president-elect’s transition team, in remarks delivered in November 2007 at a National Academy of Education event. “I think we can make great strides in a very short time.”

Although some may worry about the cost of all of the new programs, Darling-Hammond views the amount Obama wants to spend on education as a relatively small part of the overall bailout and recovery package, which could exceed $1.5 trillion.

In his speech last September in Dayton, Obama assured his audience, “We can do it all.”

Richard Lee Colvin is a longtime education journalist and director of the Hechinger Institute on Education and the Media, Teachers College, Columbia University.

“Recessions cause lots of harm, but they also eliminate bloat, fat, even fraud,” he writes. “What is politically impossible in good times can be readily justified when profits fall and deficits loom.”  He continues,

Unfortunately, public schools skipped the recession. When everyone else was forced to rethink their priorities, school districts found themselves nicely bailed out by the federal government’s $100 billion stimulus package.

And, Peterson notes, as another article in the new issue of Education Next by James Guthrie and Arthur Peng documents (“The Phony Funding Crisis,”) schools have always been insulated from downturns in the economy.

When the economy turns south, school districts do not cut the fat but push for new revenue sources: more state aid, money from gamblers, fees for services, and now a federal bailout.

“So what will happen when the stimulus package dries up in less than two years’ time?” Peterson asks. “Stay tuned—and taxpayers watch your wallets.”

Recessions cause lots of harm, but they also eliminate bloat, fat, even fraud. What is politically impossible in good times can be readily justified when profits fall and deficits loom.

Few deny the long-term value of Ponzi-scheme elimination, better banking practices, and the reshaped automobile industry that the present recession is beginning to produce. The bloated higher-education system may also emerge a healthier industry now that it has been forced to retrench. My own arts and sciences faculty at Harvard University has squeezed $77 million out of its budget this past year by closing an underused library, sharing information online instead of through the mail, eliminating hot meals at breakfast, and cutting redundant administrative positions. Elsewhere, I have seen administrators take forceful actions long overdue.

Unfortunately, public schools skipped the recession. When everyone else was forced to rethink their priorities, school districts found themselves nicely bailed out by the federal government’s $100 billion stimulus package. It doubled the size of the federal contribution to schools and allowed schools in most states to continue operating without missing a school lunch or reassigning a guidance counselor to the classroom. That, of course, has not kept news outlets such as the New York Times from screaming that “Schools Aided by Stimulus Money Still Facing Cuts.” Admittedly, districts in a few states, California being the most notable, are unable to hire as many new teachers as they had planned, but overall the public school sector has been protected from recession, just as James Guthrie and Arthur Peng (“The Phony Funding Crisis,” features) say has happened in the past.

If the recent sharp uptick in industrial productivity and a rising stock market are harbingers of the economic future, business is already readying itself for a new growth spurt. The recession drove inefficient firms from the market, talent has been reallocated to more productive work, and many firms have been forced to make the tough choices necessary for economic revival. None of this has happened without pain, but growing economies have time and again turned recessions into positive breakthroughs. Only a decade ago, the collapse of the technology sector set the stage for its dramatic rebirth.

Not so for K–12 public education, unfortunately. When the economy turns south, school districts do not cut the fat but push for new revenue sources: more state aid, money from gamblers, fees for services, and now a federal bailout. Each new revenue source, proposed in times of crisis, soon becomes a permanent part of the funding stream, and education costs climb higher and higher; they more than tripled in real-dollar terms over the past 40 years.

So what will happen when the stimulus package dries up in less than two years’ time? One can predict with fair confidence that school districts and teachers unions will scream “Another Fiscal Crisis.” Their friends in the media will act as megaphones. Will Obama stare them down and become the first president to cut federal aid to education from the levels reached in his first year in office? Stay tuned—and, taxpayers, watch your wallets.

An interview with Patrick Wolf about his evaluation of the D.C. Opportunity Scholarship Program and about its likely future is available here.

School choice supporters, including hundreds of private school students in crisp uniforms, filled Washington, D.C.’s Freedom Plaza last May to protest a congressional decision to eliminate the city’s federally funded school voucher program after the next school year (to see additional images of this event please click here). That afternoon, President Obama announced a compromise proposal to grandfather the more than 1,700 students currently in the District of Columbia Opportunity Scholarship Program, funding their vouchers through high school graduation, but denying entry to additional children. Both program supporters and opponents cite evidence from an ongoing congressionally mandated Institute of Education Sciences (IES) evaluation of the program, for which I am principal investigator, to buttress their positions, rendering the evaluation a Rorschach test for one’s ideological position on this fiercely debated issue.

School vouchers provide funds to parents to enable them to enroll their children in private schools and, as a result, are one of the most controversial education reforms in the United States (to see an interview with Patrick Wolf about his evaluation of the D.C. Opportunity Scholarship Program and about its likely future please click here). Among the many points of contention is whether voucher programs in fact improve student achievement. Most evaluations of such programs have found at least some positive achievement effects, but not always for all types of participants and not always in both reading and math. This pattern of results has so far failed to generate a scholarly consensus regarding the beneficial effects of school vouchers on student achievement. The policy and academic communities seek more definitive guidance.

The IES released the third-year impact evaluation of the Opportunity Scholarship Program (OSP) in April 2009. The results showed that students who participated in the program performed at significantly higher levels in reading than the students in an experimental control group. Here are the study findings and my own interpretation of what they mean.

Opportunity Scholarships
Currently, 13 directly funded voucher programs operate in four U.S. cities and six states, serving approximately 65,000 students. Another seven programs indirectly fund private K—12 scholarship organizations through government tax credits to individuals or corporations. About 100,000 students receive school vouchers funded through tax credits. All of the directly funded voucher programs are targeted to students with some educational disadvantage, such as low family income, disability, or status as a foster child.

Nineteen of the 20 school voucher programs in the U.S. are funded by state and local governments. The OSP is the only federal voucher initiative. Established in 2004 as part of compromise legislation that also included new spending on charter and traditional public schools in the District of Columbia, the OSP is a means-tested program. Initial eligibility is limited to K—12 students in D.C. with family incomes at or below 185 percent of the poverty line. Congress has appropriated $14 million annually to the program, enough to support about 1,700 students at the maximum voucher amount of $7,500. The voucher covers most or all of the costs of tuition, transportation, and educational fees at any of the 66 D.C. private schools that have participated in the program. By the spring of 2008, a total of 5,331 eligible students had applied for the limited number of Opportunity Scholarships. Recipients are selected by lottery, with priority given to students applying to the program from public schools deemed in need of improvement (SINI) under No Child Left Behind. Scholars and policymakers have since questioned the extent to which SINI designations accurately signal school quality because they are based on levels of achievement instead of the more informative measure of achievement gains over time.

The third-year impact evaluation tracked the experiences of two cohorts of students. All of the students were attending public schools or were rising kindergartners at the time of application to the program. Cohort 1 consisted of 492 students entering grades 6—12 in 2004. Cohort 2 consisted of 1,816 students entering grades K—12 in 2005. The 2,308 students in the study make it the largest school voucher evaluation in the U.S. to employ the “gold standard” method of random assignment.

Voucher Effects
Researchers over the past decade have focused on evaluating voucher programs using experimental research designs called randomized control trials (RCTs). Such experimental designs are widely used to evaluate the efficacy of medical drugs prior to making such treatments available to the public. With an RCT design, a group of students who all qualify for a voucher program and whose parents are equally motivated to exercise private school choice, participate in a lottery. The students who win the lottery become the “treatment” group. The students who lose the lottery become the “control” group. Since only a voucher offer and mere chance distinguish the treatment students from their control group counterparts, any significant difference in student outcomes for the treatment students can be attributed to the program. Although not all students offered a voucher will use it to enroll in a private school, the data from an RCT can also be used to generate a separate estimate of the effect of voucher use (see sidebar, page 50).

Using an RCT research design, the ongoing IES evaluation found no impacts on student math performance but a statistically significant positive impact of the scholarship program on student reading performance, as measured by the Stanford Achievement Test (SAT 9). The estimated impact of using a scholarship to attend a private school for any length of time during the three-year evaluation period was a gain of 5.3 scale points in reading. That estimate provides the impact on all those who ever attended a private school, whether for one month, three years, or any length of time in between (see Figure 1). Consequently, the estimate should be interpreted as a lower-bound estimate of the three-year impact of attending a private school, because many students who used a scholarship during the three-year period did not remain in private school throughout the entire period. The data indicate that members of the treatment group who were attending private schools in the third year of the evaluation gained an average of 7.1 scale score points in reading from the program.

What do these gains mean for students? They mean that the students in the control group would need to remain in school an extra 3.7 months on average to catch up to the level of reading achievement attained by those who used the scholarship opportunity to attend a private school for any period of time. The catch-up time would have been around 5 months for those in the control group as compared to those who were attending a private school in the third year of the evaluation.

Over time, in my opinion, the effects of the program show a trend toward larger reading gains cumulating for students. Especially when one considers that students who used their scholarship in year 1 needed to adjust to a new and different school environment, the reading impacts of using a scholarship of 1.4 scale score points (not significant) in year 1, 4.0 scale score points (not significant) in year 2, and 5.3 scale score points (significant) in year 3 suggest that students are steadily gaining in reading performance relative to their peers in the control group the longer they make use of the scholarship. No trend in program impacts is evident in math.

What explains the fact that positive impacts have been observed as a result of the OSP in reading but not in math? Paul Peterson and Elena Llaudet of Harvard University, in a nonexperimental evaluation of the effects of school sector on student achievement, suggest that private schools may boost reading scores more than math scores for a number of reasons, including a greater content emphasis on reading, the use of phonics instead of whole-language instruction, and the greater availability of well-trained education content specialists in reading than in math. Any or all of these explanations for a voucher advantage in reading but not in math are plausible and could be behind the pattern of results observed for the D.C. Opportunity Scholarships. The experimental design of the D.C. evaluation, while a methodological strength in many ways, makes it difficult to connect the context of students’ educational experiences with specific outcomes in any reliable way. As a result, one can only speculate as to why voucher gains are clear in reading but not observed in math.

Student Characteristics
The OSP serves a highly disadvantaged group of D.C. students. Descriptive information from the first two annual reports indicates that more than 90 percent of students are African American and 9 percent are Hispanic. Their family incomes averaged less than $20,000 in the year in which they applied for the scholarship.

Overall, participating students were performing well below national norms in reading and math when they applied to the program. For example, the Cohort 1 students had initial reading scores on the SAT-9 that averaged below the 24th National Percentile Rank, meaning that 75 percent of students in their respective grades nationally were performing higher than Chart 1 in reading. In my view, these descriptive data show how means tests and other provisions to target school voucher programs to disadvantaged students serve to minimize the threat of cream-skimming. The OSP reached a population of highly disadvantaged students because it was designed by policymakers to do so.

Did Only Some Students Benefit?
Several commentators have sought to minimize the positive findings of the OSP evaluation by suggesting that only certain subgroups of participants benefited from the program. Martin Carnoy states that “the treated students in Cohort 1 were concentrated in middle schools and the effect on their reading score was significantly higher than for treated students in Cohort 2.” Henry Levin likewise asserts that “the evaluators found that receiving a voucher resulted in no advantage in math or reading test scores for either [low achievers or students from SINI schools].”

The actual results of the evaluation provide no scientific basis for claims that some subgroups of students benefited more in reading from the voucher program than other subgroups. The impact of the program on the reading achievement of Cohort 1 students did not differ by a statistically significant amount from the impact of the program on the reading achievement of Cohort 2 students, Carnoy’s claim notwithstanding. Nor did students with low initial levels of achievement and applicants from SINI schools experience significantly different reading gains from the program than high achievers and non-SINI applicants. The mere fact that statistically significant impacts were observed for a particular subgroup does not mean that impacts for that group are significantly different from those not in the subgroup. For example, Group A and Group B may have experienced roughly similar impacts, but the impact for Group A might have been just large enough for it to be significantly different from zero (or no impact at all), while Group B’s quite similar scores fell just below that threshold.

From a scientific standpoint, three conclusions are valid about the achievement results in reading from the year 3 impact evaluation of the OSP:

• The program improved the reading achievement of the treatment group students overall.
• Overall reading gains from the program were not significantly different across the various subgroups examined.
• Three distinct subgroups of students—those who were not from SINI schools, students scheduled to enter grades K-8 in the fall after application to the program, and students in the higher two-thirds of the performance distribution (whose average reading test scores at baseline were at the 37th percentile nationally)—experienced statistically significant reading impacts from the program when their performance was examined separately. Female students and students in Cohort 1 saw reading gains that were statistically significant with reservations due to the possibility of obtaining false positive results when making comparisons across numerous subgroups.
  Why examine and report achievement impacts at the subgroup level, if the evidence indicates only an overall reading gain for the entire sample? The reasons are that Congress mandated an analysis of subgroup impacts, at least for SINI and non-SINI students, and because analyses at the subgroup level might have yielded more conclusive information about disproportionate impacts for certain types of students.

Expanding Choice
The OSP facilitates the enrollment of low-income D.C. students in private schools of their parents’ choosing. It does not guarantee enrollment in a private school, but the $7,500 voucher should make such enrollments relatively common among the students who won the scholarship lottery. The eligible students who lost the scholarship lottery and were assigned to the control group still might attend a private school but they would have to do so by drawing on resources outside of the OSP. At the same time, students in both groups have access to a large number of public charter schools.

The implication is that, for this evaluation of the OSP, winning the lottery does not necessarily mean private schooling, and losing the lottery does not necessarily mean education in a traditional public school. Members of both groups attended all three types of schools—private, public charter, and traditional public—in year 3 of the voucher experiment, although the proportions that attended each type differed markedly based on whether or not they won the scholarship lottery (see Figure 2). In total, about 81 percent of parents placed their child in a private or public school of choice three years after winning the scholarship lottery, as did 46 percent of those who lost the lottery. The desire for an alternative to a neighborhood public school was strong for the families who applied to the OSP in 2004 and 2005.

These enrollment patterns highlight the fact that the effects of voucher use reported above do not amount to a comparison between “school choice” and “no school choice.” Rather, voucher users are exercising private school choice, while control group members are exercising a small amount of private school choice and a substantial amount of public school choice. The positive impacts on reading achievement observed for voucher users therefore reflect the incremental effect of adding private school choice through the OSP to the existing schooling options for low-income D.C. families.

Parent Satisfaction
Another key measure of school reform initiatives is the perception among parents, who see firsthand the effects of changes in their child’s educational environment. Whenever school choice researchers have asked parents about their satisfaction with schools, those who have been given the chance to select their child’s school have reported much higher levels of satisfaction. The OSP study findings fit this pattern. The proportion of parents who assigned a high grade of A or B to their child’s school was 11 percentile points higher if they were offered a voucher, 12 percentile points higher if their child actually used a scholarship, and 21 points higher if their child was attending a private school in year 3, regardless of whether they were in the treatment group. Parents whose children used an Opportunity Scholarship also expressed greater confidence in their children’s safety in school than parents in the control group.

Additional evidence of parental satisfaction with the OSP comes from the series of focus groups conducted independently of the congressionally mandated evaluation. One parent emphasized the expanded freedom inherent in school choice:

“[The OSP] gives me the choice to, freedom to attend other schools than D.C. public schools….I just didn’t feel that I wanted to put him in D.C. public school and I had the opportunity to take one of the scholarships, so, therefore, I can afford it and I’m glad that I did do that.” (Cohort 1 Elementary School Parent, Spring 2008)

Another parent with two children in the OSP may have hinted at a reason achievement impacts were observed specifically in reading:

“They really excel at this program, `cause I know for a fact they would never have received this kind of education at a public school….I listen to them when they talk, and what they are saying, and they articulate better than I do, and I know it’s because of the school, and I like that about them, and I’m proud of them.” (Cohort 1 Elementary School Parent, Spring 2008)

These parents of OSP students clearly see their families as having benefited from this program.

Previous Voucher Research
The IES evaluation of the DC OSP adds to a growing body of research on means-tested school voucher programs in urban districts across the nation. Experimental evaluations of the achievement impacts of publicly funded voucher and privately funded K—12 scholarship programs have been conducted in Milwaukee, New York City, the District of Columbia, Charlotte, North Carolina, and Dayton, Ohio. Different research teams analyzed the data from New York City (three different teams), Milwaukee (two teams), and Charlotte (two teams). The four studies of Milwaukee’s and Charlotte’s programs reported statistically significant achievement gains overall for the members of the treatment group. The individual studies of the privately funded K—12 scholarship programs in the District of Columbia and Dayton reported overall achievement gains only for the large subgroup of African American students in the program. The three different evaluators of the New York City privately funded scholarship program were split in their assessment of achievement impacts, as two research teams reported no overall test-score effects, but did report achievement gains for African Americans; the third team claimed there were no statistically significant test-score impacts overall or for any subgroup of participants.

The specific patterns of achievement impacts vary across these studies, with some gains emerging quickly, but others, like those in the OSP evaluation, taking at least three years to reach a standard level of statistical significance. Earlier experimental evaluations of voucher programs were somewhat more likely to report achievement gains from the programs in math than in reading—the opposite of what was observed for the OSP. Despite these differences, the bulk of the available, high-quality evidence on school voucher programs suggests that they do yield positive achievement effects for participating students.

Conclusions
School voucher initiatives such as the District of Columbia Opportunity Scholarship Program will remain politically controversial in spite of rigorous evaluations such as this one, showing that parents and students benefited in some ways from the program. Critics will continue to point to the fact that no impacts of the program have been observed in math, or that applicants from SINI schools, who were a service priority, have not demonstrated statistically significant achievement gains at the subgroup level, as reasons to characterize these findings as disappointing. Certainly the results would have been even more encouraging if the high-priority SINI students had shown significant reading gains as a distinct subgroup. Still, in my opinion, the bottom line is that the OSP lottery paid off for those students who won it. On average, participating low-income students are performing better in reading because the federal government decided to launch an experimental school choice program in our nation’s capital.

The achievement results from the D.C. voucher evaluation are also striking when compared to the results from other experimental evaluations of education policies. The National Center for Education Evaluation and Regional Assistance (NCEE) at the IES has sponsored and overseen 11 studies that are RCTs, including the OSP evaluation. Only 3 of the 11 education interventions tested, when subjected to such a rigorous evaluation, have demonstrated statistically significant achievement impacts overall in either reading or math. The reading impact of the D.C. voucher program is the largest achievement impact yet reported in an RCT evaluation overseen by the NCEE. A second program was found to increase reading outcomes by about 40 percent less than the reading gain from the DC OSP. The third intervention was reported to have boosted math achievement by less than half the amount of the reading gain from the D.C. voucher program. Of the remaining eight NCEE-sponsored RCTs, six of them found no statistically significant achievement impacts overall and the other two showed a mix of no impacts and actual achievement losses from their programs. Many of these studies are in their early stages and might report more impressive achievement results in the future. Still, the D.C. voucher program has proven to be the most effective education policy evaluated by the federal government’s official education research arm so far.

The experimental evaluation of the District of Columbia Opportunity Scholarship Program is continuing into its fourth and final year of studying the impacts on students and parents. The final evidence collected from the participants may confirm the accumulation of achievement gains in reading and higher levels of parental satisfaction from the program that were evident after three years, or show that those gains have faded. Uncertainty also surrounds the program itself, as the students who gathered on Freedom Plaza in May currently are only guaranteed one final year in their chosen private schools. What will policymakers see as they continue to consider the results of this evaluation? The educational futures of a group of low-income D.C. schoolchildren hinge on the answer.

Patrick J. Wolf is professor of education reform at the University of Arkansas and principal investigator of the D.C. Opportunity Scholarship Program Impact Evaluation. The opinions expressed in this article are his own.

An unabridged version of this article is available here.

The ongoing global financial crisis is forcing many employers, from General Motors to local general stores, to take a hard look at the costs of the compensation packages they offer employees. For public school systems, this will entail a consideration of fringe benefit costs, which in recent years have become an increasingly important component of teacher compensation. During the 2005–06 school year, the most recent year for which U.S. Department of Education data are available, the nation’s public schools spent $187 billion in salaries and $59 billion in benefits for instructional personnel. Total benefits added about 32 percent to salaries, up from 25 percent in 1999–2000. The increase reflects the well-known rise in health insurance costs, but it also appears to include growing costs of retirement benefits, which have received much less attention.

Conventional wisdom holds that teacher pensions (along with other public pensions) are more costly than private retirement benefits, for reasons dating to an earlier era of low teacher salaries over lifelong careers. In spite of dissent from this view by some researchers (see sidebar), in this case we find that conventional wisdom is right: the cost of retirement benefits for teachers is higher than for private-sector professionals.

To track changes in retirement costs and compare employer contributions to retirement for public school teachers with those for private-sector professionals, we draw on recent data from a major employer survey conducted by the U.S. Department of Labor. These data show that the rate of employer contributions to retirement benefits for public school teachers in 2008 is substantially higher than for private professionals: 14.6 percent of earnings for teachers vs. 10.4 percent for private professionals. Moreover, the gap has widened over the four years the data have been available. Between March 2004 and September 2008, the difference more than doubled, rising from 1.9 to 4.2 percentage points (see Figure 1).

There are several reasons one might expect employer contributions to retirement to be higher for teachers. First, nearly all teachers are covered by traditional defined benefit (DB) pension plans, in which employees receive a regular retirement check based on a legislatively determined formula. These plans have, over the years, come to offer retirement at relatively young ages, at a rate that replaces a substantial portion of final salary. U.S. Department of Education data show a median retirement age for public school teachers of 58 years, compared to about 62 for the labor force as a whole. A teacher in her mid-50s who has worked for 30 years under a typical teacher pension plan will be entitled to an annuity at retirement of between 60 and 75 percent of her final salary. In nearly all plans this annuity has some sort of cost-of-living adjustment. One does not generally observe comparable retirement plans for professionals and lower-tier managers in the private sector, since most employers have replaced traditional DB plans with defined contribution (DC) or similar 401(k)-type plans, in which the employer and employee contribute to a retirement account that belongs to the employee. Nor do those traditional DB plans that remain typically reward retirement at such early ages; they more nearly resemble Social Security, where eligibility is age 62 for early retirement, and 66 and rising for normal retirement.

The Survey Data

Our analysis draws on data from the National Compensation Survey (NCS), an employer survey developed by the Bureau of Labor Statistics (BLS). The NCS survey is designed to measure employer costs for wages and salaries and fringe benefits across a wide range of occupations and industries in the public and private sectors. Although the BLS has been reporting quarterly fringe-benefit cost data for various public and private employee groups for more than a decade, only since March 2004 has the bureau broken out these fringe-benefit cost data for public school K–12 teachers. In this article we use those data to compare retirement benefit costs for public K–12 teachers with costs for private-sector professionals. We use the most detailed available private-sector comparison group, “management, professional, and related,” a category that includes business and financial managers, operations specialists, accountants and auditors, computer programmers and analysts, engineers, lawyers, physicians, and nurses.

We measure the cost of retirement benefits as a percentage of earnings. Virtually all states specify in law that the employer will contribute a certain percentage of teacher salaries to a DB pension fund (employee contributions are similarly specified), and it is commonplace to compare such contribution rates among the states. Similarly, private-sector employers offering DC plans will typically specify their contribution as a percentage of salary (often as a match to employee contributions). Unlike some other benefits (e.g., health insurance), if salaries change, the dollar costs for retirement benefits move proportionally. On the benefit side, the DB formula ties one’s starting annuity to final average salary, while the adequacy of a DC plan is commonly thought of in terms of the salary replacement rate. Thus it is natural to specify retirement costs as a percentage of salary, both for teachers and for private-sector professionals.

In making this comparison, we must account for the fact that, while all of the private-sector professionals are covered by Social Security, a number of public school teachers are not. Some of the higher cost of employer retirement plans for teachers is offset by lower employer contributions for Social Security benefits. Thus, we should compare the contribution rates for employer-provided retirement benefits and Social Security for both groups of workers. While the BLS reports the Social Security contribution rate for private professionals, it does not report a similar rate for teachers. However, we are able to make such an adjustment by multiplying the share of teachers covered by Social Security, which the BLS estimates to be 73 percent, times the employer contribution rate (6.2 percent). This assumes that the vast majority of teachers are below the Social Security earnings cap (currently $102,000) and that the share of teachers in Social Security has been steady over the four years for which we make the comparison.

A time series with quarterly data for these benefit percentages is reported in Figure 1. Two patterns are visible. First, the contribution rate is considerably higher for public school teachers than for private professionals. In the most recent quarter for which data are reported, ending September 2008, the employer contribution rate for public K–12 teachers (14.6 percent) was 4.2 points higher than that for private-sector professionals (10.4 percent). Second, the gap is widening. While the private sector contribution rate has been relatively flat over the four years, the rate for public school teachers has markedly increased, doubling the gap between them from one-fifth to two-fifths.

In one important respect, it is likely that the BLS data underestimate the cost of retirement benefits for public school teachers. Many public school districts (and some states) provide health insurance benefits for retired public school teachers. In the course of this research we were surprised to learn that retiree health insurance benefits are not included in the BLS employment cost estimates. Since private employers have largely eliminated this benefit, this means that our estimate of the gap in retirement benefits favoring public school teachers is low, although we cannot be sure of the extent of the underestimate.

Social Security and Teachers

While the overall employer contribution rate for public school teachers is higher than for private-sector professionals, the group average may mask differences between teachers who are and are not covered by Social Security. In order to assess this point empirically, we examined directly the data on employer contributions for teacher pension funds. We find that total employer contributions for both groups of public school teachers are higher than for private-sector professionals.

Most teachers are in statewide pension funds, with a relatively small number in district funds (e.g., New York City, Denver, St. Louis). Data on employer contributions for these plans are available in annual financial reports for each fund, which are surveyed by the National Association of State Retirement Administrators (NASRA).

Using data on contributions from NASRA and pension fund annual reports where necessary, and using weights based on the number of teachers employed in each state or district as reported in the NCES Common Core of Data, it is possible to compute average employer contribution rates for teachers. First we consider teachers who are in states and districts covered by Social Security. For these teachers, we calculate the weighted average employer contribution to be 9 percent of earnings. This can be compared to the estimate of employer contributions to retirement for private-sector professionals and managers, calculated from the BLS data as 4.7 percent for the comparable period (FY07). This is a 4.3 percent difference favoring public school teachers, almost double, in those states and districts where teachers are enrolled in Social Security, so the comparison is on an equal footing.

For states and districts where teachers are not in Social Security, we calculate the average employer contribution at 11.1 percent of earnings. Of course, this is considerably higher than the 4.7 percent retirement contributions for private-sector professionals, but, perhaps surprisingly, it even exceeds their employers’ combined contributions to retirement and Social Security, which averaged 10.3 percent for FY07. Thus, as Figure 2 shows, comparing teachers with professionals in private-sector employment, total employer contributions are higher for teachers whether or not they are also covered by Social Security.

Our analysis of evidence from the BLS National Compensation Survey and the NASRA Public Fund Survey shows that the employer contribution rates for public school teachers are a larger percentage of earnings than for private-sector professionals and managers, whether or not we take account of teacher coverage under Social Security. In addition, the BLS data show that the contribution rate for teachers is clearly trending upward.

Looking Ahead

What are the likely trends going forward for the cost of teacher retirement benefits? No one knows for sure, but we can identify the two key factors that will drive these costs: future developments in the benefits themselves and in their funding. The trend through much of the postwar period was to enhance the retirement formulas in various ways, including reducing the age or service requirement for full benefits. For example, just last year New York City agreed to enhance its pension formula for younger teachers. But there is evidence that benefit enhancement has generally abated in recent years. There are even a few states, including Texas, that have moved to reduce benefits for newly hired teachers. However, this is unlikely to reduce costs in the near future, since benefits for incumbent teachers are protected by law in most states.

The other factor to consider is the funding status of teacher pension plans. The vast majority of teacher pension plans are not fully funded. This means that contributions include both the “normal cost” of pension liabilities accruing to current employees and the legacy costs of amortizing unfunded liabilities accrued previously (due to a variety of reasons, including the original pay-as-you go nature of most plans, as well as unfunded benefit enhancements over the years). In theory, if the actuarial assumptions hold true going forward and no new benefits are enacted, the amortization costs will eventually disappear (after 30 years, under a typical funding schedule), in much the same way that a homeowner’s monthly expenses decline when the mortgage gets paid off.

However, the near-term prospects may be very different. For one thing, public pension funds face the possibility of important accounting changes. Unlike private pension funds, public fund actuaries have been allowed to discount future liabilities at a rate of about 8 percent, the assumed long-run market return on fund assets. Finance economists have argued that such a high discount rate is imprudent, however, and there have been signs that public accounting standards might move toward the private-sector rules, based on corporate bond and Treasury rates, which could reduce the discount rate to about 5 percent. This would dramatically raise the required amortization payments.

Finally, it bears noting that the market value of pension funds has fallen precipitously as of this writing (December 2008). Barring a major market recovery, pension funds across the country will have new, large unfunded liabilities. Under actuarial smoothing methods, these losses will be phased in, raising required amortization payments over the next few years. If the accounting rules for public funds also change, reducing the discount rate on liabilities, the employers of public school teachers, along with other public employers, will face a double hit, requiring sharp increases in contributions. By contrast, those private employers who have switched over to defined contribution plans in recent decades will be unaffected. In short, there are good reasons to believe that the contribution gap we have documented will continue to widen in coming years.

Robert M. Costrell is professor of education reform and economics at the University of Arkansas. Michael Podgursky is professor of economics at the University of Missouri–Columbia.

The Education Equality Project champions accountability, pay reform, and school choice, while the Broader, Bolder coalition insists we must attend to health care, preschool, and parenting skills if students are to succeed in school. The Obama administration must negotiate this split in pursuing education reform; indeed, Secretary of Education Arne Duncan was the only individual to serve as a founding member of both groups.

In this forum, president of Democrats for Education Reform Joe Williams speaks for the Education Equality Project and Pedro Noguera offers the Broader, Bolder perspective on improving K–12 schooling, the early record of the Obama administration, and the challenges that lie ahead.

Education Next: What principles unify the signers of the coalition [Education Equality Project or A Broader, Bolder Approach to Education]? Can you explain the key reforms the coalition is calling for?

Pedro Noguera: The basic principle underlying the Broader, Bolder Approach to school reform is that efforts to raise student achievement cannot ignore the unmet social needs of children, particularly those related to concentrated poverty—inadequate health, housing, and nutrition. These conditions have a tremendous impact upon child development and learning.

Poverty does not cause academic failure, but it is a factor that profoundly influences the character of schools and student performance, in at least three broad and interrelated ways: 1) in most cases, considerably less money is spent on the education of poor children. Per-pupil spending has bearing on the quality of facilities, the availability of learning materials, and the ability of schools to attract and retain highly qualified personnel. While high levels of funding do not guarantee that children will receive a quality education, money matters, and many of the most acclaimed charter schools spend more per pupil than public schools, even though they generally serve fewer high-need students (i.e., special education or English language learners); 2) the unmet, nonacademic needs of children (social, emotional, and psychological) often have an impact on learning; 3) schools serving large numbers of poor children typically lack the resources and expertise to respond to their academic and social needs.

This does not mean that poor children cannot learn or that until we eliminate poverty and related social issues we will not be able to educate all children in this country. There are schools across the country—some are charter, some are private, and many are traditional public—that have shown us that it is possible for poor children to achieve at high levels when we respond to their needs and create conditions that are conducive to learning. However, the fact that a small number of schools have experienced a degree of success does not mean that we can simply blame other schools for their failures or ignore what is happening to children outside of school. Many, though not all, schools that succeed with poor children devise strategies to mitigate the effects of poverty with site-based social services and extended learning opportunities.

BBA advocates providing universal access to health care for children, quality early-childhood education, and expanded access to extended learning opportunities, after school and during the summer. While these measures alone will not guarantee higher student achievement or large-scale school improvement, they are essential for creating a context in which other education reforms can be effective.

Joe Williams: The Education Equality Project is a coalition of leaders (from education, civil rights, government, public policy, and business) who believe that what happens inside schools (and in the politics surrounding schooling) plays a tremendous role in shaping the achievement gap that exists in this country between the haves and the have-nots. The focus for reform, therefore, should be on what happens between teachers and students. That isn’t meant to be glib; we keep finding ourselves debating that key distinction with people who argue that the external forces in a child’s life represent obstacles too large for even great schools to overcome. While we are very sympathetic to the obstacles that impoverished children face to their physical, emotional, and educational development, and support policies to address these deficiencies, we believe that when conditions outside of the classroom are less than stellar, it is even more important that we get the schooling piece right.

One of the beliefs that has tied together the signatories of EEP thus far is a commitment to eliminating the racial and ethnic achievement gap in this country. This is not just an education issue, but a civil rights issue. If we neglect the education needs of our children, we are depriving them of the kinds of opportunities that the American dream can offer.

The EEP has called for an effective teacher for every child (paying teachers as professionals, giving them the tools and training to do their work effectively, and making tough decisions about ineffective teachers); empowering parents by allowing them to choose the best schools for their children; holding grown-ups at all levels accountable for the education of our children; and, very important, having enough strength in our convictions to stand up to anyone who seeks to preserve a failed system.

EN: Is it fair to expect all students to meet a uniform performance baseline? Is it reasonable to hold schools and educators responsible for ensuring that students meet that bar?

JW: Yes, these expectations are fair and reasonable. The key is making sure that schools and educators have the tools to provide students with the kind of education they need to clear the bar, including resources, the ability to build teams of excellent educators, and enough flexibility at the school level to adjust the length of the school day and year (among other things). This will likely require both additional resources and smarter use of education budgets around the country. Newark mayor Cory Booker often talks about the fact that we allow time spent on education to be the constant, while achievement is the variable. We need the flexibility to flip that notion so that time is the variable and achievement is the constant.

PN: Setting high academic standards for schools and students to meet is important but relatively easy to do. The harder and more important task is to adopt and implement standards that create optimal conditions for learning. This means ensuring that all children, regardless of where they live, have access to high-quality schools. This is what government policy must strive to achieve. We have quality standards for airports, highways, food, drugs, and water, but no state has adopted standards for learning environments, and many poor children attend under-resourced, inferior schools.

In fact, the most troubled schools typically serve students with the greatest needs. These schools cannot solve problems related to inequality and poverty without additional support. Yet this is essentially what No Child Left Behind (NCLB) and most education reforms that preceded it have expected. Almost eight years after the enactment of NCLB, high dropout rates and low achievement are still pervasive throughout this country, particularly in schools where poor children are concentrated.

EN: Do you think the administration’s actions thus far on school choice and charter schooling have been too aggressive or not aggressive enough?

PN: School choice is an idea that should be supported in principle. It is good for parents to have a variety of schools from which to choose because not all children have the same needs or interests. The greater challenge is ensuring that there are many high-quality schools to choose from and ensuring that choice does not contribute to further segregation in schools. Unfortunately, in many communities that have enacted choice plans, well-organized and informed parents do their best to gain access to the better schools, and invariably, others are left out. Racial segregation in schools has increased in the last 20 years, and poor children have become concentrated in the worst schools. Furthermore, in most choice systems it’s not parents but schools that really do the choosing. The better schools are often able to screen out needy students and limit enrollment. Because of high demand, they can be selective about whom they choose. This often occurs even in charter schools that use lotteries to determine admission but set criteria that are difficult for low-income parents to meet. Those who are not chosen by the superior schools invariably end up in lower-quality public schools with fewer resources.

Many, but not all, charter schools have demonstrated considerable success in educating poor children. Secretary of Education Arne Duncan has expressed his support for charter schools, even though in several states, such as Texas and Arizona, the charter schools are often no better, and in some cases are worse, than the public schools. As a trustee of the State University of New York, I am proud to say that the charter schools we authorize consistently outperform similar schools in the communities where they are located. If such quality-control measures can be adopted in other communities, charter schools should be supported as a means to increase the supply of good schools available to poor children.

JW: Choice, in and of itself, won’t bring about the kind of systemic change that we need. But it is difficult to imagine how we can drive that systemic change without choice playing a role. The administration’s actions to limit the D.C. Opportunity Scholarship (K–12 vouchers), for example, were perplexing, if only because the actions were accompanied by empty rhetoric about doing what is best for children. How do we look at low-income families with a straight face and tell them they can’t send their children to better schools because it isn’t the right policy to pursue for the broader system? We need to be doing everything we can to reform the larger system, but by all means, let’s help those families who need good schools now. All of that said, President Obama and education secretary Arne Duncan have provided tremendous cover for the public charter-school movement and have helped shift the focus toward identifying those schools that are doing an outstanding job of educating students and giving them the green light to bring their models to scale.

I have never believed that a voucher or a charter can teach a child to read or do math at exceptionally high levels. That stuff happens in great schools, and vouchers and charter school lotteries offer access to those schools for families who can’t afford to live in affluent neighborhoods or send their children to effective private schools. The key is ensuring that they have an abundance of great schools from which to choose. The public charter-school movement, in addressing both the supply and demand sides of this equation, has emerged as the most promising development in the broader attempt to save public education. The question is whether the charter movement will provide the political spark needed to fundamentally transform our public schools.

EN: Is basing pay on teacher performance essential to school improvement? Is it possible to craft a merit-pay plan that the National Education Association (NEA) and the American Federation of Teachers (AFT) will endorse? Are teachers unions and existing collective-bargaining agreements an impediment to school quality?

JW: I think we have gotten way too far ahead in this discussion. We are talking about merit pay and performance pay in school systems that recognize neither merit nor performance. Teachers unions are understandably squeamish about this topic because today’s testing regimens were not created to serve this purpose. Until people feel confident in the tests that we are using, it will be difficult to build compensation systems on them.

This is an issue we can’t afford to ignore, however. The unions set out to create a standard of fairness for all teachers. The end result, in many cases, is a system that doesn’t allow itself to view great teachers any differently than it does mediocre teachers. Evaluations rate teachers as merely “satisfactory” or “unsatisfactory.” As long as excellence is irrelevant in our schools, we will continue to be stuck in this holding pattern. Wouldn’t it be something if we could strive for systems filled with “excellent” teachers, where excellence actually means something? We’re going to need a lot of help from the NEA and AFT in getting there, since they are holding the keys right now.

PN: Addressing the effectiveness of teachers must be an essential part of education reform in this country. However, judging teachers and awarding bonuses simply on the basis of test scores is problematic. We have already witnessed a large number of schools that have adopted scripted curricula and a narrow focus on test preparation as one way to raise test scores. This tendency will undoubtedly increase if teachers are evaluated exclusively on that basis. Such an approach is likely to discourage good teachers from working in high-need schools and to widen the gap between poor and affluent students. A narrow focus on raising test scores is also likely to deny poor students access to an enriched curriculum that encourages the development of higher-order thinking skills.

It makes more sense to devise incentives, including increased pay, to attract teachers with a track record of effectiveness, to high-need schools and classrooms. Such teachers can be identified through systematic evaluations carried out by principals and peers. If we could combine such a strategy with lower class sizes and extended learning opportunities after school, we could see major gains for struggling students.

In many cities, unions have resisted giving districts greater flexibility in how teachers are assigned, and in too many cases they have made it difficult to remove teachers who are ineffective and inept. Since it seems likely that teachers unions will be around for many years to come, it would be wise to find ways to collaborate with them to devise peer review programs like those that have shown promise in districts such as Toledo, Ohio, and Rochester, New York. In these districts, ineffective teachers are removed in greater numbers than in districts that rely on principal evaluation. Districts should also be encouraged to use the negotiation process to push for greater flexibility in how teachers are assigned to schools.

EN: The president has touted the $5 billion for preschool in the stimulus bill. How can we be confident that the money will fund difference-making programs?

PN: Most of the nations that outperform the United States in educational outcomes provide universal access to quality preschool. Research in child development has shown that the learning that occurs during infancy establishes a foundation for learning throughout life. It is cost effective and in our national interest to expand access to quality early-childhood education for all children.

We know two important things about early childhood education: 1) children who have access to quality programs generally outperform children who do not, and 2) the benefits of quality preschool can be further enhanced if quality of education is maintained in the K–12 system. The situation is similar for elementary schools. Throughout the country we have seen a growing number of successful primary schools and increases in test scores. However, these gains often are not sustained in middle school. This should not be used as a justification to question the value of elementary school nor should similar logic be used to limit expansion of early childhood education.

JW: If high-quality pre-K isn’t such a good idea, why are rich people in my neighborhood running around thinking that the Earth will implode (and their kid won’t get into Harvard someday) if they don’t get a slot in the most sought-after preschool programs? Providing access to high-quality preschool opportunities to the have-nots is an important part of the overall reform effort, as long as those programs successfully help students prepare for the world that awaits them in kindergarten and beyond.

Critics note that finding “high-quality” early-childhood programs, just like finding high-quality K–12 schools, is where the proposition gets iffy. My organization, Democrats for Education Reform, has been pushing to extend state charter-school laws so that charter schools can offer pre-K while being held accountable for their results. Connecting pre-K to early childhood programs that run through 3rd grade would close the gap that exists between what is taught in pre-K and what students need to be able to do in the later grades.

This is about making sure that all students are starting off on as close to a level playing field as possible, whether or not they can afford to make a $100,000 contribution to get a leg up on preschool enrollment.

EN: The Broader, Bolder Approach has made the case that school reform must attend to the “physical health, character, social development, and non-academic skills” of students. Should schools and educators be tasked with this? At what point can or should we start to hold educators responsible for student outcomes?

JW: Students clearly have needs that extend beyond merely learning to read and do math. In the most successful schools serving low-income students, we see a wide range of child development activities, including sports, dance, art, chess, and citizenship enrichment activities. The notion that these activities are distractions from academic instruction assumes this is an either/or proposition. The best schools out there today seem to nail both.

This is where issues like better use of time come into play. Many educators decided long ago (seemingly correctly) that it is not possible to meet the complex needs of their students with a school day that ends at 3 p.m. This is particularly true for students who are two and three years behind where they are supposed to be academically.

PN: It is impossible and undesirable to separate academic performance from physical health, character development, and a variety of nonacademic skills. Sick and unhealthy children generally don’t do as well in school as healthy ones, and children who have trouble getting along with others typically don’t do very well either. From their very beginning, public schools have been charged with preparing children for work and citizenship, and such preparation has never focused solely upon academic skills.

To educate the “whole child,” schools must provide students with an enriched education that includes art, music, physical education, and character development in addition to the core subjects. The fact that skills in these areas cannot be easily assessed should not trouble us since most middle-class and affluent children receive such an education already and typically no one asks for evidence that such an approach has an impact on their test scores.

The highest-performing schools never focus exclusively on student achievement. In fact, what typically distinguishes the best schools from the others is the culture—shared expectations, values, norms, and beliefs—that permeate the school environment.

EN: The president has suggested that the American Recovery and Reinvestment Act, especially the $5 billion in “innovation” education funds, provides an opportunity to “transform” schooling. What are a couple of developments that give you cause for optimism or pessimism? How will we know in a few years if these education funds were spent wisely?

PN: While many public schools, especially in urban areas, are in dire need of reform, I am concerned that there is a lack of clarity about why past reforms have failed and insufficient understanding about the direction change must take if we are to obtain better results. Why do we still have dropout rates of 50 percent and higher in several cities eight years after the enactment of No Child Left Behind, and why are so many schools still foundering after substantial investments of public and private funds on reform? Several studies have shown that reforms have failed because we have ignored the nonacademic needs of children, because we have ignored school culture, because we have not evaluated reforms and insisted upon accountability, and because we have been too quick to pursue fads and gimmicks (small schools, technology, testing) while ignoring more substantive issues that support teaching and learning.

More funding is needed in many districts to address the lack of resources, but given the recession, we will need to rely upon better coordination between schools, nonprofits, and local government to respond to student needs. And money alone will not solve the problems facing America’s schools. We need a new vision and a new approach. A Broader, Bolder Approach offers part of the way forward. This must be combined with strategies that improve the quality of teaching and increase the accountability and responsiveness of schools to the communities they serve.

JW: The president and Secretary Duncan seem to have figured out that the leverage that comes from insisting that $5 billion be attached to innovation is tremendous. Even before a single dime was disbursed from the “Race to the Top” fund, we saw state legislatures take actions to support things like charter school expansion: Massachusetts, Illinois, Indiana, Tennessee, and Rhode Island were not exactly lining up to help charter schools until Duncan made clear that it would impact these states’ applications for federal funding. For a state like Tennessee, which risked losing $100 million in Duncan’s discretionary spending, the conversation quickly changed. A charter-school expansion bill that had been declared dead and tagged by the political coroners came back to life before our very eyes.

The challenge will come when it is time to convert the leverage Duncan has discovered into ongoing federal appropriations. This will launch a dramatic transformation of the role of the federal government in education. This is where we should be optimistic.

Politically, Duncan and Obama are going to need to tell good stories about what has been unleashed here through the stimulus package. If successful school operators like KIPP (Knowledge Is Power Program), Uncommon Schools, and Achievement First can get help (financially and legislatively) in bringing their models to scale, and if successful education programs can be brought to more and more students, there will be a compelling story to tell. Public education will be on its way to saving itself.

EN: What does BBA’s proposed accountability system look like? How does it differ from NCLB?

PN: The BBA proposal for accountability emphasizes qualitative and quantitative evaluations of schools. That is, rather than relying exclusively on test scores to judge schools, BBA calls for the creation of an inspectorate, similar to that used in other countries with high-performing education systems, that is comprised of experienced educators, policymakers and scholars, to evaluate schools and make recommendations about how they might be improved. Such an approach could be used to provide schools with detailed feedback on how to make better use of resources and employ strategies that will enable them to become more successful in raising achievement and overcoming obstacles to learning.

Under NCLB, schools are judged largely on the basis of test scores, and many schools have figured out that the system can be gamed simply by targeting groups of students with intensive test preparation. Schools that are faced with greater challenges are simply labeled “failing” and targeted with threats and humiliation. The underlying assumption is that the educators are lazy and that pressure can be used to force them to improve. Accountability is essential if we are going to bring about school improvement on a larger scale, but it must be accompanied by real assistance and support.

In some cases, shutting down failing schools, as Secretary Duncan has suggested, may be necessary, but we must acknowledge ahead of time that the number of failing schools is simply too great for this to be the only strategy that we use. It is more constructive and effective to find out why a school has failed and to work with educators and local stakeholders to address the causes.

EN: In the context of EEP’s proposed reforms, how will an expanded federal role make a significant difference? How should new federal funds be distributed?

JW: An expanded federal role will allow our entire nation to cut through some of the political fog that has prevented good, sound ideas about how to change our schools from getting the go-ahead to proceed as part of a major systemic reform strategy. This is about using the tremendous leverage of the federal government to force some really blunt conversations at the state and district level, the kinds of conversations that make people uncomfortable and often lead to political paralysis. We have this tendency, if policy conversations make people feel uncomfortable, to sweep important issues under the rug. This is one of the reasons so little has actually changed despite waves and waves of reforms. We have an opportunity to change that dynamic, but only if President Obama holds firm on his commitment to bring change to public education.

Questions of educational adequacy and school spending have long been a point of contention in school reform. Amid the recent economic turmoil and gaping state budget shortfalls, questions of whether court-ordered funding remedies have delivered—and why they have or have not—have taken on particular import. This forum offers two sharply different takes on our experiences to date, and what lessons they offer going forward. Eric Hanushek and Alfred Lindseth are the authors of Schoolhouses, Courthouses, and Statehouses: Solving the Funding-Achievement Puzzle in America’s Public Schools (Princeton University Press, 2009), in which they propose a system of performance-based funding focused on improving student achievement. Michael Rebell is executive director of the Campaign for Educational Equity at Teachers College, Columbia University, and is the author of Courts and Kids: Pursuing Educational Equity through the State Courts (University of Chicago Press, forthcoming), in which he proposes a new functional separation of powers among the executive, legislative, and judicial branches to promote education reform and student achievement.

Education Next: Over the past four decades, many states have revised their funding of schools, through either judicial or legislative initiatives, in an effort to improve schools serving disadvantaged children. Too often, however, these actions have not yielded improved student achievement. Looking to the future, what kinds of judicial or legislative remedies are most likely to fulfill the promise of improved student outcomes?

Eric Hanushek and Al Lindseth: This question is particularly timely, as national policies on education embodied in the federal No Child Left Behind (NCLB) law are in a state of flux and likely to change under President Obama. At the same time, an economic crisis has engulfed not only our country, but most of the world, suggesting that significant increases in funding for education budgets are unlikely in the foreseeable future. The challenge is to find ways to develop a well-educated workforce that are not only more effective than those relied on in the past, but also do not depend on significant annual increases in education appropriations.

Since about 1970, the achievement levels of U.S. students on the reading and math tests of the National Assessment of Educational Progress (NAEP) have remained largely flat despite massive financial and other efforts to improve them. The problem is particularly acute for poor and minority students, with average black and Hispanic students lagging three or four grade levels behind the average white student. While lack of sufficient funding is often cited as the principal reason for low student performance, the United States already spends more on K—12 education than all but a few countries. Moreover, spending has increased dramatically over the past several decades, with today’s per-pupil expenditures almost four times, in inflation-adjusted dollars, what they were in 1960.

The underlying system, which governs how money is spent, has remained largely unchanged over that period. It is characterized by, among other things, a compensation scheme that pays teachers and administrators without regard to the results they get in the classroom; rules that make it extremely difficult to terminate unqualified teachers or assign the good ones where they are most needed; an assessment and rating system that discriminates against good teachers who are assigned to schools with significant numbers of at-risk students; a monopolistic structure that insulates public schools from competition; and numerous union and other work rules that prevent principals from effectively running their schools. It is a system more concerned with the adults and their rights than it is with ensuring the success of its students. Although some reforms have taken place in the last decade or so—the adoption of statewide standards, limited choice options, and increased accountability—they have not been sufficient to overcome the obstacles posed by the underlying system.

Given this sobering assessment, what can be done in the future to improve student achievement? The solution, we believe, lies in performance-based funding: a system of integrated education policies and funding mechanisms designed to drive and reward better performance by teachers, administrators, students, and others involved in the education process. Such a system will ensure more effective use of education dollars through better decisionmaking, eliminate perverse incentives that reward mediocrity or failure, and most important, energize and motivate those involved in the education of our young people. The essential components of a performance-based funding system cannot be ordered à la carte. These components interlock and depend on each other for their success. While various states have adopted some of these components—state-level academic standards, for example—none have implemented the integrated system we recommend, and the results have been clearly unsatisfactory.

A performance-based system of funding would contain the following nine features:

1) A focus on improving outcomes rather than on increasing inputs. States must set high and uniform achievement goals for every child to strive to meet. While every child may not reach the highest goals, high expectations will encourage children to do their best.

2) Local school administrators and teachers with the flexibility to determine how their schools can best meet high standards. Often even the most dedicated teachers and principals are hampered by severe limitations on spending and programmatic decisions by ineffective state regulations, constraints such as those that come with categorical funding, and a variety of state and local laws and contractual arrangements. The idea is to let those who are most familiar with the problems faced in the schools take the lead in deciding how to solve them.

3) Rewards for both teachers and administrators based on their success in improving student achievement. In almost every school district in the country, teachers are currently paid based solely on their years of experience and degree level, despite a consensus in the scientific community that these two factors bear little relationship to their success in improving student performance. The single-salary pay schedule—which makes it virtually impossible to pay good teachers more, to offer bonuses for teaching in hard-to-staff schools, and to pay higher salaries to teachers in shortage areas, such as math, science and special education—must go, and a pay system implemented based upon the just named considerations.

4) Greater accountability commensurate with increased authority and discretion. Teachers, schools, and principals must be held accountable for results. Just as they should be rewarded if they are successful, they must experience the consequences if they are not. Each state should adopt an accountability plan that sets clear goals as well as significant and enforceable consequences if goals are not achieved within a reasonable period.

5) Rewards and accountability based on factors within the control of the local district. Schools, teachers, and administrators should be judged and, if appropriate, rewarded based on the “value” they add during the school year, not on absolute test scores. The latter may be influenced by students’ homes and neighborhoods and may give teachers in middle-class suburban communities an advantage over those teaching in less advantaged communities. Under current practice, schools with disadvantaged students are almost always labeled “failing,” no matter how good the teachers are. Once value-added assessments are put in place, it will be possible to isolate the contributions made by the schools, teachers, and programs in raising achievement from external factors also affecting achievement and to act accordingly by following a model of continuous improvement.

6) Schooling options for parents and children who judge their school less than satisfactory. Schools must know that, if they are not successful, parents have alternatives for their children. Therefore, the finance system should also support charter and other choice schools.

7) Reasonable funding levels based on the needs of particular student enrollments and other factors outside of district control, but also discretion by local district taxpayers to augment the funding of their schools. Base funding would adjust for district poverty and external labor-market factors. Supplementation should incorporate “equalization” funds by the state to recognize differences in the ability of districts to raise funds locally when levying the same tax rate, but would permit parents and taxpayers to express directly their satisfaction with educational plans and policies.

8) Transparency incorporating value-added measures. Parents, taxpayers, and other stakeholders can then readily gauge how good a job the schools are doing.

9) A commitment to evaluating school and programmatic effectiveness. Expensive new strategies, such as large-scale class-size reduction programs, should be implemented only if they also provide for regular, independent evaluations to determine their effectiveness. Unsuccessful programs should not be allowed to continue and proliferate year after year just because they have strong sponsors.

The path to such reform will not be an easy one. While elements such as state standards, accountability measures, and value-added measures either are not controversial or are gaining acceptance, other important components, especially performance-based pay and increased choice options, are opposed by powerful forces with vested interests in the current system. Most powerful are the politically connected teachers unions. They, for example, clashed with Washington, D.C., schools chancellor Michelle Rhee over a proposal to couple higher pay with greater risk of termination because of ineffectiveness. The unions vigorously opposed those efforts, leading Rhee to move instead to improve the teaching force by terminating unqualified teachers. Unless this system is changed, it seems unlikely that outcomes will measurably improve in the district, already one of the highest funded and worst performing in the country.

The responsibility to enact and implement performance-based funding systems will fall primarily on the political branches of government, the state legislatures and governors. Although judicial remedies have played a significant role in school finance in the past, that era is drawing to a close. Beginning in the early 1970s, advocacy groups, frustrated with legislative efforts, began turning to the courts, initially to seek more equity in the allocation of education funds and later to seek vastly increased appropriations from state legislatures through “educational adequacy” lawsuits based on vaguely worded state constitutional provisions. A significant number of state courts responded positively to plaintiffs’ pleas and ordered unprecedented increases in K—12 funding in their states. Unfortunately, basic problems in the underlying systems of delivering education services were often ignored. In this sense, the courts mirrored what had been going on in the state legislatures, and the results were, not surprisingly, much the same: large amounts of money expended, but little or no improvement in student outcomes. An analysis in our recently published book examines the NAEP test-score trends in the four states that have implemented court remedies the longest, and demonstrates that, despite spending increases amounting to billions of dollars, the achievement patterns in three of them—Wyoming, New Jersey, and Kentucky—are largely unchanged from what they were in the early 1990s, before the court-ordered remedies commenced. Only in Massachusetts, where much deeper and broader reforms were instituted, has there been some improvement, although even there the state’s black students have not benefited from the remedy.

Perhaps due in part to this track record, the courts have begun to step back, opting instead to leave decisions regarding education policy and appropriations in the hands of the political branches of government, where they have traditionally resided. In the last five years, court decisions in approximately 15 states have disposed of educational adequacy cases, and, with one or two minor exceptions, the courts have either dismissed the cases or granted minimal relief. While this could change in a number of cases still pending, we believe the likelihood of significant court-ordered remedies in the foreseeable future is small.

Performance-based funding is not by itself a panacea that will solve all problems of substandard achievement or eliminate the achievement gap. Many of the problems that plague American education are beyond the control of the schools and will have to be addressed by other means. Performance-based funding will, however, put the nation’s schools back on the right track, help to raise the achievement of all students significantly, and once again make our students competitive on the world stage.

President Obama has called for increased funding to support NCLB, and Congress has provided substantial stimulus money for schools. A wise use of that money would be to underwrite transition costs in states moving to implement a performance-based funding system. For example, support for the improvement of student testing, for the development of improved databases and value-added measures, and for initial payments of expanded salaries under performance-based pay could provide important incentives for the states to move toward more logical and more effective funding systems.

Michael Rebell: The basic premise of the book and essay by Eric Hanushek and Al Lindseth—and of the question posed by Education Next—is that although “massive” amounts of money have been spent on education over the past 40 years, the results have been meager. Hanushek and Lindseth claim that states in which courts have ordered “extraordinary spending increases,” or at least the select few they have studied, have shown no improvement in student test scores. They then argue that certain “performance-based” accountability mechanisms that they recommend, rather than increased funding, should be the focus of future efforts.

I strongly dispute these premises, and I doubt that the reforms that Hanushek and Lindseth recommend are feasible, or that if enacted, they would constitute the panacea for the nation’s education ills that they imply. Extensive inequities in education funding, by which students with the greatest needs receive the fewest funds, still prevail in many parts of the United States; for that reason, state courts continue to have a critical role in ensuring meaningful educational opportunities for all children. The evidence strongly indicates that money well spent does make a significant difference in student achievement, and as Education Sector’s Kevin Carey has noted in reviewing one of Mr. Hanushek’s books: “There is little evidence that starving schools of needed funds is a catalyst for innovation, or that well-funded schools are more likely than others to be inefficient.” Moreover, although I agree that additional accountability measures are needed, continued involvement of the state courts, working in concert with the executive and legislative branches in a new, functional separation-of-powers mode, is essential for holding all parties accountable and for attaining the nation’s education goals.

Let me first put the spending issues into perspective. Hanushek and Lindseth claim that per-pupil spending in the U.S. has quadrupled since 1960. This is a gross exaggeration. According to recent analyses by Economic Policy Institute research associate Richard Rothstein, the cost of school services, when adjusted by the consumer price index, increased by 157 percent from 1967 to 2005, but when adjusted by the more relevant net services index (which omits shelter rent and medical care. the increase was only 92 percent. Moreover, these general statistics mask the fact that much of this increase has gone to special education, a sector that has dramatically expanded and substantially improved the lives of millions of students with disabilities over this time period. According to Rothstein, from 1967 to 2005 the share of educational expenditures going to regular education dropped from 80 to 55 percent and the share going to special education increased from 4 to 21 percent.

Second, for the past two decades, the United States has been committed to the historically unprecedented mission of simultaneously promoting excellence and equity in education. The standards-based reform movement seeks both to equip all of our high-school graduates to compete in the global marketplace and to narrow the achievement gap between our advantaged and disadvantaged student populations. Obviously, attaining these critical goals will require substantial resource infusions, especially for the high-need schools that historically have been treated inequitably by state education finance systems. Thus far, neither Congress, which has not even come close to fully funding the No Child Left Behind Act, nor most states, which have raised their academic standards but not their funding levels to a commensurate degree, have stepped up to the plate.

Third, Hanushek and Lindseth assert that “the United States already spends more on K—12 education than all but a few countries.” Although the U.S. is fourth among the 30 industrialized democracies that comprise the OECD (Organisation for Economic Co-operation and Development) in per-pupil spending on K—12, it is in the middle of the pack (13) in education spending as a percentage of GDP. Moreover, since, comparatively speaking, the U.S. starves health care, economic security, housing, and other areas of social welfare provision, the schools must bear an enormous burden in overcoming the impact of concentrated poverty for the poor and minority children they are committed to educating to high levels. In 2005, the childhood poverty rate in the U.S. was 21.9 percent, the highest, with the exception of Mexico, of the 24 OECD countries listed, and far higher than the 3 percent childhood poverty rate of countries like Denmark and Finland.

Given the extent of poverty in our society and the heavy burden that has been placed on the schools to alleviate its impact, it is astounding how much educational progress has been made. For example, from 1990 to 2007, black students’ scale scores increased 34 points on the NAEP 4th-grade mathematics tests (compared with a 28-point increase for whites), and the black-white achievement gap declined from 32 to 26 points during this period. Nevertheless, even greater progress can and should be made. I doubt, however, that “performance-based funding,” the solution Hanushek and Lindseth offer, will prove to be the silver bullet that will “help to raise the achievement of all students significantly, and once again make the nation’s students competitive on the world stage.”

Hanushek and Lindseth announce their performance-based funding prescriptions as if they will instantly solve the nation’s educational ills. But test-based outcomes, merit pay for teachers, rewards and sanctions, and voucher and charter alternatives have been part of the reform agenda of most states for years. Studies of each of these approaches have generally shown mixed results, and there is no strong empirical basis for dramatically expanding their use. Hanushek and Lindseth have an answer to this criticism: This is not a menu of options that can be ordered à la carte, they say. These components interlock, and they must be implemented as an “integrated system.”

Leaving aside the objections I have to many aspects of their program, full implementation of their “integrated systems approach” is clearly a pipe dream. In a democratic polity, no single reform approach can ever be fully put into effect, much less maintained, in its pure form. Policymaking for public education in a democracy inevitably is shaped by politics, and any reform proposal will inexorably be subject to compromise and modification. Although there was an unprecedented degree of bipartisan support for passage of the No Child Left Behind law in 2001, for example, that support came at a high price. As Education Next editors Rick Hess and Chester Finn recently observed, NCLB is a “Christmas tree of programs, incentives, and interventions that are more an assemblage of reform ideas than a coherent scheme. NCLB’s remedy provisions bear all the marks of concessions to various ideologies, advocates, and interest groups, with scant attention paid to how they fit together, the resources or authority they require, or whether they could be sensibly deployed through the available machinery.”

How to forge a better package of education reforms out of the positive aspects of NCLB is the main education policy challenge for the Obama administration, and how to make standards-based reform really work is the parallel problem that state education policymakers need to face. Hanushek and Lindseth’s performance-based funding proposal adds little of real value to this equation. However, the state courts’ wide experience in recent decades with fiscal equity and education adequacy litigations, which these authors roundly criticize, does provide significant possibilities for developing productive policy compromises and significantly advancing prospects for meaningful education reform.

Since 1973, when the U.S. Supreme Court held that education was not a “fundamental interest” under the federal constitution, education advocates, frustrated by continuing inequities in the funding of public education, have turned to the state courts. As Hanushek and Lindseth acknowledge, a “significant number of state courts responded positively to plaintiffs’ pleas.” In fact, during this era, cases have been filed in 45 of the 50 states, and plaintiffs have won more than 60 percent of them; since 1989, when the legal emphasis shifted from “equity” cases that seek equal funding levels for all students to “adequacy” cases that look to provide all students a basic quality education consistent with state standards, plaintiffs have prevailed in two-thirds of the final high-state-court decisions.

Hanushek and Lindseth claim that the courts have begun to step back from their support of constitutional rights in this area. But, in fact, there has been no diminution in the willingness of state supreme courts to issue strong rulings on students’ basic constitutional right to an adequate education. What has changed in recent years is that more cases have reached the remedy stage and more courts are experiencing difficulty in seeing constitutional compliance through to a successful conclusion. Some courts have cut short their remedial oversight out of frustration with the political complications and complexity of effecting meaningful change.

In other words, the adequacy movement has matured, and the courts are now grappling with many of the same implementation and compliance issues that have stymied governors and legislatures for years. The problems raised by judges in these remedial proceedings call for thoughtful responses and nuanced solutions, rather than the cavalier rejection of “judicial activism” that Hanushek and Lindseth and other opponents of adequacy articulate. (The title of a recent book that Hanushek edited and to which Lindseth contributed accuses judges of “harming our children.” This kind of hyperbole is clearly unwarranted.) As University of Wisconsin law professor Neil Komesar has insightfully pointed out, “All societal decision makers are highly imperfect.” Governors, state education departments, legislatures, and the federal Congress have been unable to solve the nation’s educational problems over the past half century, so why should anyone expect judicial interventions to achieve immediate, decisive results?

Where courts have persevered in their efforts, there have often been substantial improvements in student achievement. Hanushek and Lindseth allude to NAEP test-score trends in a few states with long-standing court orders that they claim have resulted in no improvement in student achievement in three out of four cases. The NAEP scores they focus on do not correspond in most of the cases to the relevant years in which the court orders were actually implemented; they ignore the fact that, as in Kentucky, initial increases in funding are sometimes followed by substantial decreases in later years; and their use of NAEP scores makes no sense in a state like New Jersey, where the court orders covered only a subset of the state’s students ( i.e., students in 31 poor urban school districts) and not the full statewide populations represented by NAEP scores. Recent, more finely tuned data for New Jersey, provided by Peg Goertz, a University of Pennsylvania researcher who has closely followed developments in the Garden State, indicate that from 1999 to 2007 substantial gains were made in the Abbott districts, which were the focus of the judicial remedies. For example, in 4th-grade mathematics, the achievement gaps between the Abbott districts and the rest of the state were cut by more than one-third. Similarly, Kentucky, which was near the bottom of the national rankings in virtually all performance indexes before its 1989 court decision, now ranks above the national averages in reading and science and almost at the national average in math.

Despite these gains, to fully meet our nation’s challenging goals for excellence and equity in our public school systems, clearly more needs to be done. What is required is a concerted effort by all three branches of government to bring their relative functional strengths to bear on ensuring constitutional compliance and solving the nation’s educational ills. In a forthcoming book, I propose a “successful remedies model” that is based on the extensive empirical experience that dozens of courts have had in dealing with legislatures, governors, and state education departments in crafting remedies. It is a process approach that is compatible with Hanushek and Lindseth’s performance-funding focus or any other policy perspective, or as is more likely, whatever mix of policies a state’s elected representatives choose to endorse. This process seeks to ensure that, whatever reform path state policymakers pursue, the compromise package they assemble is cohesive, adequately funded, and consistently implemented; moreover, the state should be committed to seeing the reforms through over time so that lasting results can be achieved. “Success” in implementing standards-based reforms under this model is defined not in terms of test scores in a limited number of subject areas, but broadly, in terms of providing all students a sound basic education on a sustained basis.

To achieve such success requires effective, programs and ongoing “colloquy” among the three branches of government. The courts’ role in this process is to outline in general, principled terms the expectation that the legislative and executive branches will develop challenging standards, fair and adequate funding systems, and effective programs and accountability measures, but to leave to the programs and the political branches the full responsibility for actually formulating these policies. Legislatures should make basic educational policy decisions; state education departments and local school districts should determine how best to implement educational reforms. Once the state has decided on its policy position, however, a judicial presence should be maintained to ensure that the chosen policy is fully funded, is implemented in a coherent manner, and results in substantially improved student performance, as measured by validated assessments of academic achievement and of students’ ability to function as capable citizens and workers.

Since significant compliance cannot be achieved overnight, in most cases courts will need to maintain nominal jurisdiction for a multiyear period, probably 10 to 15 years. The mere fact that judicial oversight remains in place can ensure continued adherence to implementation of stated policy goals, and actual interventions should be rare, especially if it is clearly understood that all the courts would be enforcing are the state’s own policy goals. A judicial presence is especially important to ensure that the reform process—and reasonable funding levels—are maintained in times of economic stress or recession like the present, where children’s needs and constitutional values are often given short shrift.

In short, then, my answer to the question posed by the editors of Education Next is that what is most likely to fulfill the promise of improved student outcomes in the future is not any silver bullet remedy, but rather a pragmatic process that allows courts, legislatures, state education departments, and school districts to work collaboratively to implement meaningful reforms on a sustained basis.

Hanushek and Lindseth: Notwithstanding his obfuscation, Michael Rebell’s solution is essentially more of the same. Beginning by misstating spending increases (based on incorrect data and flawed adjustments) and ignoring pertinent performance data, he rewrites the constitution of every state to give judges the major policy-setting role in a “new, functional separation of powers mode.” He further recommends that judges and legislators be guided in their efforts by a “successful remedies model” to be drawn from previous adequacy litigation—perhaps tempting if such “successful” models actually existed. Quite surprisingly, he cites New Jersey’s tortured 35-year-old Abbott litigation as an example of “success,” but neglects to mention that the state’s black students, the principal beneficiaries of the remedy, are still scoring at about the same relative levels on the NAEP tests as in 1992. In Kentucky, he relies on data for all students, which mask the fact that black students, the state’s principal minority group, have regressed compared to their peers nationally during the remedial period.

Our solution may not be a “silver bullet” for everything that ails American education, but it surely presents a better chance for our children than continuing the demonstrably failed practices of the past. In the end, Rebell basically concludes that political forces are too strong to bring about the fundamental changes we recommend, so we should just continue plowing more money into the current system. If we do, no one should be surprised in 2040 when our students are still performing, as they are now, at 1970 levels.

Rebell: If I didn’t know that Rick Hanushek was an outstanding economist and that Al Lindseth was a master litigator, I would think from some of the provocative phrases they use in their writings that they were sensationalist journalists, looking to attract readers with shocking but misleading headlines and catchphrases. They claim that I am proposing to “rewrit[e] the constitution of every state to give judges the major policy-setting role.” A detailed examination of the positions they actually take in their writings, and especially in their recent book upon which this Forum is based, indicates, however, that we agree that money—if well spent—does matter, that education finance cases have had a significant equalizing effect on state education funding formulas, and that court orders can “support legislators who want to address serious problems in education.”

The fact is that the unproven, business-model, and privatization practices they propose as education reforms have no chance of being adopted as an “integrated system,” especially in the present political climate. I would, therefore, ask Hanushek and Lindseth to stop tilting at windmills and to join with me in instituting a dialogue in major areas in which we do agree, like the fact that courts can and should hold states and school districts accountable for better performance, and that “school funding policies must recognize the underlying heterogeneity of students and their educational challenges and ensure that all schools have the means to succeed” (Hanushek and Lindseth, Schoolhouses, Courthouses, and Statehouses, page 218). That kind of conversation might help to promote real changes that might provide truly meaningful educational opportunities to all of our children.

Determining the extent of program fraud and error is important, as the entitlement is associated with other streams of federal, state, and local taxpayer dollars. Eligibility data are widely used as proxies for poverty rates, thereby influencing funding for myriad government programs and informing both school district policies and policy research. For example, NSLP participation rates serve as the main criteria for the allocation of federal Title I funds to schools. Those schools with a higher percentage of students eligible for free or reduced-price lunch also receive a larger discount on the federal government’s E-Rate program, which facilitates access to telecommunications services for schools and libraries.

State governments dole out benefits according to free and reduced-price lunch percentages, too. The Wisconsin Department of Public Instruction, for instance, allocates $2,250 to schools for each low-income child enrolled in kindergarten through 3rd grade. The program gauges poverty using NSLP participation.

Because of the financial benefits, local school districts have a clear incentive to register as many students in NSLP as possible. Some districts encourage parents to fill out applications, even if they are not sure they qualify. One district in Chillicothe, Missouri, offered parents a $10 Wal-Mart gift card for turning in an application. “Even if you choose to pay for your child’s lunches and or breakfasts, each qualified application earns $1,025 per child of state money for our school district,” said Assistant Superintendent Wade Schroeder.

School districts often use free and reduced-price lunch percentages for student assignment and resource allocation as well. North Carolina’s largest school district, Charlotte-Mecklenburg Schools, gives schools 30 percent more funds for every student enrolled in the entitlement. Wake County Public School System, in central North Carolina, employs a costly busing strategy to foster socioeconomic diversity in the classroom, measured in part by NSLP participation. These districts and others could be basing policy on faulty numbers if the lunch program data are not a valid indicator of socioeconomic status.

In addition, the federal government’s evaluation programs routinely employ school lunch subsidies as a poverty indicator. The National Assessment of Educational Progress (NAEP), commonly known as the “Nation’s Report Card,” uses the scores of students eligible for the lunch program to track the performance of states in educating low-income children over time. No Child Left Behind requires that schools meet performance benchmarks for program-eligible students in order to make adequate yearly progress. Academic researchers also make use of NSLP participation data, raising the question of whether researchers could be producing skewed results if program participation is not a reliable indicator of income.

How It Works

Parents who apply for school lunch benefits, or for the smaller school breakfast program, report their yearly income on the application. Children living in households at or below 130 percent of the federal poverty level ($27,560 per year for a family of four) qualify for free meals at school; those in households between 131 percent and 185 percent (up to $39,220 per year for a family of four) qualify for reduced-price meals. Children can also qualify automatically based on residential status in areas of concentrated poverty or participation in other means-tested government programs, including food stamps and Temporary Assistance to Needy Families (TANF). The USDA reimburses districts for each free or discounted meal served.

No proof of income, such as a pay stub or W-2 form, is required when parents apply. That’s in contrast to other federal nutrition entitlements, including the food stamp program, now called the Supplemental Nutrition Assistance Program (SNAP). Normally, SNAP applicants must “file an application form, have a face-to-face interview, and provide proof (verification) of certain information, such as income and expenses.” Assuming a 180-day school year, students eligible for free lunch receive on average $462.60 per year in benefits, compared with an average of $1,152 per year in benefits for individuals receiving food stamps.

Each NSLP application contains a certification statement that parents or guardians are required to sign in which they promise that their reported income level is accurate. The statement warns that adults “may be prosecuted” if they “purposefully give false information,” but the threat doesn’t have teeth, as few, if any, applicants have been held accountable for cheating. It isn’t even clear which level of government—federal, state, or local—would be responsible for prosecuting fraud.

The only verification mechanism in place for the NSLP is outlined in the Richard B. Russell National School Lunch Act, as most recently amended by Congress in 2004. The act requires school districts to try each year to verify the incomes of 3 percent (or 3,000, whichever is less) of participants considered “error prone,” meaning households whose reported earnings are within $100 monthly or $1,200 yearly of the income eligibility limitation. School districts can also qualify for an alternate sample size of 1 percent if they meet certain requirements.

To verify eligibility, school officials request proof of income by mail from parents to justify the amount initially put on the application. If applicants fail to respond, it raises the possibility that they may not in fact be eligible, and officials terminate their benefits. If applicants respond with evidence that shows too high an income, officials reduce or terminate their benefits accordingly. In some cases, officials raise benefits if initial reports of income are too high.

Fraud or Error?

Verification summaries obtained from 10 of the nation’s largest school districts show a high proportion of those asked to provide proof of income could not or would not comply. The data are prompting some school officials to question the way the program is administered.

Of the 10 districts, all but 1 had a rate of reduced or repealed benefits above 70 percent for those in the verification sample for the 2007–08 school year (see sidebar). Most of those benefit reductions and repeals were due to participants’ failure to respond to the mailing, which automatically revoked their benefits. The average nonresponse rate among the 10 districts was 58 percent. Significantly, an average of only 1.5 percent of those who did respond had their benefits increased, suggesting that parents were more likely to understate than overstate their income on the forms.

Smaller school districts show a similarly high rate of reduced or repealed benefits. Wake County Public Schools had a nonresponse rate of 36 percent and a total reduced or repealed rate of 64 percent for its verification sample in 2007–08. Charlotte-Mecklenburg had a nonresponse rate of 31 percent and a reduced or repealed rate of 68 percent for the same school year.

Child nutrition officials say even the high percentages of reduced or revoked benefits do not suggest widespread fraud because the state samples are made up of “error-prone” applicants and are not random. They argue that disparities on the applications of those who do respond to the verification request are mostly due to honest mistakes, such as rounding errors or inserting weekly rather than monthly income, which could put applicants under the income threshold unintentionally.

Marilyn Moody, senior director of child nutrition services for the Wake County schools, pointed to intimidation as one reason her district’s nonresponse rate was so high. “Some people fail to respond because when we send a federal form that says you must send us proof of income, it’s intimidating,” she said. “They may not be educated to the point of realizing the significance of that.”

But others see a deliberate attempt to cheat the system. “I don’t think there is any doubt in anyone’s mind, even though we’re pussyfooting around, that there are thousands of students here that probably are not entitled to this government benefit,” said Larry Gauvreau, school board member in Charlotte-Mecklenburg.

“They know at the district and school level that it generates funding for a lot of other programs,” said Lisa Snell, director of education and child welfare at the Reason Foundation, a libertarian think tank. “It may not be intentional to be fraudulent in the program, but it is an unintended consequence of the program.”

Other research has found evidence of potential fraud in the NSLP. A study by Mathematica Policy Research published in February 2009 found that 15 percent of students enrolled in the breakfast and lunch programs receive more benefits than they are eligible for and 7.5 percent receive less. The most common source of error was parents or guardians misreporting income on applications. Mathematica estimated the total cost for the errors at around $1 billion annually.

The authors of the Mathematica study used a multistage-clustered sample design, selecting 7,800 applicants and students directly certified in 87 school districts across the country. The report stopped short of advocating an overhaul, instead suggesting that policymakers find a way to get more accurate income data from households. The authors did not offer specific recommendations on how to accomplish that goal.

Another study, commissioned by the USDA and published by Mathematica in 2005, argued that requiring applicants to submit proof of income would hurt needy children. The study compared districts pilot testing an approach that required families to document their income on the initial applications to a comparison group of districts using the current system. Study authors Philip Gleason and John Burghardt found that the same proportion of ineligible children were certified in both sets of districts but that in districts requiring up-front documentation, “the process reduced eligible students’ access to free and reduced-price meals.”

Food Fight

School board members in Charlotte-Mecklenburg upset the school-lunch apple cart last year by requesting more thorough verification of student eligibility for the lunch program, which, as noted above, partly determines the funding each school receives from the district. The move touched off a heated debate and led to weeks of uncertainty as school attorneys tried to obtain a written order from the USDA on the permissibility of a comprehensive audit. The controversy also aggravated old tensions over integration and racial busing, two sore spots in the district.

Like many cities in the South, Charlotte has a contentious history on the issue of school segregation. After the Warren Court in 1954 declared the separate but equal doctrine unconstitutional, the city adopted a neighborhood school policy that had the effect of sending most black students to inner-city schools and most white students to suburban schools in wealthier parts of the district. The U.S. Supreme Court attempted to remedy the situation in 1971 in its Swann v. Charlotte-Mecklenburg Board of Education ruling. The decision paved the way for school districts to adopt busing strategies aimed at creating greater diversity in the classroom.

In 1997, a white parent challenged the busing policy in court after a magnet school denied his daughter admission because of her race. Two years later, a federal judge ruled that the district’s 30-year busing policy had fulfilled its purpose of racial integration and was no longer necessary. The ruling stood after an appellate court upheld the decision and the Supreme Court declined to weigh an appeal.

Today, Charlotte-Mecklenburg has  a community-based assignment policy, but the issue remains divisive. And questions of cheating among free lunch recipients, the majority of whom are minorities, have poured more salt into the wound.

In August 2008, Ken Gjertsen became the first Charlotte-Mecklenburg school board member to raise questions about the program after learning of the potential fraud rate. The issue remained on the school board’s agenda for two months, as members went back and forth about the merits of a comprehensive audit. “Poor people don’t know how to steal from the federal government. They’re not smart enough,” said school board member Vilma Leake. She characterized a comprehensive audit as a “witch hunt” aimed at poor families.

Others claimed the school board had a responsibility to weed out cheating. “There are thousands of people who shouldn’t be in that program. We know that. Everybody up here knows that,” said Gauvreau, who twice proposed a motion, voted down both times, that would have directed the district superintendent to verify a larger percentage of applications.

Efforts to authorize an audit came crashing down in September when the USDA threatened to cut off the district’s $34 million lunch-program subsidy for the 2007–08 school year if it proceeded with a full verification. School-district attorneys subsequently received a written order from the USDA saying that an audit beyond the mandated 3 percent would be illegal under federal law.

The National School Lunch Act does not specifically address the legality of a school district going beyond the 3,000 or 3 percent benchmark. The USDA, however, interprets the law to disallow a comprehensive verification. The 2008 version of the “Eligibility Manual for School Meals,” published by the USDA, says that school districts “must not verify more than or less than the standard sample size … and must not verify all (100% of) applications” (emphasis in original).

The guidelines do provide one narrow window for school districts to cut down on fraud. Officials can pursue verification on a case-by-case basis if they see questionable content on an application, but it appears that districts rarely take advantage of this option. Charlotte-Mecklenburg conducted no verifications for cause during the 2006–07 and 2007–08 school years. Wake County verified 2 applicants for cause in 2007–08 and fewer than 10 in 2006–07. Due to the politically sensitive nature of the NSLP, it’s likely that school nutrition officials worry that verifying too many applicants would cause blowback.

To Verify or Not to Verify

With a recession hitting the family pocketbook hard, more parents are turning to free school lunches for relief. Rising food costs have put a strain on school districts, too, prompting President Obama to include $100 million in additional funding for the program in his economic stimulus bill, passed by Congress in February 2009. Obama has proposed another $1 billion for school nutrition programs in his 2010 budget.

Many government officials are quick to tout the benefits of the NSLP, arguing that some students would go hungry if the program did not exist. In a letter signed by a bipartisan group of 40 senators in January, Sen. Tom Harkin, an Iowa Democrat and chairman of the Senate Agriculture Committee, said that child nutrition programs “play a critical role in preventing hunger and promoting healthy diets among children from birth until the end of secondary school.”

The political climate in Washington makes it doubtful Congress will revise the verification structure of the NSLP in the near future. The entitlement has a long history of partisan strife and is generally recognized as a political hot potato. To make matters more complicated, the program is the product of a political alliance between agriculture Republicans and metropolitan-area liberals, which means that critics are few and far between. But the possibility of waste and fraud warrants a closer look from elected officials. Because the NSLP is the nation’s second-largest food entitlement, unqualified families could be costing taxpayers billions each year. The challenge is balancing program integrity with income verification policies that might have a chilling effect on eligible families. At the very least, Congress should establish clearer guidelines for school districts to investigate suspected fraud and explore alternative income-documentation methods that would provide greater reliability for program data. Given the amount of taxpayer dollars devoted to school lunch, and the range of policies and research based on the program, lawmakers can’t afford to do nothing.

David N. Bass is an investigative reporter and associate editor with the John Locke Foundation.

But we can only hope their similarities don’t extend to education policy. Patrick calls education his “singular pursuit.” Yet after winning election in a 2006 landslide fueled by strong support from the Bay State’s powerful teachers unions—including $3 million in contributions—he has pursued the systematic dismantling of reforms that have made Massachusetts the national leader in public education.

The Massachusetts Education Reform Act of 1993 dramatically increased school funding in return for high academic standards, accountability, and enhanced school choice. In the years following, the Commonwealth’s independent board of education, founded in 1837 with Horace Mann at the helm, implemented a set of reforms that have unquestionably been the nation’s most successful.

In 2005, Massachusetts became the first state ever to finish first in four categories of the National Assessment of Educational Progress (NAEP): 4th-grade reading and math and 8th-grade reading and math. The next time the test was administered, Bay State students did it again. Late last year, results from the Trends in International Mathematics and Science Study (TIMSS) demonstrated that Massachusetts students are not only the best in the country, they are globally competitive as well. The Commonwealth’s 8th graders tied for first in the world in science and were sixth in math; 4th graders scored second in science and third in math.

Despite the clear success of more than a decade of education reform in Massachusetts, Governor Patrick’s administration has turned its back on the very forces behind that success: it is wavering on standards, choice is under continual fire, and the board of education has been stripped of the independence that for 170 years was Horace Mann’s legacy and had allowed the board to implement reform with a singular focus on improving student achievement.

In June 2008, Governor Patrick released the recommendations of his “Readiness Project,” an unwieldy 168-member, 13-subcommittee behemoth charged with developing a long-term “action agenda” for education. The plan calls for full-day kindergarten, universal pre-K, consolidation of school districts, and differentiated pay for teachers—all worthy goals. But the report maintains Patrick’s steadfast resistance to raising caps on charter schools. (Charter schools have the same effect on some of his supporters in the education establishment as Nancy Pelosi has on Rush Limbaugh.) Although the governor claimed during his campaign that he would open more charter schools once he “fixed” the formula by which they are funded, the Readiness Project is virtually silent on charters and their funding.

The Boston Globe, which enthusiastically endorsed the governor in both the Democratic primary and the general election, was not impressed. An editorial titled “Adrift in the edu-sphere” noted, “It’s nice to explore the educational cosmos. But taxpayers can’t be expected to pay for such a trip…when the likely cost of implementing Patrick’s full-blown plans could exceed $2 billion per year.”

Yet another commission, this one tasked with determining how to pay for Patrick’s action agenda, was appointed in June 2008. By the time its report was released, in the midst of a snowstorm on New Year’s Eve, the bottom had fallen out of the economy. Instead of identifying revenues to support new programs, the report focused mostly on cost-saving measures designed to preserve the current level of quality, although a majority of the commission’s 23 members did endorse raising the Commonwealth’s sales tax from 5 to 6 percent.

Success Story

All of this is particularly bizarre in light of the dramatic strides the state has made in improving its schools. The U.S. Chamber of Commerce published a state-by-state report card on educational effectiveness in 2007 that rated the Commonwealth’s public schools number one in the nation. The combination of funding, standards, accountability, and choice has brought real, measurable gains in student achievement (see Figure 1). A look at the condition of public education prior to reform shows just how far Massachusetts has come. During the 1980s, the Commonwealth’s verbal SAT scores were below the national average; math scores were below average as late as 1992. A funding system that was overly reliant on local property tax revenue created vast discrepancies from district to district in student achievement, class size, and the availability of resources like textbooks, libraries, and technology.

Since 1993 the Commonwealth has pumped more than $40 billion in new state money into public education, matched by $40 billion-plus in new local funding. Each district’s foundation budget, the minimum expenditure needed to provide an adequate education, is determined by formula, along with the amount each city and town can afford to contribute. The Commonwealth fills in the gap between the local contribution and the foundation budget. The result is a funding formula in which the vast majority of state education aid goes to the poorer school districts, making Massachusetts one of the national leaders in this respect as well (see Figure 2).

To ensure high academic standards and school-level accountability, state curriculum frameworks provide a subject-by-subject outline of the material that should form the basis of local curricula. To ensure implementation of the frameworks, students are tested each spring. Since 2003, passing the Massachusetts Comprehensive Assessment System (MCAS) tests (based on the liberal arts-rich content of the frameworks) has been a high school graduation requirement. High-stakes testing also extends to new teachers, who must pass tests that measure communication and literacy skills as well as subject-area knowledge.

The state’s NAEP scores shot up after the curriculum frameworks were completed and the MCAS test was first administered in 1998. By 2007, the average Massachusetts 4th grader was performing at a higher level in math than the average 6th grader had been in 1996. Achieve, Inc., a national education organization established by governors and business leaders, found in 2001 that Massachusetts was the only state among the 10 it examined that had both strong standards and strong assessments. A 2007 study by the Massachusetts Board of Higher Education confirmed the tests’ validity, finding a strong correlation between MCAS results and college performance.

Noted educator and developer of the Core Knowledge curriculum E. D. Hirsch lauded the Massachusetts approach in a February 2008 op-ed in the Washington Post. “Consider the eighth grade NAEP results from Massachusetts, which are a stunning exception to the nationwide pattern of stagnation and decline,” he wrote. “That is because Massachusetts decided…students (and teachers) should learn explicit, substantive things about history, science and literature, and that students should be tested on such knowledge.”

Choice and Charters

In Massachusetts, public charter schools are the principal vehicle for offering educational choice, and the Thomas B. Fordham Foundation has described the Commonwealth’s charter-school approval process as the nation’s most rigorous. Today, roughly 25,000 students (about 2.6 percent of the total public school population) attend Massachusetts charter schools, and another 21,000 are on wait-lists. Admission to an oversubscribed school is by lottery. When a student chooses to transfer to a charter school, funding follows from the district to the charter school. Despite the fact that districts are reimbursed for three years after a student leaves (100 percent the first year, 60 percent the second, and 40 percent in the third) and despite the 2004 adoption of district-friendly changes to the charter-funding formula, the flow of money has made charter schools controversial.

That controversy has fueled a one-step-forward, two-steps-back treatment of charters over the years. Caps on the number of schools have been raised just twice and now stand at 72 for the original type (known as Commonwealth charter schools) and at 48 for Horace Mann charters (a unionized, in-district model sanctioned after Commonwealth charters were established). Other limitations have been placed on both types of charter schools. The statewide share of public school students who can attend charters is capped at 4 percent. In any year in which a new charter school is approved, at least three of the newly approved charters must be located in low-performing districts. The law limits to 9 percent the portion of district spending that can be transferred to charter schools. More than 150 communities, mostly in poorer areas with low-performing schools, are bumping up against that cap, which places a de facto moratorium on charters.

Charter school results have been strong. A 2006 Massachusetts Department of Education study found that 90 percent of charter schools performed as well as or better than the districts from which their students came and 30 percent outperformed sending districts by a substantial margin. Their success has been particularly striking in urban areas, where most charters are located. Several urban charter schools, like Community Day in Lawrence, and MATCH, Boston Prep, and Excel Academy in Boston, serve overwhelmingly low-income and minority populations, yet outscore even the best suburban schools on MCAS tests.

SABIS International Charter School in Springfield is among the schools that have had remarkable success in narrowing achievement gaps based on race and economic status, a clear priority for the next phase of education reform. By 10th grade, Hispanic and African American students, who together make up 60 percent of the school’s student body, outperform white students statewide on the MCAS English exam and are virtually even with statewide averages for white students in math. More than 2,500 students sit on the school’s waiting list. Every member of all seven graduating classes has been accepted to college.

A study conducted by a team of Harvard and MIT researchers and published in January by the Boston Foundation showed that Boston charter schools dramatically outperform both district and pilot schools (semi-autonomous district schools created in response to charters). It found that the academic impact from a year spent in a Boston charter is comparable to that of a year spent in one of the city’s elite exam schools and, in middle school math, equivalent to one-half of the achievement gap between black and white students (see Figure 3).

One might expect the governor would support schools that the state’s own analysis and others have found to be successful. Indeed, prior to release of the Readiness Project recommendations, Governor Patrick said, “Everything is on the table because our future is at stake.” Everything, it seems, except expanding the kind of educational choice that transformed the governor’s own life.

Patrick earned a scholarship from A Better Chance, an organization that provides educational opportunities to young people of color. The scholarship transported him from the South Side of Chicago to Milton Academy, an elite Massachusetts preparatory school, and put him on a trajectory that led to Harvard, a top position in the U.S. Department of Justice, the corporate world, and ultimately the governor’s office.

But the Readiness Project includes precious little that would give others the opportunity to choose their school. The Readiness Project proposes “readiness schools,” which would have some of the autonomy of charter schools and some of the features of pilot schools. Teachers in a district school could come together and vote to convert to a readiness school, or districts could initiate the conversion. As an inducement to adopt the newly proposed schools, S. Paul Reville, whom Patrick appointed first to chair the state board of education and then as secretary of education, floated the possibility of a freeze on charter schools in districts that embrace readiness schools. When the trial balloon became public, he quickly backpedaled in the face of a torrent of opposition.

The administration’s current position on the charter freeze is unclear. When questioned, Patrick said the charter school debate had reached “stalemate” and his plan includes new ways to achieve the same goals.

Dismantling Success

In 2000, the Commonwealth created the Office of Educational Quality and Accountability (EQA) as an independent state agency to measure the effectiveness of school-district managers at implementing reform. Beginning in 2002, EQA conducted comprehensive audits of more than 175 school districts. The audits scrutinized MCAS performance, district leadership, curriculum and instruction, teacher and student assessment and evaluation, and business and financial operations. All findings were made public.

Soon after taking office, Patrick moved to eliminate the EQA. Opponents particularly disliked the agency because it did its job so well—auditing school districts and reporting when they came up short. Two studies by Boston-based think tank Pioneer Institute analyzed agency data and found that low-performing urban districts in particular were not aligning curricula with state frameworks and not using MCAS data effectively to improve achievement by tailoring lessons to student weaknesses.

More than a year after the EQA was scuttled, the co-chairs of the state legislature’s Joint Committee on Education filed a bill, later enacted, creating a new Advisory Council on District Accountability and Assistance. The new agency amounts to the fox guarding the accountability henhouse, replacing the EQA’s independent 5-person board with a 13-member panel that includes representatives of the very people it’s supposed to audit: the Massachusetts Association of School Superintendents; American Federation of Teachers Massachusetts; Massachusetts Teachers Association; Massachusetts Association of School Committees; Massachusetts Secondary School Administrators Association; and the Massachusetts Elementary School Principals Association.

The administration’s proposal to overhaul the Commonwealth’s education governance structure gained legislative approval in February 2008. An education commissioner who reported to the board of education, not the governor, had long directed primary and secondary public education in Massachusetts. The Patrick proposal resurrected the state secretary of education post, which had been created and abolished twice since the 1970s.

Reville, who then chaired the board of education, claimed Governor Patrick’s plan kept appropriate distance between politics and education policy. But when a far weaker education secretariat had been proposed in 2003, Reville testified before the legislature in opposition to the plan, saying, “No matter how well constituted, an education secretariat creates a competing center of power that vies with and against the state’s chief school officer, the Commissioner of Education and the state education agency.”

Governor Patrick himself contradicted Reville’s claim that the new proposal was more respectful of independent education policymaking. At its unveiling, the governor said his plan “will be different in that (the secretary) will have real authority.”

But the administration’s main target was the state board of education. In a move reminiscent of FDR’s court-packing plan, the overhaul added two seats to the board, opened up two more slots by removing the commissioner of early childhood education and the chancellor of higher education, made the new secretary a voting member, and truncated the terms of members least likely to agree with the administration.

Even more importantly, it stripped the renamed Board of Elementary and Secondary Education of its independence, placing it firmly under the governor’s control by giving the new secretary final say over budget requests and veto power over its selection of future commissioners of education. The board had just selected Mitchell Chester, an Ohio education official, to be the next commissioner. Chester beat out Karla Baehr, who was superintendent of schools in the city of Lowell, had gained some prominence among urban superintendents (see sidebar), and was widely seen as the choice of the education establishment and the governor. Baehr was later hired as a deputy commissioner.

The usually affable Patrick also used the unveiling of his governance proposal to send a message to those concerned about charter schools, saying they should “grow up.” Later, after release of the Boston Foundation study, Patrick called the debate about raising charter caps “a red herring because we’re not at the cap,” despite the fact that Boston is among the urban communities bumping up against the 9 percent of school district spending limitation, with only 111 charter seats remaining and about 7,000 students languishing on wait lists.

In February 2008, the board, still chaired by Reville (he assumed the new secretary of education post on July 1), became the first to reject a charter school recommended for approval by the commissioner of education. The focus of the board’s discussion about the proposed SABIS regional charter school in the city of Brockton was a 2005 state department of education (DOE) report that identified problems at the Springfield SABIS charter school. Days after the new school’s application was rejected, a 2006 DOE letter surfaced that said the Springfield school had successfully addressed all the major issues raised in the earlier report. Company officials who attended the board meeting were not allowed to respond to Reville’s criticisms.

A Boston Globe editorial noted that the “rejection raises thorny questions about just how hard the Patrick administration is willing to push to achieve equity in education.” Like SABIS’s successful Springfield charter school, the proposed school would have served troubled communities. The most current data available prior to the proposed school’s rejection showed that 20 of Brockton’s 23 schools failed to make adequate yearly progress (AYP) under federal law, and all 6 failed to make AYP in nearby Randolph, where the schools are in such bad shape the district was required to submit a plan to stave off state receivership. During the board’s debate over the proposed charter school, Patrick appointee and board PTA representative Ruth Kaplan commented that charter schools are too focused on sending students to college, saying “families…don’t always know what’s best for their children.”

During the spring of 2008, Reville charged a “21st Century Skills Task Force” with rewriting curricula and ensuring that Massachusetts students are prepared to succeed in a fast-changing economy. The task force’s report, published in November, proposes revamping MCAS and using the U.S. History test to try out project-based assessments that require students to demonstrate skills like “global awareness,” a change likely to crowd out topics like the Constitution or causes of the Civil War. It calls on the teachers unions, school committees, and superintendents that have fought education reform for 15 years to determine how to integrate 21st-century skills in our schools.

In a sad irony, the task force report claims that “Massachusetts can learn from the experience of West Virginia” on ways to incorporate the needed skills. West Virginia students score below the national average on the NAEP tests, and the state was among the seven that saw the largest declines in reading scores between 1998 and 2005.

A month after release of the task force report, former state senate president Thomas Birmingham, one of the architects of education reform, delivered an address in which said he was “discomforted” by the direction of the Readiness Project and that the 21st Century Skills Task Force “may threaten to…drive us back in the direction of vague expectations and fuzzy standards.”

Teacher testing has also come under fire. In April 2008, the state senate voted to allow some teachers to be licensed even if they failed the required exam three times. The administration announced that it was looking at alternative criteria for aspiring teachers, even though most of the tests are at a high-school level of difficulty. Reville told the Globe the test “isn’t necessarily the best venue for everyone to demonstrate their competency.”

The move to back away from teacher testing sparked another firestorm of opposition. In a Boston Globe op-ed, Charles Glenn, then dean ad interim of Boston University’s School of Education, wrote, “It would be a gross disservice for our public school children to be taught by teachers who do not meet the standards set by our current teacher tests.” Reville later said the administration didn’t support the senate vote after all.

With the pillars of reform under attack, Joe Williams, executive director of Democrats for Education Reform, wrote in the Globe, “You have to wonder why Massachusetts seems intent on retreating from its own nationally recognized success. The backward slide is already evident.”

The Wrong Path

The Commonwealth’s 15-year track record of successful education reform gave Governor Patrick a clear path ahead on education policy. Instead of undoing the reforms of his predecessors, the governor could have built on the state’s success by carrying on the commitment to high standards, fine-tuning a successful accountability system, and maintaining the governance structure that had successfully insulated critical education policy decisions from special-interest pressure. He could extend to others the educational opportunity that transformed his own life by raising from 9 to 20 percent the cap on the amount of money that can be transferred from school districts to charter schools in districts whose MCAS scores are in the bottom 10 percent statewide.

So far, he has chosen instead to dismantle reform and replace the singular focus on student achievement that was the key to education reform’s success with a wish list that would likely cost taxpayers an additional $2 billion per year. With the new Board of Elementary and Secondary Education stripped of independence, there is no entity left that can operate outside the political arena with the sole mission of improving academic performance.

Results released in September 2008 showed a sharp drop in MCAS pass rates and flat or declining scores in the elementary and middle school grades and in many urban districts. While 15 years of progress will not be undone overnight, as the Patrick administration’s efforts to dismantle reform continue, such drops are likely to become the rule. It is the price we will pay for Massachusetts policymakers snatching defeat from the jaws of the Commonwealth’s historic education-reform victory.

As for President Obama, during the primaries he played to the teachers unions that are a critical Democratic Party constituency by assailing the evils of forcing teachers to “teach to the test.” But once the nomination was secured, he moved to the center, unveiling proposals that included merit pay for teachers and doubling federal charter-school funding. His selection of Arne Duncan, Chicago’s charter-friendly school superintendent, as education secretary also bodes well. Let’s hope that as president he continues down that path rather than the one Governor Patrick has chosen, and that he applies the lessons from the successful reforms in Massachusetts to federal education policy.

Charles Chieppo is a senior fellow and James Gass is director of the Center for School Reform at Pioneer Institute, a Massachusetts public-policy think tank.

CORRECTION: The printed version of this article contains two errors, which have been corrected here. The number of students on waiting lists for charter schools in Boston is about 7,000. The Readiness Finance Commission reportedly favored raising the state sales tax rather than the income tax from 5 to 6 percent.

The state spends around $55,000 on average for teachers’ salaries at Paterson’s JFK High School. But total per classroom spending in the school runs to $313,268.

Here are classroom spending numbers for other schools:

Keansburg High, Keansburg, $339,592

Asbury Park High, Asbury Park, $346,569

Trenton Central High, Trenton, $366,716

James Ferris High, Jersey City, $398,666

Memorial High, West New York, $417,919

Abington Avenue Middle School, Newark, $436,096

Where does the money go, and why so much?

Perhaps because New Jersey has 616 school districts.  In contrast, Maryland has only 24 school districts.

The average school district in Maryland has 35,000 students.  The average in New Jersey is 2,300 students.   Think about the difference in administrative costs.  While 35,000 students in Maryland have one superintendent and district administrative office, 35,000 students in New Jersey have 15 superintendents and district administrative offices.

Or perhaps because of contractual agreements.  When an Asbury Park superintendent resigned over a “clash of leadership styles,” the school board agreed to pay him a $310,000 severance fee along with $40,000 of his legal costs to go with his $120,750 annual salary.

Or misplaced priorities.  Malcolm X Shabazz High School in Newark devoted $30 million to a new football stadium. In fact, an audit of school spending in low-performing districts in New Jersey concluded that 29 percent of expenditures were not “reasonable.”

Or maybe because many school board elections are not held on presidential election days.

These are some of the bizarre and dismaying facts and stories recounted in a new education documentary entitled The Cartel.

The director is Bob Bowden, a long-time New Jersey journalist and news anchor.  The 90-minute film contains one abomination after another, complete with interviews with whistle-blowers, teachers, politicians, and education officials, including Chester Finn and Paul Peterson.

More material from the film:

Looking at funds pouring into troubled schools, one Trenton councilman sums it up: “The worse we do, the more money we get.”

The Pleasantville district has had 13 superintendents in the past 10 years, and not long ago five school board members were indicted for taking bribes.

A teacher in Camden reports that she was threatened with dismissal if she talked about a school’s policy of changing grades to make the school’s performance look stronger.

An award-winning history teacher in Trenton talks about “ghost-salaries, phantom-salaries, salaries for people who did not exist” on the budget.

Another teacher wanted to start a garden club after school, but union rules wouldn’t let her spend after school hours doing so.

According to a teachers union watchdog group, “The Newark school district has about 3,850 tenured instructional staff. Many of them are hard-working, committed educators. But can it be true that no more than .032% of tenured teachers are unfit to teach school?”

A former-principal estimates that 30-40 percent of his teachers should have been replaced.  When the interviewer tells the head of the New Jersey teachers union that only .03 percent of tenured teachers have been let go, and wonders if the other 99.97 percent are really fully qualified, she answers, “I think 99.97 success rate should be celebrated. That’s something we should be saying, ‘Wow!’”

There is more, much more in the film.  Cronyism and corruption are the themes, inside experience that proof.  It’s an exposé that deserves wide coverage.

Podcast: Robert Costrell and Michael Podgursky talk with Education Next.

An unabridged version of this article is available here.

Teacher pensions consume a substantial portion of school budgets. If relatively generous pensions help attract effective teachers, the expense might be justified. But new evidence suggests that current pension systems, by concentrating benefits on teachers who spend their entire careers in a single state and penalizing mobile teachers, may exacerbate the challenge of attracting to teaching young workers, who change jobs and move more often than did previous generations.

The design of teacher pension plans is a timely concern: like other public pension plans, those for teachers are becoming more costly. Employer contributions to pension funds tack on a larger percentage of earnings for public school teachers than for private-sector managers and professionals, and this gap is widening (see “Teacher Retirement Benefits,” research, Spring 2009, Figure 1). Those data do not yet reflect the impact of the stock market decline since 2007: the drop in the value of pension funds means further increases in employer contributions will be required to fund promised benefits. As fiscal concerns force states to reevaluate the costs of teacher pension plans, officials might also consider the plans’ consequences for teacher quality.

In earlier work we highlighted the peculiar incentives for retirement built into these plans (see “Peaks, Cliffs, and Valleys,” features, Winter 2008). Most plans create large spikes in pension wealth accumulation for teachers in their 50s. These spikes act as an incentive for teachers to stay in the classroom until their pension wealth reaches its peak and then push them into retirement shortly thereafter, as pension wealth accumulation turns negative.

We now extend this line of research by focusing on the distribution of pension benefits among teachers of varying career lengths and the penalties for those who switch systems. We examine pension formulas in six state plans and develop measures of the redistribution of pension wealth from teachers who separate early to those who separate later. We compare existing defined benefit (DB) teacher pension systems to fiscally equivalent systems that treat all teachers equally and find that the former often redistribute about half the pension wealth of an entering cohort of teachers to those who separate in their mid-50s from those who leave the system earlier. We then show that this back loading produces very large losses in pension wealth for mobile teachers. Compared to a teacher who has worked 30 years in a single state system, a teacher who has put in the same years but split them between two systems will often lose well over one-half of her pension wealth. It is difficult to justify such a system of rewards and penalties on grounds related to fairness or teacher quality.

Teacher Pensions 101

Public school teachers are almost universally covered by traditional defined benefit pension systems. In such a system, the employer has an obligation to provide a regular retirement check to employees upon their retirement. Typically, a DB teacher pension plan requires that both teachers and employers make a contribution each year to a pension trust fund. The salient characteristic of a traditional DB system is that for any individual, benefits are not tied to contributions.

More specifically, once a teacher is “vested” (usually after 5 or 10 years), she becomes eligible to receive a pension upon reaching a certain age or length of service. These eligibility rules vary across states, but they typically allow a teacher to draw a pension well before age 65, especially if she has been working since her mid-20s. Benefits at retirement are usually determined by a formula that takes into account years of service and the final average salary (FAS), which is an average of the last few years of salary (typically three). In Missouri, for example, teachers eligible for normal retirement earn 2.5 percent (the “multiplier”) for each year of teaching service. Thus, a teacher with 30 years of service would earn 75 percent of the final average salary. So if the FAS were $60,000, she would receive $45,000 every year for the rest of her life. If the teacher were to separate from service prior to being eligible to receive the pension, the first payment would be deferred and the amount of the pension would be frozen until that time. Once the pension payments begin, there is typically some form of inflation adjustment, although the specifics again vary from state to state.

We examined teacher pension plans in six states. While the states were not randomly chosen (we inhabit two of them), their plans are indicative of many teacher pension plans. Because the composite effect of each system is hard to discern by simply looking at the benefit formula, we examine patterns of pension wealth accumulation by age of separation.

Calculating Pension Wealth

We use the benefit formulas of pension plans to estimate the pension wealth of individual teachers. When an individual retires under a DB plan, she is entitled to a stream of payments that has a lump-sum value that we calculate using standard actuarial methods (which take into account expected mortality patterns and adjust the sum of payments to reflect the fact that they are received over many years rather than at a single point in time).

The heavy S-shaped curve in Figure 1 depicts pension wealth (net of employee contributions) for 25-year-old entrants to the Missouri teaching force who work continuously until they leave teaching at various ages. The salary schedule assumed is that of the state capital (Jefferson City), under which teachers receive experience-based salary increases and are also paid more if they have a master’s degree. The accumulation of pension wealth is not smooth and steady, but rises with fits and starts, due to rules of eligibility for early retirement and the like. In Missouri, after vesting at five years, a teacher is eligible for a pension at age 60. Her pension wealth—the current value of those deferred benefits—grows fairly steadily until age 45. The curve becomes steeper at age 46 because of a provision that allows teachers to begin collecting a pension when their age and years of service sum to 80, which brings her pension forward to age 59 and earlier. Then there is a big jump at age 50, because the 25th year of service makes a teacher eligible for an immediate pension (albeit with a reduced multiplier). Growth in pension wealth continues to be rapid in subsequent years as the multiplier is increased to its “normal” rate of 2.5 percent. Then, following a final bump in the benefit formula’s generosity at 31 years of service (age 56), net pension wealth starts shrinking. As is evident, complex pension rules lead to pension wealth curves that are irregularly shaped and bear no resemblance to the smoothly growing cumulative value of contributions.

(Pension) Wealth Redistribution

The result of these complex pension rules is that teachers who leave the profession in their 50s receive more pension wealth (as a percentage of cumulative earnings) than those who separate earlier. To develop a measure of the resulting redistribution, we compare existing DB systems to a fiscally equivalent plan where pension wealth is neutrally distributed: a cash balance (CB) system. CB systems calculate employee retirement benefits based on the cumulative contributions, with a guaranteed rate of return. Thus, pension wealth is a fixed percentage of cumulative earnings, regardless of retirement age.

In dollar terms, pension wealth grows smoothly under a CB system. Figure 1 compares the accrual of pension wealth under Missouri’s DB plan (the S-shaped curve) with the smooth accrual under a hypothetical CB plan. This diagram readily illustrates the redistribution of pension wealth toward those who retire in their 50s from those who leave teaching earlier. Teachers who retire before age 49 in Missouri receive less pension wealth than they would under a CB plan, while teachers who retire later receive considerably more.

We have developed a numerical measurement of this redistribution. Specifically, to compare net pension wealth across different ages of separation, we measure it at a fixed point in time, and we also estimate the frequency of separations at different ages. In this fashion, we can calculate weighted averages of net pension wealth for winners, losers, and the whole cohort of 25-year-old entrants. When we compare the Missouri plan to the fiscally equivalent CB plan, we find that 46 percent of pension wealth is redistributed from those leaving teaching at an average age of 36.6 to those separating at an average age of 54.2.

We made the same calculations of the distributional impact of the DB plans in the other states. In all states, the degree of redistribution is substantial. In Massachusetts, for example, average pension wealth is low, but 61 percent of it is redistributed. The degree of redistribution is also relatively high in Ohio (49 percent) and Texas (47 percent, for new hires), while it is somewhat lower in Arkansas (39 percent) and California (36 percent). As in Missouri, the redistributive gains are concentrated among those who retire in their 50s, while the losses are dispersed among all early leavers. This pattern holds particularly true for Massachusetts, where the gains are concentrated among just one-fifth of the cohort.

To summarize, there is significant variation among states in the magnitude of the gains and losses compared to a simple CB system, but all states redistribute net pension wealth to a substantial degree to those who retire in their 50s (after about 30 years of service) from those who leave a teaching position after shorter periods. In addition to the issue of equity, this has serious implications for teacher mobility, to which we now turn.

Moving Costs

It is well understood that DB pension plans penalize mobility, yet the sources of these costs are rarely delineated or quantified in a systematic way. There are several factors that reduce pension wealth when a teacher moves. First, teachers who leave a system before they are vested have no claim on a pension. Upon termination, or shortly thereafter, any teacher contributions are returned with interest (the rate varies, and can be well below market), but the teacher does not receive employer contributions. This is a major source of loss for many young teachers, since most teacher pension systems have a vesting period of five years or longer and the vast majority of early-career teacher turnover occurs in the first five years on the job. In fact, nine states have a 10-year vesting period for teachers. With such long vesting windows, many teachers will receive no employer contributions toward retirement as a result of their work in the classroom.

Although the effects of these vesting windows are large, they are at least fairly transparent for young teachers. This information is routinely provided to those newly hired. Even for teachers who are vested, however, there remain potentially large costs from mobility, and these are less obvious. One cost comes from the fact that teacher DB pensions are all based on final average salary. When a teacher leaves the profession before normal retirement age, the value of her annuity is tied to her salary at the time of her separation. No adjustment is made for ensuing salary growth or inflation.

Other costs to mobility arise from the service eligibility rules for normal and early retirement. Teachers who separate from a plan with, say, fewer than 20 years of service will often not be able to begin collecting their pensions until much later than teachers who remain in the plan until they meet eligibility requirements. At any given age, pension wealth is therefore lower for the mobile teacher—who has left one system early and entered another system late—simply because she can expect to collect fewer pension checks. Alternatively, she may be able to draw her pension at the same time as the teacher who stays in one system, but with a penalty. Either way, the costs are substantial.

Switching Systems

Pension wealth calculations similar to those above provide a comprehensive method for evaluating the costs of mobility. Specifically, let us continue to examine the pension wealth of a hypothetical teacher who enters at age 25 and works continuously. However, now, rather than working continuously in the same system, at age 40, after 15 years in state A, she moves to state B, which has the same pension formula and same pay grid, and ultimately retires. We assume that she collects two pensions, one in each of the states in which she worked. The pure mobility cost can be thought of as the loss from moving at age 40 to an identical state, but with zero creditable service.

The hypothetical wealth trajectory described above is depicted as the dotted curve in Figure 1 for Missouri. As discussed above, the heavy solid curve illustrates net pension wealth for continuous service under the DB plan, evaluated at date of separation. The dotted segment represents the wealth trajectory for a teacher who moves after 15 years, at age 40, diverging at that point from the solid curve for the teacher who stays. For the first five years, the dotted curve is flat since the teacher must get vested in the new system. After vesting, the teacher is entitled to two pensions, one from the old job and one from the new one. However, the loss from mobility continues to widen in the following years, as the teacher who stays becomes eligible for earlier and earlier retirement, while the teacher who moves does not earn enough service credit to advance the pension from age 60.

Under a continuous career, our hypothetical teacher would obtain 30 years of service by age 55, qualifying her for “normal” retirement benefits immediately at 75 percent of final average salary. This is worth $626,088 at age 55. The split career of the mobile teacher means that she receives two annuities, each of which is for 37.5 percent of final average salary, but the FAS for the first pension is of course much lower. In addition, neither the first nor the second pension would be drawn until “normal” retirement at age 60. This means that five years of pension payments are lost. These two factors together reduce the net pension wealth to $219,163, a loss from mobility of $406,925. This is the gap between the dotted and solid curves in Figure 1 at age 55. The cost of mobility is 65 percent of pension wealth.

By contrast, under the hypothetical cash balance system, also depicted in Figure 1, there is no loss from mobility. Net pension wealth, the cumulative value of employer contributions, is a constant percentage of cumulative earnings, regardless of whether they accrue in one job or two.

Table 1 provides summary calculations of these mobility losses for all six states. A glance down the first column shows substantial mobility costs in all six states, ranging from approximately $200,000 to more than $500,000. As the table also shows, these losses are large in relative terms as well, ranging from 41 percent to 74 percent of net pension wealth for teachers who stay.

Figure 2 depicts the sources of these losses, as well as the variation across states. For each state, the full bar gives the net pension wealth of a teacher who stays in the system to age 55, and the bottom portion, in black, is that of the mobile teacher. The middle portion gives the loss from mobility due to freezing FAS on her first job. The top portion gives the mobility cost imposed by service eligibility rules. Specifically, splitting 30 years of service credit between two jobs delays the first pension draw and can also affect the replacement rate (the annual pension as a percentage of FAS).

The costs from the split in service credit are generally large and vary across states. In Missouri, Arkansas, and Ohio, these rules lead to a delay of first pension draw from age 55 to 60, while in California, the first draw is delayed to age 57. In Texas, the mobile teacher delays first draw to 63, but she gains a higher replacement rate as a result. In Massachusetts, there is no delay for first draw, but the mobile teacher sacrifices a large increase in the replacement rate that is awarded to 30-year veterans. All in all, the service eligibility rules for early retirement, pension bumps, and the like—little known to the general public (and, we suspect, to many young teachers)—can impose large costs on teachers who move.

Final Considerations

Our work offers the first detailed analysis of the distribution of net pension benefits among teachers of varying ages of separation and the corresponding costs that teacher pension systems impose on mobile teachers. We find that in a typical DB system, compared to a neutral system, half an entering cohort’s pension wealth is redistributed to teachers who separate in their 50s, from those who separate earlier. One of the main reasons is that teachers who teach into their 50s can start collecting a pension immediately, while teachers who leave earlier often must defer their pension until age 60 or later, so they collect fewer payments over their retirement.

This inequality in benefits produces very large losses in pension wealth for mobile teachers. We estimate that teachers who split a 30-year career between two pension plans often retire with less than half the pension wealth accrued by teachers who complete a similar career in a single system. Again, one of the main reasons is that teachers who split their career often cannot begin collecting pension payments as early as those who stay in one system.

Our discussion has focused on teachers. However, the problems we have identified extend to other professional staff in public schools. School administrators are always included in teacher retirement systems. The market for administrators in urban school districts is increasingly becoming national in scope, yet for mobile administrators retirement benefit systems with 5- to 10-year vesting systems can have a devastating effect on retirement savings.

The impediments to mobility—for both teachers and administrators—may be particularly problematic for charter schools. Many charter schools are part of organizations (e.g., Knowledge Is Power Program [KIPP], Edison Learning, Imagine Schools) that operate in more than one state. Edison Learning, for example, operates schools in 16 states. As these schools attempt to replicate their school models, it is valuable to them to move staff from one location to another, particularly when they start new schools, in much the same way business firms relocate managers. As we have shown, current educator retirement benefit systems make such mobility very costly in those states where charter school employees are required to participate in the state’s teacher pension plan.

Such a system of rewards and penalties is hard to justify. To appreciate the importance of mobility, consider the large differences in the growth of public school enrollment between states. The National Center for Education Statistics projects that states such as Nevada and Arizona will see enrollment growth in excess of 40 percent between 2005 and 2017. Louisiana, Vermont, and Rhode Island can expect enrollment declines of 10 percent or more over this same period. Heavily populated states such as Michigan and New York can anticipate declines of between 5 and 6 percent. In a well-functioning labor market, one would see considerable movement of workers from areas of contracting demand to areas in which demand is increasing. In the case of teaching, however, the pension systems impose large costs on those who move.

The barriers to reform are primarily political. First, states have a coordination problem. It is in no state’s individual interest to facilitate mobility out of the state; to the contrary, states are inclined to keep average pension costs down by skimping on benefits for those who depart. In addition, the distribution of benefits within states between short-term and career teachers will be governed by the relative influence of junior versus senior educators in educator groups and state politics. Influence generally increases with seniority for a variety of reasons, and these are enhanced in the case of pension politics, because the benefits of pensions are far more immediate and tangible for senior educators than for junior ones. The opaque nature of final-average-salary DB systems, with their complicated eligibility rules, only reinforces this imbalance.

All that said, these barriers are not insurmountable. Similar issues arise in higher education, and yet the benefits of academic mobility have led many state and private universities to offer more portable retirement plans. As states grapple with the pension difficulties they now face, they should consider systems with smooth wealth accrual, such as the CB plan described in this article. Another alternative to consider might be a hybrid such as TIAA-CREF, which has features of both CB and defined-contribution plans and has proven popular in higher education. Such systems are more transparent, tie benefits more closely to contributions, and do not penalize mobility or job shopping among young teachers. At a minimum, education policymakers should consider experiments that provide actuarially fair alternatives to traditional DB plans for new teaching recruits, and evaluate their utility for recruiting and retaining high-quality teachers.

Robert M. Costrell is professor of education reform and economics at the University of Arkansas. Michael Podgursky is professor of economics at the University of Missouri–Columbia.

Yet somehow, as the budget-planning cycle concludes and schools open their doors in the late summer and fall, virtually all classrooms have instructors, teachers receive their paychecks and use their health plans, athletic teams play, and textbooks are distributed. Regrettably, this story is seldom accorded the same media attention as are the prospects of budget reductions and teacher layoffs.

For a variety of reasons, from one year to the next, schools almost always have more real revenue for each of their enrolled students. For the past hundred years, with rare and short exceptions and after controlling for inflation, public schools have had both more money and more employees per student in each succeeding year. Teacher salaries have increased more than 42 percent in constant dollars over the past half century, while educators’ working conditions, health plans, and retirement arrangements have become ever more commodious. Moreover, school-related revenues and employment levels have increased even when the economy (as measured by Gross Domestic Product or GDP) turned down, unlike what typically happens in sectors such as manufacturing and retail sales, where recessions trigger cutbacks in personnel and profits.

Now, local school funding is apparently more secure than ever before. For the first time in history, the federal government has assumed a dramatic new school-funding role, that of banker of last resort, providing stopgap revenues to the nation’s schools during economic downturns. The Obama administration’s unprecedented injection of billions in federal funding for schools likely ensures that education’s resource cushion will continue for at least the current downturn and possibly for much longer. The notion that the federal government should serve as a fiscal flywheel for schools would have come as a major surprise to lawmakers even during the 1960s’ high point of federal funding for schools.

A Bigger (and Brighter) Backdrop

It is true that occasionally school districts become insolvent and states have to step in and take over. California had a string of costly and highly visible instances in the recent past, with the state having to elbow locally elected school boards aside and install all-powerful administrative overseers in large districts such as Oakland and Richmond. Detroit is the poster child for similar activity in the Midwest (see sidebar). School district insolvencies are rare and most often the result of administrative or school board mismanagement and malfeasance, rather than from the consequence of diminished revenues and systematic budget cuts.

Another Detroit Deficit

A century ago the Detroit Public Schools were among the nation’s leading educational institutions; they now teeter on the edge of oblivion. Enrollments have dwindled to 93,000, roughly half of their 2001 level, as parents have moved or enrolled their children in charter schools. Only 58 percent of enrollees graduate from high school; only

25 percent of 9th graders graduate four years later. Student standardized test scores are among the lowest in Michigan. A Council of Great City Schools report found deficiencies in instruction, data, accounting—the list goes on. The district has 100 vacant schools on its property rolls. The FBI has targeted a school district payroll manager for allegedly embezzling $400,000. When Detroit school employees were asked to pick up paychecks in person, 257 checks were never claimed, presumably made out to ghost employees. A recent audit found staggering waste, from unused vehicles and electronic equipment to health coverage costs for ineligible dependents. In 2002, the Detroit Public Schools had a $103.6 million surplus. Now the district faces a deficit of $259 million and is contemplating filing for bankruptcy protection, a rare occurrence in the history of American public education. More than 2,000 layoffs and 29 school closures have done little to narrow the gap. The district is scheduled to receive $149 million in federal stimulus funds, but only $11 million of this can go toward reducing the deficit.

Nationally, America’s school-district revenues have long been on an upward trajectory (see Figure 1). Since 1929, per-pupil spending has declined only four times and significantly only twice, once during the Great Depression and once in the midst of World War II. There have been 11 periods during which GDP declined but mean total real per-pupil revenues still increased. The number of employees, teachers, administrators, and others has continually increased for four decades, except for the early 1980s period of declining enrollment and recession. And pupil-teacher ratios have fallen by almost 50 percent due to investments in class-size reduction and an increase in the number of teachers who are not assigned to full classrooms (see Figure 2).

How Is Education So Well Protected during Recessions?

Public schools have long been remarkably insulated from economic downturns. This becomes particularly clear when we compare employment trends in different economic sectors. Figure 3 displays historical (1972–2008) employment information in nine sectors: construction, finance, government, information, manufacturing, professional and business services, retail trade, transportation, and warehousing. Employment levels reflect economic conditions and, except for government (which includes elementary and secondary education), employment levels fluctuate with the economy and the historical trend is modestly upward. Contrast this picture with the much steeper upward slopes in education employment shown in Figure 2.

Unlike other employment sectors, education is protected from the direct effects of economic ups and downs by an interlocking and reciprocally reinforcing set of politically constructed conditions. Among these conditions are 1) education’s privileged legal status in most state constitutions; 2) schooling’s uniquely decentralized operation and diffuse revenue-generation structure; 3) local political dynamics and institutions that foster a favorable fiscal environment for public schools; 4) a multitiered structure for funding schools with complicated intergovernmental funding incentives and reliance on inelastic tax sources, such as property taxes at the local level. Almost no other economic endeavor enjoys such a spectrum of insulating conditions.

Constitutional Privilege. The United States Constitution is silent regarding education and schooling. This omission, taken in tandem with the Tenth Amendment’s reservation of unspecified powers to states and the people, and state-level constitutional provisions, renders education principally a state function. Moreover, state constitutions explicitly assume responsibility for provision of schooling.

State constitutional education clauses are generally of three kinds. They assign the legislature a responsibility for provision of an education system that is 1) “Thorough and Efficient,” 2) “General and Uniform,” or 3) the legislature’s “Paramount Duty.”

The precise language of the state constitution is not as important as the explicit specification of the state’s responsibility for providing education. Criminal justice, transportation, recreation, indigent care, economic development, commercial regulation, and even public safety are not privileged to the same degree. A state can decide to pursue or abolish numerous areas of government responsibility, such as support for prisons, highways, parks, and colleges, or welfare payments. It cannot decide to abandon its K–12 school system. Indeed, several states even have constitutional provisions that prevent less being spent on education in any one year than in a prior year.

Many state courts have made clear that education takes priority when it comes to appropriating funds. Adequacy cases decided in favor of plaintiffs in numerous states, such as Campbell County v. Wyoming, have emphasized that the state has a unique obligation to fund schools at high levels, even if other parts of the budget must suffer.

Decentralized Operation. No modern nation has an education system that is more decentralized or multitiered than the United States. The consequence is that American school systems are buffered structurally and politically against resource competition with other state and local governmental services.

Conceived in the colonial period and evolving well into the 21st century, public education in the United States has relied on 50 distinct state systems that, in turn, delegate selected dimensions of operational authority to more than 13,000 local school districts. The majority of these local districts have property taxing authority; the rest rely on county or municipal governments to generate their share of local revenue.

Local school districts are overseen by boards of education. Most of these, 80 percent, are made up of elected members. The remainder of the boards are appointed by mayors, city councils, or other elected authorities. Regardless of membership selection procedures, these boards place education in a privileged position relative to those publicly provided services that depend on general governments for resources and must compete with other services for their share.

Political Protection. General citizen apathy toward school spending and policy can be partially explained by the costs and effort required for active political participation. School policy and operational matters can be complicated. It takes a great deal of personal time to become informed regarding such issues as racial desegregation, charter schools, curriculum content, testing, graduation standards, geographic placement of a new school, and the configuration of attendance boundaries. These and other education-related issues affect parents and educators more than they do other citizens, particularly those citizens who do not have children enrolled in public school.

Hence, school district politics, including those surrounding funding issues and taxation, tend to be dominated by self-interested coalitions of parents and school district employees. For these constituents, the costs of becoming informed and actively participating in school district decisionmaking are low relative to the benefits to be gained. Employee-parent coalitions tend to dominate local school-board elections and ballot measures regarding school funding (see “The Union Label on the Ballot Box,” research, Summer 2006). Their self-interest and favorable predisposition provide schools with political protection against budget cuts when the overall economy turns down.

Several other political elements favor school funding. District employees, those with the most direct interests in sustaining or elevating school spending, are frequently well organized politically. Employee groups can offer sympathetic candidates greater campaign resources than other school-related constituencies. Union members are probably the voters most predisposed to turn out at an election and to vote. These dynamics provide schools and school spending with local advocates who are politically sophisticated and well resourced for campaign purposes.

Opponents of increased school spending or higher taxes for schools can be mobilized and on occasion dominate an election. This was dramatized in the 1978 enactment of California’s famous tax-limitation provision, Proposition 13. Usually, however, incremental increases in proposed school budgets represent only a fractional addition to local property-tax rates. When property owners anticipate paying only a hundred or so additional dollars in the forthcoming year, they may be unwilling to make the effort needed to oppose the increase.

There is an additional political dynamic contributing to the preservation of local school-funding levels. A frequent metric, however misguided, for measuring school quality is the amount of money a district spends per pupil annually. Many posh suburbs actively compete on this dimension, proudly proclaiming their per-pupil-spending status ranking relative to competitor districts. Citizens, parents, and others who have purchased homes in such districts perceive the value of their property to be linked to high spending levels and accordingly acquiesce to advocates’ entreaties for more money.

Finally, in most states, education employee unions have the right to bargain with school boards and to embed collectively derived agreements regarding salaries and working conditions into legally enforceable multiyear contracts. These extended contracts, often bridging or outlasting economic recessions, act to buffer threatened revenue reductions.

Multiple Revenue Sources. Schools are highly resource dependent, but they are not dependent on a single source. The distribution of revenue-raising responsibility over federal, state, and local governments contributes to education revenue stability (see Figure 4).

Three trends of note can be discerned in this graphic. First, one can see that initially, local funds were the dominant source of district revenues, with states and the federal government being only minor partners. In most places, local district and municipal revenue has been generated through property taxation, and this arrangement has assisted in insulating schools from economic ups and downs. Property taxes are relatively inelastic when the economy swings up. It takes assessors two to three years to capture escalating property values and, thus, to give school districts the full measure of benefit from economic growth and housing inflation. However, this same inelasticity protects schools during economic downturns when property owners continue to pay those same taxes, even if their income is reduced, as assessors do not reduce property values in a timely manner.

The second trend began in the post–World War II era, as state funding supplanted and matched or slightly exceeded local revenues. This pattern resulted, at least partially, from the “equal protection” litigation movement launched in the 1970s, in which state courts determined that rectifying once-gaping spending inequalities between districts was the states’ responsibility. While remedies might have left local funding as the principal revenue source for schools, state legislatures chose instead to provide funding centrally from state coffers and to reduce the relative contribution of localities.

Even in the face of the current recession, state governments are raising taxes to cover deficits. This may actually reflect an additional explanation for how well schools have done in the past: States are required to have balanced budgets, so they raise taxes when times are tight and then keep the new rates when the money flows again. Local governments and school districts do not have the luxury of deficit spending.

Reliance on state funds is a double-edged sword, however. State revenues dampen interdistrict inequalities but, since they typically derive from sales and income taxes, these revenues are also more closely linked to economic fluctuation and more volatile than property tax receipts. Dependence on state funding also places education in a more competitive resource arena. Local school boards concern themselves, and focus their taxing authority, only on education issues. State legislatures, education’s privileged constitutional position notwithstanding, have to consider a far wider range of services and responsibilities in deciding who gets what.

The third trend pertains to the federal contribution. In 1965, the federal government launched its most significant education endeavor when the Johnson administration initiated the Elementary and Secondary Education Act (ESEA). Appropriations from this legislation pumped federal spending all the way up to 8 percent of total school revenues. The No Child Left Behind Act (NCLB) is the 2001 version of the ESEA. This statute did not dramatically increase federal funding for education, at least as a percentage of total revenue. It did, however, usher in a completely new era of accountability in education.

Prior to 2009, the highest historical rate of federal contribution to education had been 10 percent. The Obama administration’s economic stimulus plan ($44 billion for schools now flowing under the American Recovery and Reinvestment Act [ARRA] of 2009) dramatically alters this trajectory and contributes to a more evenly balanced revenue portfolio for schools. The federal government is becoming less and less a junior partner, and more and more an equal partner, in the tripartite American method of funding schools.

Why the Ever-Present Fiscal Doom?

If school revenues have enjoyed such remarkable stability, why the persistent appearance of fiscal calamity? One reason is that school-district budget cycles are imperfectly synchronized with state and federal legislative appropriations processes. The fiscal year for state and local governments routinely begins on July 1. It is increasingly rare for legislative bodies to enact spending bills much in advance of this date. School districts are legally obligated to have balanced budgets and cannot balance anticipated expenditures through deficit financing. As local school boards begin their winter and spring budget planning, they and their administrative officers perceive state and federal fiscal uncertainty and publicly discuss, as state “sunshine” statutes mandate, their contingencies for budget cutting.

Since some 80 percent of school-district budgets are absorbed in personnel costs, local school boards, when pressed fiscally, quite naturally give consideration to personnel cutbacks and salary freezes. State statutes make it necessary to inform school employees, usually in April or May, if there are to be layoffs. Sensing financial vulnerability and needing to comply with personnel notification deadlines, school districts issue layoff notices and hold mandatory public hearings, even if the probability of actual personnel layoffs is slender. Such public threats trigger a media frenzy, alarm employees and parent advocates, and exacerbate, yet again, the prevailing public perception that schools are headed for fiscally stringent times.

The likelihood of resource reductions is remote. However, it is a rare education reporter, teacher who receives a layoff notice (however unlikely to be acted upon), or parent who was expecting to have the highly regarded but layoff-vulnerable Ms. Jones for her 3rd-grade child in the fall, who sees the matter in historical perspective or with objectivity.

What Has All This Money Produced?

The ever-increasing cost of public education would engender less controversy if the product had improved apace. The United States expects much of its schools. Preparation for career, college, and citizenship; personal health and hygiene knowledge; racial and gender equity; leisure and aesthetic appreciation; social mobility; scientific sophistication; safe driving practice; and sex, alcohol, drug, reproductive, and environmental awareness are all part of the booming, buzzing, and sometimes antithetical public discourse that assigns purposes to the nation’s schools. Still, there are two fundamental dimensions on which schools must maximize performance in order to make progress toward all other desired education outcomes: 1) children learning to read and 2) students completing high school. Viewed longitudinally, America’s schools have not done well on these dimensions.

Reading scores on the National Assessment of Educational Progress (NAEP) have been level for four decades. Graduation rates, as recently calculated by economist and Nobel laureate James Heckman, display the same regrettable pattern as reading scores. For a half century, nearly one-third of the nation’s high-school students have failed to graduate with their class each year. That average masks much lower historical rates for black and Hispanic students than for white students. Many who do not graduate from high school subsequently obtain high-school equivalency credentials, such as the General Equivalency Diploma (GED). Still, more than 1 million adolescents each year have somehow not been retained by the nation’s schools.

Will the Schools’ Fiscal Privilege Persist?

If one were to place bets based on past evidence, the odds favor America’s public schools to operate next year with at least as much and probably with somewhat more money and a larger and (modestly) better-paid labor force than they had in 2009. The dramatic escalation of the federal government’s revenue contribution, to close to 15 percent of education’s national total, almost guarantees that mean per-pupil revenues will not decline in 2010.

There is no effort here to dispute the reality of the current recession. State and local tax receipts, heavily dependent on consumption and income, were down 4.6 percent for the first quarter of 2009 over the prior year. Still, per-pupil revenues will likely continue their historical upward trajectory. The unprecedented ARRA stimulus recovery allocation for education only strengthens this prediction.

Although the current economic crisis has several dimensions previously unseen—the pace at which employment and housing sectors crumbled, the speed at which credit disappeared, the intensified economic interdependence of global markets, and the stunning magnitude of plummeting personal and institutional wealth—the federal government’s monetary and fiscal recovery plans were enacted into policy with remarkable speed. Congressional willingness to subsidize the economy was never higher. And the international community coordinated stimulus spending as never before.

Also, during early April 2009, the U.S., European, and Asian stock markets seem to have bottomed out and turned up. Job losses, while continuing, are slowing. Nationwide unemployment, at 9.3 percent as of this writing, is still lower than at its post–World War II peak of 10 percent in the 1982 recession, and gives no indication of coming close to catastrophic Great Depression rates. In April 2009, prices of goods and services were down and consumer confidence unexpectedly climbed, modestly, upward.

Balancing all these factors leads to the projections in Figure 5, which provide a bounded estimate of national total operating revenues per pupil through 2020. These high and low projections, based on 2006–07 dollar spending, are the result of calculating historical rates of least and greatest growth and applying those rates to create low and high projections until 2020. Specifically, the low projection, which would produce $9,519 in per-pupil spending in 2020, is based on an average growth rate of 0.1 percent, similar to the period from 1991 to 1996. The high projection, which would produce $13,208 in per-pupil spending in 2020, is based on an average growth rate of 2.45 percent, similar to the period from 1997 to 2004. (Readers should keep in mind that these figures are in 2006 dollars and the actual per-pupil dollar amounts in 2020 would be higher.)

The major assumption here is that the federal government’s stimulus contribution to K–12 schooling will approximate $90 billion. The $37 billion in the stimulus package that is intended to offset reduced state and local education revenue in 2009 will cushion what would otherwise likely have been the first significant per-pupil spending reduction in 60 years.

A New Fiscal Stability

Whether measured on a per-pupil basis or as a percentage of Gross Domestic Product, support for public schools is stronger in the United States than in most other nations. Moreover, this condition has persisted for many decades. A unique set of constitutional, structural, financial, and political arrangements ensures that school systems and professional educators are buffered from revenue losses when the economy declines. State rules surrounding local school-district budgeting procedures contribute to the opposite impression, making it appear that schools are in a perpetual financial crisis.

The 2009 ARRA stimulus package may portend an entirely new source of fiscal stability for America’s schools. When the economy turns down, the federal government may serve as the major fiscal backstop for public education.

James W. Guthrie is professor of public policy and education at Vanderbilt University and director of the Peabody Center for Education Policy, where Arthur Peng is research associate.

But state-run Florida Virtual School (FLVS), a decade-old public education experiment, departs from this conventional script. This most radical of choice based schools—where students and teachers never meet in physical classrooms and state funding flows on a performance-based, demand-driven model—has largely avoided the political and legal tangles that have stymied other reform efforts. And, free from the geographic constraints and facilities costs of traditional schools, FLVS has grown rapidly, scaling up to match the considerable demand for the school’s courses. In the 2008–09 school year, approximately 84,000 students will complete 168,000 half-credit courses, a 10-fold increase since 2002–03.

To accomplish this rare feat, the school has adroitly walked a fine line. It has built a distinct educational philosophy, approach, and culture. At the same time, it has maintained its identity as a public school and remains part of the system. This unique positioning, far enough outside to do business in a different way yet sufficiently inside the system to avoid political backlash, has been a key element in the school’s success. Mark Pudlow, spokesperson for the Florida Education Association, the teachers union that has fought pitched battles against many of Florida’s recent initiatives, acknowledges the result of Florida Virtual School’s approach: “[It] never developed the kind of mistrust that tends to be associated with other reform ideas.” Savvy leadership, strong political support, and a series of well-timed decisions around growth have helped FLVS become the country’s most successful virtual school, and perhaps one of its most important reform stories as well.

School on Demand

FLVS is a supplemental virtual school: most students attend brick-and-mortar schools and take FLVS courses in addition to their traditional classes. While the vast majority of FLVS students come from district schools (82 percent in 2007-08), the school is open to charter, private, and home-schooled students (see “Virtual Schools,” forum , Winter 2009).Much of the school’s recent growth has been driven by minority enrollments. Between June 2007 and July 2008, African-American enrollments grew by 49 percent, Hispanic enrollments by 42 percent, and Native American enrollments by 41 percent. Students enroll for a variety of reasons, but most come to fulfill graduation requirements, make up credits for missed or failed classes, or take Advanced Placement (AP) and other courses that are not available at their physical school (see Figure 1).

The FLVS motto, “any time, any place, any path, any pace,” emphasizes the school’s flexible and mastery-based approach to learning. Here, the content remains constant, but the time required—be it 16, 18, or 22 weeks—adjusts. Students at FLVS choose an accelerated, traditional, or extended pace for a particular course, taking extra time if needed to review and receive additional guidance on lessons or move through a course at a quicker pace than is typical. Moreover, FLVS students don’t have to wait for the semester to begin; they can choose the month in which they would like to start.

While its courses are virtual, FLVS strives for highly personalized instruction. The school employs more than 715 fulltime and 29 adjunct teachers—all Florida-certified and “highly qualified” under the federal No Child Left Behind law. Depending on the course, teachers use a variety of methods to engage students, including live one-to-one or small group virtual whiteboard sessions, asynchronous discussion, and even a new experimental, immersive online game for an American history course. Given the school’s flexible pacing, there isn’t a set class size, but full-time teachers are limited to 150 students each and individualized feedback is extensive. Instructors are expected to respond to student questions and provide comments on assignments within 24 hours. In addition, teachers phone students at least monthly, many times using oral assessments to ensure that students’ work is their own. Via the online course site, teachers post syllabi, readings, assignments, and other course materials.

Non-Adversarial Relationships

FLVS’s “inside the system” status originated in 1995 in efforts to develop Internet-based high-school programs in two Florida counties, Alachua (Gainesville) and Orange (Orlando). Both districts launched pilot programs and then formed an alliance to compete for state grant funding. In August 1997, FLVS began as Florida High School, with 77 course enrollments.

Nicholas Gledich, supervisor of Orange County’s initial program (he now serves as chief operating officer of Orange County Schools and is an FLVS trustee), recalls that from the beginning the school made a concerted effort to build relationships with a wide range of constituencies. While there was strong initial interest from home-schooling families, he says, it was important “to reach a diverse group of students” and establish “personal contact with districts and schools.”

Julie Young, who at the time worked for Gledich and is now CEO of FLVS, points to another important, early decision that helped set the precedent for a nonadversarial relationship with traditional district schools. Rather than become a diploma-granting institution and directly compete with traditional high schools, FLVS chose to supplement the brick-and-mortar high school. Instead of offering a full-time program that drew students away from traditional settings, the program focused on filling curricular gaps and expanding access to additional courses and learning opportunities. Young says the decision was “a huge deal.” We didn’t steal students from traditional schools; we “gave kids back to their schools in good shape.”

The grant-based funding mechanism provided early capacity-building funds, allowing FLVS to establish its courses, faculty, and credibility. Importantly, funds flowing to FLVS were over and above those received by traditional schools. Traditional high schools did not lose funds when students opted to take classes with FLVS. “If we went after FTE [regular school funding] we would be putting our head in the lion’s cage,” says Frank Brogan, Florida’s commissioner of education at the time of the school’s founding and later, in 2000, lieutenant governor under Jeb Bush. The fights begin “when you go after people’s money.”

Success Pays

From 1997 to 2003, FLVS enjoyed impressive growth, from the initial 77 course enrollments to more than 12,000. The school’s funding continued on a year-to-year appropriation, but strong political support in the governor’s office, the state department of education, and key legislative committees ensured that total funding rose from $1.3 to $6.9 million in the same time frame.

While FLVS’s political support was impressive, the annual appropriations funding mechanism not only was risky—it was subject to year-to-year budget decisions—but also essentially capped growth. And, despite the strong grant funding, the school could not keep up with student demand. In the summer of 2002, 8,000 students were on FLVS waiting lists after traditional summer school classes fell victim to budget cuts. The school decided it was time to seek a permanent funding mechanism through inclusion in the state’s school funding formula. Not only had the school proved highly effective and popular, but it had also grown large enough to develop its own political constituency, serving students from across Florida’s legislative districts.

In 2003, the Florida legislature voted to establish a performance-based funding model for the school. Under this model, the school’s funding is based on students’ successful completion of their courses, a step that places far more pressure on FLVS to ensure its students’ success than exists in traditional public school systems. Florida funds six credits per high-school student per year, so each time a student successfully completes a one-credit course, FLVS receives one-sixth of its per-pupil funding level ($1,054 per credit for 2008–09). Brogan calls this act an “absolute statement that the program had arrived.” This critical legislative action established the school as a permanent component of the state’s funding formula, providing stable and predictable funding outside of the yearly legislative allotment.

For the first time, this action also put FLVS in competition for funding with traditional school systems. “We would have preferred that it would have been funded outside the FEFP [Florida Education Finance Program],” said Ruth H. Melton, the director of legislative relations for the Florida School Boards Association, in a June 2003 EducationWeek article reporting on the legislation. Despite this opposition, FLVS was only a minor irritation among a number of controversial education reform programs. Melton concluded, “school boards are less concerned about losing funding to the virtual school than to the various voucher programs.” Former Florida governor Jeb Bush, reflecting on the legislative action, echoed Melton’s sentiment: “[At the time] we were doing so many different things that were provocative, this didn’t seem as radical.”

According to state rules, a student’s full-time school may not deny access to courses offered by FLVS. Taken together, the performance-based funding model and school choice provisions provide incentives for FLVS to be responsive to student, parent, and educational needs, an alignment not commonly found among district-run schools. Since there are no barriers to enrollment and funding is not capped at a preset amount, FLVS can increase its revenue by enrolling additional students and ensuring that those students successfully complete courses.

“Part of what Florida did is set it up in a way that gave direct access to parents and students, but structurally left kids enrolled in their district. [This has enabled] Florida to reach scale,” explains Barbara Dreyer, president and CEO of Connections Academy, a for-profit, full-time virtual school provider and partner of FLVS. “Many other states are caught in a catch-22: [Their programs] do not have enough scale so they are not cheap, but because they are not cheap they can’t get to scale.”

New Challenges

Despite FLVS’s success and national recognition—in December 2008 Florida governor Charlie Crist accepted a plaque from the Center for Digital Education recognizing Florida as the top provider of virtual education in the nation—the school still faces a number of operational and political challenges. The school is experiencing staggering growth; in the eight months from July 2008 to February 2009, it hired more than 300 new full-time teachers (see Figure 2). After a long period of extremely solid support in Tallahassee, the state’s executive and legislative leaders have begun to turn over.

The school was surprised at the end of 2007 when key state senate committee leaders convened a two-day workshop to hear from a variety of additional virtual school vendors, researchers, and district officials. While every legislator and speaker at the hearing expressed strong admiration and support for FLVS’s programs, it was clear that FLVS was no longer driving the agenda.

In 2008, spurred by a stated desire to increase school choice, but also partly motivated by fiscal concerns and vendor lobbying, the legislature voted to change the state’s other virtual school provisions that regulated full-time programs. In addition to FLVS’s supplemental programs, the state had contracted with two private providers, the similarly named Florida Virtual Academy, run by K12, Inc., and Florida Connections Academy, to offer fully online, fulltime, statewide virtual school programs for elementary- and middle-school students. The new law phased out the statewide programs, mandating that beginning in the 2009–10 school year, each Florida school district must develop its own offering or contract with a provider to offer a K–8 full-time online school option.

FLVS had to scramble quickly to respond. While the legislation did not directly impact FLVS’s supplemental programs or funding, it presented another, possibly more dangerous, issue. With 67 districts mandated to begin their own online programs and funding incentives for these districts to contract with low-cost providers and pocket the difference, FLVS feared that virtual education would be tainted by low-quality programs. Over the past five years, the school had watched as a number of other states, such as Colorado and Pennsylvania, conducted audits and investigations to root out mismanaged programs, casting doubt on quality programs in the process.

FLVS did not serve elementary-school students and operated on a supplementary basis. But the school already had “franchise” relationships with eight Florida counties, including Broward (Fort Lauderdale), Dade (Miami), and Hillsborough (Tampa). Under this agreement, the counties’ district schools use their own teachers in conjunction with FLVS’s courses and technology platform to offer online courses. For instance, in Broward County, the district offers a full-time alternative high-school program. These districts were mandated to begin K–8 full-time programs, but FLVS could only offer courses in 6th through 12th grade.

Faced with the possibility of being a nonplayer and not necessarily in a position to start its own program, FLVS decided to partner. The school issued an open solicitation for proposals and developed a partnership with private Connections Academy to jointly solicit and run K–8 programs for Florida school districts. Dreyer, when asked about the partnership, notes FLVS’s strong national reputation and the credibility it brings to her company.

Christopher McGuire, new principal at Broward Virtual School, an FLVS franchisee, continues the school’s philosophy of operating both within and outside of the system: “This is a healthy alternative to the conventional school model…we’re competing on a different plane: ‘Come to Broward Virtual School if the traditional model is not working for you.’”

A Winning Strategy

More than a decade after the school’s founding, Brogan recognizes the narrow path that FLVS has navigated between accommodation and confrontation. “Education has a unique ability to fend off and co-opt reform, drag it into a cul-de-sac and strangle it.” At the other extreme, “reformers can become such zealots. What is a great idea is lost in the translation of zealot status, lost in a wash of defensiveness.”

Bush, Brogan, and Gledich are all quick to point out that despite the school’s political support, it would not have succeeded without consistent leadership and a high-quality program. Former governor Bush says that a “poor quality product would have failed.” While much more research is needed to understand the effectiveness of virtual schooling for students in K–12, the small body of research available points to no significant differences in student performance in online courses versus face-to-face learning. At FLVS, the early evidence, including scores from its students’ AP exams, is positive (see Figure 3).

While it is still too early to determine the ultimate effect of FLVS on public schooling in Florida, the program’s growth is evidence that its political strategy has succeeded. Quietly, without the polarizing rhetoric or bruising battles of other reform efforts, the school has expanded options for students. For a virtual school, that’s a concrete achievement.

Bill Tucker is managing director at Education Sector

A recent “Policy Memorandum” from the Economic Policy Institute (“Making Mountains Out of Molehills:  Do Teacher Pensions Create ‘Peculiar Incentives’ for Retirement?”) by EPI researcher Monique Morrissey is sharply critical of our article “Peaks, Cliffs, and Valleys:  The Peculiar Incentives of Teacher Pensions,” published this year in Education Finance and Policy (EFP), and published last year for general audiences in Education Next.

In our original Ed Next article, we observed:

Teachers typically earn relatively little in the way of pension benefits until they reach their early fifties, when much larger benefits start to accrue. The system therefore pulls teachers to “put in their time” until then, whether or not they are well suited to the profession. Beyond that point, the pension system quickly begins to punish teachers for staying on the job too long, pushing them out the door at a relatively young age, often in their mid-fifties, even if they are still effective teachers. These “pull-push” incentives are embedded in the patterns of pension wealth accumulation over teachers’ careers, patterns that feature dramatic peaks, cliffs, and valleys that can greatly distort work decisions for no compelling public-policy purpose.

Morrissey has a number of critiques of our articles, but the main one, as the title suggests, is that our metaphors are inappropriate, and there is nothing at all “peculiar” about the structure of retirement incentives in teacher pensions.

Morrissey argues that the change in pension wealth is not characterized by peaks and valleys, and to make this point she refers to a graph that appeared in our articles. Unfortunately, Morrissey picks the wrong graph on which to base her critique – and misidentifies it.  Morrissey reproduces from our EFP article Figure 1 (for Ohio) below and claims that this graph shows the change in pension wealth as a percent of earnings over a teacher’s career.  In fact, this graph presents the level of pension wealth at any point in a representative teacher’s career as a percent of cumulative earnings up to that year.   This graph is of interest in its own right (see our paper), but it does not represent the annual change of pension wealth (known as the accrual rate).

The annual change of net pension wealth is the focus of our article, because that is what best conveys the pension system’s embedded incentives to work or retire.   It is a measure of annual deferred income from the system, the equivalent of an employer’s annual contribution to an employee’s 401(k) account.   But it is represented by another graph — omitted by Morrissey — one that is clearly characterized by peaks and valleys.  Indeed, Education Next featured this graph, superimposed on a mountain range to make the point.

Just to set the record straight, in Figure 2 we present the correct graph for Ohio — reproduced from our EFP article  – and let the reader decide if “mountain” or “molehill” is an apt metaphor, and whether “peculiar” is an appropriate adjective for the incentives represented by this graph.

In Figure 2 we report the annual accrual or change in pension wealth as a percent of annual earnings for a female Ohio teacher who enters at the age of 25 and works continuously.    As is clear in the graph, in her early years on the job, but after vesting, this teacher’s net pension wealth  grows at a very modest rate, beginning at zero percent in her first year after vesting (after netting out employee contributions1) and gently rising to 23 percent  of her annual salary during her 24th year of work (age 49).  However, year 25 is special.  In that year her pension wealth will jump by 164 percent of her earnings!  For example, if she earned a salary of $60,000 in that year, her net pension wealth would increase by $98,400.   Thus, her total compensation – current and deferred – for that year of work would be $158,400.  Not a bad year.

But other special years are in the offing.  A similar jump (143 percent) will occur in her 30^th year.  If she sticks around to age 60, another peak of 132 percent will occur.   After that time she will lose pension wealth by continuing to work.  If she works her 36^th year, her pension wealth will fall by 34 percent of her salary that year, and the losses will continue to grow with each passing year.  (Note that the pension wealth accrual that we plot is in addition to the teacher’s salary.   When pension wealth accrual turns negative, this is like a tax on earnings.)

Figure 2 contrasts with the relatively smooth accrual that would occur with a cash balance pension plan (see our EFP paper for an explanation of this type of program, used by many large private employers and a few public employers).  The accrual rate would be a relatively stable fraction of salary in any year — a flat line in diagrams like Figure 2.   By contrast, in teacher pension plans, the accrual of pension wealth is highly erratic and backloaded, with huge “peaks” in certain years, followed by “cliffs” and “valleys.”

In the article we noted that teachers tend to stay on the job in order to reach these peaks, and that teachers tend to be pushed into retirement by the imminent approach of the valleys.   Data from several states, as well as econometric studies, show that teachers are typically responsive to these incentives in timing retirement, which is consistent with  a large body of previous research showing that employees in other sectors of the economy also respond to pension incentives.    (For details, see “Teacher Retirement Systems:  Research Findings,” National Center on Performance Incentives, Research Brief (July).)  The incentives are typically much stronger for teachers (higher peaks & deeper valleys), so it would be surprising indeed if they were indifferent to the huge implications — hundreds of thousands of dollars — of their retirement timing decisions.

We will not reproduce all the graphs in our EFP or Education Next articles.  However, in defense of our use of the term “peculiar,” we reproduce one more chart for Ohio.   In Figure 3 we consider the annual accrual rate of pension wealth (as a percent of salary) for three otherwise identical female teachers.   One enters teaching at age 22, another at 25 (same as Figure 2), and another at 30.  We invite the reader to consider the widely different patterns of pension wealth accrual for these three teachers.   Note that the teacher who enters at age 22 has a truly special year, in her 30^th year on the job at age 52.   In that year, her pension wealth jumps by 383 percent of her earnings.

In the article, we plotted charts similar to Figure 2 for five other states in addition to Ohio.    These six states account for roughly 29 percent of employment of public school teachers.  Readers are welcome to examine the wealth accrual charts for these states.   Some have fewer peaks than Ohio, but some of them have peaks that are quite a bit larger, with single-year accrual rates of 200%, 400% or more.  A teacher can earn such multiples of her salary in pension wealth accrual during a peak year in her early or mid-fifties, and then start losing pension wealth if she continues to work for the rest of her fifties.  It is as if an employer promised to put $100,000 or $200,000 in your 401(k) when you turn 55, but then started to withdraw funds from your account thereafter.

“Mountains” or “molehills?”   “Peculiar?”   We’ll let the reader judge whether our descriptions exaggerate reality.   However, we do ask that EPI at least get the chart right.

[1] Morrissey states that Figure 1 is “misleading” because it compares gross pension wealth with the sum of employer and employee contributions.   However, Figure 2 and each of the paper’s 5 other similar diagrams identify the accrual as “net of employee contributions.”

Why would this be the case?  No mystery, really.  Education reporters, even at elite newspapers, rarely provide solid background information about school spending, the kind of contextual information that a much smaller audience gets from articles by scholars such as William Howell, Martin West, Paul Peterson, Rick Hanushek, and others. A case in point is Sam Dillon’s New York Times piece, “Schools Aided by Stimulus Money Still Facing Cuts,” which appeared on Labor Day.

Dillon writes, rather breathlessly, “Children are returning to classrooms across the nation during one of the most tumultuous periods in American education…”

Wow.  “One of the most tumultuous periods in American education…”?   Dillon justifies this claim by saying (emphasis added) that “many thousands of teachers and other school workers — no one yet knows how many — were laid off in dozens of states because of plummeting state and local revenue.  Many were hired back, thanks in part to $100 billion in federal stimulus money…In those [states] where budget deficits have been manageable, stimulus money largely replaced plunging taxpayer revenues for schools.”

Dillon’s piece thus echoes a long-running media template, i.e., schools face fiscal shortfalls, tight budgets, dwindling resources, blah, blah, blah, blah.  However, apart from isolated periods when real growth has been limited, over time the data are clear:  K-12 schools have continually received major infusions of new public funds.  Neither Dillon nor most of his colleagues on the education beat explain to readers that budget constraints in any given year pale when compared to the overall trend of increasing school spending.  Thus, it has become conventional wisdom among mainstream Americans that K-12 schools are underfinanced.

Context is everything.  What is omitted from articles like Dillon’s often is just as important as what is provided.

The campaign for universal preschool education in the United States has gained great momentum. Precisely as strategists intended, many Americans have come to believe that pre-kindergarten is a good and necessary thing for government to provide, even that not providing it will cruelly deprive our youngest residents of their birthrights, blight their educational futures, and dim their life prospects. Yet a troubling contradiction bordering on dishonesty casts a shadow over today’s mighty push for universal pre-K education in America (see “Preschool Puzzle,” forum, Fall 2008).

The principal intellectual and moral argument that advocates make—and for which I have considerable sympathy—is similar to that of No Child Left Behind (NCLB) backers: giving needy kids a boost up the ladder of educational and later-life success by narrowing the achievement gaps that now trap too many of them on the lower rungs. Serious pursuit of that objective would entail intensive, educationally sophisticated programs, starting early in a child’s life, perhaps even before birth, and enlisting and assisting the child’s parents from day one.

Yet the programmatic and political strategy embraced by today’s pre-K advocates is altogether different. They seek to furnish relatively skimpy preschool services to all 4 million of our nation’s four-year-olds (and then, of course, all 4 million three-year-olds), preferably under the aegis of the public schools.

Either this discordant plan is a front for public school expansionism, bent on adding another grade or two to its current thirteen, and adding the staff (and dues-paying union members) that would accompany such growth, or it’s a cynical calculation: only by appealing to the middle-class desire for taxpayers to underwrite the routine child-care needs of working parents will any movement occur on the pre-K front, and the heck with the truly disadvantaged youngsters who need more than that strategy will yield. On balance, it appears to me, the interests of poor kids are being subordinated to the politics of getting something enacted. And the unabashed reasoning behind this strategy is that nothing will be done if it’s only for the poor. That’s nonsense. America is awash in enormous, well-funded programs that target the poor. Medicaid and Pell Grants leap instantly to mind. And in the early-childhood field, of course, there is already Head Start—spending more per pupil than any universal pre-K program is likely to cost—as well as chunks of the big Title I program that pay for pre-K education.
Surely the advocates know this. Why, then, do they deny it?

Growing Interest
Pre-kindergarten is one of the hottest topics in American education in 2009. Twice during the presidential-campaign debates, Barack Obama termed early-childhood education one of his highest priorities, and even before serious planning got under way for an antirecession “stimulus” package, he had pledged to this priority an additional $10 billion in annual federal funding. Education secretary Arne Duncan is a strong booster of pre-K education, and Congress is busy on this front, too. The whopping economic-stimulus package enacted in February included $2.1 billion more for Head Start and $2 billion more for child care, plus additional funding for disabled preschoolers and some $54 billion in assistance to state and local education budgets.

In state capitals, meanwhile, many governors have embraced preschool with something like the fervor they brought to K—12 education reform during the late 20th century. Pre-K and kindergarten-expansion proposals topped their priorities in myriad “state of the state” messages in 2008. Even as the economy slowed and budgets tightened, state-funded pre-K programs added more than 100,000 youngsters, meaning that about one in four four-year-olds now takes part in such programs.

Preschool also looms large for some prominent education analysts who doubt that K—12 schooling alone can accomplish much gap closing due to other powerful forces in the lives of children and families. In this view, school-centric initiatives such as NCLB are destined to fail because they don’t start early enough and don’t address those outside forces. Instead, they urge a “broader, bolder” approach that includes sharply increased investment in “developmentally appropriate and high-quality early childhood, preschool, and kindergarten education.”

This widening enthusiasm for universal or near-universal pre-K education is no accident. In the background, plenty of strings are being tugged and dollars spent, particularly by the $6 billion Pew Charitable Trusts, which has made universal pre-kindergarten one of its top priorities, investing $50 million in this effort as of 2006. Many other foundations and individual philanthropists are similarly engaged. As a result, a half dozen energized, high-profile national groups now fill cyberspace, policymakers’ in-boxes, and committee witness lists. Many of them also have affiliates advocating away in state capitals.

Though some cracks have recently appeared in these widely held positions, as a handful of partisans now favor intensive programs targeted at a relatively small group of acutely disadvantaged children, most of the advocacy effort is still directed toward universality: pre-kindergarten for every American four-year-old.

Who Needs It?
Many youngsters arrive in kindergarten with learning deficits. For some, these deficits are mild and can be dealt with by competent early-grade teachers. For others, the shortfalls are already so severe that these hapless tykes are gravely unprepared to flourish in today’s more “academic” kindergartens. This means that—barring some change or miracle—those children won’t likely be ready to prosper in 1st or 2nd grade and beyond. They typically bring their learning deficits from disorganized homes in troubled neighborhoods, places where ill-prepared and overstretched adults, very often young single moms with minimal education of their own, offer babies and toddlers too little true conversation, intellectual stimulation, and cognitive growth.

Large bodies of research make clear that whether children successfully acquire literacy skills in the early grades of school correlates strongly with a half dozen “precursor” skills that are normally picked up between birth and age five, skills such as knowing the letters of the alphabet and their sounds, and being able to write those letters—and one’s own name.

Middle-class kids with attentive, educated parents, grandparents, and other adults in their lives tend to acquire these (and many other) skills through the course of conventional child rearing. But what about youngsters whose lives lack a sufficient number of such adults? The evidence indicates that they number about 10 percent, maybe 15 to 20 percent, of all children.

There’s also evidence, though much debated, that ultra-intensive pre-K programs can remedy the deficits. But the programs commonly cited in this regard—notably Michigan’s Perry Preschool and North Carolina’s Abecedarian Project—turn out to be truly exceptional. These were richly financed, highly sophisticated, multifaceted interventions in the lives of extremely disadvantaged youngsters and their families, and they took place decades ago. The University of Maryland’s Douglas Besharov calls them “hothouse programs,” noting that they were “run by top-notch specialists,…served fewer than 200 children, cost at least $15,000 per child per year in today’s dollars, often involved multiple years of services, had well-trained teachers, and instructed parents on effective child-rearing. Significantly, the children they served had low IQs or had parents with low IQs.”

Some studies have found that these programs had positive impacts on their participants that endured into adulthood, such as reducing the likelihood of incarceration. That’s obviously encouraging, albeit somewhat remote from school readiness. But the long-term effects also turned out to be uneven and mostly small. Besharov and his colleagues note, for example, that the Abecedarian Project “achieved positive and lasting gains on a wide range of cognitive and school-related outcomes, including IQ, reading, and mathematics achievement scores.” Yet “these gains became ambiguous as time went on” and “did not lead to many improved outcomes in adulthood…with, for example, no statistically significant differences in high school graduation rates, employment, or criminal activity.”

It’s almost impossible to picture the conditions, circumstances, and cost structures of these boutique programs being replicated on a large scale. And it’s naive to suppose that their intensive features would be found in the sort of universal program that pre-K advocates are bent on creating.

As for more-typical pre-K programs, a number of studies find that they produce desirable short-term effects, especially for disadvantaged youngsters. As Berkeley sociologist Bruce Fuller says,

The short-term effects of preschooling…on poor children’s cognitive growth are well established.…The general effect size—even for poor children—ranges from one-fifth to one-third of a standard deviation.… Significant benefits [also] accrue to children from middle-class households, but at considerably lower levels of magnitude.

But the big issue with pre-K education is whether the gains and gap reductions last. Evidence is limited because the longitudinal studies needed to answer such questions are costly, complex, and obviously time-consuming. But the available evidence is profoundly discouraging. Most of the gains that can be found upon entry into school ebb over time, and the differences attributable to various kinds of programs tend to wash out, too. In fact, effects that may appear significant at the conclusion of the program itself frequently fade to the vanishing point by the time youngsters have progressed as far as 3rd grade. That fadeaway doubtless has more to do with what happens to students in the K—12 system—and the continuing malignant influences in the outside lives of many youngsters—than with preschool programs themselves. But it also suggests that universalizing the preschool experience is not the way to achieve lasting gap reduction. Indeed, as Fuller and others have noted, if the policy goal is to narrow gaps between haves and have-nots, why would the same programmatic intervention be administered to everybody?

Confusion Reigns
It’s no wonder the evidence about the effects of preschool is confused and ambiguous, given the shaky, antiquated condition of standards and quality criteria in this field. While the K—12 policy world now mostly equates quality with academic outcomes, the pre-K world remains fixated on inputs like spending levels, staffing ratios, and college degrees. Of the three most widely used measures of quality in the field of early education—the Early Childhood Environment Rating Scale (ECERS), the standards of the National Association for the Education of Young Children (NAEYC), and those of the National Institute for Early Education Research (NIEER)—none pays much heed to whether the “graduates” of preschool programs are ready for academic success in kindergarten and beyond.

The situation is hard to rectify because assessment in this domain is underdeveloped and heavily disputed and because many early-childhood educators care more about noncognitive elements of child development. To be sure, particularly when dealing with small children, adults must attend to “the whole child” and to varied developmental needs. Still, in today’s pre-K policy context, what matters most is a program’s effectiveness in imparting essential school-readiness skills to its young participants, principally in the cognitive domain. Key attributes of such programs include clear goals, accurate assessments, and a willingness to be judged by outcomes as well as by the high-quality classroom interactions most apt to yield them. But that isn’t how most early-childhood educators prefer to view their work, much less to be evaluated on their performance.

The Problem of Head Start
Nowhere is resistance to structured, curriculum-based, standards-and-assessment-driven early education clearer than in the big, iconic, federal early-childhood program known as Head Start, a legacy of Lyndon Johnson’s mid-1960s declaration of war on poverty.

In a letter to Congress in February 1965, LBJ characterized his proposal as “a school readiness program for 100,000 children about to enter kindergarten.” Within a few years, however, studies began to suggest that the program was not, in fact, preparing children very well for regular school. In 1969, the Westinghouse Learning Corporation and Ohio University published the first major evaluation and concluded that while Head Start did commendable things for needy children by way of socialization and health care, its impact on cognition was nil once those youngsters reached the primary grades.

This finding launched a four-decades-long battle over how to judge Head Start’s effectiveness and whether it should even be regarded as an education program. Study after study—including comprehensive federal reviews in 1985 and 2005—showed time and again that the impacts on cognition were feeble and transitory. In response, Head Start’s defenders and boosters, as well as the burgeoning and organized groups of program operators and staffers, denied ever more vociferously that the program is primarily about school readiness—and insisted that it ought not be appraised as such.

Concerned that Head Start participants benefited from little gap narrowing despite the expenditure of nearly $10,000 in federal funds on each of them, Health and Human Services (HHS) assistant secretary Wade Horn mounted an ambitious effort in 2003 to beef up the program’s preschool elements and to evaluate its providers on the basis of their cognitive outcomes. That caused the National Head Start Association to go wild.

Much argument and rival testimony followed. The program’s old guard won, its familiar assumptions were reinforced, and the wind went out of the reformers’ sails. Although the most recent Head Start reauthorization pays lip service to the program’s school-readiness role, no real enforcement mechanism remains or is likely to be reestablished any time soon.

Costs and Benefits
When one is looking at federal programs such as Head Start or the state programs being pressed by Pew and its grantees, the policy dilemma is inescapable: how important is it to expand participation in services whose effects are unpredictable and uneven or that don’t last? It’s a fine thing to give kids an early boost along life’s highway. But how much of a priority can this be when, not far down that road, either those kids slow down or others pick up speed (or both) and the pre-K advantage slowly ebbs?

A truly universal program, one that actually served all 4 million four-year-olds, would cost not less than $11.6 billion a year at the low-budget end and as much as $57.8 billion at the high-budget Perry Preschool end. Including three-year-olds would at least double those sums. If we assume universal participation and pick a midlevel cost—say, $9,000 per child, which is close to where Head Start is today and approximates average per-pupil spending on K—12 public education—the outlay for four-year-olds would be about $36 billion per annum.

What’s more troubling is this calculation: since 85 percent of four-year-olds already participate in some sort of pre-K program, as much as $30 billion of that $36 billion figure would replace money that is presently being spent—by federal or state programs, private charity, and out of pocket by parents—while as little as $6 billion would go to pre-K services for children who currently have none. And that’s if they participate. Since no pre-K program will be compulsory, at least some of the families that don’t sign on today will not do so tomorrow, either because they’re too disorganized or because they truly don’t want it for their daughters and sons.
Could this large additional public expenditure be worth it? The most dramatic claims for “investing in young children” have been made by economist James Heckman, who argues that this is a fundamentally important national strategy for building human capital, enhancing workforce productivity, and reducing welfare-type outlays. His analyses have been widely cited by pre-K advocates and, we read, taken seriously by President Obama (presumably not just because they’re both from Chicago). It’s crucial to note, however, that Heckman actually confines himself to disadvantaged children, and that the evidence he cites is based on analyses from the Perry-style “hothouse” programs. Although this may strengthen the case for highly targeted, high-intensity intervention programs for seriously disadvantaged preschoolers, it does little to advance the “universal” argument.

On the grounds of economic returns, in fact, Heckman plainly states that his analysis has led him to favor funding for targeted pre-K programs for disadvantaged youngsters, not those that enroll everyone. Writing in the Wall Street Journal in 2006, he acknowledged that, because “Children from advantaged environments received substantial early investment” from their families, “there is little basis for providing universal programs at zero cost.” Doing the latter, he explained, would be inefficient, costly, wasteful of public dollars, and probably not effective in helping poor kids. Ironically, advocates’ success in pushing for more universal-style pre-K programs is probably dimming the prospects for more Perry-style intensive interventions in the lives of the neediest children and families.

What to Do?
Society plainly has an interest in upgrading its human talent across the board, as well as in narrowing harmful and unjust learning gaps and ensuring that everybody has a fighting chance to develop their intellect and skills to the maximum. Yet it’s not self-evident that society has a compelling interest in paying for pre-K education except insofar as it demonstrably and durably accomplishes one or more of those objectives.

If states took the $4 billion that, according to NIEER, they’re currently spending on universal-style pre-K programs and concentrated it on the roughly one-tenth of four-year-olds who most need intensive preschooling, they’d have about $40,000 per child to spend. That amounts to a pretty decent kitty, enough to pay for more than two years of Perry Preschool or Abecedarian-style programming. Even stretched across the entire period from birth to age five, it would work out to about $8,000 per child per year, without touching the separate federal child-care dollars, leveraging the Head Start appropriation, or tapping into other current public-sector spending on needy children (including the additional “stimulus” dollars that may or may not prove permanent).

Looking at the pre-K issue that way, one can begin to picture programs that might actually make a difference in young lives. Adding the $10 billion per year envisioned by President Obama would multiply those present outlays.

A powerful case can be made for well-crafted experimentation and innovation in this arena. Despite all the pilot projects, studies, and evaluations, not enough is known with certainty about the essential elements of effective pre-K education and how to make those effects last. More also needs to be learned about the key elements of program quality (concentrating, one hopes, on results rather than on inputs) that can be successfully replicated and brought to scale. Nobody has yet devised the perfect pre-K program, and it’s likely that different approaches will work better for different kids and circumstances. It is therefore folly for states not to try diverse designs and evaluate them all.

Head Start needs urgent attention, too, if policymakers are serious about preschool. Despite its popularity, despite the billions spent on it, and notwithstanding the decent job it does of targeting services on needy kids, today’s Head Start, when viewed through the lens of pre-K education and kindergarten readiness, amounts to a wasted opportunity.

In a rational world, it would make vastly more sense—and cost the taxpayer far less money—to overhaul Head Start (and pre—Head Start and Early Head Start, etc.) utilizing existing programs that are already targeted, perhaps focusing them even more tightly on the neediest kids, making them start earlier and last longer, and insisting that they emphasize pre-literacy, vocabulary, and other school-readiness skills. Such programs would be delivered by standards-based, outcomes-focused, rigorously assessed providers who are willing to be judged and compared on the kindergarten readiness of their graduates.

Getting Head Start right—turning it into an effective pre-K program for poor kids—should be the focus of a joint effort from education secretary Duncan and HHS secretary Katherine Sebelius. It could remain a separate, federally run enterprise, as it has been for four decades, though it would likely work better if states could merge programs and funding with their own intensive pre-K efforts. If Head Start stays separate, its educational effectiveness (and other outcomes) needs to be rigorously appraised, just as Wade Horn undertook to do in the previous administration.

But preschool policy cannot be made in a vacuum. Why the gains that it produces later dissipate and the gaps that it narrows later widen has much to do with unchanging home and neighborhood situations. But we must also ruefully acknowledge, despite all the K—12 education reform of recent decades, the crummy, ineffectual schools that most poor children still enter, the absence of decent choices among schools, and the system’s still-widespread weak expectations, limp curricula, slipshod accountability, and ill-prepared, ill-compensated, ill-motivated, and often inexperienced teachers.

Sustaining whatever pre-K gains can be produced, especially for poor kids, is therefore principally a challenge for K—12 policy and practice. But that does not mean entrusting pre-K education to public-school systems. Today, those systems cannot even sustain their own gains, which is why American 4th graders tend to have stronger results than 8th graders, and high school students do less well than middle schoolers. Adding more years to the present public-education mandate would simply give ineffectual school systems additional time to fumble around while entangling pre-K education more tightly in the web of school politics, federalism disputes, bureaucratic rigidities, and adult interest groups.

Preschool, done right, tightly targeted, and intensively delivered, with sound cognitive standards, quality criteria and readiness assessments, is the proper work of early-childhood educators and what is already a vast preschool and child-care industry. Capitalizing on, maintaining, even magnifying the results of such early education is the proper work of the primary-secondary system—in addition, that is, to all the other serious challenges that confront it.

Chester E. Finn Jr. is president of the Thomas B. Fordham Foundation, senior fellow at the Hoover Institution, and senior editor at Education Next. This article is excerpted and adapted from Reroute the Preschool Juggernaut (Education Next Press, May 2009).

The following pictures were taken at the May 2009 rally for the DC Voucher Program held in Freedom Plaza in Washington, DC. For more on this topic please see “Lost Opportunities” by Patrick J. Wolf.

• (All photography by Adam Auel)

(The housing bubble also explains the meteoric increase in school spending in recent years, such as in Montgomery County, Maryland, where rapidly rising housing values allowed the district to spend lavishly on the neediest schools in the system.)

Has anyone looked at this issue empirically? Projected just how much property taxes are likely to fall, and what that implies for education funding? If you’ve seen something on this, please let me know.

Listen to the Podcast

For more on this topic by Michael Rebell, please see “Schools Are Still Inadequate: Now What?” in the Fall 2009 issue of Education Next.

School districts produce reams of financial data to check off the right boxes on accounting and compliance reports required by states and the federal government. Typically missing is any financial analysis that follows the money into the school building to the classroom. Yet the classroom is where the mission-critical work happens and where the conversion of resources into services affects student performance. Educators need indicators that tell them whether the basic design and operation of their high schools direct resources in ways that sustain and enhance the district’s academic strategies and priorities. Academic outcomes are one such indicator. A measure of spending that enables comparison across service areas is another.

Computing spending patterns is not difficult. Per-pupil service expenditures can easily be determined at the classroom level. This analysis computes and reports spending on various services for high schools in three anonymous districts. The findings reveal the ways in which per-pupil spending varies by subject and course level.

While the findings are not intended to be suggestive of all districts in the country, the work does demonstrate how such fiscal metrics can reveal the financial implications of the inner workings of individual high schools. How much does a high school pay to offer electives, and how does that compare to what is spent on core subject courses? What are the cost implications of decisions regarding the structure of the school schedule, which courses to offer, and who teaches what course?

The findings presented in this article demonstrate how isolating spending on discrete services can 1) identify the relationships between priorities, current spending, and outcomes; 2) clarify both relative spending on discrete services and the organizational practices that influence how resources are deployed; and 3) establish the current cost of providing high school services as a necessary precursor to identifying whether there are better ways to provide some services.

Spending on Services

The spending-on-services approach to cost analysis aims to inform strategic resource decisionmaking by zeroing in on what is provided. This approach breaks out per-pupil expenditures by the discrete services students receive. This service-costing method is most appropriately categorized as a management tool, to be used on a periodic basis, rather than a new accounting system requiring continuous and extensive record keeping.

Service costing is not a wholly unexplored idea. In 1996, analyst David Monk and associates determined per-pupil expenditures for various courses in six high schools in four New York districts. They calculated per-course spending using actual teacher and aide salaries, course schedules, and course enrollments. These calculations indicated that the highest per-pupil course expenditures were associated with foreign language, music, and science instruction (excluding special education costs).

In 1999, Jay Chambers of the American Institutes for Research merged unique state-level databases containing information on teacher salaries, teacher course assignments, and course enrollment data to calculate per-pupil expenditures by course for students in Ohio. The results indicated wide variation in spending by course, with some elective courses—including Latin, AP Spanish, and drafting—costing twice as much on a per-pupil basis as algebra, literature, and composition.

In 2007 and 2008, the research summarized in this article added to this body of work by determining expenditures associated with a variety of services in high schools in three districts: District 1 is a small western district with one comprehensive high school; District 2 is a midsize eastern district with 10 comprehensive high schools; and District 3 is a midsize western district with six high schools, each divided into small learning communities.

The districts provided information on teacher salaries and stipends, teacher assignments and teaching loads, course offerings and schedules, teacher aide salaries and placements, and student participation in various courses. Each teacher’s actual salary (including stipends, where relevant) was then divided proportionately among the courses taught and the number of participating students. The approach yielded a per-pupil expenditure based on the proportionate teacher and aide compensation. This per-pupil figure does not fully recognize all inherent expenditures (for instance, the costs of school leadership, school facilities, and district-provided shared services). It does, however, provide a means of making comparisons in spending across courses, as the excluded costs don’t vary. The expenditure data were aggregated to allow for comparisons across subjects (e.g., math vs. foreign language), types of courses (e.g., core courses vs. electives or foreign language), course levels (remedial vs. honors), and grade levels (9th vs. 12th).

The following sections provide examples of spending-on-service findings from the three districts studied.

Results

Figure 1 shows the range of per-pupil costs in District 1: electives came at a cost of $512 per pupil versus $328 per math class, $434 per English class, and $564 per class in a foreign language.

District 2 also spent less per pupil on average for core courses (math, science, English/literature, and social studies/history/economics) than for noncore courses, which include electives and foreign language. District 3, however, directed a larger share of its dollars into core courses, so on average 19 percent more was spent per pupil on core courses than on noncore courses. Thus, the spending patterns varied among the three districts studied, indicating that one cannot assume that patterns found in one locale apply everywhere.

What drives these cost differences? As the reader would expect, teacher salary and class size are key variables, since these expenditure figures are computed primarily by dividing each teacher’s salary across that teacher’s course obligations and then dividing the per-course values by the number of pupils enrolled. A comparison of these variables in District 2 indicates that both lower class sizes and higher salaries in the noncore courses contributed to the differences in per-pupil course spending (see Figure 2). Teachers in some subjects taught fewer classes, which also had implications for the spending differences.

Here again, the pattern varied a bit among the districts, but in all three, the average salary of teachers who teach electives was meaningfully higher than that of core course teachers. In District 3, where per-pupil spending per noncore course was lower than for core courses, it was because the noncore courses had larger class sizes, not because the core teachers received higher salaries. Art and photography courses, for instance, were filled with many more students than English and math classes.

Comparing across Levels

The high schools studied spent more per pupil on higher-level courses than on mid-level or low-level courses. For example, in District 2, average spending across high schools on AP courses was $1,660 per pupil per course, while spending on regular courses averaged $739 per pupil and spending on remedial courses averaged $713 per pupil (see Figure 3). Advanced Placement teachers earned more than teachers of remedial courses ($16,656 more) and taught smaller classes on average (14 students vs. 19 students). While it wasn’t district policy to place more senior, higher-paid teachers in AP posts, district officials acknowledged that more senior teachers were given their choice of courses and most often opted to teach at the AP level. Differences in class size were in part a function of a state-imposed limit on AP class size.

In District 3, spending on regular and honors courses was on par, while the cost per student was 28 percent higher for the International Baccalaureate courses. In District 1, per-pupil spending on honors and AP classes exceeded spending on regular classes by 80 percent in math and 23 percent in English (the two subjects where courses were broken out by level).

We can also use these results to estimate what is being spent on a set of core courses (say, junior level math and English, U.S. history, Spanish III, and chemistry) for different segments of the student population. For a junior taking these five courses at the honors level in District 2, for example, expenditure would total $6,910. For a junior taking these same five courses at the regular level, the expenditure would total $2,767.

Implications for Public Education

The policy landscape includes many school and district leaders engaged in high school redesign. While redesign has generally been considered a strategy to improve outcomes for students, with budget tightening ahead redesign may also be a strategy for enabling schools to do more with less. Relevant questions include, What factors contribute to relatively high costs for some subject areas and course levels? In what areas are higher investments accompanied by strong (or weak) outcomes? How can district and school leaders use the information to manage their resources efficiently and effectively?

To take the next step, school leaders need to look at outcomes. Where expenditures on a high-priority service are relatively low and there is dissatisfaction with the outcomes, then the question is, What changes are needed to improve outcomes? The cost-of-services model can also uncover relatively high spending in an area of low priority. Making changes to reduce costs in one place frees up funds for redirection to a high-priority area.

For management, the exercise is to identify the key cost drivers, recognize how various organizational features such as class sizes, teacher assignments, and the school schedule work to affect spending, and then make decisions deliberately about how best to use resources. In the schools studied here, staff compensation and class size were two obvious key cost drivers, but other factors played a role as well. What follows are selected cost factors that present opportunities to make trade-offs between services. In education, where investments have risen steadily for several decades, providing new services has often meant raising new funds. With current projections forecasting more constrained public funds in coming months, the resource landscape will likely be one of greater scarcity, which will only increase the likelihood that schools will have to consider such trade-offs.

Teacher salary schedules and assignments. Schools may have difficulty attracting or retaining effective teachers to positions that are deemed high priority, such as teaching remedial courses in core subjects. A relatively low per-pupil cost for those courses may be viewed as underinvestment. If so, education leaders might want to make available more funds for the salaries of teachers of remedial courses and, if necessary, look for other areas in which costs can be reduced. Calls for teacher salary differentials as a tool for recruiting teachers in hard-to-staff subjects indicate some interest in the idea.

In the three districts studied here, teachers taught a set number of courses. Reducing responsibilities for some teachers and increasing them for others is another way of reallocating resources.

Class size and course offerings. Recognizing how class size affects the per-pupil cost of delivering services can aid in strategic allocation of scarce resources. Faced with relatively high per-pupil costs for music classes and limited funds, District 3 chose to offer fewer (larger) music classes as a deliberate strategy to free funds for more (smaller) core courses. This decision to shift resources reflects a trade-off in which something is both gained and lost. Smaller classes in the core are made possible by accepting larger enrollments and fewer offerings in music. Some states or districts limit class sizes for AP or gifted courses, which increases the per-pupil cost for these courses. The trade-off is fewer resources for other courses.

School schedules. The daily school schedule affects the way resources are deployed across subjects. In the three districts studied, each course was allocated equal time on the daily and weekly schedule, resulting in an even allocation of each teacher’s salary across the courses taught. If school leaders wish to increase investment in core classes, one option is to lengthen the class periods for those classes. Some schools provide double blocks (class periods that are twice as long as a regular class period but still meet every day or nearly every day) in math, science, and literacy. Increasing the time allocated to core courses requires a trade-off that may imply shorter or less-frequent classes for noncore courses (for example, a photography course may meet two or three days a week instead of five) or a reduction in the number of noncore courses students can take.

Fueling Innovation

Spending-on-services calculations can be used to establish current per-pupil costs as a precursor to seeking better ways to provide certain services to students. In a market economy, the cost of a service or product is determined by what sellers and buyers agree to. This occurs in higher education, resulting in a range of educational options at a variety of costs. But K–12 public education for the most part functions as a monopoly, and expenditures are far removed from recipients (or their parents) and often are not even known by their providers (schools and districts).

In Out of the Box: Fundamental Change in School Funding, David Monk discusses the idea of schools providing a limited base program but then allowing parents to pay for extra services not deemed part of the base (such as music). For such an idea to work, Monk acknowledges that schools would need to create a closer link between these extra services received and prices paid. Similarly, Frederick Hess and Bruno Manno call for “unbundling” services, whereby schools might contract out some of the services they provide as a way to open up demand and encourage new suppliers of school services. For instance, schools might contract with local providers to offer electives or sports and might pay a distance-learning provider to offer AP courses.

Spending-on-services analysis fits well with this angle on innovation in that it defines the costs of each service in a way not regularly considered in K–12 schooling. Defining investments in per-participant terms can help spur cost comparisons to services offered by alternative providers. For instance, before school leaders move to eliminate relatively high-cost art or music classes, they may look to see whether local providers (community centers, local colleges, etc.) can or already do provide similar services at better prices. Where schools pay a high per-pupil amount to offer some courses (for example, AP Spanish or remedial reading) to a small number of students, they may find lower-cost options exist via distance learning or contracted services. By freeing up resources in those areas, education leaders can direct more resources to other subjects and students.

Conclusion

In most large, complex organizations the cost of mission-critical functions is closely tracked so that leaders can take stock of how different practices come together to affect resource use. The approach outlined here provides one means to do just that in high schools. Application of the spending-on-services model to high schools clarifies per-pupil costs and the influence of organizational features on resource allocation.

In the coming years, forecasts suggest that education leaders will likely be asked to do more with less. While in the near term the implementation of some of the options noted above may be impeded by contracts and other obligations, over the long term the spending-on-services approach can provide a new lens through which education leaders can view high school redesign. In sum, the spending-on-services approach takes the blinders off, providing education leaders with a powerful tool to inform local resource decisionmaking.

Marguerite Roza is senior scholar at the Center on Reinventing Public Education and a research associate professor at the University of Washington College of Education.

Contact:
Eric Hanushek, Hoover Institution, (650) 736-0942
Michael Rebell, Columbia University, (212) 678-4144

STANFORD — With the U.S. Supreme Court expressing skepticism that dollars alone can remedy student achievement gaps in Horne vs. Flores late last week, the debate over the appropriate role of the courts in determining state school funding levels has heated up.

In a close decision in a case involving English language learners, the Supreme Court overturned a lower court decision concerning the equality of educational opportunities of Arizona students who face language barriers. The federal Equal Educational Opportunities Act of 1974 requires each state to “take appropriate action to overcome language barriers that impede equal participation by its students in instructional programs.” The lower court called for increased funding of language programs in Arizona, but the Supreme Court noted that its concentration on incremental funding was inappropriate. Citing research evidence about the lack of a relationship between spending and educational outcomes and about the ineffectiveness of previous court-mandated funding, the Supreme Court said that the lower court should also consider other school programs.

Justice Samuel Alito, writing the majority opinion, cited the work of education economist Eric Hanushek, a senior fellow at the Hoover Institution, who has long been critical of the role the nation’s courts have played in this issue. In the dissenting opinion, Justice Stephen Breyer cited the work of Michael Rebell, executive director of the Campaign for Educational Equity at Teachers College, Columbia University.

The debate between the two policy analysts, which appears to have influenced both majority and minority opinions of the court, is presented in the upcoming issue of Education Next. It is available online at www.Educationnext.org Here’s a sampling:

Eric Hanushek, joined by nationally recognized school finance lawyer Alfred Lindseth: Since about 1970, the achievement levels of U.S. students on the reading and math tests of the National Assessment of Educational Progress (NAEP) have remained largely flat despite massive financial and other efforts to improve them. The problem is particularly acute for poor and minority students, with the average black and the average Hispanic student lagging three or four grade levels behind the average white student.

The solution we need lies in performance-based funding: a system of integrated education policies and funding mechanisms designed to drive and reward better performance by teachers, administrators, students, and others involved in the education process. Such a system will ensure more effective use of education dollars through better decision making, will eliminate perverse incentives that reward mediocrity or failure, and most important, energize and will motivate those involved in the education of our young people.

The path to such reform will not be an easy one. While elements such as state standards, accountability measures, and value added measures are gaining acceptance, other important components, especially performance-based pay and increased choice options, are opposed by powerful forces — such as the politically connected teachers unions — with vested interests in the current system.

Michael Rebell: Extensive inequities in education funding, by which students with the greatest needs receive the fewest funds, still prevail in many parts of the United States; for that reason, state courts continue to have a critical role in ensuring meaningful educational opportunities for all children. The evidence strongly indicates that money well spent does make a significant difference in student achievement.

What is most likely to fulfill the promise of improved student outcomes in the future is not any silver bullet remedy, but rather a pragmatic process that allows courts, legislatures, state education departments, and school districts to work collaboratively to focus on children’s needs and to implement meaningful reforms on a sustained basis.

The courts’ role in this process is to outline in general, principled terms the expectation that the legislative and executive branches will develop challenging standards, fair and adequate funding systems, and effective accountability measures, but to leave to the programs and the political branches the full responsibility for actually formulating these policies.

Read “Many Schools Are Still Inadequate — Now What?”

Eric Hanushek is the Paul and Jean Hanna Senior Fellow at the Hoover Institution, Stanford University and a member of the Koret Task Force on K-12 Education. Alfred Lindseth is Of Counsel with the law firm of Sutherland, Asbill and Brennan. Michael Rebell is the executive director of the Campaign for Educational Equity at Teachers College, Columbia University .

Education Next is a scholarly journal published by the Hoover Institution that is committed to looking at hard facts about school reform. Other sponsoring institutions are the Harvard Program on Education Policy and Governance and the Thomas B. Fordham Foundation.

FOR FURTHER INFORMATION
Caleb Offley, Project Manager
Office of Public Affairs
Hoover Institution
Stanford University
Stanford, CA 94305-6010
offley@hoover.stanford.edu (585) 319-4541

What happens when the public learns the facts about schools and deliberates responsibly about public education? Do citizens update their views on policies designed to improve public schooling? Or do they hold steadfast to their opinions, suggesting that whatever animates debate about education it is not an abiding concern about what is actually happening in our nation’s schools?

A series of experiments embedded within a national survey that we conducted in 2008 shed new light on what happens to public opinion on education when it is informed about some key facts. We divided respondents into randomly chosen groups: some were simply asked their opinion about school spending, teacher salaries, and charter schools, while others were first provided with accurate information about each of these issues. Because all that distinguished the more-informed respondents from the others is chance, we can be confident that any differences between the views of the two groups are attributable to the information provided.

The results are striking. Accurate information about what is currently being spent on public schools reduces both support for increased spending and confidence that more spending would improve student learning. Knowing how much the average teacher earns lowers support for salary increases. We observe only a modest effect of information on the views of current teachers who were surveyed and on those of respondents who are most satisfied with the performance of their local public schools. And while providing accurate information about charter schools does not change the balance of support among the public as a whole, it dramatically increases support among secular liberal respondents while undermining it among religious conservatives.

A Knowledge Deficit

It is no surprise that members of the public are eager to voice their opinions about education policy. Virtually all American adults have had direct experience with the nation’s public schools, whether as students, parents or grandparents of students, or employees. (In 2005, there were more than 6.1 million public school teachers and other district workers.) And the constantly rising cost of operating the schools, which accounts for nearly one-quarter of state and local spending nationwide, directly affects the pocketbook of every taxpayer.

Surveys nonetheless consistently reveal widespread misunderstanding of our schools and of prominent efforts to reform them. Consider the issue of school spending. Our research shows that Americans dramatically underestimate the amount spent on public schools in their districts, even when prompted to consider the full range of uses to which school spending is devoted. They also think that teachers earn, on average, far less than is actually the case. It seems that the public’s strong preference that more be spent on public education is based, at least in part, on faulty information (see “Is the Price Right?” features, Summer 2008).

Although Americans as a whole are cautiously supportive of charter schools, most reveal confusion about their basic features. For example, when we asked respondents in our 2007 survey whether charter schools are free to teach religion (they are not), or whether they can charge tuition (they cannot), almost two-thirds of the public confessed to not knowing the answer and another quarter got it wrong. Indeed, only 13 percent of adults nationwide correctly noted that charter schools cannot teach religion and 16 percent correctly observed that charter schools may not charge tuition (see “What Americans Think About Their Schools,” features, Fall 2007).

There is nothing special about education policy, of course. Multiple generations of political scientists have documented alarming rates of public ignorance about all sorts of policy issues.

The pertinent question, then, is not whether the public is ignorant about education or any other policy domain; it unmistakably is. Rather, the question is whether the sources of the public’s ignorance—inattention, confusion about the state of the world, biases and prejudices, or anything else—systematically influence the policy views that people express, and, in turn, whether these views change when facts come to the fore, as they can in responsible political deliberation.

On this last score, we think, the results from our survey experiments on school spending, teacher salaries, and charter schools provide a basis for optimism. Much of the American public appears quite willing to update its views in light of new information about public schools.

Public School Spending

A solid majority of the public supports increased funding for public schools. More than 60 percent of respondents we surveyed in 2007 believed that spending should “greatly increase” or “increase,” 32 percent said that spending should “stay about the same,” and less than 10 percent suggested it ought to decrease. As might be expected, support for higher spending was especially strong among public school teachers.

Americans, though, vastly underestimate the amount of money spent on public schools. The average per-pupil spending estimate from respondents was $4,231, and the median response was just $2,000; but for these respondents, local average spending per pupil at the time exceeded $10,000.

To investigate the relationship between information and attitudes on school spending, we conducted a simple experiment in our 2008 survey. Half the sample was asked, “Do you think that government funding for public schools in your district should increase, decrease, or stay about the same?” The other half of the sample, randomly chosen, was first informed of the average per-pupil expenditure in their school district before being asked the same question. (See the methodological sidebar for details on how respondents were matched to districts.)

When told how much the local schools were spending, respondents tempered their enthusiasm for spending increases. For the public as a whole, support for increased spending dropped by 10 percentage points, from 61 percent to a bare majority of 51 percent (see Figure 1). This difference is statistically significant, as are the differences discussed below.

The effect of accurate information carried over into respondents’ professed confidence that increased spending would improve student learning, although the change was more modest in size. Sixty percent of the public not provided with new information claimed to be either “very confident” or “confident” that more spending would improve student learning, compared to 55 percent of respondents who were told how much is spent on their local schools. Similarly, the share of respondents in the two groups who were “very confident” in the benefits of increased spending was 16 and 12 percent, respectively.

These differences are consistent across a wide range of subgroups, as defined by socioeconomic backgrounds, views about the local public schools, and political ideologies. Interestingly, differences also appear among teachers, whom one might think already have deeply entrenched and well-informed views about public education. Whereas 35 percent of teachers not specifically informed of spending levels claimed that spending should “greatly increase,” only 22 percent of those who were told the amount of money spent to educate a child in their district thought so. Additionally, 29 percent of teachers in the first group expressed strong confidence that increased spending would boost student learning, compared to 20 percent of those who were provided with information on current spending.

Even so, half of Americans—and much larger shares of ethnic minorities and teachers—continued to believe that spending on their local public schools should increase, even when given accurate information on current spending levels. Only 1 in 10 respondents reported that spending should decrease.

Teacher Salaries

The bulk of the American public also supports increasing teacher salaries. As with per-pupil expenditures, the public significantly underestimates how much the governments in their states pay public school teachers. On average, respondents in our 2007 survey underestimated average teacher salaries in their state by more than $14,000, or nearly one-third of the actual average salaries of $47,000.

We conducted an experiment in 2008 on teacher salaries, similar to that on spending, in which half the sample was asked directly, “Do you think that teacher salaries in your state should increase, decrease, or stay about the same?” and the other half was first informed about the average teacher salaries in their state. (Again, see the sidebar for details on our data sources and methods.)

When asked directly, 69 percent of the public supported increasing teacher salaries, 28 percent thought they should stay about the same, and just 4 percent believed that they should be decreased. Looking across various subgroups of the population, African Americans and teachers appeared most enthusiastic about increasing teacher salaries, with roughly 9 out of 10 endorsing a salary increase. Whites, meanwhile, were most skeptical.

Responses again diverged from this pattern when information was provided (see Figure 2). Among the public as a whole, information about actual teacher salaries depressed support for salary increases by fully 14 percentage points. Notably, the percentage of people who advocated for salary cuts remained constant, with those preferring that salaries stay about the same picking up the remainder.

The two most enthusiastic groups of supporters of increasing teacher salaries, however, responded very differently from one another to the experiment. Support for increasing salaries dropped by 20 percentage points (from  91 to 71 percent) among African Americans who were told about actual teacher salaries. The larger effects among African Americans do not appear to reflect differences in income, as the effects are equally pronounced among those African Americans in households earning more than $50,000 annually. Support among teachers, meanwhile, dropped by just 8 percentage points.

What should we make of the fact that teachers substantially downgrade their assessments of the need for higher per-pupil expenditures, but not for higher salaries, when they are exposed to basic facts about actual spending? One might theorize that teachers are already well informed about actual salaries, and hence they have no need to update their views when presented with facts. This, however, does not appear to be the case: teachers underestimated, on average, teacher salaries in their state by almost $9,500 (or 20 percent of actual salaries), making them only modestly more accurate in their assessments than the public as a whole.

Self-interest appears the more likely explanation for the relatively small effect of information on teachers. Told that teachers in their state earn more on average than they thought, the teachers’ appetite for still higher salaries is hardly abated.

The effect of information also varied according to respondents’ degree of satisfaction with their local public schools. Among those who earlier in the same survey assigned the schools in their community a grade of A or B, the provision of information on actual teacher salaries reduced support by just 9 percentage points, from 69 percent to 60 percent. Among respondents who assigned their schools a grade of C or lower, information reduced support by a whopping 18 percentage points. Again, these differences in treatment effects do not simply reflect differences in the accuracy of prior knowledge. Respondents assigning lower grades to local schools were no less accurate in their initial estimates of teacher salaries than the national population.

Charter Schools

A plurality of the public as a whole supports charter schools, with 16 percent expressing “complete” support and another 26 percent saying that they support them “somewhat.” Indeed, supporters of charter schools outnumber opponents by more than two to one. The most common response, however, is “neither support nor oppose.” Roughly 40 percent of the American public remains undecided about the merits of this breed of public school.

This pattern of lukewarm support reflects the views of respondents presented with the following description of charter schools: “Many states permit the formation of charter schools, which are publicly funded but are not managed by the local school board. These schools are expected to meet promised objectives, but are exempt from many state regulations.”

As noted above, however, our 2007 survey revealed widespread confusion about charter schools. For example, less than 1 in 10 respondents knew that charter schools may neither charge tuition nor provide religious instruction. To investigate the effect of such uncertainties and misperceptions about charter schools on the public’s willingness to endorse them, we informed a randomly chosen group of respondents that charter schools “cannot charge tuition and they cannot provide religious instruction” before probing their support.

The responses of the public as a whole were scarcely affected by this additional information (see Figure 3). The picture changes dramatically when we group the population according to self-identified political ideology (see Figure 4). Forty-nine percent of conservatives and 36 percent of liberals who were not provided information supported charter schools. But when they were told that charter schools are tuition-free and secular, support dropped among conservatives by 6 percentage points and increased among liberals by 11 percentage points. Indeed, when provided information, liberals were 4 percentage points more likely to support charter schools than were conservatives.

What explains this shift? A closer look at the data suggests that the key factor may be religion. Among self-identified conservatives who attend church at least once a week, support for charter schools was 13 percentage points lower for those provided with information. Conversely, support among liberals who never attend church increased by a whopping 23 percentage points, from 32 to 55 percent.

In a final wrinkle in the experiment, we provided another randomly chosen group of respondents with one additional piece of information about charter schools: that they “cannot choose among students who apply.” This information did not shift attitudes one way or another relative to the views expressed by those informed only about tuition and religion. This was true for the public as a whole as well as for the groups that had been most sensitive to the information about tuition and religion.

Conclusion

Our investigation of the effects of information on public support for school spending and charter schools yields strikingly different patterns.

Information on per-pupil expenditures tempered the public’s enthusiasm for increased spending, both among survey respondents as a whole and across a wide array of subgroups. At the time this experiment was conducted (early in 2008), a slight majority continued to support increased spending. We do not know whether, in the current economic crisis, information about actual expenditures might further depress support for spending hikes.

Information about actual teacher salaries also tended to depress support for salary increases, a finding that may complicate recent proposals to provide the public with accurate information about compensation packages as a strategy to enhance teacher recruitment. The fact that the public thinks teachers earn so much less than they actually do surely makes it more difficult to attract talented candidates into the profession. But our results suggest that efforts to publicize the truth about teacher salaries would also make it substantially harder to build support for further salary increases.

It is hardly surprising that the effects of information about salaries were quite modest among teachers, who have a personal stake in better pay. Yet the fact that information had especially large and negative effects on support for increased teacher salaries among African Americans and those least satisfied with their local public schools may hold important implications for the politics of education in the large urban districts where these groups are most concentrated. An urban superintendent seeking to reform teacher compensation might well increase support among the district’s constituents by ensuring that they have accurate information about what teachers currently earn.

When some key areas of confusion about charter schools are cleared up, overall public support for charter schools appears unaffected. This null finding, however, masks huge effects within certain groups. More information led to lower levels of support among conservatives, especially the more religiously devout, but raised support among secular liberals.

These last findings suggest that information, rather than facilitating compromise and consensus, can actually polarize debate. They also portend a major shift in the political landscape of school choice. Traditionally, charter schools have been viewed as falling primarily within the province of conservatives’ preferred education reforms. Yet our results show that basic facts about the design of charter schools appeal more to liberals. It is quite possible, then, that as the public becomes more informed about these public schools, core support for them may shift from the right to the left of the political spectrum. Indeed, the recent election of a liberal (and presumably well-informed) president who professes strong support of charter schools may be a sign that this process is under way.

William G. Howell is associate professor in the Harris School of Public Policy at the University of Chicago. Martin R. West is assistant professor of education at Brown University and an executive editor of Education Next.

Now we might say it a bit differently, “If restructuring is necessary for General Motors, it’s no less needed for the country—and its schools.”

For years, our public schools have paid as little attention to personnel costs as General Motors has. Instead, school districts have attempted to enhance student learning (and address many other problems along the way) by hiring more people—more teachers (for smaller classes) and more teacher aides, guidance counselors, bus drivers, lawyers, accountants, special educators, bilingual specialists, and others.

Back in 1950, school districts hired one teacher (or other instructional employee such as an administrator or guidance counselor) for every 19 pupils. The number of pupils per teacher dropped to 14 by 1970, and to just 8 pupils by 2005. If class-size reduction were the solution to America’s education crisis, that crisis would have passed long ago.

It’s not just the size of the instructional staff that has grown relentlessly, however. Clerks, maintenance workers, lunchroom employees, bus drivers, crossing guards, and others too numerous to mention are joining the district payroll. The number of pupils for each support staff member dropped from 58 in 1960 to 43 in 1970, to just 27 in 2005.

All of these folks cost money. Between 1960 and 1975, the amount (in inflation-adjusted dollars) spent nationwide on K–12 education per pupil nearly doubled, rising from $3,300 to just short of $6,100. Between 1975 and 2005, expenditures nearly doubled again, to reach $11,470.

Even those numbers don’t include costs hidden away in pension promises to “instructional personnel,” who are typically eligible to retire as early as the age of 55. In this issue, Michael Podgursky and Robert Costrell (see “Teacher Retirement Benefits,” research) show that pension benefits for teachers have risen rapidly even in the past four years, outpacing those provided by the private sector by 40 percent.

For years, accounting tricks have kept the long-term fiscal impact of pension promises hidden away, turning pension plans into Ponzi schemes by asking future generations to pay legacy costs that have long been accumulating. Today, however, new accounting rules—similar to those that brought banks and insurance companies to the bankruptcy brink—are forcing states and school districts to acknowledge a reality they have tried to ignore.

As that reality sinks in, education fiscal policy seems destined to change, perhaps dramatically. As more money must be put aside to pay pensions and other legacy costs, the amount available for current expenditures becomes curtailed, just at the time other fiscal challenges are mounting across the board. Any federal government bailout will probably turn out to be no more adequate for schools than for General Motors.

Will the emerging fiscal crisis accelerate the educational crisis that is leaving American students ever further behind the skill level it takes to function in the modern economy?

Or will it provoke a fundamental system restructuring? Will attention shift from satisfying the employee to educating the student? Will teachers be recruited, retained, and compensated in a more rational manner? Will more-focused institutions replace the comprehensive high school? Will technological innovation customize educational offerings? Will students become their own teachers? All such cost-cutting but potentially education-enhancing reforms may be more possible in a time of crisis and deficits than in an age of self-interested self-indulgence.

Flores v. Arizona was filed in 1992, a class action brought by an advocacy law firm on behalf of parents in the town of Nogales. The suit rested on the Equal Educational Opportunities Act of 1974, which provides that no state shall fail “to take appropriate action to overcome language barriers that impede equal participation…in its instructional programs.” In 2000, a federal district judge ruled that Arizona was violating this relatively obscure law, both by not spending enough on its Lau programs—a reference to a Supreme Court decision of 1974 and regulations of the federal Office for Civil Rights—and by failing to provide enough teachers, aides, classrooms, materials, and tutoring. Eight years later, Arizona is spending $430 extra per ELL student per year, but has not satisfied the court. Rather, the legislature challenged the court with a law that would have put a two-year cap on extra spending for any individual ELL student and use federal funds in place of some state funds.

Arizona did not appeal the judgment and signed a consent decree that addressed matters other than spending. The spending issue festered as the politics grew more problematic. In 2000 the electorate approved a ballot initiative that abolished bilingual education and replaced it with English immersion. Janet Napolitano, a Democrat who was elected governor in 2002 and reelected in 2006, has battled with Republican state legislators over what to do.

Judge Raner Collins has twice found the state to be in civil contempt. Early in 2006, he imposed a fine of $500,000 per day, to be held in a fund dedicated to ELL instruction. A total of $21 million was collected from the state, but the Ninth Circuit appeals court ruled that Collins had exceeded his authority and canceled the fines. He has also hinted at jail sentences, which presumably would fall on the Speaker of the Arizona House and the president of the Senate, who are intervenors in the suit, and the superintendent, who is a named defendant.

Judge Collins found an ELL law enacted by the legislature in 2006 without the governor’s signature to be inadequate, but the Ninth Circuit instructed him to hold an evidentiary hearing to determine whether the original court order was still valid. The intervenors argued that changes of fact (increases in general education spending) and in law (enactment of No Child Left Behind) made the original order obsolete and asked to be relieved from judgment. Collins ruled against them and was upheld in 2008 by the Ninth Circuit.

Under threat again of fines, the legislature approved an additional $40.6 million for ELL in April 2008, and again the governor let the bill become law without her signature. Districts were instructed to use model plans developed by the state department of education, which called for four hours a day of intensive English instruction. This directive caused trouble on the local front, in districts that resisted the four hours of immersion or were disappointed with the allocation formula. A Tucson-area district, Sahuarita, announced that it would defy the state law, stating that federal civil rights laws are trump.

The issue headed, once again, to Collins’s court, with a renewed demand from the Flores plaintiffs for more money. Tom Horne, the outspoken state superintendent, protested that “we don’t need an aristocracy of federal judges ruling over us.” Horne and the legislative leaders have demonstrated, if nothing else, that determined opponents of the “judicial aristocracy” can buy a lot of time, and probably avoid going to jail.

Joshua Dunn is assistant professor of political science at the University of Colorado–Colorado Springs. Martha Derthick is professor emerita of government at the University of Virginia.

But the success of the charter school movement has been as uneven as it has been widespread (see Figure 1). There are remarkable differences in the number of charter schools and enrollment between states, and even between school districts within the same state. Take Arizona and Minnesota. The two states were early leaders in the charter school movement, both passing legislation highly favorable to the establishment and support of charter schools. Yet, in the 2005–06 school year, more than 10 percent of Arizona’s enrollment was in charter schools, while only 3 percent of Minnesota students attended a charter school.

The patchwork pattern of success for the charter school movement in the United States raised two big questions in our minds. What factors led some states to grant charter schools a great deal of latitude and provide solid financial support, while others adopted less permissive legislation? And, why, even among states with similar enabling legislation, do charter schools flourish in some places but not in others?

Several well-regarded researchers have tried to explain the differences in charter school legislation. We decided to build on their work, in an effort to produce a more complete account of the politics of the charter school movement. Like those conducting the previous studies, we considered the role of state demographics and party politics. We also used new data to see whether the academic performance of students in traditional public schools and the influence of teachers unions affect the strength of charter school legislation in a state. But this was only one part of our larger project. Marshalling demographic, financial, political, and school performance data from 1990 to 2004, we took the novel step of assessing patterns in the presence of charter schools and in their enrollments at both the state and local levels.

Our Approach

The first thing we needed to do was identify U.S. charter schools and their locations and determine their enrollments. The most recent comprehensive catalog of charter schools and school enrollments is the National Center for Education Statistics (NCES) Common Core of Data. We combined the NCES file with the Center for Education Reform (CER) directory of charter schools to create a master database of 3,066 schools for the 2003–04 school year. Next, we calculated the total number of charter schools and the total enrollment in charters and traditional public schools in each school district. In all, at least 1,000 of the 14,000 districts in the U.S. contained at least one charter school.

With this information in hand, we set out to answer three questions about the charter school movement at the state level. One, why did some states pass charter laws earlier than others? To answer this question, we first studied how D.C. and the 37 states that passed charter laws before 1999 differed from the remaining states that had not adopted charter laws by 1999. For the 40 states that passed a charter law by the 2003–04 school year, we also investigated how earlier and later adopters, grouped by year of the law’s enactment, differ from one another. We wanted to know, for instance, how Minnesota, the state that passed the nation’s first charter school law in 1991, is different from Maryland, which passed the most recent enabling legislation in 2003.

Two, we wondered why some states enacted laws highly favorable to charter schools while others passed more-restrictive statutes. In this part of our study, we compared states based on the rating of their laws by CER, which is an advocacy organization for charter schools. CER rates the “strength,” or permissiveness, of the laws’ provisions. CER judges each law against 10 criteria, each scored on a 1–5 scale, with a total possible score of 50 for laws most favorable to charter schools. These criteria include whether the state grants charter schools an exemption from collective bargaining, the number of chartering authorities beyond local school boards, the number of new charter schools permitted, and whether charters are granted waivers from certain state and local laws. Arizona, Michigan, and Minnesota have enacted relatively “strong” legislation, that is, legislation that provides considerable latitude to charter schools. Other states, such as Kansas, Tennessee, and Virginia, have adopted charter legislation with much more restrictive provisions. In our study, we assigned states without charter school laws a CER law strength score of 0. Although an advocacy organization may have an incentive to understate the strength of these laws, it is unlikely that any overall downward bias would create problems for our assessment of states relative to one another (and, in fact, these scores have been used in a number of other scholarly studies).

Finally, we asked why some states have a greater percentage of public school students enrolled in charter schools than other states. In all our analyses of state laws and statewide enrollment, we wanted to know how characteristics of the state affect the level of support for charters. We were primarily interested in assessing the role of demographics, student achievement, and the extent of school choice currently available in shaping how states participate in the charter school movement. Because the presence of charter schools in an area might affect both student achievement and the decisions of families to move to a district, we measured state demographics and student achievement during the 1989–90 school year, several years before the first charter laws took effect. When studying the pattern of charter school enrollment across the country, we took into account how each of three factors contributes to or retards charter school growth: per pupil expenditures (also measured during the 1989–90 school year), length of time a charter law was on the books, and degree of permissiveness of each state’s charter school law, as measured by the CER index.

Demographics and Politics

Before we proceed, let’s consider why we would expect demographics to shape charter school politics and participation. It is possible that different racial, ethnic, and economic groups demand different curricular approaches: for example, bilingual education, arts, vocational instruction, or programs for gifted or at-risk students. In areas with greater racial and ethnic diversity and economic inequality, families and policymakers may support charter schools as a means of satisfying diverse educational preferences. Indeed, many charter school founders explicitly state that satisfying the educational needs of a target student group is central to their mission. Or it may be that demographics matter because changes in the demographic composition of local school districts increase the desire among families to sort students into similar peer groups. Other researchers have found that white students in charter schools transferred from schools that, on average, had a higher proportion of nonwhite students than their new charter school. In any case, we expected states and communities with more heterogeneous populations to be more supportive of the charter school movement.

A word about our measure of student achievement. It was not clear to us whether parents are most concerned with the absolute level of student performance or with performance relative to what they expect given resources in the school, household, and community. For example, expectations about high-school dropout rates could vary with K–12 expenditures and local poverty. Whether parents, and policymakers, are ultimately “satisfied” with public education may hinge on how well schools are performing relative to local expectations. We conducted our analysis alternately using absolute student achievement, measured with statewide mean SAT scores for the 1989–90 school year and the mean high-school dropout rate calculated from 1990 census data, and with a second measure that represents the deviation of actual achievement from expected student performance.

The two achievement measures, SAT scores and dropout rates, have the benefit of reflecting student achievement at both ends of the ability distribution. A disadvantage, however, is that SAT scores and dropout rates are much more closely aligned to secondary-school performance than to elementary-school performance. And only about 25 percent of charter school students were enrolled in a secondary grade during the 2003–04 school year. We did, however, have a reasonable amount of confidence in the use of these achievement measures because mean SAT scores and high-school graduation rates are very public indicators of educational outcomes, and parents and policymakers are likely to consider these measures when they take positions on charter schools.

To estimate expected student performance, we used a statistical procedure that predicts student achievement (i.e., SAT scores and dropout rates) in the state based on school characteristics and household demographics. The school characteristics we used include per pupil expenditure in the state. Our household demographic measures included the share of blacks and Hispanics in the state population, the fraction of adults who are college educated, and median household income. For instance, if a state has a higher dropout rate than one would predict given its characteristics, we considered that state’s school system to be underperforming. Compared with parents and policymakers in states where expectations are being met or exceeded, those in states with underperforming schools may be more supportive of education reforms such as charter schools.

Of course, whether educational preferences based on demographics or dissatisfaction with existing school performance manifest themselves in support for charter schools depends on other circumstances as well: notably, the political power of opponents to charter schools, the most prominent opponents being teachers unions; and the degree of school choice already available to parents. We estimated the power of unions with the fraction of all teachers in a state who are union members. We based our assessment of the degree of school choice in a state on several indicators, including the fraction of students in the state enrolled in private schools and an index that measures the extent of choice parents have between school districts in the state as of the 1989–90 school year. The landscape of school choice options may be important in that demand for public charters could be greater where parents have fewer schooling options.

The demographic and political characteristics of a state and character of the state law authorizing charter schools undoubtedly matter in some way for the fate of charter schools in a state, but most decisions about charter school formation and attendance are made within school districts—by founders who decide to start a new school, by authorizers who empower them to do so, and, ultimately, by parents who decide to enroll their students. Therefore, we also gave our attention to two indicators of the spread of charter schooling. We measured expansion of charters across districts: first, by whether the district had at least one operating charter school in the 2003–04 school year and, second, by the fraction of public school students enrolled in charter schools during the 2003–04 school year.

We compared districts with at least one charter to districts with no charters and compared districts with higher and lower enrollments in charter schools to search for differences among districts that could explain the variation. As with our analysis of differences among states, we estimated the roles played by demographics, student achievement, and degree of school choice currently available in explaining variation in support for charter schools. We also accounted for whether the district is urban, suburban, or rural; whether the district is elementary, secondary, or unified; per pupil expenditure in the district during the 1989–90 school year; and differences attributable to the state. State-level differences included the strength of charter laws, statewide demographics, existing school choice policies, number of school districts, and the presence of charter support or opposition groups that operate throughout the state.

Explaining Support from State to State

State demographics, student academic performance (measured relative to expectations), and teachers union strength all play important roles in shaping state charter legislation and student participation. Let’s begin with demographics. States with larger Hispanic populations tended to pass laws supporting charter schools earlier and were likely to pass more-permissive legislation. For example, states with an Hispanic-population of 14 percentage points (two standard deviations) higher than the average were about 10 percent more likely to pass a charter law. These states also passed laws that ranked 12 to 14 points higher on the CER strength index (out of a total of 50). There is not, however, strong evidence that these states also had a greater proportion of their students enrolled in charter schools in 2003–04.

Considering the effects of Hispanic population on charter laws, we were surprised that the fraction of a state’s population that is black did not affect the likelihood that a state would pass a charter law, nor did we find any relationship to the timing of passage or the strength of the law. We were very interested to discover that the size of a state’s black population does, however, have a strong relationship with a state’s charter enrollment. For example, a 12.1-percentage-point increase (one standard deviation) in the fraction of a state’s population that is black is associated with roughly a 2-percentage-point increase in charter school enrollment in the state. This is effectively double the charter school enrollment in the average state. One potential explanation for this finding is that black voters, being heavily concentrated in the Democratic Party, are not traditionally swing voters who could influence state legislators’ positions on charter legislation. But once charters are established, African American families are active supporters of charter schools.

Strong charter laws appeared earlier in states where the fraction of adults with at least a college education was higher. For example, states in which the college-educated share of the population was 2.4 percentage points higher passed laws on average six months earlier. States with more-educated populations also had a greater fraction of students enrolled in charter schools. The size of this estimated effect is similar to the effect of a larger black population, about 2 percent greater enrollment in charter schools accompanying a one-standard-deviation increase in the fraction of college-educated adults in the state. Our data did not allow us to explain what lies behind this relationship, but we do have two conjectures. Highly educated citizens may have a greater willingness to experiment with education reforms, or there may be a “supply side” phenomenon: more educated adults translates into a larger pool of charter suppliers.

When we looked at changes in state demographics over time, we found that states with growing Hispanic and college-educated populations were more likely to pass early charter laws. We also found that states with growing income inequality during the 1980s were more likely to pass laws and to pass stronger charter laws during the 1990s.

States with higher-than-expected SAT scores were less likely to pass charter school legislation; tended to adopt such legislation later, if at all; and passed weaker laws. There is no evidence, however, of a statistically significant relationship between state SAT performance and enrollment in charter schools.

A higher- or lower-than-expected high-school dropout rate has no clear relationship to the passage or strength of charter legislation, but does, interestingly, have a strong relationship with charter school participation. States with higher-than-predicted dropout rates had significantly higher enrollment in charters. If the dropout rate is an additional 2 percentage points, or roughly one standard deviation, higher than expected, a state experiences a 1-percentage-point increase in charter school enrollment.

What could account for the differences in the estimated effects of SAT performance and the high-school dropout rates? It may be that SAT scores, as a very public measure of school performance, lead to agitation for charter laws, but that charters themselves are more likely to target students at risk of dropping out, and therefore participation is more closely associated with dropout rates.

Finally, membership in teachers unions has a substantial impact on the legal status of charter schools. States where a greater fraction of teachers were covered by a union contract in 1987 were much less likely to pass a charter law in the 1990s, more likely to pass a law later (if at all), and more likely to pass a weaker law. A one-standard-deviation increase in the fraction of teachers who are unionized, that is, an additional 20 percent of instructional employees covered by union contracts, means a state is 20 percent less likely to pass a charter law. We were initially puzzled to find that, conditional on the successful passage of a charter law and controlling for law strength, the fraction of students enrolled in charter schools appears to increase with the fraction of teachers in the state who are unionized. We share some further thoughts on these contradictory findings in our analysis of school districts.

We found little evidence that the extent of choice among districts in a state is related to either charter school legislation or participation, nor did we find a relationship between income or income inequality and legislative support for charter schools. We did find a positive relationship between the fraction of students enrolled in private schools prior to the passage of charter laws and law passage and strength. This may be due to private school parents supporting public charter schools as a substitute for private schools, or it may be related to broad dissatisfaction with public schools and a generally higher demand for alternatives.

Some have argued that the political composition of the governor’s office and the state legislature may influence the success of charter school laws. We reconducted all our statistical analysis, taking into account party control of the governor’s office and state legislature from 1990 to 2004. We never found party control of the state government to have an effect on the probability that a law passed, the year a law passed, the strength of the law, or participation in charter schools once we controlled for other state characteristics. In fact, of the 40 states passing a law, 24 passed it when a Republican was governor and 16 when a Democrat was governor, and about two-thirds of the states passing a charter law did so when there was no single party controlling both the legislature and the governor’s office.

School District Support for Charter Schools

We began to review the findings of our district analysis by first checking that the results from our statistical procedures were consistent with well-known patterns of enrollment in charter schools. As we expected, school districts with only secondary schools or both secondary and elementary schools were more likely to have a charter school in 2003–04 than districts with only elementary schools. School districts primarily based in a large or mid-sized city or large town were more likely to have a charter school than suburban or rural school districts.

We found that the fraction of a school district’s population that is Hispanic has no clear relationship with either the presence of charter schools or enrollment in the district. As in our state analysis, an increase in the fraction of a school district’s population that is black makes a district more likely to have a charter school in operation and to have a greater share of its students enrolled in charter schools. We estimated that an increase of 11 percentage points in the black population in a district increases the share of students enrolled in charter schools by about 6 percentage points. Considering that the average share of students enrolled in charter schools in school districts with a charter school is only about 10 percent, this is a substantial effect.

We also examined changes in demographic characteristics between 1980 and 1990, and found that districts with a rising fraction of black or college-educated individuals saw greater participation in charter schools. In addition, we found that districts where income inequality was rising saw higher participation in charter schools. This finding may reflect a divergence in preferences for education programs, for example, or an increasing diversity of needs within school districts that raise the demand for charter school options.

School districts that already had higher fractions of students enrolled in private schools, even accounting for the urban or rural location of the district, had a greater likelihood of having a charter school open in their district by 2003–04 and a greater share of their students enrolled in charters. Whether this pattern is indicative of general receptiveness on the part of these districts toward alternatives to public schools or a long-standing dissatisfaction with traditional public schools, it certainly suggests that private schools do not serve as a hindrance to the start-up of public charter schools. Our measure of the current level of choice in the public school system has no statistically significant relationship with charter support within school districts.

Districts with higher-than-predicted high-school dropout rates were, like states with high dropout rates, more likely to have charter schools and a greater share of students enrolled in charters. An 8-percentage-point increase in the adjusted dropout rate (that is, the average deviation from the predicted dropout rate) was associated with about a 2-percentage-point increase in the fraction of students enrolled in charters.

We were very interested to see the relationship between the strength of teachers unions and charter school enrollment, which we first glimpsed in our state analysis, reemerge in our study of districts. Contrary to what one might expect given the opposition—or at least hearty skepticism—of teachers unions to the charter school movement, districts with a greater union presence were more likely to have a charter school and to have a greater share of public school students enrolled in charter schools in 2003–04. A 39-percentage-point increase in the fraction of teachers unionized is associated with about a 2-percentage-point increase in the fraction of students enrolled in charters.

What lies behind this relationship between teachers’ unionization and support for charter schools? We cannot say for sure with our data, but it may be that parents are more likely to support charter schools in heavily unionized states, perhaps in a desire for more local control and less bureaucracy, or a desire for curricular and personnel policies that are less influenced by the union. Strong unions are more successful than weaker ones in opposing liberal charter legislation, but once a charter law is adopted, it seems that parents see charters as an avenue for reform in districts where unions have a strong hold on traditional public schools.

Conclusions

Understanding why states pass laws favorable to charters and why charter school participation is higher in some areas than others is important if we want to identify locations where school choice reforms are likely to present meaningful alternatives to traditional public schools and where they are likely to remain reforms on the margins. Our findings suggest that there are several forces propelling the expansion of the charter school movement. One of the most powerful is growing diversity in state and district populations. States and school districts with more blacks and college-educated adults have a substantially larger share of their students in charter schools than other districts. Failure to meet expectations for student academic performance, as measured by SAT scores and high-school dropout rates, also fuels the passage of charter laws, leads to the passage of stronger charter laws, contributes to the creation of charter schools, and boosts charter school enrollment. Unexpectedly, we discovered that a leading opponent of the charter school movement, teachers unions, appears to contribute indirectly to the expansion of charter schools. In states where teachers are unionized at the highest rates, charter laws were less likely to be enacted, were passed later, and were less favorable to charter schools in states that did adopt charter laws. But in states and school districts with strong unions and charter laws of similar strength, more families have sought out alternatives for their children in charter schools. All else being equal, a highly unionized teaching labor force goes hand in hand with the creation of more charter schools and more students learning in charter school classrooms.

-Christiana Stoddard is assistant professor in the department of agricultural economics and economics at Montana State University. Sean Corcoran is assistant professor of educational economics at the Steinhardt School of Education, New York University.