Does Competition Improve Public Schools?

Education Next Issue Cover

New evidence from the Florida tax-credit scholarship program



By Cassandra M.D. Hart and

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Winter 2011 / Vol. 11, No. 1

Podcast: Education Next talks with David Figlio.

An unabridged version of this article is available here.


Programs that enable students to attend private schools, including both vouchers and scholarships funded with tax credits, have become increasingly common in recent years. This study examines the impact of the nation’s largest private school scholarship program on the performance of students who remain in the public schools. The Florida Tax Credit Scholarship Program (FTC) was signed into law in 2001 and opened to students from low-income families in the 2002–03 school year. FTC provides corporations with tax credits for donations they make to scholarship funding organizations, the nonprofits that determine student eligibility for the program and issue scholarships. Corporations can receive dollar-for-dollar tax credits for up to 75 percent of their total state tax obligation each year.

Article opening image: Participants in a rally organized by Step Up for Students march to the state capitol in Tallahassee, Florida, demanding an expansion of the tax credit scholarship program for students from low-income families.

Although little noticed, tax credit scholarship programs now send many more low-income students to private schools than do traditional school voucher programs. More than 104,000 students nationwide attended private schools through tax credit programs in the 2008–09 school year, while only 60,000 students used private school vouchers. Scholarship programs similar to Florida’s now operate in several states, including Arizona, Pennsylvania, Rhode Island, and Indiana, and are being considered in Maryland and New Jersey. The Florida program is set to expand dramatically in the coming years (see sidebar), making evidence of its consequences all the more timely.

Expanding Scholarship Opportunities

In April 2010, Florida governor Charlie Crist signed into law SB 2126, which expanded both funding and eligibility for the Florida Tax Credit Scholarship Program (FTC). Funding for the program had been capped at $118 million. Under the new rules, as much as $140 million in corporate tax liabilities and insurance premiums may be applied to the program in the 2011 budget year. If the scholarship program remains successful, the funding cap may rise by as much as 25 percent per year. The legislation also loosened the eligibility rules to include children from families with incomes up to 230 percent of the poverty level.

During the 2009–10 school, nearly 29,000 children attended more than 1,000 private schools across the state with FTC scholarships worth between $3,950 and $4,100. Three-quarters of participating students are black or Hispanic; 60 percent are from single-parent homes. With expanded access, the program could grow to include 70,000 students by 2015. The scholarship amount may increase to as much as 80 percent of the state’s per-pupil expenditure, currently $6,866, enabling many more families to afford private school tuition.

SB 2126 also increased accountability for participating private schools. The state had already required FTC scholarship students to participate in standardized testing using a nationally normed exam chosen by each private school; a study commissioned by the Florida Department of Education found that, in 2007–08, their academic gains were similar to students nationally across all income levels and to similar Florida students who remained in public schools. To make the latter comparison, the study compared program applicants who were barely eligible to those who had incomes just above the eligibility threshold. Under the new rules, private schools with 30 or more FTC scholarship students must release to the public gain scores on standardized tests for those students. The legislation expanding the FTC program passed both the House and Senate with strong bipartisan support.

One popular argument for expanding private school choice is that public schools will improve their own performance when faced with competition for students. Because state school funding is tied to student enrollment, losing students to private schools means losing revenue. The threat of losing students to private schools may give schools greater incentive to cultivate parental satisfaction by operating more efficiently and improving the outcomes valued by students and parents. Alternatively, private school vouchers and scholarships may have unintended negative effects on public schools: they may draw away the most involved families from public schools, community monitoring of those schools may diminish, and schools may reduce the effort they put into educating students.

It is notoriously difficult to gauge the competitive effects of private schools on public school performance. Private schools may be disproportionately located in communities with low-quality public schools, causing the relationship between private school competition and public school performance to appear weaker than it actually is. If, however, private schools are located in areas where citizens care a lot about educational quality, the relationship will appear stronger than it truly is.

This study takes advantage of the introduction of the FTC to provide new evidence on the effects of increased competition on student achievement in public schools. Before the program began in 2002, roughly 11 percent of students in Florida were enrolled in private schools. FTC targeted students from low-income families, only 5 percent of whom had been attending private schools.

We examine whether students in schools that face a greater threat of losing students to private schools as a result of the introduction of tax-credit funded scholarships improve their test scores more than do students in schools that face less-pronounced threats. We find that they do, and that this improvement occurs before any students have actually used a scholarship to switch schools. In other words, it occurs from the threat of competition alone.

Florida Tax Credit Scholarship Program

In order to be eligible for an FTC scholarship, students must meet the income guidelines (until recently, family incomes below 185 percent of the federal poverty line for new applicants) and either must have attended a Florida public school for the full school year before program entry or be entering kindergarten or first grade. With the exception of these early-grade private school students, students already attending private schools in Florida are not eligible for first-time scholarships. Students who enter a private school on a scholarship are eligible to retain their scholarships in future years, so long as their family income remains within the stated limits (until recent changes, below 200 percent of the federal poverty line).

Figure 1. Enrollment in the Florida scholarship program has risen rapidly since 2005.Scholarships need not cover all of the costs of attending private schools, and parents are free to send their children to any private school regardless of the share of tuition and fees the scholarship covers. The scholarship is quite generous; it covers approximately 90 percent of tuition and fees at a typical religious elementary school in Florida and two-thirds of tuition and fees at a typical religious high school. As a result, the program greatly increased the accessibility of private schools to low-income families. In the first year, some 15,585 scholarships were awarded, increasing the number of low-income students attending private schools by more than 50 percent. For the 2009–10 school year, the FTC program awarded scholarships to 28,927 students (see Figure 1).

Data

Our analysis draws on several data sources. The Florida Department of Education’s Education Data Warehouse provides test scores from the Florida Comprehensive Achievement Test (FCAT) and demographic characteristics for all students in the public schools. We use test-score data from the 1999–2000 school year through 2006–07. Students classified as learning disabled were excluded from the analysis, as they are eligible for a more generous voucher through the McKay Scholarship Program, and the FTC program should therefore have had no effect on schools’ efforts to retain these students (see “The Case for Special Education Vouchers,” features, Winter 2010).

The Florida Department of Education publishes public and private school addresses, including latitude and longitude information for the public schools. The address information was geocoded to generate measures of the pressure that public schools face from private competitors. We first limited our attention to the 92 percent of public school students in the state attending schools with a private competitor within a five-mile radius. Because it is not obvious how best to gauge the amount of competition faced by the remaining schools, we constructed four different measures:

Distance: the crow’s-flight distance between the physical addresses of each public school and the nearest private competitor. A private school qualifies as a competitor to a public school if it serves any of the grades taught in that public school.

Density: the number of private competitors within a five-mile radius of the public school.

Diversity: the number of different types of private schools within a five-mile radius of the public school. To generate this measure, we first identified 10 distinct types of private schools, defined by their stated religious (or secular) affiliation.

Concentration: an index of how varied the private school competitors are for a given public school, based on the counts of different types of schools within a five-mile radius.

The distance and density measures gauge whether easier access to a private school of any type increased the competitive pressure on public schools when the new policy lowered the effective cost of attending private school for eligible students. The diversity and concentration measures capture the variety of options available to students; public schools in areas with more varied options should feel more competitive pressure in the wake of the policy change.

Methods

In order to determine the effect of scholarship-induced private school competition on public school performance, we examine whether students in schools that face a greater threat of losing students to private schools as a result of the introduction of tax-credit funded scholarships improve their test scores more than do students in schools that face a less-pronounced threat. Specifically, we look to see whether test scores showed greater improvement in the wake of the new policy for students attending public schools with more (or more varied) nearby private options that suddenly became more affordable for low-income students than did scores for students attending schools with fewer (or less varied) potential competitors.

This analysis is possible because of the considerable variation in potential competition faced by schools across the state of Florida. Prior to the introduction of the program, some communities in Florida had a much richer and more diverse set of private school options than did other communities. The overall share of low-income students attending private schools ranged from 1.4 percent in Punta Gorda to 7.9 percent in the Melbourne-Titusville-Cocoa-Palm Bay area. More importantly, by our measures, the amount of competition that specific public schools faced on the eve of the program also varied widely. Our density measure, for example, ranges from one private school within five miles to 60. The average Florida public school had roughly 14 private schools nearby, but more than 30 percent of schools had fewer than 2 or more than 30.

We isolate the effect of competition introduced by the program by comparing the performance of each school’s students to the performance of its students the year before the program was enacted. When making these comparisons, we take into account student characteristics that are associated with test scores, including gender and race/ethnicity, English-language-learner status, and eligibility for free or reduced-price lunch.

We also control for some characteristics of schools that could affect the degree of competitive pressure. Most importantly, we control for the letter grades that schools received from the state’s accountability system; schools with lower grades may feel particular pressure to increase their scores to avoid accountability sanctions, independent of the effects of the FTC program. We also control for the percentage of the school’s student body that was eligible for free or reduced-price lunch, as only these students were eligible for FTC scholarships.

There are three main ways in which a program that expands access to private schools could affect public school performance. Public schools could react to private school competition by altering their policies, practices, or effort; this is the direct competitive effect. Such a program could also affect public schools by changing the mix of students who attend them. A third possibility is that, so long as only a few students leave a public school with scholarships, the program could have effects on resources. Resource effects could be either negative (as total state aid decreases with the loss of students), or positive (as per-pupil resources might actually increase following small losses of students, due to the indivisibility of classroom teachers). We can eliminate the possibility of student-body composition and resource effects by concentrating solely on the FTC program’s effects during the 2001–02 school year, after the program’s announcement but before students could actually leave the public schools with a scholarship. During this academic year, students in the public schools were applying for private school scholarships for the following year.

Results

We find that all four measures of competition (distance, density, diversity, and concentration) are positively related to student performance on state math and reading tests. (Because we obtained similar results looking at performance in each subject separately, we focus our discussion on the average score across both subjects.) Each of our competition measures uses different units. We therefore report the estimated effects of a one standard deviation increase in the amount of competition faced by a given public school by each measure.

For every 1.1 miles closer to the nearest private school, public school math and reading performance increases by 1.5 percent of a standard deviation in the first year following the announcement of the scholarship program. Likewise, having 12 additional private schools nearby boosts public school test scores by almost 3 percent of a standard deviation. The presence of two additional types of private schools nearby raises test scores by about 2 percent of a standard deviation. Finally, an increase of one standard deviation in the concentration of private schools nearby is associated with an increase of about 1 percent of a standard deviation in test scores.

Although these effects are relatively small, they consistently indicate a positive relationship between private school competition and student performance in the public schools, even before any students leave for the private sector. That is, these results provide evidence that public schools responded to the increased threat of losing students to the private schools. The fact that we obtain quite similar results regardless of the specific measure used makes us confident that the findings are not driven by other factors that might distinguish public schools facing more or less competition based on a given measure. Indeed, in ongoing work we have also considered measures of competition based on the number of available slots in nearby private schools and on the number of nearby churches, and again find very similar results.

Moreover, it is important to recognize that the results reported above represent lower-bound estimates of the effects of competition on public school performance. They are based only on comparisons of schools with different levels of competition. If all public schools improved their performance in response to the scholarship program, this improvement would not be detected by our analysis.

Figure 2. When more private schools were nearby, public school test scores improved after the scholarship program was announced.One might expect that some public schools have a greater incentive to respond to potential competition associated with the availability of private school scholarships for low-income students than others. We consider two major reasons schools may face different incentives to react to competitive pressure. First, elementary and middle schools may have more of an incentive to respond to competitive pressure than high schools because the scholarships cover a greater share of private school tuition and fees in the early grades than they do in the high school years. Although the differences in the share covered might not matter for higher-income families, for many low-income families the difference in out-of-pocket expenses between an elementary or middle school and a high school is likely to be significant. Knowing this, public high schools might not react as strongly to competition from a private school scholarship program as would public elementary and middle schools. Consistent with this hypothesis, we find that the effect of competition is more than twice as large for elementary and middle schools as it is for high schools (see Figure 2).

Second, public schools that stand to lose the largest amounts of revenue if many of their scholarship-eligible students leave may be more responsive than those schools less likely to lose large amounts of revenue. All public schools may experience resource effects as a consequence of losing students to private schools through a scholarship program. However, those that are on the margin of receiving federal Title I aid have the largest incentive to retain students from low-income families. These federal resources, which average more than $500 per pupil, are directed to school districts, which then allocate them to the elementary and middle schools that low-income students attend. We find that public schools that are likely to receive Title I aid in the next year if they retain their low-income students, but not if they don’t, tend to improve disproportionately in the year following the program announcement, whereas schools whose Title I aid is unlikely to change respond much less noticeably or not at all.

Figure 3. The positive effects of being in an area with more private competitors increased over the first five years of the program.We also investigate whether the estimated effects of the scholarship program persist in later years. After the first year of the analysis, resource and composition effects may occur as students who receive scholarships leave the public schools for private schools. We find that the effects of the voucher program grow stronger over time (see Figure 3), resulting perhaps from increased knowledge of the program, which might contribute to greater competitive pressure, or from the advent of composition and resource effects. While it is difficult to disentangle the reasons for this strengthening over time of the program’s estimated effects, these findings nonetheless suggest that our first-year results may understate the positive effect of the FTC program on public school performance

Conclusion

Our results indicate that the increased competitive pressure public schools faced following the introduction of Florida’s Tax Credit Scholarship Program led to general improvements in their performance. Both expanded access to private school options and greater variety of options that students have in terms of the religious (or secular) affiliations of private schools are positively associated with public-school students’ test scores following the introduction of the FTC program. The gains occur immediately, before any students leave the public schools with a scholarship, implying that competitive threats are responsible for at least some of the estimated effects. And the gains appear to be much more pronounced in the schools most at risk to lose students (elementary and middle schools, where the cost of private school attendance with a scholarship is much lower) and in the schools that are on the margin of Title I funding.

To be sure, our study has several limitations. First, our measures of competition reflect the state of the private school market in 2001, before private schools had a chance to respond to the FTC scholarship program. Although that ensures that the competition measure is not itself affected by postpolicy test scores, it does give a less accurate view of the competitive pressures faced by schools in subsequent years.

Second, our study is based on data from a single state. It is possible that the dynamics between competitive pressures and public-school students’ test scores are systematically different in Florida than they are in the rest of the nation. In particular, more than 90 percent of Florida’s students live in the state’s top 20 most populous metropolitan areas. In states with a greater share of the population in rural areas, the effects of a scholarship program may not exert the same degree of competitive pressure on public schools. It may also be the case that Florida’s diverse range of private school options and accompanying greater competition among the private schools limit the study’s generalizability. Nonetheless, our results indicate that private school competition, brought about by the creation of scholarships for students from low-income families, is likely to have positive effects on the performance of traditional public schools.

David Figlio is professor of education, social policy and economics at Northwestern University and research
associate at the National Bureau of Economic Research. Cassandra M.D. Hart is a doctoral student in the
Department of Human Development and Social Policy at Northwestern University.




Comment on this article
  • [...] allow students to attend private schools helps everyone, even those who stay in public schools, according to a study by EducationNext, a project of Stanford [...]

  • [...] does competition really work? A new study says yes. Published in Education Next, the study looks at the Florida tax-credit scholarship [...]

  • Dennis Bell says:

    This does not help public schools. It has a negative affect because it is taking tax dollars away from the public schools and giving the money to private schools. If this money were spent in the public schools and the state got rid of the FCAT Test and went back to a Standardized Test improvements would be seen. At the present time, the FCAT only allows the schools, districts and state to compare Florida students. There is no crosswalk in place to see how your children are doing compared to the rest of the US. It also hurts students who want to attend schools and camps outside of Florida because their application process is more stringent.

  • [...] schools. But when funding follows students, exit actually does threaten the public schools and lead to improvement.   LikeBe the first to like this [...]

  • Mark Hollis says:

    I agree with Dennis that this approach (and vouchers) are not helping. But for different reasons.

    The fact is, there is competition, and plenty of it. And the competition is between school districts, towns and counties, or the taxing authorities that run the various schools. And everyone benefits from good schools in a tax zone, because they receive more value from their property. So the result of a good school or school district that achieves excellence is shared by all taxpayers.

    What this program does, and what voucher programs do is discriminatory on their face. Residents with no children receive no such voucher or access to scholarship money. And good schools (as well as the taxes that go along with them) are disconnected from property values.

    The taxpayer money that goes into seeking the money for the FTC program and the taxpayer money that goes into the voucher programs is permanently lost to taxpayers with no children because schools are intentionally disconnected from the tax base. Thus, schools are no longer connected to property values and they may fall for all residents regardless of how well schools perform.

    This disincentivizes raising tax money to pay for public education.

    Under this system, schools will race to the bottom as soon as taxpayers realize there is no incentive to allocate taxes for good public education. And as soon as corporate entities decide their largesse is only optional during a business downturn

    We break the link between good public schools and property values at very high risk. There is a reason why we fund schools this way. We tried other methods and this one was judged to be the best.

    Florida’s risky experiment will result in young adults that cannot compete in the global marketplace in the long run. And housing values will not follow quality public education.

  • Elliot Sanchez says:

    In response to Mark, I think James Ryan makes a compelling case for the opposite effect in “Five Miles Away, Worlds Apart.”

    From the dust jacket:
    “In his important new book, Five Miles Away, A World Apart , James E. Ryan answers this question by tracing the fortunes of two schools in Richmond, Virginia–one in the city and the other in the suburbs. Ryan shows how court rulings in the 1970s, limiting the scope of desegregation, laid the groundwork for the sharp disparities between urban and suburban public schools that persist to this day. The Supreme Court, in accord with the wishes of the Nixon administration, allowed the suburbs to lock nonresidents out of their school systems. City schools, whose student bodies were becoming increasingly poor and black, simply received more funding, a measure that has proven largely ineffective, while the independence (and superiority) of suburban schools remained sacrosanct. Weaving together court opinions, social science research, and compelling interviews with students, teachers, and principals, Ryan explains why all the major education reforms since the 1970s–including school finance litigation, school choice, and the No Child Left Behind Act–have failed to bridge the gap between urban and suburban schools and have unintentionally entrenched segregation by race and class. As long as that segregation continues, Ryan forcefully argues, so too will educational inequality. Ryan closes by suggesting innovative ways to promote school integration, which would take advantage of unprecedented demographic shifts and an embrace of diversity among young adults.”

    Based on these decisions, it seems that addressing the underlying inequity of property-tax funded schools is the only feasible way to change the inequity between schools that has persisted through generations of improvement efforts.

    Mechanisms like Florida’s law simultaneously address the actual funding imbalance and the incentives created by geographically defined districts.

  • Mark Hollis says:

    Elliot is correct in observing that poorer districts suffer from a smaller tax base, and I would argue that elections are important remedies.

    But the various states have come up with solutions and this is part of the process in many states. States are collecting school-bound revenues and redistributing those revenues to level the playing field.

    The end result is that the school districts then need to compete in ways that go beyond mere funding. In states that level their playing field, the competition still remains between good school districts and ones that are not as good. And we see that the answer is not one of money but an entire methodology that creates success in the schools. That methodology goes all the way up into the administration of these districts in innovative ways that allow students to succeed more.

    The Florida response is flawed, as it takes money away from the schools to find grant money from corporations that may or may not offer grants, depending on their need to influence public opinion or acquire a tax deduction. We, the people don’t get to vote on corporate boards, nor do we get to toss CEOs out of office in an election if necessary funds are not forthcoming. There is zero path to the electorate when one relies of the caprice of corporate entities.

    The funding of public schools through the use of taxpayer money is a direct and tangible remedy. If our schools are failing, we can change the priorities of our elected officials by demanding accountability and results.

    Where is the accountability in a corporation?

  • [...] Next features an interesting study by Cassandra Hart and David Figlio, both of  Northwestern University. The researchers analyzed [...]

  • Whitney says:

    I guess I have a hard time buying that vouchers or tax incentives are the only factor at play, since schools are much more effected by the No Child Left Behind Laws and AYP requirements than worrying too much about losing students to private schools.
    I’m also more concerned with how much “better” the students did as individuals- did their individual test scores increase at the new school or did they stay relatively the same?
    Did scores increase because there were less children in each classroom after some students opted out into private schools? Could any of it be classroom size related? What were the classroom sizes in the new school?

    The focus here should be on whether we’re really making forward progress or just moving pieces around the chess board. I’m concerned that this makes some pretty big pronouncements with data that is very hard to segregate and the small improvements could be just as likely se to other factors.- The more student-centric the data, the more likely I am to be convinced of the benefit overall.

    Are you doing further studies?

  • [...] is an excellent article in Education Next, “Does Competition Improve Public Schools?”,  concerning a study of [...]

  • [...] schools and academic achievement of students who remained in those public schools.  The research showed that gains from this “competition effect” started shortly after [...]

  • [...] to the success of Florida’s Tax Credit Scholarship Program (see “Does Competition Improve Schools?”), the bill’s supporters contend that it would improve student achievement and save money.   The [...]

  • [...] Florida study showed modest, but clear gains in reading and math test scores for students in public schools that [...]

  • [...] voucher program significantly improved students’ chances of graduating from high school, and a Florida study found that competition improves the academic performance of public schools. These and other studies [...]

  • Jupiter Mom says:

    As a FL parent I have some questions about this study. First, do the authors account for the variation of FCAT scores from year to year? As this was the start of FCAT, do the authors account for the teaching to the test that was started which improved test scores. There are many variables that would account for improved test scores. What other measures could be used to assess improvement? I did not think your discussion was nuanced enough. You certainly just concluded that yes, indeed, school competition is good. And yet, there is no repeat of the study, no long term analysis, no accounting for the multiple other factors that improve scores, etc.

  • [...] Cassandra M.D. Hart and David Figlio at EducationNext cite the success of similar bills in other states which allow parents to use their own earned tax monies and corporations to fund scholarship programs. That is what the South Carolina bill was set to do, before freshmen Tallon and Brannon and a handful of other Republicans voted with a majority of Democrats to kill it. [...]

  • [...] to take a closer look at enacting an education tax credit program that provides clear cost savings, improves public school performance through competition, and gives a real chance at modest learning gains for participating students. A kid can dream, [...]

  • [...] with our siblings for the attention of our parents. We compete with other kids in sports. We compete with fellow students for the best grades to get into the best universities and later to get the best jobs. This sense of [...]

  • [...] Obenshain, R-Harrisburg, the Senate sponsor of the scholarship tax credit program, pointed to a Northwestern University study of Florida’s educational [...]

  • [...] Obenshain, R-Harrisburg, the Senate sponsor of the scholarship tax credit program, pointed to a Northwestern University study of Florida’s educational [...]

  • Andrew says:

    Most religious schools with which I am familiar educate a child for around $4,000 per year. The average public school spends around $10,000 per student per year. In the long run, school scholarships not only promote more choices for parents and more competition between schools, but they also save the taxpayers money. I know each school district agonizes at the loss of revenue for each child that is removed from its roll to be placed in a private school, but the state’s budget can come closer to being balanced. If the state provides $215,000,000 (as proposed) the 2012-13 school year, and the total scholarship amount per student is around $4,000 (as it is currently) , that saves the state around $322, 500,000.
    If less money has to be spent on education, it allows more to be spent on roads, emergency services, police, etc….
    And I know this would be wishful thinking, but it could even result in lower taxes overall!

  • [...] Obenshain, R-Harrisburg, the Senate sponsor of the scholarship tax credit program, pointed to a Northwestern University study of Florida’s educational [...]

  • [...] Obenshain, R-Harrisburg, the Senate sponsor of the scholarship tax credit program, pointed to a Northwestern University study of Florida’s educational [...]

  • [...] with our siblings for the attention of our parents. We compete with other kids in sports. We compete with fellow students for the best grades to get into the best universities and later to get the best jobs. This sense of [...]

  • [...] Obenshain, R-Harrisburg, the Senate sponsor of the scholarship tax credit program, pointed to a Northwestern University study of Florida’s educational [...]

  • Diane says:

    Just wondering if this competition is improvingFlorida educatiom, why did the Florida Seniors score below the national average on the 2009 NAEP in both Reading and Math? Of the 11 participating states, only 2 did as dismally.

  • [...] and excel — and ultimately to improve, as Florida’s tax credit scholarship program has been shown to do — Indiana’s Choice Scholarship Program would become that much more of a success. And [...]

  • [...] schools of their choice perform as well or better than their public school peers. Moreover, a study of Florida’s scholarship tax credit program also found a modest improvement in the academic performance of public school students in response [...]

  • [...] benefit when students switch out of government-run schools, and both scholarship recipients and public school students benefit from the expanded choice and competition. STC program caps limit the benefit to all these [...]

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