1. State and Local Public Finance Professor Yinger Spring 2016 LECTURE 19 STATE POLICIES RELATED TO EDUCATION AID

2.  State Aid Reform and Accountability  State Aid Reform and School Choice  State Aid Reform and Capital Spending State and Local Public Finance Lecture 19: State Policies Related to Education Aid Class Outline

3.  Policy makers must decide whether reforms in an education aid formula should be linked to an accountability program.  Virtually all states already have some type of accountability program. o And a majority of states have a program that imposes some type of financial rewards and punishments. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Aid Reform and Accountability

4.  The courts did not link accountability to state aid reform until recently.  In 1989, the Kentucky Supreme Court’s Rose decision threw out the state’s system of school governance and brought new visibility to accountability programs.  Moreover, the recent state aid reforms in Kentucky, Michigan, and Texas have all been accompanied by accountability programs that include district-level rewards and sanctions. State and Local Public Finance Lecture 19: State Policies Related to Education Aid The Courts and Accountability

5.  State officials are reluctant to give more money to schools without assurances that the money will be well spent.  Some scholars, including Bill Duncombe and me, have found that increases in state aid may lower school district efficiency.  In this context, efficiency measures a school district’s success in translating inputs into student performance (as specified in the accountability system), after accounting for factors outside the district’s control, such as concentrated poverty among its students. State and Local Public Finance Lecture 19: State Policies Related to Education Aid The Role of Accountability

6.  Some scholars, especially Eric Hanushek, have argued that aid increases are unlikely to boost student performance at all.  I think this position is extreme, but additional funding certainly does not guarantee better performance.  So the question is: How can a state maximize the impact of aid increases on student performance ? State and Local Public Finance Lecture 19: State Policies Related to Education Aid Does Money Matter?

7.  An accountability program should hold schools responsible for things they control.  Student performance depends not only on a district’s efficiency but also on its wage environment and disadvantages of its students.  It makes no sense to punish a district because it is located in a high- wage environment or has a high concentration of disadvantaged students. o But that is what is done by any program that bases rewards and sanctions on student performance alone. o Many state programs and the original federal No Child Left Behind Act fall into this category. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Accountable for What?

8.  Some states were trying to build accountability systems that focused on a district’s role by comparing its performance to others with the same wealth and student poverty. o This experimentation was cut off by NCLB.  The original NCLB let states set the standards but then imposed severe sanctions if they are not met. o This led many states to lower their standards. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Accountable for What?, 2

9.  Some people claim that using test score gains not levels solves these problems by adjusting for a district’s starting point. This is not true.  First, test score gains have a random element, reflecting differences in ability across cohorts. o In small schools a few high (or low) ability students have a large impact on scores. o Small schools dominate the good and bad categories in states that use test score gains.  Second, school districts facing relatively high costs also must pay more to achieve any given test score gain.  Third, using test score gains is unfair to districts that did a good job in the past. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Accountable For What?, 3

10.  The latest effort is to hold teachers accountable using estimates of a teacher’s average contribution to test-score gains of his/her students. o Many scholars think this is a promising approach for identifying the worst teachers.  However, test score gains for an individual teacher are difficult to estimate because one must control for student traits in his/her classroom, such as the share of students in poverty.  In addition, the jury is still out on the question of whether basing teacher rewards on test-score gains will boost student achievement.  And this approach may discourage good teachers from entering the profession. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Hold Teachers Accountable?

11.  Finally, some states hold students accountable by turning their tests into “high stakes” tests. o Some states will not let a student graduate unless he or she passes certain tests. o Other states give different diplomas to students who pass all the tests than to those who do not.  The impacts of this approach on student achievement and graduation are also not known.  And I find it ironic (and unfair!) that a state would punish a student because the state failed to help him or her pass state tests. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Hold Students Accountable?

12.  An alternative approach is to shift the focus of accountability programs to states.  If a school is not performing, the state should provide the needed resources and expertise. o The education finance system should be fair. o The state should have a research and analysis department to determine what programs work under various circumstances.  If a school district has sufficient funding and does not implement the appropriate programs in a responsible way, then its teachers and administrators should be held accountable. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Hold States Accountable?

13.  Expanded school choice is linked to education finance reform in some states.  School choice plans allow parents to send their children to public schools outside their attendance zone or even outside their district.  Charter schools, public schools subject to fewer restrictions than existing public schools, now exist in most states.  Vouchers are payments, usually to parents in low-performing schools, that can be used to send children to other public or even to private schools.  These plans provide choices for parents but also might, through competition, boost efficiency in existing public schools. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Aid Reform & School Choice

14.  School choice plans face two major limits: o First, they are subject to capacity restrictions—and all schools can give preference to students in their attendance zone. o Second, politics usually prevents them from working across district lines, except on a small scale. State and Local Public Finance Lecture 19: State Policies Related to Education Aid School Choice Plans

15.  Some school districts have dozens of charter schools, others have none.  Some states allow out-of-district students to attend charter schools, which are concentrated in big cities.  Charter schools are difficult to evaluate because they are so heterogeneous.  One can find examples of terrific charter schools and of terrible ones— and of ones that fail. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Charter Schools

16.  A recent report found that 17% of charter schools boosted student test scores year after year. (http://credo.stanford.edu/research-reports.html )http://credo.stanford.edu/research-reports.html  Most charter schools lead to lower scores and do not improve over time.  It seems unlikely that successful charter schools can be replicated on a large scale. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Charter Schools, 2

17.  Some evidence indicates that certain comprehensive charter schools, such as the 183 KIPP (Knowledge Is Power Program) charter schools, boost scores in poor cities. See, e.g.: http://www.mathematica- mpr.com/newsroom/releases/2013/KIPP_2_13.asp  Charter schools in suburbs do not seem to make much difference. http://www.nytimes.com/2015/11/22/upshot/a-suburban-urban- divide-in-charter-school-success-rates.html?_r=0http://www.nytimes.com/2015/11/22/upshot/a-suburban-urban- divide-in-charter-school-success-rates.html?_r=0  There is also some evidence that charter schools lead to more separation of students by race and income. See Bifulco and Ladd (JPAM 2007) State and Local Public Finance Lecture 19: State Policies Related to Education Aid Charter Schools, 3

18.  The best evidence (e.g. on KIPP) comes from comparing the winners with the losers of a lottery to get into an over-subscribed charter school.  This lottery is a type of random assignment, so this approach gives a precise answer for the difference in performance between lottery winners and losers.  But the answer may depend on what options are available for losers and whether the charter school induces changes in nearby public schools. o If public schools respond to the competition by improving, the study will understate the impact of charter schools. o If performance in public schools declines because many of the most motivated students have left, the study will overstate the impact of charter schools. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Charter Schools, 4

19.  Moreover, this evidence does not reveal either whether charter schools in general boost performance or whether placing more students in charter school would improve test scores: o Lottery-based studies only look at the impacts on students whose parents support their entrance into a charter school—not the impacts on any type of student. o Lottery-based studies cannot examine the impacts of charter schools that are not over-subscribed (and are therefore probably relatively low in quality). o Lottery-based studies cannot determine what would happen in the teacher labor market if the number of charter schools increased. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Charter Schools, 5

20.  The constitutionality of vouchers, even if parents decide to use them for parochial schools, was upheld by the U.S. Supreme Court in 2002.  The Florida accountability system gave vouchers to children in failing schools, but this provision was thrown out by the Florida courts.  A few studies find that students who use vouchers to go to private schools experience slight improvements in their math performance, but this evidence is controversial and difficult to interpret. State and Local Public Finance Lecture 19: State Policies Related to Education Aid School Vouchers

21.  Even if existing voucher programs boost student performance, a large-scale voucher program still might not boost the performance of students in poor, urban school districts.  Higher performance might indicate that voucher recipients are taken from the high-poverty environment of a public school to the low-poverty environment of a private school. This cannot be done on a large scale (without eliminating poverty!).  Children in the Cleveland program primarily go to Catholic schools because subsidies to these schools from the Catholic Church keep tuition low enough that the voucher can cover it. Subsidies of this type would not be available in a large voucher program. State and Local Public Finance Lecture 19: State Policies Related to Education Aid School Vouchers, 2

22.  Most of the education finance court cases have focused on the equity of operating spending in the state, not of capital spending.  Exceptions include the cases in New Jersey, Texas, and Arizona.  The CFE case resulted in almost $10 billion in new capital spending in New York City. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Should Capital Spending be Included?

23.  It seems odd to eliminate inequities in operating spending but to allow them in capital spending; after all, both types of spending are crucial for providing education.  But capital spending is difficult to study and its link to student performance has not been established.  Capital spending is lumpy, for example, so there is no link to performance in annual data. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Should Capital Spending Be Included? 2

24.  Moreover, state formulas for building and operating aid tend to be different from one another. o Building aid, unlike operating aid, often takes the form of a matching grant. o Building aid, unlike operating aid, is usually linked to projects. o Eleven states do not give any building aid. o Building aid does not have a strong equalizing tradition. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Should Capital Spending Be Included? 3

25.  The punchline is that building aid is obviously important.  But scholars need to know a lot more before they can give meaningful advice on the subject.  One key issue is whether matching grants can boost capital spending. o As discussed in an earlier class a paper in the NTJ by Wang, Duncombe and Yinger provides some evidence: State and Local Public Finance Lecture 19: State Policies Related to Education Aid Should Capital Spending Be Included 4?

26.  The price elasticity in response to the matching rate in NY’s building aid is -0.42 for most districts,  But this elasticity drops to approximately zero (-0.023) for high-need urban districts; because their other needs are so great, they do not spend more on infrastructure even with a very strong price incentive.  Extensive lump-sum aid or full state funding may be needed to ensure adequate school infrastructure in these districts. State and Local Public Finance Lecture 19: State Policies Related to Education Aid Should Capital Spending Be Included 5?