Texas Charter Schools Enroll 85% Minority Students and they CRUSHED the 2017 NAEP

June 4, 2018

(Guest Post by Matthew Ladner)

The Nation’s Report Card (aka the National Assessment of Educational Progress or NAEP) released new student achievement data in April for Math and Reading exams given in 2017. Nationwide, the news was not good, and the same was generally true for scores in Texas. Figure 1 shows NAEP math and reading gains for 8th grade students since 2009 for states.

Texas 8th graders were scoring three points higher on math than 8th graders in 2009, but five points lower in reading. On these tests, 10 points is approximately equal to a grade level worth of average academic progress. Overall, Texas students failed to show much academic improvement during this period.

While Texas districts have floundered, Texas charter schools have flourished academically. Figure 2 presents the same information from states but includes the progress for Texas charter school students along with the statewide averages. At 315,200 students during the 2016-17 school year, Texas charter schools serves more students than 13 state public education systems.

The improvement in scores among Texas charter school students greatly exceed those of any state. Gains however are not the only consideration. Some states like Massachusetts failed to show large academic gains but had high scores in both 2009 and 2017. International comparisons show Massachusetts compares favorably to the top European and Asian school systems, so there is no shame in holding your mud with high scores. The next chart therefore plots 8th grade math gains (from 2009 to 2017) with overall scores (in 2017) for states and Texas charter students to take both improvement over time and overall level of achievement into account:

Texas charter students not only had higher gains than any state, they also demonstrated higher overall scores than most states. Each NAEP exam utilizes a new random sample of students, and the “sampling error” for subgroups exceeds that for states. Such sampling error however should be randomly distributed, meaning that Texas charter scores/gains could be either larger or smaller. The Reading exam however provides an entirely separate sample of students from the math exam, presented in Figure 4 below:

Texas charter students again show both larger gains than any state, and relatively impressive scores, especially when considering student demographics-leading us to our next subject.

Scores and gains this impressive naturally lead to the question of whether changes in student composition drive them. Only a random assignment study can definitively isolate the role of school quality in driving scores and gains, and such studies are impractical for statewide assessments. A Stanford University study utilizing state academic data from 2011 to 2015 using a student matching strategy found evidence of stronger academic growth for Hispanic students attending Texas charters after controlling for a variety of factors.

The demographic distribution of Texas charter schools stood at more than 85% minority in 2016-17 after having become increasingly majority-minority over the previous decade. Hispanics constituted 60 percent of Texas charter students in 2016-17. A comparison of Hispanic 8th grade math scores that accounted for both parental education and special program status (English Language Learners and Special Education) found that Hispanic students attending Texas charter schools outscored all statewide averages for Hispanic students.

This would have to be the case in order to make this happen:

NAEP can’t isolate the role of average school quality in these impressive scores. When however an 85% minority school sector out scores Vermont I’m cautiously optimistic that school quality had something to do with it.  Texas adds ~90,000 new K-12 students per year and the districts seem to be struggling both academically and financially in keeping up with the growth. Expanded opportunities for families to choose the sort of education to suit their needs and aspirations could help address both concerns.


Arizona Charters: I’m Not Left Handed Either

April 18, 2018

(Guest Post by Matthew Ladner)

So Arizona charter schools rocked the 2017 NAEP again. In 8th grade math, Arizona charter students narrowly scored below the top scoring state (Massachusetts) in 2015 and above them in 2017. Arizona charter schools educate a majority minority student body, both overall and specifically in 2017’s 8th grade class. It’s really quite extraordinary to see them in the same academic neighborhood as MA, given their majority-Anglo, high income, spend twice as much per pupil combo status. If MA is a good sport, they would fight left handed- what chance does a majority-minority school system with half the spending per pupil have against the highest performing state education system in the nation many years running?

I decided to dig into the details.

The Free and Reduced Price lunch definition has become fairly sketchy, so in the below comparisons I will make use of parental education as a proxy for socio-economic status. Another source for variation between states and sectors involves special program students, so the below comparisons will focus on general education students (neither ELL nor SPED). The first set of scores are for students whose parents did not finish college and are in the general education program:

Massachusetts is still winning the duel, but not comfortably-switch to the right hand? Note for the record that 10 out of 10 of the top performing states have a majority Anglo student population. In fact you don’t spot a majority minority student population state until Texas pulls in at #19. Did I mention before that Arizona charter schools are majority minority? Oh, yes, well good that again then.

Now let’s run the same numbers for general education students with college graduate parents. This should be the MA right handed fighting btw- far more fancy degrees in Massachusetts than Arizona after all, more graduate degrees as well. Well, Arizona charter kids are not left-handed either:

 


Community Inclusiveness by State Charter Sector

April 12, 2017

(Guest Post by Matthew Ladner)

The National Alliance for Public Charter Schools dashboard has lots of cool data on state charter school sectors. I decided to take a look at the geography data by state to see how some of my favorites do on community inclusiveness. I don’t believe that we are likely to find charter sectors that precisely match the districts for a number of reasons, but large imbalances carry substantial drawbacks imo.

Bad:

 

Better:

Best:

Note that all three states over-represent in cities and there are practical (population density) and morally compelling (lower average performing district school options) reasons to do so. Texas however has focused on urban areas to such an extent that in communities that elect most of the state’s dominant political party (urban Texas is deep blue, with “urban” trumping “Texas” in voting preferences) schooling remains mostly a take it over leave it proposition from the districts. I heard from a CMO that operates charters in both Arizona and Texas that suburban demand for charters was even stronger than in Arizona in terms of generating wait-lists. In Arizona charter school competition is everywhere and even Scottsdale Unified needs and wants out of district transfers. Texas suburban districts meanwhile surround their new schools with trailers and keep increasing property taxes, and have limited interest in out of boundary transfers.

The “Size Does Matter” mantra again comes into play as the share of Arizona city children attending charter schools is likely considerably higher than the same share in Texas despite the fact that Arizona is more inclusive of towns, suburbs and rural areas (Texas has more urban charter schools than Arizona in absolute terms, but a much larger urban student population as well.) Thanks you again 9/33 NACSA scored charter law!


Texas Freedom Fighters Bypass Borg Shields

April 12, 2013

(Guest Post by Matthew Ladner)

Improved news from Texas- the Senate Education committee passed both a special needs voucher and a scholarship tax credit proposal, and the full Texas Senate passed a modest increase in the charter school cap 30-1. Lotexas of Borg however shrugged off the damage and repeated the demand to be lead to Sector 78701 for more money, less accountability and no parental choice. Lotexas explained the collective’s position to a local Austin radio station succinctly: “You will be assimilated. Resistance is futile. You don’t want none of this, son!!”

You know what I love about the last decade of Texas public education? Every year I get a little older and they get more expensive without teaching students how to read any better.

Let’s see what happens next.


More Bad News from Texas

April 5, 2013

(Guest Post by Matthew Ladner)

Bad news from Texas– bipartisan super-majority of the House votes to prohibit vouchers in the House budget plan. It remains to be seen whether the state adding 80,000 new public school students per year and which has 17% of Hispanic and 15% of Black 8th graders reading proficiently will allow 10 new charters to be added to the state’s cap per year or not.

 


Defeated at Wolf 359 but Texas is not completely assimilated yet

March 24, 2013

“The fight does not go well Enterprise…rendezous with fleet remnants at.. !*!Ktzzzzzzzzsszzz!*!”

(Guest Post by Matthew Ladner)

An old joke holds that you should never ask a man where he is from. If he is from Texas he will tell you, and if he is not, you don’t want to embarrass the poor feller.  Texans are famously/infamously proud of their state, and not without cause. Texans have been enjoying their national status as an economic juggernaut. Wildcatter George P. Mitchell is probably the first Texan to transform the economy of the 21st Century profoundly for the better but he won’t be the last.

Progressives will often bemoan the modest size of government in Texas and attempt to throw cold water on the state’s success by citing various statistics heavily influenced by the fact that the state is a huge destination for immigrants. And yet they continue to come on. Texas is an opportunity rather than a welfare magnet. Texas was the only state to gain 4 Congressional seats after the 2010 Census, all of which came from sclerotic regions of the country. Y’all have fun with that nanny state business and we will keep helping ourselves to your electoral votes, companies and jobs is a prevalent attitude in the Lone Star State.

Mitchell’s hometown of Houston, the global center of the oil business, is jumping but the good times extend well beyond the oil patch. Austin, once a smallish but funky university/state government town, now has condo towers dominating the skyline and far more on the way. A stroll through downtown during SXSW proved to be an eye-opening experience for this former Austinite. I’ve been gone for a decade and the city is both transformed and growing at a mind-boggling pace.  Oh sure, an old guard is still around to complain about traffic and the “lost golden age of Austin” back when they shared herbal blends with Willie at Liberty Lunch or whatever but no one seems to be listening much. The city and state is on a monstereous economic roll.

Texas however has an Achilles heel and doesn’t seem to be aware of it: K-12 education. To stretch a metaphor a bit, I would say that Texas is a horned frog boiling in water.

Here is the problem in two simple charts. First Texas 8th graders scoring “Proficient or Better” in 8th Grade Reading:

Texas 8th Grade NAEP ReadingSo let us take 8th Grade Reading Proficiency on NAEP as a rough proxy for solid preparation for college and/or career readiness. The NAEP proficiency standard is a high bar relative to the various state minimal skills tests floating around, but it equates well with international examinations.  The level below Proficient – “Basic” signifies “partial mastery” of grade level skills, so we are looking for full grade level mastery. So what we are looking for here is at least:

Eighth-grade students performing at the Proficient level should be able to provide relevant information and summarize main ideas and themes. They should be able to make and support inferences about a text, connect parts of a text, and analyze text features. Students performing at this level should also be able to fully substantiate judgments about content and presentation of content.

As the figure shows, not very many Texas students can actually do these sorts of things. Only a large minority of Anglo students along with a tiny minority of Hispanic and Black students show this level of reading ability.

Here is the kicker:

Texas K-12 ethnic breakdownNewsflash Tex: that 42% of Anglo kids being ready to face the rigors of the global economy doesn’t go nearly as far as it used to back in the day. Just in case I don’t have your undivided attention yet, check this out:

Texas HispanicAmongst Hispanics, the group that constitute a majority of K-12 students in the state, the functionally illiterate outnumber proficient readers by a very wide margin. Texas spent $11,146 per pupil in the public school system in 2010-11, which is an amazing sum when placed in context of just how much enrollment growth the state is attempting to accomodate. Texas has a public school population twice the size of Florida’s (with FL having the nation’s 4th largest btw) and approximately equal in size to the public school systems of the 20 smallest states combined.

The state has been adding around 80,000 students per year, which approximately equals the size of the Wyoming public school system. The public school lobbying groups pretend that any kind of choice program is going to leave the Texas public school system a financial ruin when in fact even the most far-reaching choice programs could at most put a dint in school district enrollment growth. If you waved a magic wand and moved every charter school that has opened west of the Mississippi River since 1990 into Texas, Texas school districts still would have gained hundreds of thousands of students.

Despite all of this, Texas Senate Education Chairman Dan Patrick, a strong supporter of parental choice, announced last week that he would be modifying a bill to eliminate the state’s charter school cap, and to instead raise it by a few dozen schools per year. Senator Patrick did this out of necesssity just to get the bill out of the committee. Worse still, this is happening in a session that seems destined to dummy down the state’s high-school graduation requirements in a major fashion. We have yet to reach the end of the movie, but this is the part where things are looking bleak for the good guys.

Don’t worry Tex…even though I control your K-12 vote I will still let you describe yourself as “conservative”…

Rather than blame the lawmakers, I’ll go ahead and blame people like myself. We reformers have done a poor job thus far in communicating the reality of the Texas situation. Consequently, there is a greatly misplaced complacency with regards to K-12 policy. We must do much better.

The greatest weakness of the powerful Status-Quo Collective that has assimilated many Austin decision makers is that they have no plausible plan for improving the Texas public education system. The problems embodied in the figures above (and others) will continue to go unaddressed while they seek yet more money for an outdated and ineffective system of schooling.

The current Texas public education system is however taking the state in a direction that almost no one will want to go. By educating only a small cadre of students to participate and prosper in the global economy, the future of the state will begin to look like that of Brazil in the late 20th Century, which one of my professors once described to me as “Belgium floating on top of India.”

As a purely economic matter, Texas can continue to import college educated workers from the less dynamic states indefinitely. As a matter of socio-economics however one cannot avoid asking fundamental questions regarding the long-term stability of both the prosperity and even democracy itself.  A public education system with only 17% of Hispanics and 15% of Black students reading proficiently constitutes a foundation of sand for the opportunity society needed to secure the future.

Time to choose…

In short, Texas can either continue to be Texas- a rapidly growing opportunity society, or it can morph into California. From my perspective in the nearby cactus-patch, California looks like a place from which Belgians are fleeing and have been for decades now-a rather loud wake up call. Ironically this leaves “progressive” California as a society increasingly divided by wealth and race. Politically incapable of addressing their education problems, California looks set to become Monaco floating on top of India. Good luck with that.

In the long run, Texans will either embrace their ideals or their education status-quo. It will become increasingly obvious that they cannot do both.


Pssst…NACSA…Size DOES matter

March 16, 2017

(Guest Post by Matthew Ladner)

I was looking at NACSA’s 2014 ratings for state charter school laws, as these would have been the most relevant before the most recent NAEP. Hailing from the out west, I noticed that Nevada had a score (26) nearly three times the score of both Arizona (9) and Colorado (9).

Longtime readers of JPGB of course will be aware that charter school students in both Arizona and Colorado rocked the 2015 NAEP exams like nobody’s business. Nevada on the other hand has had a very difficult experience with charter schooling. A decade ago or so ago I wrote a study for the Nevada Policy Research Institute that basically concluded that Nevada was missing out on high quality schools and the opportunity to relieve overcrowding in the public schools, and so should follow the example of their Arizona neighbor and get in the game. I wrote one of the earliest Jayblog posts on the subject called Fear and Loathing in Carson City:

Nevada, by comparison, has been hesitant in expanding parental options. In the five states surround Nevada (Arizona, California, Idaho, Oregon and Utah) and these states have 482, 710, 30, 81 and 60 charter schools respectively, collectively educating hundreds of thousands of students. With only 22 charter schools, Nevada is the tortoise of the region.

On November 30 of 2007, the Nevada Board of Education voted 8-0 to impose a moratorium on the approval of new charter schools. Board members told the press that the freeze was necessary because the state Education Department is being “overwhelmed” by 11 charter applications.

Arizona’s State Board for Charter Schools oversees 482 Arizona charter schools with a staff of 8. Nevada’s board overseeing cosmetology currently has 14 full-time employees.

The fear and loathing in this case referred to the sad fact that many in Carson City obviously feared and loathed charter schools. Imagine then my surprise to see a national charter school organization rank the same law a few years later as nearly three times higher than laws in nearby Western states that had produced far more opportunities for kids. Out of curiosity, I decided to check the 2015 NAEP scores for Nevada charter students.

NAEP yielded no information: the Nevada charter sector remains too small to reliably sample.

Now to give you some perspective on this, NAEP lists 5.6% of students in Nevada as Asians, and the data explorer will give you a number for male Asian students taking the 8th grade math exam in 2015 (Nevada’s Asian males did well on 8th grade math btw) but nothing for charter students of all sorts. NAEP cannot reliably sample charter students in Nevada because in 2013-14 they still only had 34 charter schools according to the National Alliance for Public Charter Schools. Those numbers for Arizona and Colorado btw were 605 and 197 respectively. Presumably the Nevada law would eventually like to have some “charter schools” result from their “charter school” law?

Next I decided to check out the 2015 rankings. The top 10 state charter sectors did not exactly cover themselves in 2015 NAEP glory. Indiana and Nevada tied for first place in their rankings, but neither state would yield NAEP estimates for performance. Alas Indiana’s 75 charter schools were not yet getting the job done in terms of scaling into the NAEP. The Nevada law passed in 1997 and Indiana in 2001. Hopefully this will get better in the future but for now:

The third ranked state (Ohio) has scores reported but those scores are consistently low, but Ohio’s NACSA score only recently increased. NACSA gets a Mulligan on that one, but continuing down the top 10 list however one fails to gain confidence regarding Ohio’s future prospects. Alabama ranks fourth, but is a relative newcomer to charter schooling so also cannot report scores. The Texas charter law ranks fifth on the NACSA 2015 list but has charter scores on NAEP that have yet to impress. I am a Texan who became an Arizonan and I would not swap charter laws with Texas even if they threw a shale formation into the bargain. In the vast majority of Texas schooling is still “take it or leave it” from the districts, whereas in Arizona even our Beverly Hills type districts are anxious for you to open enroll from outside the boundaries.

The same applies to seventh ranked Minnesota- the nation’s oldest charter law. You can get NAEP scores in MN, and I can’t thank them enough for inventing charter schools, but the feeling I get from MN charters is that they are safely contained rather than dynamic. The last three states in NACSA’s top 10-Mississippi, Missouri and South Carolina- all lack enough charter students to meet the minimum NAEP reporting requirements as well. Louisiana comes in 10th.

If you are scoring at home, NACSA’s top 10 is composed of six states with charter sectors that can charitably be described as “wee-tiny” and three others that have yet to flourish like an Arizona or Colorado, and then Louisiana. Tenth rated Louisiana’s charter sector does well in the NAEP, so bully for them, but they obviously have a unique charter history. Notably absent from NACSA’s top 10- very healthy charter sectors like Florida and Washington D.C.

Not to jump to any premature conclusions, but it appears that NACSA’s rating may be overly concerned with bureaucratic compliance rather than performance- either of the academic sort, or the “actually produces charter schools” kind. Arizona and Colorado produced hundreds of charter schools with NAEP scores that compare favorably to New Hampshire (and sometimes Massachusetts) with a 9 score from NACSA. I for one would like to see what they could do with, say, a five score from NACSA. What’s that you say? Three? Ok fine let’s try it out if you insist!

Now maybe I am missing something here, and that is why the comment section is open. I’ll leave you with the following question to consider- Nevada public schools suffer from catastrophic overcrowding. Public education in Las Vegas for a great many students involves sitting in a portable trailer being taught by yet another long-term substitute teacher. Clark County starts each school year with thousands of open teaching spots they are desperate to fill, and their officials told the New York Times they could build 23 new elementary campuses and they would be overcrowded on day one. The United States Census Bureau sees no end in sight for enrollment growth.

Please tell me why any Nevadan in their right mind would prefer Nevada’s charter law to what we see in Arizona and Colorado. I mean maybe scale and great results is not everyone’s cup of tea, but any port in a storm right?

 


How is a Portfolio District Different from a School District?

November 14, 2014

[The music festival, day 6. The crowd has grown so big the camera has to pull back a loooong way to get it all into view. The boys are again present with the college hippies. The band is playing reggae music.]
Driver: Wow, this band is so crunchy. Dude, I need more weed.
Stan: So it seems like we have enough people now. When do we start taking down the corporations?
Man 1: [take a deep drag from his joint] Yeah man, the corporations. Right now they’re raping the world for money!
Kyle: Yeah, so, where are they. Let’s go get ’em.
Man 2: Right now we’re proving we don’t need corporations. We don’t need money. This can become a commune where everyone just helps each other.
Man 1: Yeah, we’ll have one guy who like, who like, makes bread. A-and one guy who like, l-looks out for other people’s safety.
Stan: You mean like a baker and a cop?
Man 2: No no, can’t you imagine a place where people live together and like, provide services for each other in exchange for their services?
Kyle: Yeah, it’s called a town.
Driver: You kids just haven’t been to college yet. But just you wait, this thing is about to get HUGE.

The Ed Next article by Robin J. Lake, Ashley Jochim and Michael DeArmond on the challenges facing school choice in Detroit has led to a resurgence of chatter about Portfolio Districts.  The authors write:

Detroit is a powerful illustration of what happens when no one takes responsibility for the entire system of publicly supported schools in a city. Parents struggle to navigate their many, mostly low-performing options, and providers face at best weak incentives to improve academic quality. As a result, large numbers of failing district and charter schools continue to operate.

And in an accompanying blog post Lake concludes: “What Detroit needs is a portfolio manager…”

The idea that we need a Portfolio District to decide which schools of choice are allowed to open, which must shut-down, and what regulations should govern all of them has gained some traction in reform circles ever since New Orleans adopted this approach.  Now folks want to bring that same idea to Detroit and choice systems everywhere to make sure bad actors don’t get to operate schools, that failing schools are forced to close, and that a heavy regulatory framework avoids other problems.

I’ve never understood how Portfolio Districts are expected to perform these regulatory functions any better than regular old school districts.  The whole thing reminds me of the exchange quoted above from the South Park Hippie Drum Circle episode.

Portfolio District Advocate: “Yeah, we’ll have one guy who like is a Portfolio Manager, who like can close down bad schools.”

Me: “You mean like a superintendent?”

Portfolio District Advocate: “No, man, this guy will work for an independent board that makes rules for schools to make sure they don’t do bad things.”

Me: “You mean like a school district?”

Portfolio District Advocate: “You don’t get it, dude, the Portfolio District is there to make sure that only good schools open and to provide information and reduce chaos.”

Me: “Isn’t that what school districts are already supposed to do? How is a Portfolio District any different other than that you gave it a new name and believe that good people will be in charge?”

Ed reform is plagued by people not thinking like social scientists.  School districts have institutional incentives to prevent new good schools from opening, propping up bad schools that too few parents want, and imposing an excessive regulatory framework on the entire system.  Those same institutional incentives will inevitably come to dominate Portfolio Districts.

If you want to create real change, you have to change the system of incentives — not just create new institutions that will be governed by the same perverse incentives.  Choice and market competition can accomplish the same goals without being subject to the same destructive incentives as school and portfolio districts.

Yes, I know that Robin Lake and her co-authors find continued low achievement in Detroit schools and quote several people who complain about a lack of information and other challenges.  But keep in mind that the big expansion in choice in Detroit is only a few years old and that the city is starting from an extremely high level of dysfunction.  Lake and her colleagues have not used a rigorous analysis to determine whether charter schools are having a positive effect in Detroit, they just show trends in urban NAEP scores.  And the few studies on Detroit charters they do cite — the CREDO and  Mackinac studies — both find positive results for Detroit charters.  It just isn’t fast enough and dramatic enough.

Beware ed reformers in a hurry.  Real and enduring improvement takes time.  Happily it is possible, if we have the patience to let it happen.  A new study by Patrick L. Baude, Marcus Casey, Eric A. Hanushek, and Steven G. Rivkin examines the evolution of charter school quality in Texas over time.  Here is their abstract:

Studies of the charter school sector typically focus on head-to-head comparisons of charter and traditional schools at a point in time, but the expansion of parental choice and relaxation of constraints on school operations is unlikely to raise school quality overnight. Rather, the success of the reform depends in large part on whether parental choices induce improvements in the charter sector. We study quality changes among Texas charter schools between 2001 and 2011. Our results suggest that the charter sector was initially characterized by schools whose quality was highly variable and, on average, less effective than traditional public schools. However, exits from the sector, improvement of existing charter schools, and positive selection of charter management organizations that open additional schools raised average charter school effectiveness over time relative to traditional public schools. Moreover, the evidence is consistent with the belief that a reduction in student turnover as the sector matures, expansion of the share of charters that adhere to a No Excuses philosophy, and increasingly positive student selection at the times of both entry and reenrollment all contribute to the improvement of the charter sector.

Rather than imposing a Portfolio District that is likely to re-create the dysfunction and failure of traditional school districts, let’s change the system of incentives and allow choice and competition to improve school quality over time.


Arizona Props 127 and 305: a fine pair of misfits

September 7, 2018

(Guest Post by Matthew Ladner)

Fall has arrived in an even-numbered year, which means that in addition to football there are also elections. Here in the Cactus Patch our political conversation has been even more boisterous than usual. Back in 2016 an individual deep in the council of left-of-center Arizona politics told me that the plan was to make the 2018 election about K-12 education and to run David Garcia for Governor. Garcia did indeed win the Democratic Party’s nomination (the Arizona Education Association announced their endorsement for Garcia at a RedforED rally last spring) and K-12 does indeed look to be the major election issue, so mission accomplished on both fronts. Ballot propositions may however have a much larger impact on school funding than the officeholder races, but not in the way commonly supposed.

Hysteria reigns supreme in the K-12 discussion. A steady stream of reports from the ACLU, the Grand Canyon Institute and the Arizona Republic’s ongoing Two-Minute Hate series on charters and choice programs appear to have been coordinated with impressive precision. Each of these things deserve to be addressed on their own merits (or lack thereof-it’s a mixed bag on substance imo with a spectrum ranging from good points to shallow propaganda) but as far as multi-organizational timed to an electoral calendar efforts go:

In the midst of all this political mosh-pit I saw something that struck me the other day- a Twitter avatar that said “No on 305/Yes on 127.” These reference two ballot propositions on the November ballot-Proposition 127 would require the state to generate half of it’s energy from renewable sources by 2030, while Prop. 305 will ask voters to either confirm or reject the expansion of the ESA program that passed in 2017.

The No on 305/Yes on 127 combo struck me because it seems extremely likely that Prop. 127 would take more money out of Arizona district classrooms than 305, and by a very wide margin. I claim no expertise on energy policy, but I found the take of the Washington Post and of Peter Zeihan in the Accidental Superpower on the subject to be compelling. So first off, some good news:

Things are headed in the right direction and it is mostly because natural gas is cheap, cleaner and is replacing the use of coal in generating electricity.

The Washington Post, not of anthropomorphic climate change denial fame, rightly celebrated this trend. Noting that natural gas reduces emissions by half the Post editorial board noted:

True, half the emissions does not mean no emissions. But the United States does not have to eliminate its carbon footprint all at once, nor should it. Doing so would cost far too much. Instead, natural gas can play a big role in transitioning to cleaner energy cheaply.

When something is far too expensive for the Washington Post editorial board’s tastes, it is a good idea to pay close attention. Peter Zeihan also addressed this topic in the Accidental Superpower. He generally buys the notion of anthropomorphic climate change, but noted that the next generation of power generation plants were being built to use natural gas due to market forces, that this was considerably cleaner than coal burning, and that the life span of these new plants would be about 30 years. Sometime in the next 30 years Zeihan reckons that one or more of the many possibilities for alternative energy will pencil out in terms of economic viability-we just don’t know which one(s) yet.

Google around a bit and you will read about experiments in everything from artificial leaves to fuel producing microbes to crystal encased nuclear waste fueled batteries to clean coal fuels. Which of these-or something else- becomes economically viable is anyone’s guess, but it is not likely to happen on a deadline adopted by Arizona voters in 2018. How much sense does it make to make a massive investment in alternative energy technologies before any of them pencil out, especially when some of them eventually will?

So back to Arizona, Prop. 127 and education. The conversion from coal to natural gas is already happening in Arizona. This is good because right now the Texas oil fields are simply flaring off natural gas as a waste product until the pipeline infrastructure is built to collect and sell it. In fact you can see the flaring from outer space:

The Wall Street Journal recently wrote that there was enough natural gas being flared off to power a small state-one million dollars worth per day. I volunteer Arizona to be that state rather just have them burn it off without generating any power and having us burn coal to generate our electricity. The transition from coal to natural gas has already begun in Arizona, and happily it is being driven by market forces rather than mandates.

Prop. 127 however will force the renewable issue and the companies that generate the state’s power have detailed the enormous costs to such a move. Consumer rates are estimated to double in price. Since the initiative does not define nuclear power as “renewable” so opponents claim Prop. 127 would necessitate the closure of the nation’s largest nuclear power plant which produces **ahem** zero carbon emissions and probably (I’m guessing) cost the GDP of a small country to build.

Given what would be a mad scramble to create renewable energy, one additionally suspects that it would damage the ongoing conversion of coal burning plants to natural gas. Converting coal burning plants to natural gas can be done but it takes time and money-but there is a payoff in the form of low natural gas prices-it pencils out, and is cleaner.  Natural gas capacity would not help meet the mandate so the time and effort to convert to natural gas seems very likely to be diverted on a snipe-hunt of utility scale alternative energy sources ready for prime-time.

Between the increased cost of electricity and the foregone taxes from plant closures, the Arizona Public Service Electric Company estimates a loss of $670,000,000 to Arizona education providers in their service area by 2030. The expensive rates would not stop in 2030. That’s a big hit to education budgets and is not a statewide figure, with APS serves only part of the state.

So let’s compare Prop. 127 to Prop. 305. The ESA expansion under voter consideration contains a cap on the total number of participants of 30,000. Arizona has about 1,200,000 students and often gains 30,000 kids annually. We’ve also learned in recent years that the number of district open enrollment students is approximately twice as high as charter school students, and charter school students outnumber private choice students ~3 to 1. So from the perspective of an individual district campus with enrollment loss, other district schools are the primary competition, charter schools a secondary source of competition, and private schools a distant third. Centrist Arizona Republic columnist Joanna Allhands pointed this out in a column shortly after the ESA expansion passed. Allhands is not a fan of the ESA program but she sees through boogy-man stories:

Arizona’s voucher-expansion bill isn’t going to ruin public education as we know it.

But first, before you start trolling me on Twitter:

Yes, public schools need more resources. Senate Bill 1431 does nothing to help them find it.

And no, I wouldn’t actually call this meaningful reform. It doesn’t address student achievement gaps or fund district, charter and private schools more equitably.

But it won’t be the death knell to your neighborhood district school. In fact, I’m not sure many will even notice a difference.

Allhands went on to posit that charter schools were already scratching much of the Arizona school choice scratch itch, and that there was no reason to expect a mad rush to private schools even with broadened ESA eligibility. She could have added by the way that while there are 4,500 ESA students statewide, Scottsdale Unified has 4,000 open enrollment students from out of district, and it is only one of Arizona’s 230 school districts. “Scottsdale is DRAINING MONEY from nearby school districts-we’ve got to STOP THIS!!!!” said no one, ever, oddly enough. The ESA expansion can serve as an important tool for families looking for the right-fit education for their child, but the program is nothing near the threat to school budgets as doubling their utility costs.

So my friends on the Arizona left are actively supporting a massive drain of funding out of Arizona classrooms (what you spend on air-conditioning cannot be spent on teacher salaries). Meanwhile they have also invested a large effort in putting another ballot measure up because in large part they fear that it will have a large impact on district finances but it won’t. Churchill told us that democracy is the worst form of government except for all the other ones that have been tried. I remain hopeful that voters will exercise good sense in all of this, but…

 

 


Now Would be the Time to Add That Position

August 2, 2018

(Guest Post by Matthew Ladner)

As longtime JPBG blog readers may or may not be aware, one of my hobbies is college football, specifically Longhorn football. One of my favorite posters on the Orangebloods site goes by the handle Orbea and focuses on financial information in his posts, and this recent post in particular struck me:

This is a post about sentiment. This is a post of how frequently it is the case that when investment management companies close funds, fire managers, and change strategies it marks the end of a trend and the start of a new trend in the other direction. 

But first some prior examples. These are done from memory. Because of that I likely have some of the details a little off, which in no way is a detraction as the gist of the story is basically correct. 

Tom Jackson
Tom Jackson was a deep value equity manager with an impeccable track record. In the late 80’s or early 90’s he was hired by Prudential Mutual Funds to manage their flagship equity mutual fund, the Prudential Equity Fund. He went on a tear for the first half of the 1990’s, won a couple of awards, and was on the cover of investment magazines (that in and of itself is a sign that a trend is over). Then in 1996 Technology stocks took off and Jackson started to lag badly. By 1998/99 Jackson was holding a third of the fund in cash because there were no deep value stocks to buy. In early 2000 Prudential fired Jackson and revamped the strategy of the fund to be a large cap growth fund. 

Of course, Prudential fired Jackson at the wrong time. Large cap growth tanked over the next three years while deep value went up.

Michael Metz
Michael Metz was the Chief Investment Officer for Oppenheimer (the brokerage firm, not the mutual fund company). In the first half of 1998 Metz recommended selling stocks because valuations were ridiculous and buying the 10 year Treasury. The official investment position of the firm was not to own equities but to own the 10 year. Unfortunately, stocks went on a tear to the upside for the next two years and bonds went down in value. In the early 2000 Oppenheimer sacked Metz and recommended selling bonds and buying stocks.

Of course, Metz was ultimately correct. Over the 5 year period from 1998 to 2003 the 10 year Treasury handily outperformed the S&P 500

Third Avenue Focused Credit Fund
Third Avenue management company was found in 1986 by Martin Whitman. Whitman was often called a revolutionary deep value manager with a speciality in small cap stocks. Often times deep value involved buying bankrupt bonds or distressed bonds. In order to expand their mutual fund offerings, sometime after the last recession, Third Avenue decided to open a junk bond fund. Since the bias of the company was in deep value and distressed securities the fund was chock full of the worst bonds imaginable. The fund did well for a few years, and then credit spread started to widen. Credit spread really widened on low tier debt (which was basically all the fund held). From the summer of 2014 through December 2015 the fund cratered. In December 2015 Third Avenue, in a surprise move, decided to close the fund and liquidate the holdings.

Of course, the decision by Third Avenue to close the fund came within 45 days of the bottom in junk bonds. 

A tip of the hat to @mm1966 who pointed out to me that the name of the fund was the Third Avenue Focused Credit Fund and not the Third Avenue High Yield Fund. 

Andy Hall
Hall was referred to as the God of the energy and oil markets. He rose to fame when he earned a $100 million bonus in 2008 as an energy trader at Citi. He went on to start his own hedge fund. For a number of years Hall racked up huge gains in the energy markets. Then the 2014 oil price collapse happened. Hall looked to be recovering from the collapse until the 2017 decline in oil prices happened and his fund lost 30% of its value in the first half of 2017. In July 2017 Hall shut down his primary hedge fund stating that $50 a barrel oil was the new normal.

Of course, the fund was shut down within weeks of the 2017 bottom and oil is now at $70.

Vanguard Changes The Strategy Of Its Precious Metals Fund
Vanguard just announced that it is changing the investment direction of its Precious Metal Fund. The new name of the fund is Global Capital Cycles Fund (whatever that is). The rationale for this change was to (and I quote) “to broaden the fund’s mandate and diversify the portfolio”.

Over the last seven years the fund has lost 60% of its value, which was right in line with the GDX (the gold miners ETF). 

This a recurring story with investment manage firms. By the time an investment firm throws in the towel on an asset class, then the bottom in that asset class is not far away. 

So, if you don’t have a small position in precious metals and miners – now would be the time to add that position.

Why post this on an education policy blog? I’m not sure but I’ll just leave this here in case anyone wants to consider the possibility that they sold their “Let a Thousand Flowers Bloom” stock prematurely:


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