Rejoinder to Sol Stern

May 1, 2008

(Guest post by Greg Forster)

My rejoinder to Sol Stern’s erroneous claims about school choice is on Pajamas Media this morning. A sample:

And what about the claim that vouchers are a political loser? Stern writes that “voucher programs for poor children … have hit a wall.” (emphasis added) He observes that there haven’t been new “voucher programs for poor children” (emphasis added) since the Supreme Court gave its blessing to vouchers in 2002.

If you read Stern’s article without knowing the facts, you’d think there had been only one new voucher program since 2002 — he mentions only the DC program. What Stern doesn’t tell you is that there have been no other new voucher programs “for poor children” because vouchers are now so successful that the programs enacted since 2002 are no longer restricted to poor children. They’re broader in scope.

I go on to defend the claim I made last week here on Jay P. Greene’s Blog that “school choice is politically stronger than ever,” and run down the empirical research on the effects of choice.

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Posted by Greg Forster

State Regulation of Private Schools: the Good, the Bad and the Ugly

April 30, 2008

(Guest post by Greg Forster)

 

Today, the Friedman Foundation for Educational Choice releases a report that evaluates how each of the 50 states regulates private schools. While all states regulate things like health and safety, most states go further and impose unreasonable and unnecessary burdens on private schools. This creates barriers to entry, hindering competition and thereby reducing the quality of both public and private schools; it also limits the freedom of parents to choose how their children will be educated. Friedman Foundation Senior Fellow Christopher Hammons graded each state based on how good a job it does of regulating private schools. Scroll down to see the grades.  

 

Accompanying the report, we have compiled lists of all the laws and regulations governing private schools in each of the 50 states. The lists are now available on our website.  

 

Our goal is to educate the public on two fronts. First, we often hear private schools described as “unregulated” by forces hostile to school choice. Private schools are in fact regulated and are accountable to the public for following a large body of laws and regulations. Second, there is wide variation from state to state in the quality of private school regulation. We hope to make the public aware of these disparities so that states with poor regulatory systems will themselves be accountable to the public.  

 

To help ensure the accuracy of our list of private school laws and regulations in each state, we contacted each of the 50 state departments of education, asking them to review our lists and let us know if we had anything missing or incorrect. Each state has an extremely large body of laws and regulations, so any effort to locate all the laws and regulations on a particular topic is very difficult, and we wanted to do everything possible to make sure we didn’t miss anything. As you will see below, some states were more helpful than others.

The Good

The Good #1: About one third of the states (18 ) earned a grade in the A or B range. Florida and New Jersey were tied for having the nation’s best regulatory systems for private schools, followed closely by Connecticut and Delaware.  

 

The Good #2: I will admit that I expected most of our e-mails to the state departments of education would be ignored. As it turned out, most of the states – 29 of them – not only got back to us but went over our lists and either said they were OK as is or offered corrections. In fact, publication of the report was delayed so that we would have time to process all the constructive input we were getting from state departments of education. So let me pour myself a big, delicious bowl of crow and apologize to the departments of education in Connecticut, Delaware, Florida, Georgia, Iowa, Illinois, Kentucky, Louisiana, Maryland, Michigan, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. I’m sorry I doubted you, and we greatly appreciate your help.  

 

In addition, Arkansas and Arizona deserve recognition for getting back to us and letting us know that they were unable to help us with our request.

The Bad 

The Bad #1: Almost half the states (22) receive D or F grades for the unnecessary burdens imposed on private schools by their laws and regulations. North Dakota ranked the worst in the nation by a large margin, followed by South Dakota, Alabama, Maryland, New York and Tennessee.  

 

The Bad #2: The departments of education in 17 states did not respond to our attempts to contact them. California, Colorado, Hawaii, Idaho, Indiana, Kansas, Maine, Massachusetts, Minnesota, Missouri Mississippi, [oops – apologies to the DOE of Missouri and the schoolchildren of Mississippi] Montana, Nebraska, North Dakota, Oklahoma, Pennsylvania, Rhode Island, and Utah, please check whether you still have a department of education.  

 

Mysteriously, Alaska responded to our initial inquiry, but then didn’t respond to our follow-up communications. 

The Ugly 

Alabama’s department of education deserves special recognition for its efforts to help us. Our request was considered so important that it was ultimately handled by no less than the department’s general counsel.  

 

The department’s first response was to ask where we had gotten our list of Alabama’s private school laws and regulations, and how we were planning to publish it.  

 

I did not ask why they wanted to know, or whom they were planning to pass the information on to once I told them. Instead, I replied that we had compiled our list from the state’s publicly available laws and regulations, and that we were going to post the list on our website and publish a report looking at the laws and regulations in all 50 states.  

 

Their response to that was: “After continued review by appropriate persons and because of the depth of information that you have forwarded to us, it has been determined that this request needs to be reviewed by our SDE Legal Department.” They also asked for more time, which we were happy to give them, as we did for every department that asked for it.  

 

The next and final communication we received was this, which I reprint in its entirety:

I am the General Counsel for the State Department of Education. I have been asked by the Deputy Superintendent of Education, Dr. Eddie Johnson, to review and respond to your request. There are numerous errors contained in the four page document titled ALABAMA. I submit that a further review of our laws and regulations might be helpful. You can access our statutes at www.legislature.state.al.us. The Administrative Code for the Alabama Department of Education can be found at our website, www.alsde.edu/html/home.asp. Thank you for your interest in Alabama.

 

The message was signed “Larry Craven.” Really.  

 

I offer no speculation as to why Mr. Craven would tell us that our document contained numerous errors, but decline to specify any of them.  

 

If at any time he or any other party will be so kind as to specify anything in our list of laws and regulations for Alabama or any other state that’s wrong or missing, we will gladly make any necessary corrections. In a project of this size, combing through countless thousands of laws and regulations to find the ones relevant to private schools, there would be no shame in having missed some. We make a point of saying so both in the report itself and in a disclaimer that appears on each of the 50 state lists we compiled and put on our website.  

 

That said, this also should be said: we wouldn’t have to comb through countless thousands of laws and regulations, a process inherently subject to this kind of difficulty, if the 50 state departments of education provided this information to the public in an easily accessible format. (Some do, but most don’t.) Our only goal here is to get public-domain information actually delivered to the public. We wish we could say that goal was shared by everyone in charge of running the nation’s education system. 

Grades for State Laws and Regulations Governing Private Schools

Alabama F
Alaska B
Arizona A-
Arkansas A-
California B
Colorado B
Connecticut A
Delaware A
Florida A
Georgia A-
Hawaii C+
Idaho C+
Illinois C+
Indiana D-
Iowa D
Kansas F
Kentucky B
Louisiana D
Maine D+
Maryland F
Massachusetts C-
Michigan C-
Minnesota B+
Mississippi F
Missouri A-
Montana F
Nebraska F
Nevada F
New Hampshire C+
New Jersey A
New Mexico C+
New York F
North Carolina D
North Dakota F
Ohio C-
Oklahoma B
Oregon C+
Pennsylvania D
Rhode Island D
South Carolina F
South Dakota F
Tennessee F
Texas B-
Utah A-
Vermont D
Virginia B
Washington F
West Virginia C-
Wisconsin A-
Wyoming F

 Edited for typos

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Posted by Greg Forster

“Residential School Choice” and the Mortgage Crisis

April 28, 2008

(Guest post by Greg Forster)

What do you guys think of this op-ed in yesterday’s Washington Post linking the mortgage crisis to parents’ desire to buy homes that will get their children into better schools? I don’t know enough about the mortgage crisis to really know, but Mike Antonnuci suggests the link is overblown (see item #2 here) and I’m inclined to think that’s likely.

Still, have you noticed that in just the past few years, schools are figuring much more prominently in residential real estate marketing? MLS listings now prominetnly display not only which school district a home is located in, but the indivdiual schools it’s assigned to. Real estate advertisements and flyers are prominently listing this information as well.

Of course, I’m just speaking from my own individual observations, which as you know is a highly scientific representative sample. 🙂

Larry, you’re the financial guy around here. Any thoughts?

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Posted by Greg Forster

WSJ and Bloomberg Notice the Student Loan Crisis

April 24, 2008

(Guest post by Larry Bernstein)

The Wall Street Journal and Bloomberg have stories on the student loan crisis.  I presume the articles were in response to my post a couple of days ago.

This is typical. I think the WSJ editorial page gets the issue wrong.  The editors blame the current crisis on new Fed limits on the allowable credit spreads.  In addition, there is a mention of an idea to allow the Federal Reserve to accept student loans as collateral at the discount window. 

I don’t think either of these issues is critical.  The key point is that students are defaulting on their loans at a rate much higher than expected.  With higher default rates and worse than expected recoveries, the loans are worth less than par.  State Street, who had bought billions of securitized private student loans in the secondary market, admitted last week that they may need to take reserves equal to as much as 10% of par.

The current crisis is not a funding crisis, or an ability to use the loans as collateral for secured financing by banks.  The problem is a basic financial problem.  The borrowers are unwilling to pay the lenders back.  There are two typical responses to this sort of problem.  The first is to stop lending until we figure out what the likely default rates are going to be and if the business makes economic sense.  This is the current lender response to the increasing rates of default in the subprime residential market.  The second response is to lend, but at much higher interest rates to cover for the additional expected losses from defaults and to cover additional risks of even greater defaults.  The market is seeing both responses from lenders.

What should public policy be for student lending?  This is clearly complicated and depends on your view of the role of government.  Do you think that the federal government should lend directly to students at a below-market rate?  The answer depends on the public’s willingness to accept substantial losses on the loans.  The market price embodies the market’s view of defaults.  Today, the market is saying that the government will lose more than 10% of the loan size.  There are $70 billion of new federally guaranteed loans each year, and both Democratic presidential candidates want to expand the program.

What is the market failure that requires government action?  Why shouldn’t the interest rates on student loans reflect the risk of the loans?  If we let the market work, banks will demand additional collateral (from the parents) at various interest rates to reflect the individual risk of the borrower.  It cannot be that whenever credit spreads go up to reflect greater risk of defaults that the government needs to step in and lend money at a below-market rate.

(As an aside, the current plan to use the FHA to solve the nation’s residential mortgage crisis will most likely result in government losses in excess of the 1980s thrift crisis.  Sadly, many years from now, Congress will investigate how this could have happened.)

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Posted by Greg Forster

Cajun Choice

April 23, 2008

(Guest post by Greg Forster)

On a much more serious note (see below), the news that America got a new school choice program last month seems to have slipped by under the radar.

On March 24, Louisiana Governor Bobby Jindal signed SB5, providing a deduction off parents’ personal income taxes for qualified education expenses, including private school tuition. The deduction is worth 50% of the total amount spent on qualifying expenses, up to a maximum deduction of $5,000. For more details on the program see here.

The tax deduction became effective as soon as it was signed, so we now have 22 school choice programs in 14 states plus D.C. All eyes are now on Georgia to see if a tax-credit scholarship program passed by the legislature becomes America’s 23rd school choice program; Governor Sonny Perdue has until May 14 to sign it, veto it, or allow it to become law without his signature.

Personal tax credits and deductions for educational expenses are an unusual way to do school choice; Louisiana’s program is only the fourth of this type. But it’s an approach with a long history. Minnesota enacted a tax deduction for educational expenses in 1955; Iowa enacted a tax credit in 1987; Minnesota added a tax credit on top of its deduction in 1997 (the credit excludes tuition but includes other expenses like books and fees – it’s the only program of this type not to include tuition); and Illinois enacted a credit in 1999.

Personal tax credit/deduction programs tend to be broad in scope but miniscule in magnitude. Only the Minnesota program has an income restriction, so the number of people eligible to participate in these programs is typically very large. Almost 650,000 families benefit from the Iowa, Illinois, and Minnesota programs. On the other hand, the Iowa and Illinois programs provide maximum credits of only $250 and $500 respectively. The Minnesota program is slightly more generous, providing a maximum credit of $1,000 and a maximum deduction of $1,625 in grades K-6 and $2,500 in grades 7-12. And the maximum deduction in Louisiana is $5,000. I don’t know what that works out to in tax savings, but since state tax rates are lower than the federal rate it can’t be that much. Moreover, in most cases the taxpayer does not get a dollar-for-dollar credit or deduction for the money he or she spends; for example, in Louisiana you only get 50 cents on the dollar.

One idea behind these programs is to cut out the middleman and provide school choice as directly as possible. For example, the most important drawback of tax-credit scholarships is that they don’t create a parental entitlement to school choice. The scholarship granting organizations act as gatekeepers, generally favoring low-income parents and thus exacerbating the problem of “targeting” in school choice programs. (Of course, a corresponding advantage is that scholarship granting organizations have flexibility in the distribution of resources; one thing I discovered when I did the research behind this report is that scholarship granting organizations will often step up to provide full-ride scholarships to students facing personal crises such as the death of a parent.) By contrast, both vouchers and personal tax credits/deductions create a parental entitlement to school choice.

I have heard some argue that personal tax credits/deductions are better than vouchers because they cut out the middleman even more completely; supposedly it would be harder to add unnecessary regulations restricting the private schools. But I’ve never been able to understand why this is the case. In both voucher and personal tax credit/deduction programs, the legislature defines which private schools are eligible, and in both cases that’s where the unnecessary regulations get inserted. Why is it harder to do in one case than in the other? Is there some political reason why such restrictions are less likely to be written into the tax code than into other laws? That doesn’t strike me as plausible, but I’d be open to correction if somebody could make a case for it.

The major drawback to these programs is in the structure of state income taxes. Until some state enacts a refundable credit,** the benefit families get from these programs is limited to their total state income tax bill. That’s not a lot of money. And fewer dollars means less choice, as this report helpfully reminds us. Of course, you could in theory pass a refundable credit, but the political obstacles to that would be formidable.

For the record, the Friedman Foundation for Educational Choice, where your humble servant is employed, has no position on whether vouchers, tax-credit scholarships, or personal tax credits/deductions are preferable. Our only goal is to provide a full choice to all students, and in theory all three types of programs can do that. They each have their advantages and disadvantages, but we evaluate each program based on how much choice it provides, not its funding mechanism.

That said, until we achieve universal choice, we’re stuck with limited programs, and in that context each of the three types has its own advantages and disadvantages.

Louisiana is a lot better off for having this program as opposed to no program. It will help a substantial number of families send their children to the school of their choice more easily, and it’s a universal program, establishing the important principle that school choice is good for all, not just for some.

That, and the passage of yet another school choice program is further proof, if further proof were necessary, that school choice is politically stronger than ever.

**CORRECTION: George Clowes has reminded me that the Minnesota tax credit is in fact refundable. That doesn’t really affect my point much, since the Minnesota credit doesn’t include tuition (only other education expenses like books and fees) and this is an even bigger limitation than the “unrefundability” (to use a totally real and not-made-up word) of the credits in other states. Tax credits for private school families won’t provide much choice until we get one that 1) is refundable, 2) isn’t restricted to a small amount of money, and 3) includes tution. Nonetheless, I apologize for the error, and I thank George for bringing it to my attention.

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Posted by Greg Forster

I Pity the Fool!

April 23, 2008

(Guest post by Greg Forster)

                                                                                                                                             George Clowes

Connoisseurs of the art of the smackdown will not want to miss the richly deserved spanking George Clowes administers to two representatives of the blob in the letters section of today’s Wall Street Journal.

Two public school teachers had written in to peddle the Myth of Helplessness*, blaming poor public school performance on what they called “inferior raw material,” i.e. low-income minority students.

Clowes pulls no punches. As the great school reformer Mr. T once said, “Allow me to introduce you to my good friend pain!”

Enjoy.

*If you don’t know what the Myth of Helplessness is, for goodness’ sake move out of your mother’s basement and start hanging out with the cool kids.

(Edited to fix the quote from the teachers. The actual quote is even worse than what I had originally put!)

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Posted by Greg Forster

Surprise! What Researchers Don’t Know about Florida’s Vouchers

April 21, 2008

(Guest post by Greg Forster)

 

Florida’s A+ program, with its famous voucher component, has been studied to death. Everybody finds that the A+ program has produced major improvements in failing public schools, and among those who have tried to separate the effect of the vouchers from other possible impacts of the program, everybody finds that the vouchers have a positive impact. At this point our understanding of the impact of A+ vouchers ought to be pretty well-formed.

 

But guess what? None of the big empirical studies on the A+ program has looked at the program’s impact after 2002-03. That was the year in which large numbers of students became eligible for vouchers for the first time, so it’s natural that a lot of research would be done on the impact of the program in that year. Still, you would think somebody out there would be interested in finding out, say, whether the program continued to produce gains in subsequent years. In particular, you’d think people would be interested in finding out whether the program produced gains in 2006-07, the first school year after the Florida Supreme Court struck down the voucher program in a decision that quickly became notorious for its numerous false assumptions, internal inconsistencies, factually inaccurate assertions and logical fallacies.

 

Yet as far as I can tell, nobody has done any research on the impact of the A+ program after 2002-03. Oh, there’s a study that tracked the schools that were voucher-eligible in 2002-03 to see whether the gains made in those schools were sustained over time. But that gives us no information about whether the A+ program continued to produce improvements in other schools that were designated as failing in later years. For some reason, nobody seems to have looked at the crucial question of how vouchers impacted Florida public schools after 2002-03.

 

[format=shameless self-promotion]

 

That is, until now! I recently conducted a study that examines the impact of Florida’s A+ program separately in every school year from 2001-02 through 2006-07. I found that the program produced moderate gains in failing Florida public schools in 2001-02, before large numbers of students were eligible for vouchers; big gains in 2002-03, when large numbers of students first became eligible for vouchers; significantly smaller but still healthy gains from 2003-04 through 2005-06, when artificial obstacles to participation blocked many parents from using the vouchers; and only moderate gains (smaller even than the ones in 2001-02) after the vouchers were removed in 2006-07.

 

[end format=shameless self-promotion]

 

It seems to me that this is even stronger evidence than was provided by previous studies that the public school gains from the A+ program were largely driven by the healthy competitive incentives provided by vouchers. The A+ program did not undergo significant changes from year to year between 2001-02 and 2006-07 that would explain the dramatic swings in the size of the effect – except for the vouchers. In each year, the positive effects of the A+ program track the status of vouchers in the program. If the improvements in failing public schools are not primarily from vouchers, what’s the alternative explanation for these results?

 

 

 

 

Obviously the most newsworthy finding is that the A+ program is producing much smaller gains now that the vouchers are gone. But we should also look more closely at the finding that the program produced smaller (though still quite substantial) gains in 2003-04 through 2005-06 than it did in 2002-03.

 

As I have indicated, I think the most plausible explanation is the reduced participation rates for vouchers during those years, attributable to the many unnecessary obstacles that were placed in the path of parents wishing to use the vouchers. (These obstacles are detailed in the study; I won’t summarize them here so that your curiosity will drive you to go read the study.) While the mere presence of a voucher program might be expected to produce at least some gains – except where voucher competition is undermined by perverse incentives arising from bribery built into the program, as in the D.C. voucher – it appears that public schools may be more responsive to programs with higher participation levels.

 

There’s a lot that could be said about this, but the thing that jumps to my mind is this: if participation rates do drive greater improvements in public schools, we can reasonably expect that once we have universal vouchers, the public school gains will be dramatically larger than anything we’re getting from the restricted voucher programs we have now.

 

One more question that deserves to be raised: how come nobody else bothered to look at the impact of the A+ program after 2002-03 until now? We should have known a long time ago that the huge improvements we saw in that year got smaller in subsequent years.

 

It might, for example, have caused Rajashri Chakrabarti to modify her conclusion in this study that failing-schools vouchers can be expected to produce bigger improvements in public schools than broader vouchers. In this context it is relevant to point out that many of the obstacles that blocked Florida parents from using the vouchers arose from the failing-schools design of the program. Chakrabarti does great work, but the failing-schools model introduces a lot of problems that will generally keep participation levels low even when the program isn’t being actively sabotaged by the state department of education. If participation levels do affect the magnitude of the public school benefit from vouchers, then the failing-schools model isn’t so promising after all.

 

So why didn’t we know this? I don’t know, but I’ll offer a plausible (and conveniently non-falsifiable) theory. The latest statistical fad is regression discontinuity, and if you’re going to do regression discontinuity in Florida, 2002-03 is the year to do it. And everybody wants to do regression discontinuity these days. It’s cutting-edge; it’s the avant-garde. It’s like smearing a picture of the virgin Mary with elephant dung – except with math.

 

You see the problem? It’s like the old joke about the guy who drops his keys in one place but looks for them in another place because the light is better there. I think the stats profession is constantly in danger of neglecting good research on urgent questions simply because it doesn’t use the latest popular technique.

 

I don’t want to overstate the case. Obviously the studies that look at the impact of the A+ program in 2002-03 are producing real and very valuable knowledge, unlike the guy looking for his keys under the street lamp (to say nothing of the elephant dung). But is that the only knowledge worth having?

 

(Edited to fix a typo and a link.)

3 Comments | competitive effects, methodology, research reports, vouchers | Tagged: , , , | Permalink
Posted by Greg Forster

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