Does school choice divert funds and harm the public schools?
Published May 14, 2020
By Bob Luebke
Today one in of every five children in North Carolina public schools are educated in schools of choice. That figure includes parents choosing to send their child to a public charter school, a private school or home school. 
A chorus of calls for more educational options from parents have kept lawmakers busy. In 2010, legislators lifted the state-imposed cap (100) on charter schools. In 2013, lawmakers approved the Special Education Tax Credit (later changed to grant) and Opportunity Scholarship Program. Finally, in 2017 the Special Needs Education Savings Account was signed into law.
The aim of school choice programs is to give parents the freedom to choose the best education for their child, one that best fits their needs and provides an opportunity for success. While few would disagree with these aims, school choice critics claim that programs divert money from the public schools and further weaken underfunded schools and districts.
It’s time to address these claims.
Assessing the fiscal impact of school choice on public schools and taxpayers is a difficult but important task. While significant research can be found on both sides of this issue, the school choice side, in my view, is more compelling. Here’s a quick review of research on the fiscal impact of school choice programs.
Private School Vouchers and Tax Credit
Researchers at EdChoice reviewed 52 high-quality analyses on the fiscal effects of private school choice programs. Forty-seven found these programs generated overall. savings for taxpayers; four found programs were cost-neutral; and one found a Louisiana program for students with exceptional special needs generated net costs.
In 2013, the National Conference of State Legislatures did a similar review and found that private school choice programs have less impact on school budgets than critics had claimed. Florida, the state with the highest number of students in school choice programs in the nation, reviewers found:
While public schools will be forced to make do with less state revenue, funds they receive from local sources such as property taxes and local bond initiatives will remain the same, despite the fact that they have fewer students. Again, however, if most operating costs do not change, local revenues likely would cover the same expenses encountered with higher enrollment.
Research from the Joint Economic Committee of the U.S. Congress reveals private school choice vouchers actually lower education costs and have a positive fiscal effect on public schools and taxpayers. The impact is not uniform across all districts or states but has a beneficial impact when implemented in many states. According to JEC, aggregate cumulative school voucher savings for 10 programs through 2010-11 exceeded $1.7 billion.
In 2018, researcher Dr. Marty Leuken found similar results. He studied the fiscal impacts of 16 voucher programs and concluded the programs generated cumulative net savings to state and local budgets of $3.2 billion since 2015. That amount represents a savings of $3,400 per voucher recipient.
Vouchers and North Carolina. A recent analysis of The Opportunity Scholarship Program by the Fiscal Research Division of the North Carolina General Assembly, found that in 2018-19, the Opportunity Scholarship Program provided recipients with an average award of $3,936. The average per-pupil expenditure in the public schools was $6,479, or $2,543 more than students who utilize the scholarship. This analysis does not include local expenditures which average $2,410 per student.[i]
School choice critics contend the rapid expansion of charter schools has contributed to fiscal distress and fewer dollars for school budgets. A review of the research on charters is mixed and nuanced.
Researchers in New York found charter schools do generate fiscal impacts on public schools. However, much of the distress has been tied to public schools’ unwillingness or inability to cut costs commensurate with the amount of revenue they are losing.
Of course, charters aren’t the only financial challenge facing school districts. Increased competition for state resources and growing pension or benefit obligations can prove more daunting. Several studies (see here and here ) suggest the “harm” is tied to the ability of school districts to shift resources and researchers believe with time resources have rebounded and stabilized.
Helen Ladd of Duke University authored a highly-publicized study that reviewed six counties in North Carolina. Ladd concluded, as a result of charter school growth, “large and negative fiscal impact of $500 -$700 per pupil in one urban district and somewhat smaller, but still significant, fiscal externalities on the non-urban districts in our sample.” Local school districts had between $300 and $700 less to spend on each remaining student in district schools.
Other research questions the negative fiscal impacts, identifies some positive impacts and is also critical of Ladd’s work.
In May 2019, the Center for Reinventing Public Education asked: “Do Charter Schools Cause Fiscal Distress in School Districts?” The study looked specifically at California schools, where many contend the growth of charter schools has undermined school district finances and forced cuts in the quality of schooling local districts can provide. The study specifically asked: 1) What has happened with district enrollment in localities like Oakland and Los Angeles; and 2) Does the loss of students to charter schools create financial stress for school districts? The study found on average; charter school enrollment is:
…statistically indistinguishable from charter enrollment in school districts that are not in fiscal distress and those that receive a qualified rating. In other words, the average share of charter school enrollment does not significantly differ across school districts based on their financial status.
With regard to the second question (Has charter school growth created financial distress for school districts?), the study acknowledged that fiscal distress does exist in certain school districts and should be of concern to policymakers, the growth of charter schools has not contributed to fiscal distress in California school districts. This doesn’t mean that charter schools have no negative fiscal impacts. But whatever negative fiscal impacts they do have, do not result in large scale financial distress that often dominates news headlines. Authors suggested that evidence frequently means that financial distress is usually the outcome of wrong decisions regarding enrollment and budget projections, as well as inadequate accounting systems that hinder the ability to make course corrections.
Some states have found charter growth may not harm but actually benefit the public schools and districts. If a state or region is growing moderately or quickly, schools may be able to replace students who leave for charters, saving the district the cost of building and staffing new schools and mitigating the loss of revenue. This has been the case in states such as Arizona, Colorado, Florida and Utah.
Charter School Impacts and North Carolina
But what about North Carolina? Has the rapid growth of charter schools negatively impacted the finances of school districts? The much-publicized Ladd study seems to think so.
The study has been trumpeted as the reason why North Carolina should put the brakes on charter schools. It has also spawned heated rhetoric. The News & Observer opined that the expansion of charter schools “represent the misguided dismantling of a public education system that helped change North Carolina for the better over the last 100 years.”
Ladd’s study has also generated considerable criticism.
Dr. Erik Root, an executive with the Roger Bacon Academy charter school management organization authored a response to Ladd’s study in North Carolina District Schools Are Thriving Fiscally Alongside Charter-School Growth. Root asks if Ladd’s conclusions can be justified by using a small sample of only six counties. Root also claims Ladd’s thesis that charter schools because fiscal harm is not supported by evidence found in county CAFRs. He points to positive financial signs such as districts having significant amounts of cash on hand and healthy revenue streams, growing budgets and increases in per-pupil support. Districts also can access funds for capital projects. The data does not support a conclusion that districts are suffering because of charter schools. Instead, rather than fiscal distress, Root believes, a review of financials points to a different conclusion; both local districts and charters are thriving. After adjusting for inflation, most districts have seen revenue increases, even when enrollment is declining. If counties are experiencing fiscal pressures, it is probably tied to their own decisions and significant increases in the cost of healthcare and retirement benefits.
I come to similar conclusions as Root in my blog post, Are charter schools hurting DPS? look again, which examined data for Durham county schools. The data does not suggest distress. Between 2011 and 2017, the number of teachers and employees are both up 12 percent; 486 new positions were added. Enrollment in Durham public schools is up 3 percent, and revenue 19 percent. That does not point to a school district in financial distress.
Does recent data suggest a change in direction for Durham schools? A review of data available from Statistical Profile and Highlights of the North Carolina Public School Budgetsuggests no. Even with charter school enrollment jumping 126 percent since 2011, public school enrollment was still up about 1 percent. Budgets are up 29 percent, per student spending increased from $9,230 to $11,750 and per student spending for employee benefits ballooned 60 percent to $2,635 per student after years of healthy increases for benefits. While total staffing for DPS is down 113 positions from 2017, mostly administrators were let go. DPS gained 373 positions since 2011. Over the period of alleged financial difficulty, 329 teachers were added along with 310 new students. Again, if you review the data, it’s difficult to make a case that charter schools are negatively impacting Durham Public Schools.
Do school choice programs harm public schools? What the data tells us.
Since funding is tied to enrollment and choice programs reduce enrollment in traditional public schools, the argument that choice harms the public schools seems plausible. But it’s important to remember two things. First, while choice critics emphasize the loss of revenue, they seldom tell you about the factors that help to mitigate those losses.
If a child leaves the public-school system, the school is relieved of its duty to educate the child. One major difference, however, is that while schools will lose state funding when a child leaves the public school, schools can keep almost all the money they would have received in federal and local funding when a child enrolls in a school choice program in another school.
Moreover, the amount of the school choice voucher or credit is less than the amount that would have been spent on the student if he had stayed in the traditional public school. State government ends up spending less to educate choice students, freeing up more funding to devote to teacher pay and benefits.
Reduced enrollment in traditional public schools also lessons the financial burden of having to build new schools or expand current schools, saving on capital costs. The impacts of enrollment changes are also moderated by formulas. A policy brief by the Center on Regional Politics, found that 34 states – including North Carolina – have provisions to delay or moderate the impact of enrollment declines on school finances. If an enrollment decline is 100 students or 2 percent or more, schools are required to adjust their allotment. However, according to the Allotment Policy Manual, schools can select to report the higher of two reportable months, plus one-half the number of students that were overestimated. So, in actuality, funding is provided for students who aren’t actually attending.
Second, school choice critics talk about the charters siphoning money from the public schools. But charters are public schools. Parents have chosen to remove their children from traditional public schools and place them in charter schools. Why? It’s a question that too many schools fail to ask.
We are continually told school choice is harming school and district finances. But it’s hard to make an argument looking at district enrollment, staffing and finances.
How much funding do school choice programs receive in North Carolina? In 2018-19, funding for charter schools, the Opportunity Scholarship Program, Special Education Needs Grant, and the Special Needs ESA totaled $749,472,327.[ii] That’s a lot of money. However, when you realize 92 percent of that funding ($688,132,327) is for charter schools, which are, public schools, the numbers are significantly reduced. Funding for three private school choice programs totals $61,340,000.
Sixty-one million is no small amount, but some perspective is helpful. In 2018-19 state expenditures for North Carolina public schools totaled $9,141,797,193.[iii] The amount spent on private school choice programs comprise about two-thirds of one percent of state expenditures for public schools in North Carolina.[iv]
Critics say school choice is unfair because it takes money from underfunded public schools. That’s a difficult case to make when state appropriations have increased eight years in a row, when real per pupil state spending is up 10 percent since 2011 and the average teacher salary is expected to be about $55,000. [v]
Parents want more educational options. The reality is some parents will choose public school; some will choose private school. The impacts will work out. In the meantime, let’s stop punishing parents for doing what’s best for children.
 The author acknowledges parents can also choose magnet or online schools. For purposes of this discussion, choice schools are limited to charter, private and home school.
[i] Fiscal Research Memo. April 16, 2020 from Steven Bailey, Fiscal Research Division to Representative Dean Arp.
[ii] Figures gathered from budget documents. Charter school numbers from Highlights of the North Carolina Public School Budget, 2019.
[iii] Table 22, Current Expense Expenditures, by Source of Funds, Child Nutrition Included, Statistical Profile, Public Schools of North Carolina. Available online at: http://apps.schools.nc.gov/ords/f?p=145:32:::NO:::
[iv] $61,340,000 /$9,141,797,193 = 0.00670984038532.
[v] Highlights of the North Carolina Public School Budget, 2019. Published by the North Carolina Department of Public Instruction. Available online at: https://files.nc.gov/dpi/documents/fbs/resources/data/highlights/2019highlights.pdf