Equity Math for a Transformed System

Equity Math for a Transformed System || John Merrifield || June 2, 2016

Suppose we provide a high minimum level of per-pupil public funding to anyone wanting to exit their assigned public school, and independent schools – charter or private – can charge whatever the market would bear. Markets would then set tuition rates; often at the per-pupil public funding (‘free’) amount, but sometimes above. Market entry would drive tuition rates down to just the level needed to finance and sustain efficient operations, including a normal rate of return on investment. Purveyors of poorly conceived instructional approaches would not be able to recruit enough schoolchildren to cover their expenses. But purveyors of some well-conceived instructional approaches would be able to charge more than the per pupil public funding; a 3rd party co-payment. For example, suppose the per-pupil public funding is $8000/year, and school X’s instructional approaches cannot be offered for less than $9000/pupil/year. The alternative to current donor dependence of such schools (the current norm of schools like X; for example, KIPP Chartered Public Schools are highly donor dependent, thus massively under-supplied) is for schools such as X to charge a $1000/pupil/year tuition co-payment. Ending donor dependence frees the donor money currently paid directly to schools for means-tested co-payment financing. So, the $1000 can come from parents’ private funds or accounts created from means-tested public or philanthropic financing. X will get enough parents and donors to pay the $1000 if, for many children, X’s instructional approach is significantly better than the alternatives.

The aim of this post is to provide a rough approximation of the likely per pupil level of philanthropic funding available for means-tested co-payment financing. So, for example, suppose a family wants to enroll a child in school X, but their below-poverty income precludes the family from having the means to make the annual $1000 co-payment. In 2014, approximately 20% of children were from officially impoverished families.

How many needy families would seek co-payment assistance? Universal school choice existed in the Edgewood District of San Antonio, Texas for about six years. The Edgewood voucher amount was large enough so that most of that area’s private schools took the voucher amount as full payment. That yielded a peak participation rate of 16%. 16% of US Public School enrollment (50 million) is eight million. If official poverty (20%) has proportional representation in the likely eight million seeking an alternative to the assigned public school, the potential demand for 3rd party-financed, means-tested co-payment is 20% of eight million; 1.6 million.

What would be the average co-payment funding available to potential low income leavers of assigned public schools? The most recent firm number for K-12 philanthropy is $1.5 billion in 2002. Anecdotal evidence suggests that total amount has risen significantly since then, so I’ll assume that $1.5 billion is annual charity funding available for means-tested co-payment assistance. Even if every one of the 1.6 million eligible for means-tested co-payment funding applied for it (= if every preferred private school levies a non-trivial co-payment), $1.5 billion yields nearly $1000 per low income applicant for co-payment assistance; that is, to top off the public per-pupil funding.

The per pupil amount funded by charity for low income households will be higher to the extent that low income families choose private schools with little or no co-payment required, OR to the extent that giving for means-tested co-payment (scholarships) funding rises with increased interest in private schools, and with increased diversity in the menu of private school offerings.

Chile’s somewhat useful experience with what Chile calls ‘shared financing’ of private school tuition is that competition causes the average private (family or charity) share of private school tuition to be quite small. So, the bottomline from the very rough estimates above is that the poor will not be disadvantaged by school system reform that opens the system to much-increased free enterprise delivery of schooling orchestrated by price change and by price (tuition) variability within the menu of taxpayer supported (subsidized) schooling options. Actually, quite the contrary. Low income families will have more options, and with donor financing of co-payment levies, without significant loss of accessibility due to out-of-pocket cost.

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