Study: The proliferation of charter schools in Michigan hurt traditional districts

A soon-to-be published research paper delving into the various pressures that cause financial strain on traditional school districts is getting some buzz. 

While the paper would likely appeal to Michiganders on its own — the state just spent the better part of the last year grappling with Detroit Public Schools' ever-ballooning debt — it's particularly relevant considering researcher David Arsen, a professor in the Department of Educational Administration College of Education at Michigan State University, decided to use the Mitten as a case study.

"Which Districts Get Into Financial Trouble and Why: Michigan’s Story" asserts that "80 percent of the explained variation in district fiscal stress is due to changes in districts’ state funding, to enrollment changes including those associated with school choice policies, and to the enrollment of high-cost special education students."

In other words, the fiscal failings of DPS that we just addressed had less to do with poor spending on the part of district — though we're sure there was some of that — and more to do with statewide policies, such as those that promote competition, that put the traditional district at a disadvantage. 

"Overwhelmingly, the biggest financial impact on school districts was the result of declining enrollment and revenue loss, especially where school choice and charters are most prevalent," Arsen explained to education blogger Jennifer Berkshire (author of the website EduShyster) in a recent interview. 

Reading the conversation between Arsen and Berkshire, we're not exactly surprised. Much of the report seems to reiterate other studies that we at MT have pointed to in the past. 

In 2011 economist Peter Hammer published "The Fate of Detroit Public Schools: Governance, Finance and Competition," which came to a similar conclusions, arguing that the downfall of DPS was less about mismanagement and more about Proposal A, a funding system started by former Gov. John Engler in 1993, that has school aid follow students instead of districts. 

"Without question, the manner in which the school finance formula has been designed and implemented has amplified, not reduced, the trauma experienced by school districts with declining student populations," wrote Hammer. "The most damaging aspect is the manner in which revenue is calculated in terms of average costs per student. This is not rocket science. The dynamics of the school problem are intuitive and steadily apparent."

As Hammer explains in his paper, the short-term costs of losing a student are far greater than the average cost of educating a student. When a child leaves a school district — say, DPS — the money follows them, but overhead costs, such as heating a school building, don't suddenly drop. As Hammer puts it, losing a kid can put a "strain on local budgets because annual enrollment losses generally cannot be translated into immediate cost reduction that match the per-pupil funding loss."

In Michigan, the state legislature voted in 2011 to lift the state's charter school cap. The sudden proliferation of schools — competition — had drastic effects on traditional school districts, as Hammer and now Arsen explain it. 

When Arsen and his team looked at the impact of charter schools on the finances of districts statewide they didn't see much. When they began to focus on districts where charters enrolled a high percentage of students, however, the results were staggering. 

"We saw very significant and large impacts of charter penetration on district fund balances for different thresholds, whether there were 15, 20 or 25 percent of the students going to charter schools," he explained to Berkshire in their interview.

"That was really striking. At every one of those thresholds, the higher the charter penetration, the higher the adverse impact on district finances. They’re big jumps, and they’re all very significant statistically. What’s clear is that when the percentage gets up to the neighborhood of 20 percent or so, these are sizable adverse impacts on district finances."

In Detroit right now over 50 percent of the city's students are attending charter schools; the market-share balance tipped in favor of charter schools in the 2012-13 school year, a year after the charter cap was lifted. 

Notably, the issues discussed in Arsen's paper are not just applicable to Detroit — or a charter vs. traditional school setting. Last week MLive reported on an issue arising between Ypsilanti Community Schools and Ann Arbor Public Schools. The former asked the latter not to bus Ypsilanti students into Ann Arbor schools — something is allowed through school choice — as it would take away students (and therefore funds) from the district. 

"Please understand that we are all in this together," Ypsilanti Community Schools trustee Maria Sheler-Edwards said at an Ann Arbor meeting, in an attempt to convince the district not to take students from her community. "I ask you to please vote no on the policy on busing our kids and please reconsider your schools-of-choice policy so that our families can give us a try. We have a lot to offer."

As MLive explained it, Sheler-Edwards didn't blame Ann Arbor Public Schools for the busing proposal, or the possible funds they would be losing if it passed, but rather "the competitive environment state government has created that pits schools against each other in the rush to attract students." 

This reality, coupled with the recent DPS legislation that was passed, makes Arsen's paper particularly relevant. In June Gov. Rick Snyder signed off on a "DPS Rescue Package" which has been touted as a game changer for the district (it comes with over $600 million aimed to get DPS out of its current crunch). Arsen's paper, however, serves as a reminder that DPS — and other districts across the state —  isn't out of the dog house. The legislation that passed does nothing when it comes to Proposal A or competition — topics that, according to Arsen, would be wise to reassess. 

"Michigan has a very strong charter constituency and lobby, and we’ve made a series of policy choices that put districts that are obliged to educate low-income children, especially urban kids, at a disadvantage," Arsen explained to Berkshire, ever so slightly-flicking at the immense grip charter-advocates such as the DeVos family have had in the recent legislative debates around charter schools. 

"If you have an education system with a lot of choice, it has to be well-structured and regulated," he continued. "On the funding side, you have to have a system in which the revenues that schools receive are adjusted to correspond to the costs over which local districts have no control. We don’t do that in Michigan, and the result is that you give schools an incentive to orient themselves towards educating lower-cost kids. Revenues need to match the costs. If the funding follows the kids, you need policies that cushion districts from having very precipitous declines in revenue. On the choice policy side, you need a system that regulates the supply of choice schools better than what we have. A place like Detroit is just chaotic. It’s the foremost example nationally of the adverse consequences of a poorly regulated education market."

Unfortunately, none of these seemingly wise moves have been addressed just yet. Take a look at Arsen's interview with Berkshire here, and look out for the full paper in the fall edition of of the Journal of Education Finance.