School Finance Reform: A Case for Vouchers

The number and intensity of school finance reform efforts have grown steadily over the past decades and have been fueled by increasing frustration with the political processes and a growing unease with real and perceived inequities in public school quality. Much of the direction for these reforms is provided in court mandated remedies that arise from equity and adequacy based school finance lawsuits, a trend that suggests a general belief in the courts’ abilities to deliver or at least stimulate desired education reforms.1 We argue in this paper, however, that the typical judicial remedy advanced by courts in school-finance litigation cases overlooks the fundamental causes for current inequities in public education. Therefore, it misses an important option for potential reform that aims to achieve the courts’ objectives through the expansion of parental choice.

Most judicial remedies in successful challenges to public school finance systems seek to make schools more equal or adequate by directing increased educational spending to under-performing school districts.2 This remedy brings with it an array of practical and legal problems. First, courts are perceived as seemingly “rewarding” under-performing schools and may therefore unintentionally create perverse incentives for public school bureaucracies and generate a serious threat to the much-needed political support for public education. Second, courts face a difficult problem regarding the timing of reforms relative to the immediate need for action on behalf of plaintiffs. Specifically, during the period of time in which a constitutionally inadequate school endeavors to improve, it remains unclear how increased educational spending directed toward such a school offers adequate relief to its current students. Finally, despite sustained, nationwide school finance litigation and a clear overall trend of steadily increasing educational spending, many of the problems that school finance litigation seeks to solve persist. Simply put, the remedy might not work, at least as it relates to the desired educational outcomes, and we argue in this paper that clear reasons exist why this might be the case. In particular, the usual court remedy ignores much of the scholarly evidence suggesting that spending plays only a minor role in producing good schools, and does not sufficiently take into account the broader forces that have caused current inequities in public education to arise in the first place. The gravity of enduring (and sometimes worsening) problems calls for fresh and creative thinking about alternative legal remedies.

One viable but relatively unexplored legal remedy to constitutionally inadequate school finance systems is to target any additional funding to the parents of schoolchildren assigned to under-performing schools rather than to the public schools or school systems that have failed to deliver adequate educational services. Eligible schoolchildren, through their parents, could redeem such vouchers at any eligible public or private, religious or secular schools. In this way the legal remedy — increased access to more desirable schools — might more precisely calibrate with the legal harm — constitutionally inadequate educational services provided by poorly performing public school districts — without undermining public support for education. Furthermore, we argue that such a choice-based remedy may get to the root of the fundamental forces that have given rise to public school quality differences.

The potential for this kind of reform as a remedy in school finance court decisions in general, and in New York in particular, stems from two recent developments. First, lawsuits challenging public school systems, such as New York’s, have shifted from emphasizing equality in per-pupil spending across schools to focusing on a state’s constitutional obligation to ensure access to adequate educational opportunities for all children. Thus, to the extent that any given legal remedy could address concerns over the adequacy of educational opportunities, such a remedy warrants consideration. Second, a growing body of literature suggests that 30 years of state efforts (across the US) to equalize per-pupil spending levels have generally not led to an expansion of adequate educational opportunities, particularly for children in poor districts. Thus, it seems natural that courts ought to look toward new and innovative policy proposals to address their adequacy criteria. We argue that vouchers may represent such a proposal.

So far, scarcity of data has precluded a meaningful consideration of the effects that a relatively large-scale publicly-funded school voucher program might generate.3 This represents a considerable challenge for policy makers who disagree widely in what they consider to be important in education reforms. Even among those who voice such disagreements,4 however, consensus exists on at least some points. For example, despite limited experience with private school competition in the US (and New York),5 parents do retain and exercise some choice under the current system. Families for whom private schools are not an option routinely choose between public schools through their choice of residence, and the data suggest that parental perceptions of public school quality is among the most important determinants of residential location. Parents’ willingness to pay for schools can thus be observed both directly through the choices they make as well as indirectly through property values that reflect local public school quality.6 Consequently, it is possible to combine existing data with insights from economic models to simulate how the same factors that currently govern public school district choices might influence parental decisions in light of new options created through private school vouchers.

Below we outline a specific methodology that attempts to accomplish this. Apart from the issue of whether public schools operate efficiently and whether competition can raise overall public school productivity, such an approach must begin with a setting that recognizes existing equity problems. Put differently, the public school sector cannot be thought of as one entity that treats all children equally, but rather of consisting of many different schools and school districts with wide variations in school quality. Therefore, a crucial distinction between our methodology and that found more commonly in the economics literature is that we explicitly take the current public school system — with all of its equity problems — as the starting point of our analysis of vouchers. Our approach will therefore begin by incorporating the forces that give rise to current inequalities across school districts and then demonstrate that the mere inclusion of such forces tends to overcome the generally negative equity implications found for vouchers in the current literature.7 Furthermore, a consideration of additional forces for which we have at least some empirical evidence suggests quite favorable equity and efficiency consequences from voucher initiatives, the very consequences school finance court decisions seek.

Section 2 begins by exploring how the well-documented inequities across public schools may form the legal basis for judicial remedies to include private school vouchers. The argument that is advanced, however, rests on some important assumptions regarding the empirical effect of introducing vouchers into a public school system plagued by inequalities and inadequacies, and it therefore presupposes a clear understanding of the economic forces that underlie these inequalities. Section 3 explores these forces and points out that courts possess neither the means nor the authority to alter these directly in any significant way. Therefore, court decisions must come to terms with these economic forces and consider them when crafting remedies. Section 4 then outlines a general methodology that incorporates these important forces, relates them to data from New York City, and explores the impact of vouchers in their presence. Finally, Section 5 expands the framework to incorporate other features that are likely to play an important role in voucher policies but that we leave out of the base model constructed in Section 4.

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