Randall Reback, University of Michigan
National Center for the Study of Privatization in Education, Teacher's College, Columbia University
December 3, 2002
This paper, by PhD candidate Randall Reback of the University of Michigan, analyzes the impact of public school choice on school finances. Specifically, he is interested in the effect that implementing a choice program will have on the tax base (in other words, housing prices, real estate taxes and ultimately school funding). It's no secret that in areas without choice programs, choosing a house serves as a form of school choice, and as a result, housing prices tend to be higher in districts with good public schools. In theory then, if a public school choice program is implemented, housing prices should fall in those districts with the best schools, because one no longer must live there to access those schools. The opposite is also true: districts with the worst schools should see an increase in housing prices, as the fear of confining one's child to a sub-standard school no longer deters potential home buyers in that area. Under a public school choice program, these lower-achieving districts will surely lose students (who transfer elsewhere) and will thus lose enrollment-based state revenue. However, Reback wonders if this loss in revenue will be offset by an improvement in the tax base (due to higher home values and new home construction). To answer this question, he analyzes Minnesota, which has had a statewide public school choice program since 1990, and finds support for his theory. A decrease in a district's enrollment was associated with an improvement in the tax base, and vice versa. His calculations suggest that school choice might not financially harm bad schools; in fact, bad schools might actually notice a net gain in revenues. Reback thus concludes that choice programs may not offer much financial incentive for schools to improve. However, the report's title belies several important caveats. For one, these results might not generalize to other states; in California, for instance, the funding system acts to limit the local impact of property taxes. Also, financial incentives are not the only form of competition created within choice programs; the simple loss of students may provide organizational and political incentives for schools to improve. In the end, perhaps the most important point that Reback makes is that the effects he finds may influence whether choice programs are enacted at all, as families living in the best school districts are unlikely to support proposals that reduce their property values. This report is written by an economist, for economists, so it's not exactly light reading; but if you'd like to wade through the complicated statistics yourself, you can find the report on NCSPE's website, at http://www.ncspe.org/ under "occasional papers."
