Does competition improve public schools? New evidence from the Florida tax-credit scholarship program.

Does competition improve public schools? New evidence from the Florida tax-credit scholarship program. Programs that enable students to attend private schools, includingboth vouchers and scholarships funded with tax credits, have becomeincreasingly common in recent years. This study examines the impact ofthe nation's largest private school scholarship program on theperformance of students who remain in the public schools. The FloridaTax Credit Scholarship Program (FTC) was signed into law in 2001 andopened to students from low-income families in the 2002-03 school year.FTC provides corporations with tax credits for donations they make toscholarship funding organizations, the nonprofits that determine studenteligibility for the program and issue scholarships. Corporations canreceive dollar-for-dollar tax credits for up to 75 percent of theirtotal state tax obligation each year. [ILLUSTRATION OMITTED] Although little noticed, tax credit scholarship programs now sendmany more low-income students to private schools than do traditionalschool voucher programs. More than 104,000 students nationwide attendedprivate schools through tax credit programs in the 2008-09 school year,while only 60,000 students used private school vouchers. Scholarshipprograms similar to Florida's now operate in several states,including Arizona, Pennsylvania, Rhode Island, and Indiana, and arebeing considered in Maryland and New Jersey. The Florida program is setto expand dramatically in the coming years (see sidebar, page 77),making evidence of its consequences all the more timely. [ILLUSTRATION OMITTED] One popular argument for expanding private school choice is thatpublic schools will improve their own performance when faced withcompetition for students. Because state school funding is tied tostudent enrollment, losing students to private schools means losingrevenue. The threat of losing students to private schools may giveschools greater incentive to cultivate parental satisfaction byoperating more efficiently and improving the outcomes valued by studentsand parents. Alternatively, private school vouchers and scholarships mayhave unintended negative effects on public schools: they may draw awaythe most involved families from public schools, community monitoring ofthose schools may diminish, and schools may reduce the effort they putinto educating students. It is notoriously difficult to gauge the competitive effects ofprivate schools on public school performance. Private schools may bedisproportionately located in communities with low-quality publicschools, causing the relationship between private school competition andpublic school performance to appear weaker than it actually is. If,however, private schools are located in areas where citizens care a lotabout educational quality, the relationship will appear stronger than ittruly is. This study takes advantage of the introduction of the FTC toprovide new evidence on the effects of increased competition on studentachievement in public schools. Before the program began in 2002, roughly11 percent of students in Florida were enrolled in private schools. FTCtargeted students from low-income families, only 5 percent of whom hadbeen attending private schools. We examine whether students in schools that face a greater threatof losing students to private schools as a result of the introduction oftax-credit funded scholarships improve their test scores more than dostudents in schools that face less-pronounced threats. We find that theydo, and that this improvement occurs before any students have actuallyused a scholarship to switch schools. In other words, it occurs from thethreat of competition alone. Florida Tax Credit Scholarship Program In order to be eligible for an FTC scholarship, students must meetthe income guidelines (until recently, family incomes below 185 percentof the federal poverty line for new applicants) and either must haveattended a Florida public school for the full school year before programentry or be entering kindergarten or first grade. With the exception ofthese early-grade private school students, students already attendingprivate schools in Florida are not eligible for first-time scholarships.Students who enter a private school on a scholarship are eligible toretain their scholarships in future years, so long as their familyincome remains within the stated limits (until recent changes, below 200percent of the federal poverty line). Scholarships need not cover all of the costs of attending privateschools, and parents are free to send their children to any privateschool regardless of the share of tuition and fees the scholarshipcovers. The scholarship is quite generous; it covers approximately 90percent of tuition and fees at a typical religious elementary school inFlorida and two-thirds of tuition and fees at a typical religious highschool. As a result, the program greatly increased the accessibility ofprivate schools to low-income families. In the first year, some 15,585scholarships were awarded, increasing the number of low-income studentsattending private schools by more than 50 percent. For the 2009-10school year, the FTC program awarded scholarships to 28,927 students(see Figure 1). [FIGURE 1 OMITTED] Data Our analysis draws on several data sources. The Florida Departmentof Education's Education Data Warehouse provides test scores fromthe Florida Comprehensive Achievement Test (FCAT) and demographiccharacteristics for all students in the public schools. We usetest-score data from the 1999-2000 school year through 2006-07. Studentsclassified as learning disabled were excluded from the analysis, as theyare eligible for a more generous voucher through the McKay ScholarshipProgram, and the FTC program should therefore have had no effect onschools' efforts to retain these students (see "The Case forSpecial Education Vouchers," features, Winter 2010). The Florida Department of Education publishes public and privateschool addresses, including latitude and longitude information for thepublic schools. The address information was geocoded to generatemeasures of the pressure that public schools face from privatecompetitors. We first limited our attention to the 92 percent of publicschool students in the state attending schools with a private competitorwithin a five-mile radius. Because it is not obvious how best to gaugethe amount of competition faced by the remaining schools, we constructedfour different measures: * Distance: the crow's-flight distance between the physicaladdresses of each public school and the nearest private competitor. Aprivate school qualifies as a competitor to a public school if it servesany of the grades taught in that public school. * Density: the number of private competitors within a five-mileradius of the public school. * Diversity: the number of different types of private schoolswithin a five-mile radius of the public school. To generate thismeasure, we first identified 10 distinct types of private schools,defined by their stated religious (or secular) affiliation. * Concentration: an index of how varied the private schoolcompetitors are for a given public school, based on the counts ofdifferent types of schools within a five-mile radius. The distance and density measures gauge whether easier access to aprivate school of any type increased the competitive pressure on publicschools when the new policy lowered the effective cost of attendingprivate school for eligible students. The diversity and concentrationmeasures capture the variety of options available to students; publicschools in areas with more varied options should feel more competitivepressure in the wake of the policy change. Methods In order to determine the effect of scholarship-induced privateschool competition on public school performance, we examine whetherstudents in schools that face a greater threat of losing students toprivate schools as a result of the introduction of tax-credit fundedscholarships improve their test scores more than do students in schoolsthat face a less-pronounced threat. Specifically, we look to see whethertest scores showed greater improvement in the wake of the new policy forstudents attending public schools with more (or more varied) nearbyprivate options that suddenly became more affordable for low-incomestudents than did scores for students attending schools with fewer (orless varied) potential competitors. This analysis is possible because of the considerable variation inpotential competition faced by schools across the state of Florida.Prior to the introduction of the program, some communities in Floridahad a much richer and more diverse set of private school options thandid other communities. The overall share of low-income studentsattending private schools ranged from 1.4 percent in Punta Gorda to 7.9percent in the Melbourne-Titusville-Cocoa-Palm Bay area. Moreimportantly, by our measures, the amount of competition that specificpublic schools faced on the eve of the program also varied widely. Ourdensity measure, for example, ranges from one private school within fivemiles to 60. The average Florida public school had roughly 14 privateschools nearby, but more than 30 percent of schools had fewer than 2 ormore than 30. We isolate the effect of competition introduced by the program bycomparing the performance of each school's students to theperformance of its students the year before the program was enacted.When making these comparisons, we take into account studentcharacteristics that are associated with test scores, including genderand race/ ethnicity, English-language-learner status, and eligibilityfor free or reduced-price lunch. We also control for some characteristics of schools that couldaffect the degree of competitive pressure. Most importantly, we controlfor the letter grades that schools received from the state'saccountability system; schools with lower grades may feel particularpressure to increase their scores to avoid accountability sanctions,independent of the effects of the FTC program. We also control for thepercentage of the school's student body that was eligible for freeor reduced-price lunch, as only these students were eligible for FTCscholarships. There are three main ways in which a program that expands access toprivate schools could affect public school performance. Public schoolscould react to private school competition by altering their policies,practices, or effort; this is the direct competitive effect. Such aprogram could also affect public schools by changing the mix of studentswho attend them. A third possibility is that, so long as only a fewstudents leave a public school with scholarships, the program could haveeffects on resources. Resource effects could be either negative (astotal state aid decreases with the loss of students), or positive (asper-pupil resources might actually increase following small losses ofstudents, due to the indivisibility of classroom teachers). We caneliminate the possibility of student-body composition and resourceeffects by concentrating solely on the FTC program's effects duringthe 2001-02 school year, after the program's announcement butbefore students could actually leave the public schools with ascholarship. During this academic year, students in the public schoolswere applying for private school scholarships for the following year. Results We find that all four measures of competition (distance, density,diversity, and concentration) are positively related to studentperformance on state math and reading tests. (Because we obtainedsimilar results looking at performance in each subject separately, wefocus our discussion on the average score across both subjects.) Each ofour competition measures uses different units. We therefore report theestimated effects of a one standard deviation increase in the amount ofcompetition faced by a given public school by each measure. For every 1.1 miles closer to the nearest private school, publicschool math and reading performance increases by 1.5 percent of astandard deviation in the first year following the announcement of thescholarship program. Likewise, having 12 additional private schoolsnearby boosts public school test scores by almost 3 percent of astandard deviation. The presence of two additional types of privateschools nearby raises test scores by about 2 percent of a standarddeviation. Finally, an increase of one standard deviation in theconcentration of private schools nearby is associated with an increaseof about 1 percent of a standard deviation in test scores. Although these effects are relatively small, they consistentlyindicate a positive relationship between private school competition andstudent performance in the public schools, even before any studentsleave for the private sector. That is, these results provide evidencethat public schools responded to the increased threat of losing studentsto the private schools. The fact that we obtain quite similar resultsregardless of the specific measure used makes us confident that thefindings are not driven by other factors that might distinguish publicschools facing more or less competition based on a given measure.Indeed, in ongoing work we have also considered measures of competitionbased on the number of available slots in nearby private schools and onthe number of nearby churches, and again find very similar results. Moreover, it is important to recognize that the results reportedabove represent lower-bound estimates of the effects of competition onpublic school performance. They are based only on comparisons of schoolswith different levels of competition. If all public schools improvedtheir performance in response to the scholarship program, thisimprovement would not be detected by our analysis. One might expect that some public schools have a greater incentiveto respond to potential competition associated with the availability ofprivate school scholarships for low-income students than others. Weconsider two major reasons schools may face different incentives toreact to competitive pressure. First, elementary and middle schools mayhave more of an incentive to respond to competitive pressure than highschools because the scholarships cover a greater share of private schooltuition and fees in the early grades than they do in the high schoolyears. Although the differences in the share covered might not matterfor higher-income families, for many low-income families the differencein out-of-pocket expenses between an elementary or middle school and ahigh school is likely to be significant. Knowing this, public highschools might not react as strongly to competition from a private schoolscholarship program as would public elementary and middle schools.Consistent with this hypothesis, we find that the effect of competitionis more than twice as large for elementary and middle schools as it isfor high schools (see Figure 2).Public Schools Get Better (Figure 2)When more private schools were nearby, public school test scoresimproved after the scholarship program was announced.First-Year Effects of Increased CompetitionElementary and middle schools 3.08 *High schools 1.25* indicates statistical significance at the 0.001 levelNote: Figure shows effects of having 11.72 more private schools(1 standard deviation) within five miles when the FTC program wasintroduced.SOURCE: Authors' calculationsNote: Table made from bar graph. Second, public schools that stand to lose the largest amounts ofrevenue if many of their scholarship-eligible students leave may be moreresponsive than those schools less likely to lose large amounts ofrevenue. All public schools may experience resource effects as aconsequence of losing students to private schools through a scholarshipprogram. However, those that are on the margin of receiving federalTitle I aid have the largest incentive to retain students fromlow-income families. These federal resources, which average more than$500 per pupil, are directed to school districts, which then allocatethem to the elementary and middle schools that low-income studentsattend. We find that public schools that are likely to receive Title Iaid in the next year if they retain their low-income students, but notif they don't, tend to improve disproportionately in the yearfollowing the program announcement, whereas schools whose Title I aid isunlikely to change respond much less noticeably or not at all. We also investigate whether the estimated effects of thescholarship program persist in later years. After the first year of theanalysis, resource and composition effects may occur as students whoreceive scholarships leave the public schools for private schools. Wefind that the effects of the voucher program grow stronger over time(see Figure 3), resulting perhaps from increased knowledge of theprogram, which might contribute to greater competitive pressure, or fromthe advent of composition and resource effects. While it is difficult todisentangle the reasons for this strengthening over time of theprogram's estimated effects, these findings nonetheless suggestthat our first-year results may understate the positive effect of theFTC program on public school performance [FIGURE 3 OMITTED] Conclusion Our results indicate that the increased competitive pressure publicschools faced following the introduction of Florida's Tax CreditScholarship Program led to general improvements in their performance.Both expanded access to private school options and greater variety ofoptions that students have in terms of the religious (or secular)affiliations of private schools are positively associated withpublic-school students' test scores following the introduction ofthe FTC program. The gains occur immediately, before any students leavethe public schools with a scholarship, implying that competitive threatsare responsible for at least some of the estimated effects. And thegains appear to be much more pronounced in the schools most at risk tolose students (elementary and middle schools, where the cost of privateschool attendance with a scholarship is much lower) and in the schoolsthat are on the margin of Title I funding. To be sure, our study has several limitations. First, our measuresof competition reflect the state of the private school market in 2001,before private schools had a chance to respond to the FTC scholarshipprogram. Although that ensures that the competition measure is notitself affected by post policy test scores, it does give a less accurateview of the competitive pressures faced by schools in subsequent years. Second, our study is based on data from a single state. It ispossible that the dynamics between competitive pressures andpublic-school students' test scores are systematically different inFlorida than they are in the rest of the nation. In particular, morethan 90 percent of Florida's students live in the state's top20 most populous metropolitan areas. In states with a greater share ofthe population in rural areas, the effects of a scholarship program maynot exert the same degree of competitive pressure on public schools. Itmay also be the case that Florida's diverse range of private schooloptions and accompanying greater competition among the private schoolslimit the study's generalizability. Nonetheless, our resultsindicate that private school competition, brought about by the creationof scholarships for students from low-income families, is likely to havepositive effects on the performance of traditional public schools. David Figlio is professor of education, social policy and economicsat Northwestern University and research associate at the National Bureauof Economic Research. Cassandra M.D. Hart is a doctoral student in theDepartment of Human Development and Social Policy at NorthwesternUniversity. RELATED ARTICLE: Expanding Scholarship Opportunities In April 2010, Florida governor Charlie Crist signed into law SB2126, which expanded both funding and eligibility for the Florida TaxCredit Scholarship Program (FTC). Funding for the program had beencapped at $118 million. Under the new rules, as much as $140 million incorporate tax liabilities and insurance premiums may be applied to theprogram in the 2011 budget year. If the scholarship program remainssuccessful, the funding cap may rise by as much as 25 percent per year.The legislation also loosened the eligibility rules to include childrenfrom families with incomes up to 230 percent of the poverty level. During the 2009-10 school, nearly 29,000 children attended morethan 1,000 private schools across the state with FTC scholarships worthbetween $3,950 and $4,100. Three-quarters of participating students areblack or Hispanic; 60 percent are from single-parent homes. Withexpanded access, the program could grow to include 70,000 students by2015. The scholarship amount may increase to as much as 80 percent ofthe state's per-pupil expenditure, currently $6,866, enabling manymore families to afford private school tuition. SB 2126 also increased accountability for participating privateschools. The state had already required FTC scholarship students toparticipate in standardized testing using a nationally normed examchosen by each private school; a study commissioned by the FloridaDepartment of Education found that, in 2007-08, their academic gainswere similar to students nationally across all income levels and tosimilar Florida students who remained in public schools. To make thelatter comparison, the study compared program applicants who were barelyeligible to those who had incomes just above the eligibility threshold.Under the new rules, private schools with 30 or more FTC scholarshipstudents must release to the public gain scores on standardized testsfor those students. The legislation expanding the FTC program passedboth the House and Senate with strong bipartisan support.