Friday, April 6, 2012

Open Enrollment = Competition

Reynoldsburg City Schools may adopt an 'open enrollment' policy, according to a recent story in The Columbus Dispatch. Open enrollment means they will enroll any kid who wants to attend Reynoldsburg public schools, tuition-free. In return, Reynoldsburg schools will receive the $5,700/student in funding Ohio's public school systems receive each year from the State of Ohio. And it means the student's home district will lose the $5,700.

I'm a big believer in Adam Smith's Invisible Hand. When there are buyers who are free to chose what to buy, from whom to buy it, and what price to pay, they will drive producers to develop innovative products which meet the buyer's value requirements. Wounded as our economy might be right now, there remains a fundamental resilience created by the opportunity any person has to invent a new product or service, or improve one already out there, and take it to market. To be sure, some sectors of our economy are suffering. Meanwhile we have seen the rise of companies such as Facebook, and the resurrection of Apple.

Even the American auto industry is looking better. Chrysler has paid back all the government loans it received, and is making a profit. GM is taking back market share from the foreign automakers. And Ford confidently strode through the whole crisis without needing a government bailout or declaring bankruptcy.

How? They finally started making products that Americans - and people around the world - want to buy. Their new lines of cars are exciting, high quality, and priced competitively.

I think we could use some of that in K-12 education.

What if the public school a kid attends is no longer dictated by the address on the front of their residence?  What if the kid's parents can easily choose which school should get their education dollars?  How would parents make that choice? What might things look like if such freedom of choice were made available?  How would the economics work out?

All good questions.

Some parents already have that choice. After all, the only thing you have to do to change which school your kid attends is to move to an address in the attendance area of the desired school building, right? But that means selling the house you live in now, and buying a new house in the desired neighborhood.

Some folks are wealthy enough to be able to absorb the likely loss associated with selling a house in the less desirable school attendance area, and have sufficient resources to buy a new house in the more desirable school attendance area.

More folks are pretty much stuck where they are. Not only can they not afford to sell and move, they're being asked to pay ever increasing property taxes to fund the school district in which they're trapped.

By the way, this Reynoldsburg situation doesn't change the tax picture. If you own a home in the Gahanna school district, and decide to enroll your kid in Reynoldsburg schools, you will still have to pay Gahanna school taxes. You just won't have to pay any tuition to send your kid to Reynoldsburg. You'll have to decide whether - at the same price - Reynoldsburg schools are a better value than Gahanna schools.

I'm not sure how many would make that choice. Gahanna schools are rated Excellent with Distinction, meeting 26/26 indicators, with a Performance Index of 101.2.  Reynoldsburg schools are pretty good too, rated Excellent, also 26/26 on the indicators, with a Performance Index of 100.3. It's true that Reynoldsburg spends $2,000 less per student per year than Gahanna - $9,679 vs $11,832 - but that doesn't enter into the value decision as a Gahanna resident would continue to pay Gahanna school taxes even if their kid enrolls in Reynoldsburg schools.

Of course the much more likely choice is for kids attending Columbus City Schools to seek a seat in the Reynoldsburg schools, although there might be some interest from kids in neighboring Licking County as well.

Let's examine some of the economics.

From the perspective of the parents, it's pretty simple. No change in taxes, but probably some additional transportation costs. It's unlikely that any kids a long distance from Reynoldsburg will want to transfer and have a long daily commute with gas approaching $4.00/gallon. However, Reynoldsburg High School is right on Livingston Ave, with a COTA stop within a mile. I'm sure that with enough regular riders, COTA would extend their route to the high school. An unlimited-ride bus pass good for one month costs $31 - about $1.50/day. That makes Reynoldsburg schools pretty accessible to lots of kids.

But how can the Reynoldsburg school district afford to take in kids who bring with them only $5,700/yr in state funding, when Reynoldsburg is spending $9,679/yr for each of their kids right now?

As the Dispatch story correctly points out, all Reynoldsburg has to spend is the incremental cost of an additional kid. And if there's an empty seat available, that incremental cost is pretty much zero. And unlike the case for new kids who actually move into their community, Reynoldsburg can shut off new enrollment to outside kids when they reach capacity.

I first wrote about this phenomenon back in 2006, in an article called "Fixed Costs, Variable Costs." The point is that the cost to run a school district doesn't change much when you add or subtract one kid. So if Reynoldsburg can take in some number of kids, and gain $5,700/yr in revenue each, that's pure positive cash flow for them.

And it's pure loss for the school district they come from. This is why public school districts get so wound up about charter schools, because kids attending those community schools take their $5,700/yr of state funding with them, while the cost to operate the public school district changes very little. From the perspective of the school districts who might lose kids to Reynoldsburg, the Reynoldsburg school district feels just like a charter school. You can bet that the leadership of the neighboring districts are pretty miffed at Reynoldsburg for even considering open enrollment.

How should the taxpayers of Reynoldsburg feel, knowing that this would open the doors to kids whose families aren't paying Reynoldsburg taxes?

Well, from an economic standpoint, the Reynoldsburg community should feel pretty good about this. It's smart business - more revenue, no cost. Every dollar in revenue they bring in this way is a dollar of revenue they don't have to generate with more property taxes. Seems like a good thing.

But there's another, more troubling angle on this. Already the Dispatch story has attracted this comment: "Well, there goes the neighborhood."  I'm sure "Big T" is not alone in this sentiment.

We all know that it is illegal to discriminate because of race, religion, gender, and age. But discrimination based on wealth is okay. One could observe that it's not just okay, it's the driver behind a capitalistic economy.  The whole idea of a free market economy is to motivate and reward individuals for working hard and taking a risk here and there. Clearly, one of those rewards has always been the freedom to form an association structured so only those of one's own economic status can be a member.

That's the reason people join exclusive country clubs when they can't golf worth a lick, or why they move to expensive suburbs. Why do we have all these suburban school districts instead of a single countywide school district?  Because, as Elizabeth Warren has observed, the price of admission into a great public school district is typically a house in an expensive neighborhood. It automatically filters out the underclasses, and is completely legal.

This can occur even within school districts, and it has in ours. Just read some of the comments a few of our community members made when, subsequent to the opening of Washington Elementary and Bradley High School, the school board was making the decision about which neighborhoods would be assigned to which building.

There are powerful forces who want to keep things as things as they are: suburban schools, closed enrollment, and no charter schools (because they get the $5,700 in state funding).

But what is this frame of mind costing us in terms of innovation, quality, and tax burden?

I can tell you that the small amount of competition we see now from charter schools is motivating public school leaders to think about how to 'win back' those kids. To be sure, they're lobbying hard at the Statehouse to put the charter schools out of business. But I think they accept charter schools, and perhaps more cases of competition between public school districts like the Reynoldsburg example, as something they'll see more, not less of. I think it will be good for everyone in the long run.

Especially the kids.


  1. I've long said that it it only the wealthy now who really have a choice in where their kids go to school. They can afford to pick a home without concern for price or tax burden or they can choose to pay the taxes and tuition. The poor and lower middle classes have to take what they can get. And, as you point out, if you choose a home in a decent school district and later find that district going downhill, most folks don't have the financial means to make a change.

    School choice is a great solution to this problem, for all the reasons mentioned. I do fear, however, with a pure capitalist system of education, there will be a lot of 'salesmanship' in promoting schools and all that goes with it. Spinning the benefits and hiding the problems. Think about the way car dealers sell cars, for example. Honesty is not paramount.

    Then again, we get the same thing now with selling levies so I'm not sure much would change. I'd rather have the choice than not.

  2. One assumption you are making Paul is that the child moving into the school district would add no additional cost. If this child is an "average" student, that is true. But for arguments sake, let's say that child is an ELL student or has behavorial issues that require a full-time aid. At that point, the school district would very quickly be in a negative variance situation.

    I bring this up because I think one of the biggest variable costs of our district in the past 10 years has been the increase in costs for intervention teachers (usually for ELL or behavior, but also for gifted). By far, the largest growth area in employees has been in this area and costs the district millions each year.

  3. There are certainly some intangibles that enter into the equation, one of which is that there has to be some motivation to make the effort to seek a new school.

    We'll see what happens with Reynoldsburg. Will they find this decision to be a net positive or a negative? Check back in a year, huh?

  4. I'm not sure about Chrysler paying off the full debt...

  5. The new CEO of Fiat/Chrysler was interviewed on CBS Sunday Morning a week or two ago, and he said that they had. This article seems to back that up.

  6. I think it is safe to say that there could be the potential for SIGNIFICANT additional cost depending on what services the student will need from the system. If someone is looking to leave their district, there is probably a reason. Is that lack of opportunity for a gifted child, lack of resources for a child with needs, safety, etc.? There are a lot of those "additional" folks in the school besides the classroom teacher that provide direct student services. They include ELL teachers, tutors, aides, intervention teachers, KLIP instructors, FOCUS and Gifted Instructors, SLP and similar teachers, speech, OT, PT, etc. In addition, I assume the classroom size could max out if outside enrollment occurred. If it did, I will guess (and it's only a guess as I do not know the research) that performance could suffer.

    Honestly, if someone lived in a highly performing school district where the bulk of their taxes went towards education and they could get the same level of service but pay much less, I suspect many would consider moving and just enrolling their student in the school of their choice. Well, I have to think that would reduce the value of the homes in the highly performing school district and there goes the slippery slope with the taxes needed to fund. Now, if the district required them to pay the excess of the $5,700 that would transfer from the current district, it might be a bit more easier to swallow though I don't know. For example, if someone lived in Columbus but enrolled their student into the Reynoldsburg district, Reynoldsburg would get the $5,700 from the state. Assuming the average student cost was $11,500, maybe they charge the $5,800 balance yearly. I think this cost is less that the tuition Hilliard currently applies but I could be wrong. For a homeowner, this would only apply while they had children attending school so living in Columbus may still be a longer-term tax benefit which could be a negative for Reynoldsburg. Right?

    I do think we need a different solution to school funding and I sure don't have it. On the surface, I don't think that Reynoldsburg's open enrollment approach is a good one given the current property-tax based/state pie cutting school funding structure. It would be interesting to learn how communities in other states maintain their quality of education in suburban, rural, and urban environments similar to Central Ohio...

    Just my 2 cents. Paul, thank you for helping keep us informed and keeping the communication lines open!

  7. Paul, I'm not sure if you caught this in the news earlier in the year, but Metro Early College High School is moving to open enrollment this fall, as well. I think this is going to be a great move for Metro, and I hope it's an opportunity for kids all over central Ohio to be part of a great STEM experience.

    I also had a conversation with a friend whose daughter recently started attending Tolles Career and Technical Center, and she loves it. She was failing quite a few of her classes previously, and she's now enjoying school and getting good grades. This kid hasn't changed -- she just found an environment that fit her better.

    As Joe mentioned, one of the really tough things for school districts to do well is to be all things to all people. To the extent that we can foster cooperation among school districts in the Columbus metro area, though, maybe there are opportunities to create more specialized schools like this, and via open enrollment, offer those opportunities to families throughout the area. If we opened up enrollment to all of central Ohio, would it be feasible to start a software development school or a linguistics school, for instance?

    I understand there are some perils with this approach. It's 100% true that not everyone would be able to take advantage of all of these opportunities -- family schedules and commuting requirements might simply make it impossible to get kids back and forth between Hilliard and Reynoldsburg, for instance. But in the spirit of giving parents options, more options for more families is a good thing, in my opinion, and if it allows Hilliard to focus more on providing a solid K-12 environment, then that's probably good, too.

    Beyond that, Hilliard already provides some opportunities that many of these other schools can't touch -- Metro's in no danger of fielding a football team or a marching band, for instance, which are both things that Hilliard does very well. Parents of "football kids" or "band kids" would *love* to have the opportunity to go to Hilliard, wouldn't they? Again -- being great at something is fantastic, but it doesn't mean that you can (or should) be great at everything -- that's a pretty tall order.

  8. Paul, using the myth of the American "free market" is an unconvincing argument for competition among schools. See

    Every kid should be able to attend the school nearest them because the school nearest them should be excellent. (Did you happen to catch the feature "Finnish First" on Dan Rather Report regarding the public schools in Finland?)

    If more competition is needed anywhere, it should in the process of hiring teachers. If efficiency is needed anywhere it should be in the process of firing ineffective teachers.

  9. Mom:

    You made a key point in regard to this Reynoldsburg situation - no one would transfer from their home district to another without a reason. You cite several of them. Sadly, another is athletics. One can bet that if Hilliard School had open admission, there would be a fair number of kids who would transfer here just to get to play on some particular team. By the way, HCSD is completely closed to kids living outside the district - we don't even accept kids with tuition.

    Reynoldsburg is just looking at any way to bring in more revenue than cost, and open enrollment is one way. They can control the influx of students from other districts so as not to go over some 'tipping point' that increases their fixed costs. Who knows - they may be setting themselves up for a future discrimination lawsuit unless their policy ensures that outside kids are taken on some non-discriminatory basis.

    Thanks for commenting.

  10. DL: I suspect Metro may be going to open enrollment as a move to survive. Several central Ohio school districts have pulled out of the Metro consortium, including Hilliard City Schools.

    You hit on the core of the competition argument. When there is the opportunity to compete for dollars, service providers will continuously dream up new ways to meet consumers' needs.

    Our current system tries to be a little of everything for everyone. That's rarely successful.

    The key to sparking this innovation is taking down the public school district boundaries, and let districts compete for kids. Maybe the competition is even at the building level.

    I'm okay with there being a blend of public/private funding. The trick is non-discriminatory access - at least not discriminating on anything other than performance and behavior.

    Many of the foreign public education systems that we like to tout require kids to pass entrance exams to get into academic high schools. Rich kids, poor kids - all get to go to the academic high schools, but they have to measure up academically.

  11. T: I haven't seen the Dan Rather piece, but will look for it. I took Dan Rather off my record list when he went through a dry spell of subject matter.

    Yes, a true 'free market' is a rare beast. There is a spectrum that runs from anarchy to a fully managed economy. We know we don't want to be at either extreme, but will argue perhaps forever where along the spectrum we should be. I'm one who thinks the government has a valid role to prevent fraud for example (preventing the Enron/Worldcom/etc bubble), and put just enough friction in the economy to prevent runaway trains - like the mortgage/real estate bubble.

    And I think the govt should regulate, but not operate things which could be handled by the private sector. I believe K-12 education is one of them.

    I use the word 'discrimination' a lot. I mean it to say that no person should be denied opportunity because of race, creed, color, age, etc. On top of that, there are certain basics of life which we as a humane society should ensure are available to all regardless of economic status. In that I include food, shelter, healthcare and basic education.

    But opportunity isn't the same thing as outcomes. I won't prevent you from getting into the race, but you need to decide how high you want to finish, and put the effort into making that a possibility.

  12. Really not sure how I think of this open enrollment thing. As many have stated, from outside looking in, from a $$ standpoint, it can all look good. But as someone above pointed out, what about those students who are ELL, have IEP's, attendance issues, etc, etc. Those in the long run, would end up costing the district more money and problems. Hilliard is far from an affluant community. Its a great community because of the diversity we do have. But don't kid yourself, there is a good percentage of students who do have IEP's, ELL or major attendance issues. Are we willing to gamble by opening enrolling for more of this for a chance at $?
    Then as mentioned above, you also run into the athletic issue with motives to move from one school to another for the pure motivation of athletics. Thats a complete other possible problem to deal with. Good and bad. More gambles.
    Of course, when more students move in, eventually more staffing would be needed as well.
    As or this competition in regards to Charter schools. Maybe those in the public school side know the facts, such points that charter schools are not held to the same state standards as public schools. That a high percentage of charter schools end up folding their tents for one reason or another. And this, after the state gave charter schools more funding, while cutting public funding. Of course, I could get into the political side with Kasich being tied to Whitehouse management. But I'll people do their own research on that.
    Sorry Paul, I am all about competition. But not in this situation. Too many variables and too many gambles in my opinion. I would highly doubt the good people of Hilliard, those established, would want this to happen in our school district.

  13. I'm not advocating that Hilliard City Schools adopt an open enrollment policy. As you describe, there are many dynamics in play, and those would have to be thought through very carefully. Clearly, the folks most likely to make use of an open enrollment policy would be those living in the little islands of Columbus Public School territory embedded within our district, like the dozen or so houses on Pinefield Dr, which are literally next door to two of our elementary schools.

    I'm confident that Reynoldsburg Schools is considering this because they have capacity in their buildings, but also because if they get just 175 more students, their revenue would increase by $1 million/yr, which could delay their need for another levy for 2-3 years, going by the numbers in their Five Year Forecast

  14. But the point of this post is that from the perspective of the 'losing' district, Reynoldsburg City Schools looks just like a charter school, in that Reynoldsburg would get the state funding that was formerly going to the 'losing' district, while the reality is that the 'losing' district would have no reduction in operation costs.

    A gain of $1 million for Reynoldsburg is a loss of $1 million for other school districts, and there can be no complaints about lack of oversight or substandard performance.

  15. One thing I think people have missed is that Reynoldsburg is unlikely to see a huge influx of students simply because of transportation issues. But as Paul points out, they currently have some excess capacity, and putting it to good use is a good idea.

    HCSD doesn't have that excess capacity, and I doubt the taxpayers are about to stump up bond money for more schools so we can import kids from elsewhere, so nothing to worry about here.

  16. @Paul


    "Otten says the district has received several calls and emails from parents inquiring about the open enrollment.
    He says about 78 percent of school districts throughout the state accept open enrollment applications."

    Seems like they are late to the party!

  17. That means 22%, or around 130 school districts do not allow open enrollment, and you can bet that most of those districts are the suburban ones.

    This is a new thing for suburban schools. It's being driven by the search for revenue as state funding falls off. Obviously they didn't have open enrollment before deciding to implement open enrollment.

    Now dollars are more important than the economic segregation suburban schools provide.

  18. Paul - good thread and comments so far. I agree that school districts, including suburban ones are or will be facing competition from other schools of choice soon. Five year forecasts running in the red are just moving this along sooner. I'm a parent and taxpayer in the Reynoldsburg district and I think offering OE is a good option versus new levies or staff/program cuts. I think the district is pretty effective and has some attractive programs and facilities for prospective OE families. Besides neighboring communities, it will be interesting to see how many RCSD staff members or non resident employees in/around Reynoldsburg would take advantage of OE if offered. There is some decent content about the RCSD OE on their school website.

  19. SpartyBrutus: Thanks very much for your comment, and especially for pointing out that RCSD has posted a good deal of information on their website. The draft policy, the presentation, and the QnA notes are very interesting, and a model of good communications to the people of the district.

    It will be interesting how this works out for your community. We don't have a lot of space for more students in our district, but there are pockets of capacity - our Washington Elementary for example (see current enrollment), which has room for perhaps 100 more kids, or Darby High, with space for maybe 400 more kids. Plus we have the somewhat bizarre case of pockets of Columbus City School territory embedded literally in the middle of our district, making the transportation cost for those parents very minimal.

    And as your presentation states, and my comments above point out, 200 more students generates $1 million/yr in revenue. Such revenue is of course offset by the number of incremental teachers required, so in the case of our Washington Elementary, adding 100 kids means adding 4-5 teachers if we want to maintain current student/teacher ratios, so $570,000 of new revenue is reduced by at least $300,000 in cost, netting about $250,000.

    That's probably a better number to work with - about $2,500 net revenue per OE kid - and it probably works for your district as well.

    Again, thanks for stopping by. Hope to see other comments from your in the future.

    1. Paul - thanks for having me. I think the RCSD is planning on using OE to fill seats in classes that are not "at capacity" versus hiring additional staff. So, we may see higher than $2500/OE student net initially. I was at a couple of the community meetings and they stated they had 200+ openings just in the K-4 schools. I think there may be many more openings if they decided to hire additional staff.

      As you might expect, there are a number of residents who have been expressing fear/doubts about OEs "side effects".

      Ill keep you posted as we have a SB meeting 5/15/12 in which I think the OE question will be decided for the 2012-13 year.

    2. Here's another story on this topic.

      It will be interesting to hear what you BOE decides tonight.

  20. Hi Paul. Just left meeting. Looks like it passed unanimously. Will let you know details later.

    1. Looks like the demand is manageable. Good for Reynoldsburg and good for the kids.

  21. Reynoldsburg is continuing OE again for the 2013-14 year. The 180+ OE students seem to be performing at least as well as our resident students on standardized testing and attendance rates. To me, this has been a win-win-win for the OE families, Reynoldsburg taxpayers and SD staff that have their classrooms filled.

    1. Thanks for the update. As you say, it looks like a positive outcome for all involved. Congratulations to your community.

  22. Looks like Heath is going to give open enrollment a go as well.

  23. And more districts turn to open enrollment as a way to fill idle capacity and generate additional revenue.

    By the way, HCSD does have a capacity for a fair number of additional students. The problem is which buildings have that capacity vs were our students live (e.g. Washington Elementary has space, but our most crowded schools are on the other end of the district).

    Transportation isn't an issue for kids coming from outside the district - they would have to find their way to whatever buildings we say have capacity.

    1. By the way, I find it interesting that a Bill was introduced in the Ohio Senate which would have eliminated open enrollment.

      So the issue, for some at least, isn't that public money is 'leaking' into charter schools, it's that it's following the students from one public school district to another public school district.

      So what's the real issue?