Markets, not judges, set prices, even for education

There is one and only one way to determine the “true cost” of an adequate education. That is to create a competitive education marketplace. Alas, that is not the approach New Hampshire has taken.

Instead, legislators have tried to set the cost by decree. Public school districts, asserting with some justification that the amount is too low, have asked courts to… set the cost by decree.

Now a court has done so, and the results are as absurd as one would expect.

On November 20th, Rockingham County Superior Court Justice David Ruoff ruled that the Legislature’s decreed amount ($4,100 per pupil; he excluded differentiated aid) was unconstitutionally low. But, he said, the plaintiff school districts’ asserted amount ($9,929) was too high. The actual minimum constitutionally permissive state per-pupil expenditure was, he figured, $7,356.01. 

Note the penny. Such precision carries the weight of both mathematical and legal certainty. 

Except, the entire number, including the penny, is merely a guess offered as a suggestion for legislators to consider because the court lacked enough information to find the true figure. So says… Justice David Ruoff.

“Although the evidence demonstrates that a base adequacy aid level of $7,356.01 would be constitutionally insufficient, the Court cannot set a higher threshold at this time,” Ruoff wrote. “Such a step is precluded by the limitations of the evidence presented at trial, as well as the involvement of certain policy considerations. The Court is confident, however, that the guidance offered here will empower the legislature to meaningfully consider and appropriately respond to the relevant issues.”

Well, glad that’s cleared up. 

How did Justice Ruoff conclude both that $7,356.01 was the minimum threshold of constitutionality and that he had too little information to make such a conclusion?

After reviewing the statutory and regulatory requirements for adequacy, and examining actual school district spending, he undertook the following policy analysis: 

He used “common sense” to guess that some district spending wasn’t essential for adequacy, lopped off an arbitrary percentage from some figures (without examining others that would be relevant, such as public charter school spending), and wound up with a back-of-the-envelope guess that can’t quite be called educated, but probably could pass as educated at a cocktail party if it didn’t talk too much. 

Justice Ruoff tasked himself with deciding three questions:

“[T]here are three inquires before the Court: (I) what are the necessary components or cost-drivers of a constitutionally adequate education, as defined by the legislature, exclusive of additional services provided to students eligible for differentiated aid?; (II) what funding is necessary for school districts to provide those components and cost- drivers?; and (III) how does that amount compare to the funding currently provided via base adequacy aid? As the third inquiry is a matter of simple mathematics, the evidence presented at trial largely focused on the first two inquiries.”

To answer these questions, Ruoff considered state requirements and district expenditures. At no point did the court consider whether there might be other, more effective, more efficient and less costly ways to satisfy the state requirements.

Damning for the decision is that the word “market” appears just nine times in the 69-page ruling. Plaintiffs use it to argue for higher teacher compensation, as competition for good teachers drives up wages, and the court uses it to argue that professional development funds are part of adequacy. 

The word is used to justify higher spending, never lower. That’s odd, given that competitive market forces have been shown to improve productivity and drive down costs in K-12 education. 

• A 2010 Harvard University Graduate School of Education study found that “competition from private schools boosts achievement and lowers costs.” According to the study, “a 10 percent increase in enrollment in private schools improves a country’s mathematics test scores on PISA by almost half a year’s worth of learning. A 10 percent increase in private school enrollment also reduces the total educational spending per student by over 5 percent of the OECD average.”
• A 2012 study of open enrollment policies in Wisconsin found that “schools respond to competitive forces by improving quality.”
• A 2003 study found that “regular public schools boosted their productivity when exposed to competition.” That productivity increase typically took the form of higher performance rather than lowered spending. Nonetheless, the study shows that schools can produce better results without higher spending when competition is introduced.
• A 2019 study of private schools participating in Wisconsin’s voucher program found that “private and independent charter schools tend to be more cost-effective than district-run public schools in the state overall and for the vast majority of individual cities.” Particularly, private schools received 27% less funding than district public schools overall but generated “2.27 more points on the Accountability Report Card for every $1,000 invested than district-run public schools, demonstrating a 36 percent cost- effectiveness advantage for private schools.”

Any examination of school spending that ignores chartered public schools and non-public schools is incomplete at best. And any that doesn’t even consider the effects that competition could have on the system is negligent. 

The understatement of the ruling came in Justice Ruoff’s caveat that he was hindered by the “limitations of the evidence presented at trial.” Those limitations, he acknowledged, prevented him from determining with certainty how much an adequate education should cost. But the limitations were greater than he realized. 

Not only did the court lack sufficient school district data to make an accurate cost determination, but it lacked equally important data on the efficiency gains created by competition. Going forward with an analysis despite such huge gaps in available data was a critical error. 

The ruling was plagued with numerous problems, the first being its roots in the wrongly decided Claremont decision. But even accepting the Claremont fallacy, the ruling was doomed by fatal methodological flaws and a devastating shortage of information. 

The information problem should have been obvious from the start. Prices are information. Prices absent competition are woefully inadequate information. Since no competitive education market exists in New Hampshire, the court is left applying legal analysis and back-of-the-envelope math to discover something that only the market can discover: the best available cost of a service. 

It’s clear that legislators set a low figure in the hope that this will press district spending downward. Districts, however, encourage local voters to approve ever higher budgets, which counters the Legislature’s intent. Districts then use those higher levels of spending to claim that the state appropriation is too low. Given these dynamics, it’s impossible to determine with any accuracy just how low district spending could go while meeting the state mandates for adequacy.

Until New Hampshire introduces some form of robust market competition, Granite Staters will never know what an adequate education really should cost.