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

Programs that enable students to attend private schools, including both vouchers and scholarships funded with tax credits, have become increasingly common in recent years. This study examines the impact of the nation's largest private school scholarship program on the performance of students who remain in the public schools. The Florida Tax Credit Scholarship Program (FTC) was signed into law in 2001 and opened to students from low-income families in the 2002-03 school year. FTC provides corporations with tax credits for donations they make to scholarship funding organizations, the nonprofits that determine student eligibility for the program and issue scholarships. Corporations can receive dollar-for-dollar tax credits for up to 75 percent of their total state tax obligation each year. [ILLUSTRATION OMITTED] Although little noticed, tax credit scholarship programs now send many more low-income students to private schools than do traditional school voucher programs. More than 104,000 students nationwide attended private schools through tax credit programs in the 2008-09 school year, while only 60,000 students used private school vouchers. Scholarship programs similar to Florida's now operate in several states, including Arizona, Pennsylvania, Rhode Island, and Indiana, and are being considered in Maryland and New Jersey. The Florida program is set to 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 that public schools will improve their own performance when faced with competition for students. Because state school funding is tied to student enrollment, losing students to private schools means losing revenue. The threat of losing students to private schools may give schools greater incentive to cultivate parental satisfaction by operating more efficiently and improving the outcomes valued by students and parents. Alternatively, private school vouchers and scholarships may have unintended negative effects on public schools: they may draw away the most involved families from public schools, community monitoring of those schools may diminish, and schools may reduce the effort they put into educating students. It is notoriously difficult to gauge the competitive effects of private schools on public school performance. Private schools may be disproportionately located in communities with low-quality public schools, causing the relationship between private school competition and public school performance to appear weaker than it actually is. If, however, private schools are located in areas where citizens care a lot about educational quality, the relationship will appear stronger than it truly is. This study takes advantage of the introduction of the FTC to provide new evidence on the effects of increased competition on student achievement in public schools. Before the program began in 2002, roughly 11 percent of students in Florida were enrolled in private schools. FTC targeted students from low-income families, only 5 percent of whom had been attending private schools. We examine whether students in schools that face a greater threat of losing students to private schools as a result of the introduction of tax-credit funded scholarships improve their test scores more than do students in schools that face less-pronounced threats. We find that they do, and that this improvement occurs before any students have actually used a scholarship to switch schools. In other words, it occurs from the threat of competition alone. Florida Tax Credit Scholarship Program In order to be eligible for an FTC scholarship, students must meet the income guidelines (until recently, family incomes below 185 percent of the federal poverty line for new applicants) and either must have attended a Florida public school for the full school year before program entry or be entering kindergarten or first grade. …