San Francisco Fed Proposal for Charter School Funding

Published in the Fall 2011 Bridges publication of the St. Louis Federal Reserve was an article by Ian Galloway of the San Francisco Federal Reserve reviewing a working paper that proposes a charter school tax credit, similar to  Low Income Housing Tax Credits, as a means to end the perpetual cycle of experimentation, hit or miss successes that currently plagues the charter system.

Credits would be allocated to the states, which, in turn, would award them to high-performing charter schools. Upon receiving the credits, schools would sell them to private investors and use the proceeds to fund wrap-around services or intensive classroom-based initiatives. The price paid for the credits would be based on the investor's level of confidence that those services and initiatives will deliver the academic results necessary to stay in program compliance and avoid credit recapture. Compliance requirements would be specific, measurable goals demonstrating low-income student achievement. These standards would have the dual benefit of allowing the government to monitor improvement while also allowing the school to evaluate its own programs and adjust them as needed.

A similar plan was proposed last year by the MO Senate to allow tax credits to those who fund private school scholarships as an option in the Turner Fix. In that instance, the intent was to find a way around the Blaine Amendment in the MO Constitution which prohibits the use of public money to fund religious education. The bill died in the Senate.

Galloway goes on to say, "As policymakers seek to balance their budgets going forward, a charter school tax credit program could offer a fiscally responsible method of funding human capital development because funding would only flow to schools that work."  The Fed can perhaps be forgiven for using the phrase human capital development since their sole focus is financial analysis and policy. The rest of us find labeling our children as "capital" distasteful. Their entire plan seeks to address a social policy question, "How do we provide everyone with a good education?" through the application of creative financial instruments. 

Some lip service is paid to the social issues that affect student performance,

There may be ancillary benefits to a charter school tax credit as well. Low-income student performance is influenced by a host of factors, many outside the direct purview of school. As a result, investors may find complementary community investments to be an effective way to protect their tax credit investment. These investments, combined with the funds raised by the tax credit program, could be sufficient to transform entire neighborhoods, as the HCZ has done in New York City.  [HCZ - Harlem Children's Zone]

 However, note the viewpoint HCZ takes towards its roll in educating children,

HCZ provides program participants with a continual pipeline of reinforcing social and educational services throughout childhood. The pipeline begins with Baby College, targeting children up to age 3, and continues with in-school, after-school, social-service, health and community-building programs.

This is your community school with a data pipeline that starts at birth. The message is clear. In some communities, parents are the worst thing that could happen to a child. Our only choice is to take over the teaching and raising of that child to try to mitigate the parent's/culture's influence.

The paper, as I said, looks at this whole issue from the financial perspective. The article opens with a review of the cost of NOT educating children.

Over their lifetimes, dropouts cost the government, on average, $292,000 in lost tax revenue, public assistance and incarceration expense, and earn $700,000 less than they would with a diploma.

They refer to the plan as an investment plan, and as such apply the venture capitalist's goals, "A charter school tax credit would also ensure that every dollar spent on the program is tied directly to a positive, measurable education outcome." The focus is ROI, with a side benefit of providing a flexible enough atmosphere to make more individualized education possible.

The last statement in Galloway's article is the most provocative. "This affords schools the freedom to address local needs without the often onerous, and potentially restrictive, oversight that comes with direct public funding." So  "specific compliance requirements" with "measurable goals demonstrating low-income student achievement" won't be onerous? And if "These standards would have the dual benefit of allowing the government to monitor improvement" how is that less oversight than exists in publicly funded schools? Sounds like the Fed is trying to have its cake and eat it too. What they are proposing seems more like legalized money laundering that is supposed to clean the money of requirements for education. I just don't think a single credit sale is going to remove all of the DESE, ADA, and USDoE requirements that will be used as the benchmark for the accountability they are promising their investors.


Silly Feds. Funding is not the problem with education. Ideology and public policy are.