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Sunday, July 11, 2010

Special Education Students: Profit Centers Under Christie Privatization

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This past Friday, a controversial privatization plan was issued by a New Jersey task force setting forth various suggestions for the still-new New Jersey Governor, Chris Christie, to follow. 
There is a small section (page 24) on a proposal for special education programs (such as developmental disorders, the developmentally delayed, autism spectrum disorders, cognitive disorders and physical handicaps).  The proposal suggests that special education be "privatized."  It promises that costs would not increase.  Absolute nonsense!  Anyone who has noticed the wild inflation in college education tuitions knows that government subsidies act as turbo rocket fuel for tuition.  This proposal would spark rampant inflation, and hurt the parents of special education children.  This is how.

Parents of special education students who are dissatisfied with their child's progress would have the ability to move their child to another school within the student's school district, an "eligible" school in an adjacent district "that has space," or a private school.  If the latter option is chosen, the parents would receive a "scholarship" in the amount of the lesser of (a) the cost of educating the student in the home district, or (b) the tuition at the private school.

This set-up seems geared to move these students to private schools.  There are several unanswered questions, however.  

First, we have the effect of the scholarship.  The "scholarship" has a cost that is almost guaranteed to be equal to the previously incurred cost; with state-funded scholarships the private schools will have every incentive to raise their tuition to at least the level of the public schools' cost, as the tuition would be funded 100 cents on the dollar by the state.  There is absolutely no incentive for the school to reduce its tuition, especially as its financial success depends on maximizing its income and having the highest tuition price post it can bear and remain competitive in the marketplace. 

As examples, consider what happens if a private school is charging $10,000 (and I'm just using round numbers -- these are not actual figures) for tuition for a given period.  Assume the local public school cost is higher -- an unlikely event -- and we'll use a figure of $12,001.   The student would be eligible for a $10,000 scholarship under the task force proposal.  If the school raises its tuition to $12,000, the scholarship goes up to $12,000 because it's still less than the public school cost.  This means the private school can raise its tuition and have the state -- that is, all you taxpayers -- fund that raise, dollar for dollar. And if the private school tuition were higher (say, $15,000) than the $12,000 public school cost, the private school would have most of its tuition covered by the $12,001 scholarship.  That private school would have no incentive to drop its tuition when 80% of it will be paid by the state.  It is simple rational behavior; one receiving a subsidy will act to increase that subsidy whenever possible. 

The second question is the source of funds of the scholarship.  (The report conspicuously avoids any mention of this.  Hmmmm.)  One wonders if state aid to schools will be cut every time a special education student decides to leave a district.  Theoretically, that money would go to the scholarship.   However, as schools have a good chunk of their budgets represented by fixed costs, any aid reduction -- from whatever source -- threatens to diminish services to special education students even more. 
I see a death spiral here.  This means that the aid reduction (which I have to presume, because there's absolutely no mention of a funding source for the scholarships) would impair the district's ability to further serve the remaining special education students.  This death spiral would result -- almost as if by design -- in more students going "out of district" or to private schools.  This process could continue and accelerate until the public schools cannot -- or at least not easily -- maintain special education programs.  When this happens, there would be the equivalent of a private school cartel for special education.  At that point, when the only perceived "quality" is in the private sector, those schools would have the power to raise their tuitions unchecked, with parents then forced to choose between a partially-subsidized private education (with the unsubsidized part possibly still being unaffordable) or a deliberately-stripped-down public school program.
The effect on taxpayers: At least a small increase.  The amount of the scholarship for this "privatization" proposal cannot be less than the public system cost unless private schools' tuition is less than the public school cost.  But, as explained above, the private schools will take advantage of the scholarship subsidy to narrow or eliminate any spread between their tuition and the public system cost.  There will be no savings in the real world, only theoretically.  And that is before factoring in the transaction costs of calculating, collecting and disbursing these scholarship monies.  An increase in actual cost to taxpayers is unavoidable.  Any claim to the contrary is simply untrue.
The effect on parents of special education students -- a class of particularly "at risk" and disadvantaged children -- will be inflationary.  State subsidies of scholarships will induce sharp tuition inflation.
The effect on the at risk, disabled children will be speculative and could run the full gamut of scenarios.  But here's one fact:  There can be no assurance that special education services will improve, and no guarantee that these services will not diminish in quality.  In essence, this vulnerable class of children is being put at risk.   Why?
Here's why.  The effect on private schools:  Tuition revenue will increase.  So will profits.  That is not the problem.
Here's the problem.   Your tax dollars are going to fund all the state-subsidized scholarships that will drive those profits.  Taxpayers will see no benefit from this "privatization."  And the children will be placed at risk.
This privatization proposal will turn the most vulnerable among our children into profit centers.
New Jersey can do better than to exploit its handicapped and disabled children.
Eric Dixon is a New York lawyer who is currently researching some special needs / special education funding issues.  He can be reached at edixon@NYBusinessCounsel.com and at 917-696-2442. 


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