The Real Lessons of Walter French Academy

After several years of poor performance and financial mismanagement, Walter French Academy, a charter school, had its charter revoked last month. It was forced to close as a result.

Some state lawmakers are calling for expanded regulation of charter schools, citing Walter French’s failures. Sen. Virg Bernero, D-Lansing, wants tighter regulatory control of the schools, calling Walter French Academy "the poster child for the abuse that is possible under the current [charter school] structure — or lack thereof."

The House agrees. A Republican-sponsored bill that passed last year would impose more regulation on charter schools. The only thing holding it up in the Senate is that the bill would also permit the creation of more charter schools—which many Democrats oppose.

So Michigan lawmakers generally agree that more and tighter regulations would reduce or prevent problems like those at Walter French. Are they right?

If we knew nothing about how well education regulations achieve these intended aims, then the lawmakers’ suggestion might be worth a try. But we do know something.

We know that Detroit Public Schools are subject to every conceivable local, state, and federal education regulation. We know that Detroit public schools have been performing poorly not just for a few years, but for decades. We also know that Detroit public schools have suffered not only fiscal mismanagement, but criminal misconduct, and that they have successfully resisted reforms suggested by their own CEO, Kenneth Burnley, even when these changes would improve their regulatory compliance.

In fact, if we compared the record of the mega-regulated Detroit Public Schools with that of the slightly-less-regulated Walter French, Walter French would not look so bad.

But first, let’s admit that this comparison might be a bit unfair—to Walter French. While Detroit’s student body is 68.7 percent economically disadvantaged, the same was true of 74.3 percent of Walter French’s student body. And while Detroit’s most recent operating budget¹ was about $11,350 per pupil, Walter French had to make do with $9,708 per student in the 2002-2003 school year.

Still, Walter French did better than the Detroit Public Schools in three of the five grades for which comparable state test scores are available. And Walter French’s dropout rate is less than half that of Detroit’s.

Last year, Walter French reported a deficit of $656,000. This year, Detroit Public Schools reported a budget shortfall of $160 million. If you divide that figure by the total number of schools in Detroit (264), it comes out to $606,000 per school, not far from the deficit at Walter French. Detroit is also forecasting an additional $90 million shortfall for next year.

Granted, Detroit has been able to plug much of this year’s gap by exhausting its "rainy day" fund, but Detroit and Michigan taxpayers had better hope it never rains again.

Referring to a 1986 bond issue, former State Treasurer Mark Murray complained that it was impossible to "tally and enumerate what had actually happened to the funds," because "the most basic work of financial record keeping… was not in place."² Eventually, the district had to take $12.8 million out of its general fund "to pay back bond money that was misused." That money, of course, came out of the pockets of Michigan’s taxpayers.

The District’s handling of the $1.5 billion 1994 construction bond has been equally troubled. In 1999, a seven-month Detroit News investigation found rampant "cronyism," "incompetence," and "mismanagement," with contracts often going to someone other than the lowest responsible bidder. Five years into the bond, the District still did not have a regular maintenance plan to prevent newly repaired buildings from once again falling into ruin.

In 1998, the district and its former Superintendent David Snead were fined $373,500 by a federal court for wrongfully firing an auditor who had threatened to report accounting errors.

And it is hard to imagine that Walter French Academy could have pulled off any criminal misdeed so impressive as the 1985 bribery scheme devised by then-Detroit school board president Harold Murdock. The District was eventually forced to pay $11.1 million in damages arising from the scam—and it passed the bill to taxpayers in a special levy.

So let’s recap. Not only has the tighter regulatory burden applied to the schools in the Detroit system failed to stop problems like those at Walter French Academy, it has allowed them to fester for decades, with no end in sight.

Walter French was shut down. The Detroit public school district can’t be, because the people of Michigan have not given its 148,000 kids any place else to go. They voted down a 2000 school voucher initiative that would have made it feasible for these kids and their families to escape the district.

The fact that regulation cannot stop poor performance or financial mismanagement is just one of the lessons we should learn from all this. There’s another: Walter French would have closed down even without the revocation of its charter.

Parents knew something was seriously wrong. Enrollment plummeted by 212 students in just the last year, and the re-enrollment rate of existing students fell from 60.7% to 50% to 25.4% over the past three years. That school was history, charter or no charter.

So let’s imagine a different scenario from the one so popular among legislators. Instead of further burdening our education system with red tape, what would happen if we empowered parents to hold the schools accountable directly?

Imagine Michigan had a universal education tax credit program that would reduce the taxes you pay by about a dollar for every dollar you spent on a child’s education. Parents who paid for their own children’s education would save on their taxes, and other taxpayers and businesses would save on their taxes if they donated money to scholarship organizations that financed the education of low-income students.

So let’s say that Walter French Academy was a private school, and that the low-income children who attended it were receiving those tax-credited private scholarships. What would have happened?

First, the parents pulling their kids out of the school would have had a lot more choices, because they wouldn’t have been limited to only public schools and charter schools. They could have chosen other private schools, too.

Second, Walter French might never have been able to open in the first place. To open a private school, you have to raise money from parents, philanthropists and private lenders. These parties don’t want to waste their money, so they have a powerful financial incentive to make sure the school has a solid business plan and the expertise to execute it.

Charter school authorizers, in contrast, don’t have that incentive. If one of the schools they authorize fails, they don’t suffer a loss of investment capital. It’s the taxpayer who has to pay for their mistake.

Third, if the school did successfully attract private monies and then failed to perform according to plan, it probably would be shut down even sooner than it was as a charter school. (Try not paying your mortgage for six or seven months and see how quickly the bank forecloses.) Walter French Academy had apparently been running a deficit for six straight years.

Fourth, if the school had significant debts when it was closed down, you wouldn’t have to cover them. If it committed any crimes, you wouldn’t have to pay any fines assessed by the courts.

So how about this: Instead of shoveling on more regulations, let’s empower parents to choose any school they want, and let’s hold schools accountable by using the proven power of the marketplace. It’s the best way to help Michigan’s kids.

¹ Excluding interest on school bonds and capital expenditures, but including food-service.

² Cited in: Douglas C. Drake, "Directions and Issues in the Detroit Public Schools; Reform Challenges and Initiatives in Large Urban School Districts of the Midwest," presentation slides, State Policy Center of Wayne State University and Federal Reserve Bank of Chicago, November 19, 1999.