Putting Incentive to Work in Education

As the Governor and Legislature move to restructure public education in Michigan, the word incentive should be uppermost in their minds.

There is a time-honored temptation in government to rely not upon the gentle nudge of incentive but rather, upon the iron fist of mandates. That sort of thinking has appeared already in the current debate and reads as follows: Have a good idea? Let's pass a law that forces the schools to adopt it. Should schools privatize their food services, busing or custodial work to save money? Make them do it. Should districts consolidate? Penalize them if they don't.

Any psychologist worth his salt will affirm that the power of positive reinforcement works more effectively to encourage good behavior than force or punishment. The carrot or the stick: the former activates incentive and builds consensus without stifling creativity, while the other usually elicits grudging acceptance at best and may not even get the intended job done.

Americans are faced with a national crisis in education precisely because our top-down, centrally-planned, monopolistic system of government schools stifles incentives for effective teaching, management and parental participation. Bureaucracy and mandates and paperwork exact a terrible toll on school autonomy. Teacher tenure and certification, coupled with union hostility to saving money through contracting out everything from support functions to health insurance, guarantee mediocrity at a high price.

The system treats parents and children as if they were hostages, not paying customers. It sends a clear message: "If you love your kids, send money--and stop bothering us with this `choice' stuff."

Lansing's first order of business should be to create an educational environment in which good things happen because participants in the system have both the freedom and the incentive to bring them about. Schools must become centers of dynamic, educational entrepreneurship. Government cannot simply decree that schools will contain their costs, that teachers will produce better results in the classroom, or that parents will become more involved.

With these principles as a foundation, The Mackinac Center for Public Policy released the outlines of an education reform plan in early September. It stresses parental choice across public school district lines, school-based management and administrative flexibility, and the creation of new, substantially unregulated "charter public schools." One proposal within the plan--an "Education Credit Account" or ECA--is a particularly good example of putting the power of incentive to work.

The Mackinac Center plan assumes that when the smoke clears on a financing scheme in Lansing, some combination of a state "foundation" grant and local supplemental funding will emerge. Funding from all sources should then be "voucherized"--that is, it should go to parents in the form of a scholarship certificate for each K-12 child. Parents would no longer have to secure approval from their home district to send their children to schools outside district lines, if those schools have the space and are willing to accept them.

Such a system will require incentives for schools to constrain their costs and spend resources wisely. Likewise, parents ought to have good reason to select not only quality schools, but cost-effective ones as well. Empowering parents with choice, because it will foster a more customer-friendly environment, will help us achieve both objectives. But more can be done. That's where the Education Credit Account comes in.

Under the Mackinac plan, when a parent selects a school whose "charge" is less than the value of their education certificate, the difference is recorded in an ECA, to be drawn upon as an actual state income tax credit for college or other education after high school. The tax credit would be "refundable," so that low income people who pay low or no taxes would benefit just as fully as higher income people.

Whether parents could utilize 100% of the account or some portion thereof; what bookkeeping charge the government might want to exact for processing the accounts; or what rules should govern the investment of the "unspent" certificate amounts until parents claim their tax credits in the future--all are secondary matters to rewarding parents for taking an interest in the schools and saving the taxpayers' money.

Schools would feel competitive pressure to get the maximum bang for the taxpayers' bucks. If a school's spending was way out of line with that of nearby schools and if it was not offering a corresponding advantage in quality, parents would have incentive to send their children to a more cost-effective school and "bank" the difference in an Education Credit Account. To those who might suggest that parents would pick lower-cost schools for their own benefit at their child's expense, remember that the only benefit parents derive from the ECA is assistance later for their child's post-secondary education.

It would be foolish for a parent to choose a low-cost school that also did a poor job educating children. What good would a credit for college be if the student graduates from a school that doesn't prepare him to be accepted into college? Moreover, a lower-cost school isn't necessarily an inferior school. Public education spending in Michigan has risen by more than 25 percent after-inflation since 1970, and it hasn't purchased better student performance. Many public schools, and almost all private schools, are yielding superior performance at perhaps half the cost of some of the highest-spending schools.

One Michigan newspaper editorialized against the ECA idea, arguing that "This sort of smart-shopper mentality is fine for tennis shoes and motor oil" but not for education. But if it is wrong for parents to consider cost, then it is wrong for school managers to do so too. They should buy the most expensive pencils and chalk, spare no expense in the hiring of personnel, and generally behave as though money grows on trees when it comes to education.

Does anyone really believe that's some kind of secret path to educational quality? Don't parents who shop for quality and low-cost in private education usually end up with a great deal of both?

A proposal before the New Jersey Legislature suggests some innovative twists on the Education Credit Account concept that could enhance its value. Aside from college or other post-secondary education, proponents would allow parents to draw from their ECA for supplementary educational services (summer school, language or musical arts education), or for a more costly school in the future. The New Jersey plan would dispense funds from the ECA in the form of vouchers instead of as tax credits.

Article 8, Section 2 of the Michigan Constitution prevents any sort of public aid to parents who choose private K-12 schools. But even parents who choose those schools could accumulate an ECA, so long as a voucher or tax credit was not available for their use until their child enters post-secondary education. Hence, the creation of Education Credit Accounts would comply with the Constitution and not bias the system against private education.

The bottom line of the ECA is this: Through incentive, schools would work harder and smarter, and parents would gain new hope for higher education for their children. Education Credit Accounts deserve a hearing in Lansing as long as our focus is on educating children, not on preserving systems and the status quo.

An unprecedented opportunity to remake our educational system lies before us. This is not an occasion for timid half-measures that rely upon new commands from government. Let us find creative ways to put the power of incentive to work for all of Michigan's parents and children.