Designing Public School Open Enrollment

Executive Summary

Public school open enrollment policies are spreading in the US. These policies allow parents to send their children to public schools other than the ones to which they are residentially assigned. Open enrollment could give students access to better schools and give schools stronger incentives to improve their performance. This paper proposes goals that policymakers should seek to advance and clarifies some of the tradeoffs involved with open enrollment policy design. Taking the perspective that the K–12 educational ecosystem is more of an open-ended, evolving marketplace than an engineered mechanism, the paper argues for a careful and sophisticated approach to the finance and governance of open enrollment programs. Open enrollment can promote choice and competition without undermining local fiscal autonomy, a variety of educational options, or the efficient use of taxpayer dollars.

Key Points

1. “Open enrollment,” a form of public school choice, can complement private school choice, give families more educational options and opportunities, and boost social mobility, while strengthening all schools’ incentives to improve.
2. The financing mechanism for open enrollment is crucial. Open enrollment financing should be designed to safeguard fiscal responsibility and improve educational quality. Limiting hold-harmless grants and gradually escalating transfer grants can help get the balance right.
3. Open enrollment works best when school districts have the means, not just the incentive, to improve. Eliminating collective bargaining and giving local schools more autonomy over personnel, policies, budgets, and curriculum are complementary policies to open enrollment, provided local institutions are reformed to place ultimate control in the hands of parents and the public (see 6).
4. States should require districts to let families choose any school within the district or transfer their children out of the district, but states should not force districts to accept out-of-district transfers when doing so would require hiring more teachers or staff or building classrooms. Forcing school districts to accept transfer students without adequate funding could reduce quality.
5. To give districts an incentive to accept transfers, it’s important to let them charge tuition to parents of transfer students so that they have enough resources to educate them. This also allows the state to set the funding that moves from the sending school to the receiving school at a low enough level that it doesn’t devastate the sending school.
6. Local school districts should be made more accountable to local voters so that entrenched interests are less able to block open enrollment participation that would benefit taxpayers and property owners. Aligning school board elections with biennial November elections and requiring school districts to put open enrollment policies on the ballot for residents to decide are two ways of increasing accountability.

Introduction

Allowing parents to send their children to a traditional public school other than the one to which they have been residentially assigned — public school open enrollment — is not a new concept, but it has been gaining steam lately. Alongside charter schools and private school choice programs, open enrollment could help get more students into schools that work for them and give traditional public schools a competitive incentive to improve.

The geographic monopolies that public schools have historically enjoyed frequently offend the average person’s sense of justice. Researcher Tim DeRoche discovered that in Los Angeles and other cities, school attendance boundaries closely track racist “redlining” propagated by the Federal Housing Administration in the 1930s as part of its mortgage guarantee program.^[1] Living on one side of the street or the other makes the difference between being allowed to attend a school with a 77 percent pass rate on state reading exams and being forced to attend a school with only a 31 percent pass rate.^[2]

Open enrollment could therefore liberate families from the limits of residential attendance zones, allowing children from families that cannot afford to buy houses in highly rated districts to nevertheless attend those schools. Open enrollment could be a tool for social mobility.

Open enrollment could also improve the quality of schools in general by fostering competition. When parents have to pay high taxes to fund their local public school in addition to tuition for a school of choice, few of them make that choice. As a result, even poorly performing public schools survive and have little incentive to improve. State subsidies to low-property-value districts make the matter worse: what drives property values down is often poor public school performance, so these subsidies incentivize failure.^[3]

For people who already live in high-performing districts, there’s another benefit: the lower property taxes and higher property values made possible by an influx of revenues accompanying open-enrollment students.

Nevertheless, there are several preconditions for open enrollment success to which policymakers should pay attention. First, public schools must have not just the incentive to compete, but the means to do so, including autonomy over curriculum, personnel policies, and attendance policies. Second, the incentives of local voters need to be aligned with higher public-school quality; otherwise, open enrollment could lead to decreases in public-school quality. Third, the funding mechanism must be designed in such a way that public schools remain fiscally responsible and accountable to parents and taxpayers. This paper explains each of these preconditions with an eye to how to write the legislation that implements open enrollment.

Evaluating Open Enrollment Policies

To evaluate state open enrollment policies, it is first necessary to identify what these policies are meant to achieve. This paper evaluates open enrollment policies based on the standard of how they contribute to higher-quality education, greater social mobility, fiscal responsibility, and responsiveness to household tastes.

In the real world, these goals may have to be traded off against each other. For example, educational quality might be improved slightly through a large increase in expenditure, thereby reducing efficiency. Whether that tradeoff is worthwhile is ultimately a matter of judgment. Different people might come to different conclusions, which is the main justification for the fourth goal above: responsiveness allows households to choose their tax burden and spending levels based on how much they value education. Taxpayers valuing schooling quality highly can live in places that make steep tradeoffs in favor of quality at the expense of efficiency, while taxpayers valuing consumption of other goods more highly can live in places that make the opposite choice.

If a policy leads to worse outcomes on one of these measures without appreciably improving outcomes on other measures, however, that policy is less preferable.

Now that we have some basic goals we should want open-enrollment policies to advance, let’s consider how they could advance or impede progress to those goals. Open-enrollment design elements include the following:

• Are districts required to allow students to switch schools within the district?
• Are districts required to allow students to leave the district for a public school outside the district?
• Are schools required to accept transfer students from other districts?
• Are schools allowed to charge tuition to incoming transfer students or deny enrollment for any reason other than space?
• How does transfer enrollment affect funding? What proportions of funding come from the state and the sending district?
• How does open enrollment interact with the broader school finance and governance environment? Specifically, do schools have the incentives and the means to respond to open enrollment with competitive improvements designed to attract students and reduce costs?

The Promise of Open Enrollment

To figure out how to design open-enrollment programs, policymakers need to think through the foundational logic for them.

Open enrollment holds the promise of letting students escape the monopolies established by school assignment zones, giving parents the opportunity to send their children to good schools no matter where they live. Lower-income families should benefit the most from such a policy, because they are the ones least able to afford the high house prices that are typically found in better school enrollment zones. Moreover, if funding follows the child, open enrollment can enhance competition among traditional public schools, giving them all an incentive to improve and raising educational standards for all students.

On achievement, the literature broadly supports modest positive effects in the near term among students who remain enrolled in the new school. This finding could reflect self-selection, as Carlson and Delaney note in a review.^[4] A study of public school switchers in Colorado over five years found that switchers were disproportionately likely to have experienced test-score declines in the years leading up to their switch, but those test scores, on average, stabilized after their switch.^[5] However, students who reenrolled in their district of residence experienced further test-score declines. On average, open enrollment participants enrolled in districts scoring higher on traditional measures of educational quality than their home district, a finding repeated across other studies.^[6]

A seven-year study of Michigan students found that almost universally, students participating in open enrollment switched to higher-performing schools, but most of them did not see an increase in test scores, apart from those moving to the very highest-performing schools.^[7] By contrast, a similar study of Ohio interdistrict public school choice found that, as in Colorado, consistent switchers saw small test-score gains, African-American switchers saw substantial test-score gains, and consistent high school open enrollers were more likely to graduate high school on time.^[8]

Open enrollment programs also seem to increase achievement in “sending” school districts, implying that competition encourages schools to improve. A study of Wisconsin found that districts experiencing larger open-enrollment outflows subsequently increased performance, while performance did not change for districts experiencing more inflows.^[9] In Minnesota, similarly, larger transfers-out from a school district were associated with subsequent performance improvements, but these were small.^[10]

These studies could understate the extent to which the competitive dynamics introduced by open enrollment boost school system performance. They rely on comparing districts with net outflows to each other and to districts with net inflows. But if open enrollment is boosting the performance of all school districts, then this estimation strategy underestimates the beneficial impact of competition on the overall school system.

Because open enrollment partially delinks residence and school attendance, it decreases the extent to which school quality is capitalized into house prices.^[11] This effect seems largely desirable, because unbundling housing choice and school attendance relaxes a constraint on households, allowing them to choose housing that makes sense for them on criteria other than schooling, such as proximity to jobs or amenities. On the other hand, if open enrollment causes local public-school quality to have less impact on local home values, then property owners without schoolchildren may lose their incentive to monitor school quality. But property owners’ ability to monitor local schools seems broadly less effective than parents’ ability to do so.

Therefore, it makes sense in principle for states to create pathways to open enrollment. To understand why it might make sense for states to make open enrollment mandatory, it is necessary to consider the political science of local public-school governance. Why would public schools and school district administrations ever try to limit student transfers in the first place? Why would a state mandate be needed?

Are There Reasonable Limits on Open Enrollment?

The first reason schools might limit transfers is hostility to school choice and the competition it creates. Teachers’ unions are notoriously hostile to choice and put their ample financial and political muscle behind politicians and policies to resist school choice measures.

School board elections are especially easily captured by special-interest groups like teachers’ unions.^[12] They are low-turnout affairs dominated by district employees and older voters.^[13]

Open enrollment potentially creates significant benefits for homeowners in a locality. If the local district allows out-transfers with some of the local money following the child, that could be a significant benefit for families looking to buy. As a result, demand for housing could be expected to grow in localities that allow out-transfers, increasing property values and thereby indirectly benefiting all property owners.

Allowing in-transfers is also a benefit to homeowners, provided that the district is paid more than the marginal cost of educating the new students. Under these circumstances, the extra money brought into the district could be used to reduce property taxes or increase the quality of the local schools’ educational offerings. In either case, the result is a benefit to residents and should, once again, boost local housing demand and raise local property values.

Since most residents stand to gain from allowing open enrollment, the fact that so many districts resist it suggests that they have been captured by teachers’ unions and other “entrenched” opponents of school choice. But even if school district governance could be radically reformed so that the boards or other local legislative bodies that set open enrollment policies are highly accountable to residents in general, not just pro-school insiders, there may be some legitimate reasons for school districts to limit the use of open enrollment.

One potentially legitimate reason for limiting open enrollment is good planning. If enrollments swing wildly from year to year, that volatility will make it difficult to do good budgeting and program planning for the coming years. It may also interfere with hiring good teachers, who want to have some prospect of job security. These considerations suggest that schools and districts should be allowed to limit at least inward transfers to some percentage of existing enrollment. Limiting outward transfers, however, could trap students in failing schools and remains harder to justify.

Another reason for limiting transfers might be that the legislature sets the funding that a district receives for an inward transfer or loses for an outward transfer far away from marginal cost. If the funding is less than marginal cost and districts may not charge tuition, then districts have an incentive to block inward transfers. Far from contributing to the local tax base, these transfers will be a drain on local resources and reduce local property values. These considerations support “capacity” as a rationale for limiting inward transfers.

If the district loses a lot more than marginal cost for outward transfers, then, for the same reason, the district has a reason to want to block these outward transfers, which will reduce the per-student resources remaining. But some “pain” for schools that lose students is surely necessary to incentivize them to improve performance.

A final reason why districts might want to limit inward transfers is that they want to curate their student body. Where interdistrict open enrollment is voluntary, districts with higher average socioeconomic status, financial health, and test scores are more likely to decline to accept in-transfers.^[14]

Private schools do this kind of curation without much controversy, but the universal-access rationale of public education stands in strong tension with such a practice in public schools. It would be pointless to deny that public schools curate their enrollment under the status quo, monopoly-zoned system: they just do it through land-use regulations.

California provides a good example of how this curation works in practice. There, school finance reforms have made it impossible for localities to improve the quality of their schools by recapturing property tax revenue from new development. Any increases in property tax revenue that come from growing assessments per enrolled student are redistributed to the rest of the state (in essence).^[15] Thus, there is little incentive not to prohibit new multifamily housing. Such prohibitions diminish the tax base but not the fiscal capacity of the school district. Meanwhile, banning multifamily housing keeps out lower-income families and their children from local schools. Since household socioeconomic status correlates with academic performance and other metrics of school quality, this exclusion will make the local public school look higher-quality, in turn further raising local property values.

Here’s an example of how school finance, property values, and land-use regulations interact in California:

[I]n Northern California, the school district of Piedmont is wholly surrounded by the Oakland Unified School District. Piedmont has a reputation, among the highest in the state actually, for academic superiority. Oakland has a reputation as one of the most troubled districts. Holding structural features constant, houses in Piedmont carry a substantial premium in price over those in Oakland, and it would be foolish to deny that entitlement to send children to Piedmont schools is one of the important reasons for the differential. This finding regarding property values helps create a favorable disposition toward increases in school levies among householders who do not have children in school. Non-residential taxable properties in such districts are almost exclusively commercial, not industrial, and the owners of the commercial enterprises — restaurants, boutiques, etc. — find it to their advantage in attracting trade of non-residents, to see the image of a model community maintained, and superior schools are one mark of a model community. The majority of local taxpayers, parents and non-parents both, are likely to see a connection between local outlays for schools and private benefit.^[16]

That was written in the 1980s, shortly after California’s school finance reforms. Left unmentioned is that Piedmont significantly tightened its zoning regulations on new development over the years. Its population has hardly grown since 1960, and it is known as “one of the most exclusive cities in California.”^[17] It is zoned almost entirely for single-family homes.

Using exclusionary zoning to control public school student demographics has immense social and economic costs, a full consideration of which is beyond the scope of this paper.^[18] One of the benefits of open enrollment is that it can undermine this rationale for exclusionary zoning. It does so even more when schools are allowed some discretion over which open-enrollment applicants to admit. This alternative method of exclusion has far less significant negative side effects than interfering in the housing market.

That does not mean that schools should be allowed to choose which open-enrollment applicants to admit. One model of open enrollment seems to take for its ideal a fully centralized, statewide public school system, in which funding would come exclusively from the state, following the child to schools of parental choice. Schools would be prohibited from rejecting transfer applicants for any reason other than limited capacity and would be required to allocate scarce spaces through lottery. This ideal appears to be a public school system based fully on market principles of choice and competition.

But one crucial aspect of markets that such a system would lack is prices.^[19] Public schools could not charge tuition, and therefore parents could not pay more for access to a higher-quality public school. Since state education dollars would be funded out of general taxation rather than local property taxes, there would be no way for households to sort into schools or districts by their willingness to pay for higher-quality public schooling. As a result, many households would end up paying taxes for schooling that does not provide enough value, by their lights, to justify their tax burden.

Others would not be able to obtain as much school quality as they might like. Paying for private school would still be permitted, but many households would fall into the gap where public schools are not of sufficiently high quality yet private schools are too expensive. Allowing private school choice, such as through universal education savings accounts (ESAs), would help deal with the double-payment problem whereby families pay for public schools they do not use as well as the private schools they do use. But in the absence of private school choice, it’s quite possible that a fully centralized open enrollment system could make many households worse off by reducing the quality of the highest-quality public schools. By contrast, if open-enrollment schools were allowed to charge tuition, and the state also funded ESAs, parents could use ESAs to fund some or all of the cost.

One way a fully centralized open enrollment system makes the highest-quality public schools lower-quality is by reducing their per-student spending — these schools attract students but in a fully centralized system cannot necessarily charge what they cost to educate. But another way centralization might reduce quality is by eliminating high-quality schools’ ability to exclude applicants whose records and abilities are inconsistent with the culture of the school. Peer effects in K–12 schooling are real, if uneven across domains, and it is not irrational for parents to seek out schools with better cultures, often observable as having higher-achieving or better-behaved students.^[20]

Whether parents who place a high value on educational quality should be able to buy access to a higher-quality school for their children may seem like a philosophical question that evokes reactions based on attitudes toward social justice and egalitarianism. Allowing parents to buy higher-quality education for their children could mean not just that parents with stronger tastes for education will do so, but also that parents with more ability to pay for quality schooling will obtain it.

But that conclusion would be too hasty, since it is possible to design open-enrollment funding to give more money to schools chosen by parents whose children are eligible for free and reduced-price lunch or have special needs, giving schools a stronger incentive to attract and admit these children. One’s views on egalitarianism will likely affect one’s position on whether state funding should be modified in this way. Currently, most open enrollment programs follow the general state aid formulas, which do in fact differentiate aid based on student characteristics.^[21]

Allowing parents to invest in schools that they have sought out specifically for their educational qualities likely has broader benefits to society. Parental investment should benefit a school’s educational culture and performance. When they pay tuition, parents may be more likely to monitor school performance and engage in their children’s education. This parental involvement should itself raise school performance.

In conclusion, there are potentially valid reasons for public schools to limit the admission of open-enrollment students: if the funding does not cover the marginal cost of educating new students, if volatile enrollments disrupt planning and budgeting, and if schools could attract higher-quality students and more engaged families by charging tuition. The next section elaborates on how open-enrollment policies should be designed, in concert with other state educational and fiscal policies, for the success of the overall system.

Design Principles for Open Enrollment

Mandatory or Voluntary?

The first-best open enrollment policy is mandatory with respect to all intradistrict transfers and to transfers out of district but voluntary with respect to transfers into a district, combined with institutional reforms that make school governance accountable to local taxpayers. There is no legitimate reason to ban transfers across schools within a district, which is a consolidated unit of governance and budgeting, nor is there any good reason to prevent families from transferring their child out of district, provided the financing of open enrollment doesn’t burden sending districts too heavily. As noted above, the threat of out-transfers can stimulate improvements in district performance.

But there can be good reasons for limiting or even prohibiting transfers into a district. Allowing districts to limit transfers-in would give state policymakers useful information about open enrollment design, allowing them to adjust the program to encourage more districts to opt in.

A blanket mandatory open enrollment policy effectively assumes that the legislature has figured out the ideal mechanism for financing open enrollment, and that local institutional reforms will never make school administrators sufficiently accountable to their constituents. As discussed below, neither assumption is justified.

Financing Open Enrollment

Financing is the trickiest element of open enrollment. In addition to allowing parents to send their children out of district, it is important to have some funding follow the child. This funding ensures that the receiving district is not burdened by the new enrollment and gives both sending and receiving districts an incentive to seek higher enrollments through better educational quality.

How much funding should follow the child? The problem is that marginal and average per-student costs can differ significantly. The short-run marginal cost of educating an additional student is low. If schools are allowed to reject transfer applicants on the grounds of capacity (where capacity is defined as the number of students that can be taught without any new hires), marginal cost is virtually zero. A small amount of funding should be sufficient to compensate receiving districts.

But if open enrollment is to be more transformational, good schools need incentives to grow. Then more students could attend successful schools, and unsuccessful schools could shut down.

Taking potential new hires into account, short-run marginal cost could be operationalized as one divided by the number of additional enrollments that would necessitate hiring an additional teacher, multiplied by the expected salary and benefits of that teacher, plus a similar calculation for noninstructional staff:

MC = T/k₁ + S/k₂,

where T represents marginal teacher compensation, S represents marginal staff compensation, and k₁ and k₂ are the numbers of students that would require hiring each.

In the short run, additional enrollments do not increase the cost of constructing and maintaining the school building, costs that contribute to measured average per-student cost. Over longer time horizons, marginal costs converge more closely to average costs. Over the expected life of a building, they are identical.

Ideally, sending and receiving districts would negotiate in good faith over the funding that would follow the child, and they would do so because they are fully accountable to taxpayers and parents. But for political reasons, districts are more likely to try to sabotage open enrollment than to facilitate it, if left to their own devices.

The fact that average costs are higher than marginal costs suggests that when a student takes advantage of open enrollment, only some share of the average per-student cost of educating that student should flow to the new school, with the remainder remaining with the old school, leaving its per-student funding higher than before. But the share remaining with the old school shouldn’t be so generous as to attenuate competitive incentives and cause schools to become eager to have students leave.

States differ in terms of the proportion of public-school funding that comes from the state versus local sources. In the average state, roughly 55 percent of public-school revenue comes from state and federal sources and roughly 45 percent from local sources, including donations and property tax revenue.^[22] These differences matter because in states where school financing has a significant local component, localities may differ in their per-student school expenditures.

A Funding Example

An example may help. Suppose that in state A, the state transfers a base grant of $7,000 per student to schools according to average daily enrollment. For now, assume the base grant is not modified by factors such as student income and disability. Low-performing district X has 100 students without special needs and spends $15,000 per child after subtracting the cost of special-needs education. Local resources then account for roughly $8,000 of the average (not marginal) per-student cost. High-performing district Y has 100 non-special-needs students and spends $22,000 per child after subtracting the cost of special-needs education. Local resources then account for roughly $15,000 of the average (not marginal) per-student cost.

Suppose now that state A adopts an open-enrollment program. Eighty percent of the state base grant will go to the receiving district, and 20 percent will remain with the sending district. Ten students transfer from district X to Y. District X loses $56,000 in state funding to district Y, but retains $14,000 in funding from the lost students. District X now has $1.44 million to educate 90 students at a revenue per student of $16,000, a $1,000 increase. District Y now has $2.256 million to educate 110 students at a revenue per student of $20,509, a decrease of $1,491.

Are districts X and Y better or worse off? The answer depends on the marginal cost of educating a student. First, let’s suppose it’s smaller than the state transfer, say, $3,000 for district X and (22/15) × $3,000 ≈ $4,400 for district Y. Then district X is worse off because its costs fall by $30,000, but its revenue drops by $56,000. District Y is better off because its costs rise by $44,000 and it receives $56,000 more. This is precisely what the policy seeks: district X should be worse off because out-transfers need to give district X an incentive to improve. District Y should be better off because districts should have an incentive to attract students.

But a 20 percent ratio of marginal to average costs is probably implausibly low in some contexts, even in the first year after a transfer. If the ratio is 50 percent — a $7,500 marginal cost in district X and $11,000 in district Y — then the math changes unfavorably. Now district X is better off with the out-transfer because its costs drop by $75,000 yet its revenue only falls by $56,000. Similarly, district Y is worse off because its costs rise more than its revenues. In fact, even if the state formula is tweaked to give 100 percent of the base grant to the receiving district and none to the sending district, the sending district remains better off and the receiving district worse off.

Lawmakers could address this problem by requiring the sending district to transfer some of its own local resources raised from property taxes to the receiving district. But for a range of values, it is possible that districts X and Y are both worse off, because the marginal cost of education is higher in district Y. Whenever the total transfer from X to Y, including the state grant, lies between $7,500 and $11,000 per student, and district Y is unable to charge top-up tuition, both districts X and Y are worse off as a result of the transfer. This result is clearly undesirable.

Implications for Policymakers

Clearly, it is important to get the funding mechanism for open enrollment right. But the broader lesson from this exercise is that it is impossible to know in advance what the right transfer amount is. The problem becomes even more difficult when marginal costs change over time. As a student remains in a school of choice, the marginal cost of educating that student rises, as more of the costs become variable rather than fixed. For example, a high-performing district could choose to limit future enrollment by reducing its building capacity, perhaps by building a smaller school to replace an old one, or even by selling a larger school building to buy a smaller one. Or it could choose to increase its capacity by bringing in portable units or building additions to accommodate new students. The latter choice is preferable from a system design perspective because more students should have access to high-performing schools.

So what should policymakers do?

First, districts should not be required to accept transfer students, except perhaps with a broad capacity exception that does not require receiving schools to hire additional staff. Rejecting transfer students is useful information for policymakers: it tells them that marginal costs have been underestimated in high-performing districts. When too many districts are refusing transfer students, that is a signal to lawmakers that they need to increase the revenues that receiving districts get.

Second, policymakers should not ban receiving districts from charging tuition. There are at least three reasons for this. First, tuition is an inducement for districts to receive transfers. Second, tuition-paying parents are more likely to be invested in the success of their child’s new school. Parental involvement will likely boost the intangible social capital and performance of the school. Third, tuition allows local communities to retain fiscal autonomy and taxpayer accountability. It allows low-spending districts to maintain their residents’ chosen policy without being conscripted into subsidizing out-transfers at a higher rate than local students.

Another look at the previous section’s example illustrates the point. Suppose that the marginal cost of educating a student is $7,500 in district X, but in order to make open enrollment work for district Y without letting it charge top-up tuition, the state transfers $13,000 from district X to Y ($7,000 through the state grant, $6,000 through a transfer from district X to Y). Since this transfer is substantially larger than district X’s marginal cost, it makes district X substantially worse off. But if district X is lower-performing mostly because its residents have chosen to spend less on education, not because it is inefficient or badly managed, then this level of “punishment” looks disproportionate. District X will have to raise taxes, cut school spending further, or both, to meet residents’ expectations and values. To be sure, the availability of open enrollment should make families in lower-performing districts better off and, the research suggests, increase property values and therefore fiscal capacity in those districts. But these effects can only go so far, and if grant transfer amounts are set too high, they could seriously damage residents of districts that spend less on public schools.

For these reasons, it is tempting for lawmakers to inject more state dollars into the open enrollment program to grease the skids. For example, lawmakers could boost the state grant for transfer students from $7,000 to $10,000. That would take $7,000 away from a sending district (plus whatever the district itself is required to transfer) but give the receiving district $10,000, increasing overall state expenditures. But states face a balanced budget constraint and must make up in higher taxes whatever they increase in expenditure.

Therefore, a better, more market-respecting way to “grease the skids” of open enrollment is to allow receiving districts to charge top-up tuition beyond the grants they receive from the state and from sending districts. This approach allows policymakers to set the required transfer grant at a lower level, one that does not handicap lower-spending districts and force them to raise taxes on their residents.

The third lesson for policymakers is to consider adjusting the per-student grant for the duration of time that a student remains enrolled in a receiving district, on the principle that marginal costs gradually rise toward average costs over time. This adjustment may also encourage schools to work to retain their open-enrollment transfer students, which the research suggests may have benefits for student performance.

When designing public school open-enrollment financing, state lawmakers must avoid two extremes. At one extreme are excessively low grants, a tuition ban, and mandatory acceptance of transfers, which would force receiving districts to educate students at below marginal cost and punish schools for high performance, generating a race to the bottom. At the other extreme are excessively high grants, which would either unduly incapacitate low-spending districts and force them to raise taxes on their own residents, or, if paired with extra state money and “hold harmless” grants (which prevent districts from losing state dollars even if their enrollments drop), raise state spending and tax burdens and possibly diminish competitive discipline for poor-performing districts. The sweet spot is to make district acceptance of in-transfers voluntary, allow them to charge top-up tuition, and set transfer grants initially at a low level, increasing them carefully if lawmakers judge that open-enrollment participation is too low.

Institutional Reforms

Open enrollment works best when paired with institutional reforms to make school district governance more accountable to residents and more capable of reform. The basic political-economy problem is that school districts are all too often captured by insiders, especially administrators and teachers’ unions. Low-profile, low-turnout school board elections can make such capture easier.

One way to increase school district accountability is to place ultimate control of schools in the hands of mayors, city councils, or the legislative body of a general-purpose local government. These officials are often higher-profile than school board members, and it is easier for local voters to hold them accountable.

Increasing turnout at local elections is possible through scheduling them on general-election days. But in some states, local elections are annual, while state elections are at best biennial. An alternative approach is to place important school issues on the two-year general-election ballot. A school property tax cap could be voted on every two years to guide and constrain the budgeting decisions of school governing bodies. Open-enrollment policies themselves — whether to accept transfer students and under what terms — could be routinely put on the two-year general-election ballot for all residents to decide whether districts may accept transfers and under what terms.

In addition, states should forbid public school districts and their employees from engaging in electioneering with public funds. This practice is already illegal in many states, but districts often flout these laws.^[23]

Fiscal decentralization should raise the importance of local elections and help boost local turnout and involvement. States should reduce their grants to school districts, reduce the extent to which they redistribute from high-capacity to low-capacity districts, and force schools to rely more heavily on local revenue sources, such as donations, private grants, and property taxes. This approach will activate a “homevoter” coalition with a vested interest in making sure public schools are efficiently governed.^[24]

But it’s also important to make sure that schools have the autonomy to improve their performance. The single most important reform states could make here is to ban collective bargaining for school employees, freeing district administrators to be more entrepreneurial in their staffing and policy decisions. Giving local districts more autonomy to opt out of public-sector retirement and health plans would also give them more ability to control costs.

State legislatures should also avoid adding mandates to local curricula, staffing, or practices; review the mandates that already exist; and remove as many as possible. State boards should focus on providing guidance and information to schools rather than checking regulatory compliance. States must retain a role in collecting data from schools, which means requiring schools to report such data, including standardized test scores, so that parents can use open enrollment to make informed decisions.

Guidelines for Successful Open Enrollment Design

• Require districts to allow intradistrict open enrollment and interdistrict transfers out of district, but allow districts to reject out-of-district applicants for broad capacity reasons.
• Allow districts to charge reasonable top-up tuition to transfer applicants.
• Set transfer grants at a low level at first, but limit “hold harmless” grants to prevent sending districts from having an incentive to push students out. Increase transfer grants gradually to increase receiving district participation.
• Apply bonuses to transfer grants for free and reduced-price lunch students and special-needs students so that districts have an incentive to admit such students.
• Increase local fiscal and operational autonomy so that schools have the tools to compete for students.
• Make school district governance more democratically accountable by adopting institutions that increase local turnout and clarify responsibility.

Conclusion

Too little information has been available for state policymakers to consider when evaluating open-enrollment proposals. This paper seeks to remedy that deficiency.

Unfortunately, the information that does exist is sometimes insufficiently attentive to the systemwide incentives that open-enrollment programs create. For example, the Reason Foundation’s “Seven Best Practices for Open Enrollment” would, if implemented, maximize parental choice at the expense of fiscal responsibility and, possibly, school quality.^[25]

Reason’s best practice #1 calls for states to require districts to accept interdistrict transfer students under all but “limited reasons, such as school capacity.” This policy could work if “capacity” is interpreted broadly so that attractive schools do not have to hire staff and face very low marginal costs. But this approach would also limit the transformative potential of open enrollment. Successful schools should be allowed to attract many more students.

Reason’s best practice #3 calls for banning the ability of districts to charge top-up tuition to transfer students. If implemented with mandatory interdistrict open enrollment, this policy would likely have a leveling-down effect on higher-quality schools.

Reason’s best practice #4 calls for banning districts from discriminating among transfer applicants based on abilities or disabilities. This policy limits the ability of schools to curate their student bodies for a good cultural mix. Allowing schools to decline special-needs applicants provides legislators with useful information: they should increase the transfer grant for special-needs students if this practice becomes widespread.

Reason’s best practice #7 calls for letting rejected transfer students appeal to a non-district entity. This policy goes hand-in-hand with the other three mentioned here. It again risks obscuring the market information that transfer rejections could provide for iteratively improving system design.

One good aspect of Reason’s best practices is an emphasis on district transparency. It’s important for the state to ensure that parents and voters alike have access to the information they need to assess school quality, availability of seats, application procedures, and other essential information.

Overall, however, the Reason approach to open enrollment doesn’t sufficiently consider local information about marginal costs and benefits and varying local tastes for schooling. These factors are precisely the “hidden” attributes of the supply and demand for schooling that can only be revealed by market choices and the price mechanism.^[26]

Reason is emphatically correct to promote open enrollment as a policy that can reduce the baleful effects of housing red-lining and exclusionary zoning, open educational opportunity to more families, promote social mobility, and improve the overall quality of schools through greater choice and competition. But consumer choice without producer choice and competition without prices can have deeply perverse consequences, including, in this case, a possible “race to the middle” in school quality.

State lawmakers should consider adopting and expanding open-enrollment policies, but they must do so carefully to ensure fiscal responsibility and a system that provides the right incentives and autonomy for schools to improve and attract students.

Acknowledgments

The author gratefully acknowledges useful comments from Jude Schwalbach and an anonymous reviewer. All remaining errors are the author’s own.

Notes

[1] DeRoche, A Fine Line: How Most American Kids Are Kept Out of the Best Public Schools.

[2] Ben Chapman, “How LAUSD School Zones Perpetuate Educational Inequality, Ignoring ‘Redlining’ Past.”

[3] Sorens, Little Leviathans: The Rise of State Government in America.

[4] Carlson and Delaney, “Interdistrict and Intradistrict Open Enrollment,” 4.

[5] Carlson et al., “Should I Stay or Should I Go? Open Enrollment Decisions and Student Achievement Trajectories.”

[6] Carlson and Delaney, “Interdistrict and Intradistrict Open Enrollment.”

[7] Cowen and Creed, “Public School Choice and Student Achievement: Evidence From Michigan’s Interdistrict Open Enrollment System.”

[8] Carlson and Lavertu, Interdistrict Open Enrollment in Ohio: Participation and Student Outcomes.

[9] Welsch and Zimmer, “Do Student Migrations Affect School Performance? Evidence from Wisconsin’s Inter-District Public School Program.”

[10] Babington and Welsch, “Open Enrollment, Competition, and Student Performance.”

[11] Brunner et al., “Mobility, Housing Markets, and Schools: Estimating the Effects of Inter-District Choice Programs.”

[12] Anzia, “Election Timing and the Electoral Influence of Interest Groups”; Anzia, “The Election Timing Effect: Evidence from a Policy Intervention in Texas.”

[13] Kogan et al., “The Democratic Deficit in U.S. Education Governance.”

[14] Carlson and Lavertu, Interdistrict Open Enrollment in Ohio: Participation and Student Outcomes.

[15] Hoxby, “All School Finance Equalizations Are Not Created Equal.”

[16] Benson and O’Halloran, “The Economic History of School Finance in the United States,” 503.

[17] Ravani, “Piedmont Residents Wrestle with How to Add More Housing to Exclusive Enclave.”

[18] On the consequences of exclusionary zoning in general, see for instance Ganong and Shoag, “Why Has Regional Income Convergence in the US Declined?”; Glaeser and Gyourko, “Zoning’s Steep Price”; Ellickson, America’s Frozen Neighborhoods: The Abuse of Zoning. For a study specifically on the costs for student segregation and opportunity, see Rothwell, “Housing Costs, Zoning, and Access to High-Scoring Schools.”

[19] On the critical role that prices play as signals and incentives in coordinating exchange for mutual benefit, see F.A. Hayek, “The Use of Knowledge in Society.”

[20] Some of the most-cited results in this literature follow. Moving low-achieving minority students into affluent schools has no impact on white students but temporarily reduces scores of minority students already in the affluent schools: Angrist and Lang, “Does School Integration Generate Peer Effects? Evidence from Boston’s Metco Program.” Winning a lottery to attend a highly ranked Chicago public school has no effect on test scores but improves disciplinary and arrest outcomes: Cullen et al., “The Effect of School Choice on Participants: Evidence from Randomized Lotteries.” A meta-analysis of the empirical literature on the effects of peer socioeconomic status (SES) on academic achievements finds that the best-specified studies find that peer SES is an important determinant of academic achievement: Ewijk and Sleegers, “The Effect of Peer Socioeconomic Status on Student Achievement: A Meta-Analysis.” Nonlinear studies find significant peer benefits for high-ability students, and peer studies generally find strong effects on behavioral outcomes: Sacerdote, “Peer Effects in Education: How Might They Work, How Big Are They and How Much Do We Know Thus Far?”

[21] Wixom, Policy Snapshot: Open Enrollment; Learning Policy Institute, Funding Student Needs Through State Policies.

[22] National Center for Education Statistics, “Digest of Education Statistics,” tbl. 235.10.

[23] Quintero, “NISD Playing Politics on the Public Dime”; Porter, “N.H. School District Warned over Illegal Electioneering Flyers.”

[24] Fischel, The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies.

[25] Schwalbach, Public Schools Without Boundaries 2025: Ranking Every State’s Open Enrollment Laws.

[26] Hayek, “The Use of Knowledge in Society.”

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