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Public education needs the private sector

A significant portion of the $751.7 billion spent annually on K–12 education is used to purchase non-public goods and services.

By Aaron Garth SmithReason Foundation

Public education needs the private sector
93591959 © Konstantin Lobastov | Dreamstime.com

In a recent tweet, journalist Nikole Hannah-Jones, creator of the 1619 Project, recycled a common refrain against school-choice programs, noting that “they funnel public dollars into privately run institutions.” Similar talking points are being used in MichiganTexas, and other states to block policies that give families access to their students’ education dollars and more opportunities for their kids.

This argument is misguided and ignores the fact that public education wouldn’t exist without the private sector. The reality is that much of the $751.7 billion spent annually on K–12 education is used to purchase non-public goods and services.

The wheels of commerce are spinning well before the morning bell rings, with public schools spending over $27 billion annually on transportation services. Manufacturers such as Blue Bird — a publicly traded company that recorded $1.019 billion of sales in 2019 — supply the nation’s 480,000 yellow buses, and about one-third of school districts outsource bus services to private contractors, saving public schools millions of dollars each year.

Without these companies, millions of students would be stuck at home, but that’s only the start. School districts also partner with private entities to build the schools, playgrounds, and athletics facilities they rely on each day.

Nationwide, spending on capital consumes roughly 10 percent of all K–12 education dollars each year, totaling $76.3 billion in 2019 alone. Districts finance much of this spending by issuing municipal bonds, which require private-sector assistance from investment banks, attorneys, and ratings agencies and are purchased by investors such as money managers and insurance companies.

For their part, public-school advocates — including teachers’ unions and other school-choice opponents — almost always support bond referenda, despite the cadre of private actors that profit from them.

Once bonds are approved, school districts hire architecture, engineering, and construction companies to do the work. For example, construction giant Balfour Beatty contracts with districts across the country from Texas to California and has completed over $500 million in projects for the public schools in Wake County, N.C., alone.

Inside classrooms, a similar story unfolds. While nearly half of all education dollars are spent on employee salaries, benefit expenditures for things such as pensions and health insurance account for 21 percent of spending. This includes teacher retirement contributions that are made each year to massive pension funds that invest in equities, real estate, and other financial vehicles that help fund managers diversify risk and hit performance targets. Teachers have a vested interest in U.S. economic growth and benefit from the success of corporate giants such as ExxonMobil, Amazon, and Berkshire Hathaway.

Schools are also increasingly reliant on technology companies to supply computers, tablets, and software solutions that support instruction, and it’s estimated that $26 billion to $41 billion is spent each year on education tech. Similarly, states depend on private firms to administer statewide exams, such as the $388 million in contracts Texas awarded to Pearson and Cambium Assessment.

In some cases, school districts even pay private-school tuition for students they can’t serve. The National Association of State Directors of Special Education says that about 1.5 percent of public-school students with disabilities are placed by their districts into private schools. This practice helps families obtain specialized services and means that public-school districts are already doing exactly what school-choice opponents fight against — sending public dollars to private schools. The only difference is that district bureaucrats, not parents, are the ones calling the shots.

Of course, not all these examples of private-sector partnerships are wise investments or the best use of scarce resources. After all, K–12 transportation is in desperate need of reform, and construction projects can be wasteful. The real issue that opponents such as Hannah-Jones have with school choice isn’t with public dollars going to the private sector, but with competition for students and their per-pupil funding. The public-school monopoly gets weaker when parents can access their education dollars and use them for the private services that they choose, and that’s a good thing.


Powering up America by giving consumers choice

By Peter RoffHavasuNews

America’s high national living standards lead us to consider things like abundant access to clean water, comprehensive cellular service, and a reliable electric grid commonplace. Much of the rest of the world regards them as luxuries unavailable to many people.

Consequently, we tend to think about these things only when they don’t work. Cloudy water creates a crisis. A cell phone outage leaves us stranded. Failures in the power market leave us, literally and figuratively, in the dark about what to do.

The critics of how the market allocates the distribution of electric power allege competition would lead to more brown- and blackouts. Despite abundant evidence they are wrong, they don’t trust the competitive market system to keep the lights on. Even now they’re waging a campaign to upend the market structure in places like my home state of Virginia, where competition has overall helped maintain reliable and affordable electricity.

Electricity generators in the United States operate under different structures, dictated by state and the federal governments. Historically, utilities have been integrated vertically, creating geographic monopolies on the production and sale of electric power. Unified ownership of the different parts of the supply chain – generation, transmission, and distribution of power – by a single producer/distributor creates exclusive service territories with captive customers.

Economics teaches that monopolies are bad, even at the state level. Dependence on a single source for anything leaves customers without the freedom to decide what’s best. Competition is the consumer’s friend. Just look at the explosion in services offered by the telephone companies thanks to the competition created by the breakup of Ma Bell.

The explosion in content creation driven by the internet is analogous to what might happen to power generation if competitive pressures were introduced to the generation of electricity in states currently lacking choice. There are nuances of course but, in general, the restructuring of power markets would end the distribution monopolies. Existing utilities would maintain control on distribution networks, but in most cases will be separated from the generation of power.

Currently, there are seven Regional Transmission Organizations (or RTOs) and Independent System Operators (or ISOs) in the United States that run competitive wholesale power markets. They facilitate open access to power transmission and operate the transmission system independently of, and foster competition for, electricity generation among wholesale market participants.

In short, they replace the cost-based regulatory model with a market-based competitive model, functioning as “power pools” from which multiple independent utilities can draw and share reserves to make power cheaper for you and me. Over time, they have evolved to optimize generator output over wide geographic regions – again, generally reducing consumer costs.

According to U.S Energy Information Administration data, between 1997 and 2017, increases in retail electricity prices in states with competitive electric markets and monopoly states were about the same, while customers in monopoly states saw a slightly higher percentage increase in rates. A Retail Energy Supply Association found that customers in states that still have monopoly utilities saw their average energy prices increase nearly 19 percent from 2008 to 2017, while prices fell 7 percent in competitive markets over the same period.

In competitive markets, electricity is purchased at market-determined wholesale prices. Customers, you and me, can choose a provider rather than be required to purchase our electricity from our local utility. The monopoly system, equally or more expensive from a price perspective, is often tainted by political corruption and scandal. In the last year or so, scandals involving utilities seeking to influence legislation or secure taxpayer bailouts led to the toppling of the top lawmaker in both the Ohio and Illinois House of Representatives.

“Pick a year, and you will find some scandal among monopoly utilities. The corruption shows no sign of slowing down. Instead, the breadth, depth, and cost of such scandals only seem to multiply,” the Conservative Energy Network notes.

It’s time to pull the plug on the old system. Competition in the electricity market produces cost savings for customers, improves service and reliability, and encourages innovations leading to environmental benefits. The drive to gain new customers that comes once a restructured, competitive wholesale market for electricity is introduced – and which several states are in the process of creating – empowers customers, reduces costs, and keeps the lights on.


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