A central idea in new public management (NPM) doctrine is that increasing focus on results and providing managers greater authority will improve the performance of public organizations. In the U.S., however, these tenets of NPM have been only partially adopted, with many governments embracing stringent performance accountability systems but neglecting to increase managerial flexibility. This pattern of adoption is well documented, but its implications for performance have not been thoroughly investigated in the literature.

This paper considers the relationship between the partial adoption of NPM and performance in the context of public schools. This is a salient policy area for such a question, given that accountability systems have become popular methods for improving performance, while the management of human and fiscal resources has remained centralized at the school district level. In recent years, however, several large school districts have worked to decentralize authority to the school level through a policy known as student-based budgeting. Student-based budgeting allocates dollars rather than staff positions to schools, providing principals considerable discretion over human resource and program spending decisions. I am thus able to examine the extent to which additional discretion is associated with improvements in school performance.   

Toward that end, this study investigates whether there were changes in performance associated with the implementation of student-based budgeting in the Houston Independent School District (HISD). While all Texas school districts have operated under a performance accountability system since 1993, HISD remains the only district to have adopted student-based budgeting. I use the synthetic control method for comparative case studies, a data-driven estimation tool that compares a “treated” unit to a synthetic counterfactual that approximates what the unit’s outcomes would have been had it not received the treatment. I find that standardized test scores increased markedly in HISD relative to a comparable synthetic control district, which suggests that managerial discretion is an important element in promoting performance.