Association for Public Policy Analysis & Management

Since the first charter school law in the United States was passed in Minnesota in 1991 (Schroeder, 2004), the charter school sector has grown to enroll 5.4% of public school students nationwide as of the 2014-2015 school year (U.S. Department of Education, 2015). The expansion of charter schools – privately operated but publicly funded schools of choice – has led to concerns about the financial implications of charter schools for traditional public schools (TPSs), which still enroll a large majority of students. Critics worry that charter schools drain resources from local school districts, while charter school advocates counter that with fewer students to serve districts should be able to adjust to lower revenues and may become more efficient or effective in the face of competitive pressure. Some empirical work suggests that charter schools may in some cases impose financial strain on nearby TPSs (e.g., Arsen & Ni, 2012; Bifulco & Reback, 2013; Cook, 2016), but these studies are few in number and imply challenges for generalizing conclusions across diverse policy contexts.

I contribute to this literature by examining how school district finances change as local charter school enrollment grows in California. California is a useful context in which to explore these issues because it is understudied in the literature, the size of the state provides the necessary statistical power for study, and the state’s charter sector has expanded rapidly in recent years. This growth provides the necessary variation in charter market share across years and districts to explore associations with district finances and, importantly, heterogeneity across contexts and levels of charter school competition. Additionally, California’s school funding rules may tend to mitigate the fiscal impacts of charter schools on TPSs, offering a useful contrast to other states and practical implications for policymakers. Using a 12-year panel including detailed expenditure data for school districts, I exploit variation in charter school enrollment across time and between districts to evaluate how district spending and overall financial health change as charter schools expand, controlling for student characteristics and district and year fixed effects.

Results suggest that larger charter enrollment shares are associated with lower levels of per-pupil spending and reduced fiscal health in TPSs. However, these relationships in some cases exhibit significant nonlinearities suggestive of heterogeneous implications for districts facing different degrees of charter school competition. Observed relationships are also somewhat smaller in magnitude than what has been observed in other states, highlighting the ways in which context mediates policy effects. I find no evidence of substantial changes in the distribution of spending in TPSs. Differences between these results and those from similar analyses in other states may be explicable in terms of California’s economic and policy context, providing lessons for stakeholders considering or managing expansions of school choice programs.