The Impact of Government Contracting Out on Spending: The Case of Public Education in New Orleans
| Author | Christian Buerger,Douglas N. Harris |
| DOI | 10.1177/0275074020942257 |
| Published date | 01 February 2021 |
| Date | 01 February 2021 |
| Subject Matter | Articles |
research-article2020
Article
American Review of Public Administration
2021, Vol. 51(2) 139 –154
The Impact of Government Contracting
© The Author(s) 2020
Article reuse guidelines:
sagepub.com/journals-permissions
Out on Spending: The Case of Public
https://doi.org/10.1177/0275074020942257
DOI: 10.1177/0275074020942257
journals.sagepub.com/home/arp
Education in New Orleans
Christian Buerger1 and Douglas N. Harris2
Abstract
In this study, we start with developing a theoretical framework incorporating theories from the contracting literature and
adapt them to the unusual case of nonprofit charter schools, which yields several seemingly novel theoretical insights. In
contrast to earlier studies, we use a quasi-experimental research design, the synthetic control group approach, to test
the impact of contracting on spending for public schooling in New Orleans. Using detailed information on spending, our
empirical analysis shows that contracting increases total operating spending. The additional funds were used to increase
administrative spending, including both the number and salaries of administrators. Fewer resources were devoted to
instruction. Although the number of teachers was largely unchanged, per-teacher salaries and benefits dropped. We utilize
the results to complement the theory of contracting with regard to outsourcing based on funding formulas and the mix of
inputs chosen by contractors.
Keywords
charter schools, education spending, allocation of resources, contracting, synthetic control group
Introduction
programs. About 2.8 million students were enrolled in 6,900
charter schools nationwide in 2016, an increase of 62% com-
Over the last several decades, a large body of research has
pared with 2011. Although only 6% of students nationwide
advanced the theoretical and empirical understanding of
are enrolled in charter schools, they serve more than 10% of
government contracting out the provision of public services
the public school population in 190 mostly urban school dis-
to nongovernmental organizations in exchange for public
tricts (NCES, 2016). The number of charter schools is
funds (Bel et al., 2010). Past studies focused on the determi-
expected to grow even more in the future as the Trump
nants of government contracting, the design of contractual
Administration supports and plans to expand the policy
relationships, and the economic, social, democratic, legal,
(DeVos, 2017).
and political implications of outsourcing (Fernandez et al.,
Charter schools are private, nongovernmental organiza-
2008; Girth & Lopez, 2019; Hirsch, 1995; Lamothe &
tions that receive public funds but control their own day-to-
Lamothe, 2009, 2010; Overman, 2016; Petersen et al., 2015).
day operations, including curriculum and personnel decisions.
Others have focused on the topic of the current study: the
In return for their autonomy, charter schools must fulfill
impact of contracting on government spending (Boyne,
accountability goals as specified in a contract with a govern-
1998; Duggan, 2004; J. Levin & Tadelis, 2010; Prager, 1994;
ment agency. This contract usually lasts for 3 to 10 years and
Stein, 1990). Contracting advocates purport that market
must be renewed in order for the school to continue receiving
competition among contractors, performance-based incen-
public funding. Students can choose to apply for admission,
tives, economies of scale, and reduced red tape decrease gov-
almost regardless of where they live. Several charters are part
ernment spending while increasing service quality (Bennett
of a charter school management organization (CMO) that
& Johnson, 1981; Savas, 1987, 2000).
One noteworthy example is contracting out public educa-
1Indiana University–Purdue University Indianapolis, USA
tion in the form of charter schools, “one of the most signifi-
2Tulane University, New Orleans, LA, USA
cant developments in U.S. education” over the last four
Corresponding Author:
decades (Bifulco & Bulkley, 2012, p. 425). Since the open-
Christian Buerger, Indiana University–Purdue University Indianapolis,
ing of the first charter school in Minnesota in 1992, 43 states
801 W. Michigan BS 4168, Indianapolis, IN 46202-5143, USA.
and the District of Columbia have enacted charter school
Email: cbuerge@iupui.edu
140
American Review of Public Administration 51(2)
control multiple schools. In some cases, CMOs operate
in our analysis spending at all levels of the system: charter
schools like a school district where directives come from the
school, district, and authorizer.
central office (Bifulco & Bulkley, 2012; Epple et al., 2016).
Charter school advocates claim that traditional school
Charter School Spending—Theoretical
districts lack the incentive to cut spending and increase per-
formance, because their structures and processes are too
Arguments and Empirical Evidence
political and too bureaucratic. In addition, they imply that
In this study, we examine the effect of contracting out on
bureaucrats use their monopoly power to increase budgets
both the level and allocation of school spending. Therefore,
and their own welfare. Charter schools, conversely, have
we provide theoretical reviews on both topics, in addition to
greater autonomy and accountability than traditional public
conceptual frameworks about contracting with for-profit and
schools while creating competition between schools, mak-
nonprofit organizations and the sparse empirical evidence on
ing charter advocates believe that they can create incentives
charter school spending and resource allocation.
to increase student performance and decrease operating
expenditure. Without rules created by elected officials and
Theories of the Level of Spending
bureaucrats, costs are supposed to decline and personnel
salaries should more closely align with performance
In contracting schemes, the level of government spending is
(Chubb & Moe, 1990; Finn et al., 2001; Hill et al., 1997;
driven by negotiations between contractors and public man-
Moe, 2001).
agers. In competitive markets, governments face prices for
Little research, however, provides convincing tests of
an additional unit of service that equal the marginal cost of
these theories. Therefore, in this study, we investigate the
providing it (Varian, 2014). Conversely, markets with small
following research questions:
numbers of providers (Brown & Potoski, 2003) or vendors
with large market shares create “thin markets,” without com-
•• What are the theoretical mechanisms determining the
petition, that enable providers to set prices and take advan-
impact of charter schools on education spending?
tage of government agencies seeking to purchase their goods
•• How do expenditure levels and patterns change with
and services (Milward & Provan, 2003, p. 10). Opportunistic
the implementation of charter school programs?
behavior by contractors is more likely if the goals between
•• What are the implications of charter school finances
contractors and governments are not aligned (Brown &
for public sector contracting?
Potoski, 2003; Ouchi, 1980) and service measurability is low
(Brown & Potoski, 2003; Durant et al., 2009; Prager, 1994),
To answer these research questions, we use New Orleans
creating an opportunity for vendors to evade compliance
as a case study, as it has a larger share of charter schools than
(Jensen & Meckling, 1976; Miller, 1992).
any city in the country (Buras, 2014; Kingsland, 2015;
Economies of scale, a decrease in average production
Vanacore, 2017). All the city’s publicly funded schools are
costs while volume of output increases (Stigler, 1958), is one
currently charter schools and, during the time of this study,
commonly discussed factor likely contributing to the level of
the figure was consistently above 90% (North American
spending in government contracting. The more that contrac-
Product Classification System [NAPCS], 2016). As these
tors realize economies of scale, the less public managers
reforms have been in place for more than a decade, New
have to pay for a given service (Donahue, 1989, p. 45);
Orleans is an especially informative case that allows us to
Savas, 1987, 2000). This leads to a tension with competition.
examine spending levels and patterns in a full-scale, fully
Having more contractors reduces the possibility that any one
matured system. The scale of the reforms, combined with our
provider captures the market, but also reduces the efficiency
rich data, also allow us to avoid a problem with past studies,
gains from economies of scale (Brown et al., 2007; Brown &
which have relied on descriptive, correlational research
Potoski, 2003; Milward & Provan, 2003).
designs. In contrast, we can estimate causal effects, using a
Economies of scale have been shown to be relevant for
synthetic control group methodology.
providing education services, even though these findings are
Our study also makes three additional contributions. First,
not commonly accepted by all scholars (Andrews et al.,
we provide a theoretical framework that summarizes the
2002; Duncombe & Yinger, 2008). Charter schools in many
potential changes in the level and use of resources. This
states are Local Education Agencies (LEAs) and administra-
framework pulls together different theories from the con-
tively independent from the...
To continue reading
Request your trial