Tuesday, June 07, 2011

Tom Sgouros on AFMA


The way charter schools are funded under Rhode Island law is that the funding follows the student. A Providence student in a Cranston charter school will result in the City of Providence paying the school the average cost of educating a child in Providence, or around $14,000.

Sounds fair, doesn't it?

It does sound fair, but it's not fair at all, because the loss of a student won't save that district the average cost of an education, but only the marginal cost of a student, which is much less. If I drive three passengers on a trip from Hopkinton to Providence, we will spend an average of a quart of gas per person. However, if one of us decides not to go, and takes his quart of gas with him, the rest of us aren't going to get there on only three quarts. We don't save a quart of gas by not taking one passenger. We save the marginal cost, maybe an ounce or two of gas, if that.

An average is an interesting number, and good way to make a comparisons to other cars or between cars and buses, but it's not always useful for predicting how much gas we'll need. In exactly the same way, it may cost an average of $14,000 per year to educate a child in Providence, but that doesn't mean the system will be $14,000 cheaper with one fewer student. More likely it will be about ten cents cheaper -- and $14,000 poorer. This is a pretty basic point of business economics so I find it surprising that so many people who claim vast business acumen fail to see it.

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