The Wall Street Journal reports today (subscription barrier) that Philadelphia’s experiment with contracting out the operation of public schools to private providers is in jeopardy. Despite showing improvement since the contracting arrangement was introduced six years ago, a budget crunch is now being used as an excuse by district officials to demand that the program be shut down.

This is EXACTLY what happened to the school management firm Education Alternatives Inc. in Baltimore during the early 1990s. EAI was awarded a contract to run some of the city’s schools, the city subsequently spent itself into insolvency, refused to pay EAI what it was owed, and unilaterally cancelled its contract. I wrote about it all here.

For both practical and political reasons, contracting arrangements like these are dramatically inferior to real market reforms like universal education tax credits or school vouchers. Under these arrangements, schools are still bound by districts’ collective bargaining agreements, and sometimes even remain employees of their districts rather than of the private management firms. Students often continue to be assigned to schools based on their place of residence, rather than having a choice, so instead of creating an educational marketplace these programs simply subcontract the existing monopoly.

Politically, such programs are under constant threat of termination on the slightest pretext — usually budgetary as in the cases mentioned above. For any school choice program to create real, lasting market forces, funding has to be attached to the children and not pass through political or bureaucratic hands before making it to schools. The ideal such program is a tax credit (see link above) that avoids having education funds collected by the state in the first place, while still ensuring universal access to the marketplace.