Data shows financial incentives matter for K-12 open enrollment policies
2095188 © Glen Jones |


Data shows financial incentives matter for K-12 open enrollment policies

If school districts do not receive sufficient funding for transfer students, they’re not going to be as willing to participate in an open enrollment program.

Policymakers throughout the country are pursuing K-12 open enrollment policies that give families educational opportunities across school district boundaries. There are a number of important policy design considerations lawmakers should take into account when drafting open enrollment legislation, but research from California’s public schools shows it’s critical to get the financial incentives right in order for school districts to accept transfer students.   

California’s District of Choice program started in 1993 and aims to provide families with greater choices within the state’s public education system. School district participation is optional and unlike the state’s primary student transfer law—the Interdistrict Permit System—families can apply directly to Districts of Choice without the consent of their home school districts, removing bureaucratic obstacles that can prevent students from accessing open seats in other schools.

Although California’s policy falls well short of robust open enrollment laws in states such as Florida, Wisconsin, and Arizona, its 45 participating school districts open their doors to nearly 10,000 students each year. In 2021, the state’s Legislative Analyst’s Office (LAO) produced a follow-up evaluation to its 2016 report, once again giving high marks to the program and providing valuable insight for state policymakers across the country.

LAO’s findings largely align with other research on open enrollment. Importantly, nearly all participating students transferred to higher-performing districts as measured by test scores and college-going rates, with families also seeking out specialized courses such as foreign languages, arts, and Advanced Placement programs. They also found that low-income students have used the program at disproportionately lower rates, but account for a rising share of participants at 32% up from 27% in the 2014-15 school year. In total, 40% of participants are Latino, 28% Asian, and 26% white, with the remainder belonging to other racial groups.  

Additionally, LAO uncovered evidence indicating positive effects from competition that the program has created. School districts that lost students to the Districts of Choice program took steps to mitigate enrollment losses including gathering feedback from families and communities, evaluating programmatic offerings, and implementing reforms that led to fewer students transferring out. They also had greater improvements in math and English language arts proficiency rates over time compared to the statewide average and a comparison group of similar districts, which should help alleviate concerns about students who remain in these school districts.  

But LAO’s findings on financial incentives stood out from the rest of the analysis. In California, education funding is a shared responsibility between state and local coffers, with education dollars following students rather seamlessly across school district boundaries for most districts. But about 10% of school districts—so-called Basic Aid districts—generate local dollars in excess of their revenue entitlement (i.e. they raise more money than what the state’s funding formula determines) and don’t generate additional formula dollars when new students enroll.

Because California’s Basic Aid school districts have virtually no financial incentive to enroll new students from outside of their district boundaries, the state previously provided those that participated in the District of Choice program with 70% of each transfer student’s base amount. However, this inducement was slashed to 25% in the 2017-18 school year with predictable results. By the 2019-20 school year Basic Aid districts reduced transfer enrollments by 24% and several stopped participating in the program altogether. The LAO’s report noted: 

“Several basic aid districts we interviewed indicated this reduction had caused them to become more cautious and reduce the number of students they were willing to accept through the program.”

For policymakers in other states, LAO’s finding highlights the importance of financial incentives when designing open enrollment policies. Good policy design requires close attention to how dollars flow across school district boundaries when students transfer. If school districts don’t receive sufficient funding when they accept a student from a neighboring district, they’re not going to be as willing to participate in an open enrollment program. They could also attempt to game the system to avoid accepting students if they’re required to participate in open enrollment without financial incentives. 

In California’s case, policymakers need to do more to ensure funding for Basic Aid districts is sensitive to enrollment. For other states, the problem and fixes might look different but the takeaway is the same: open enrollment works best when good policy is coupled with education dollars following the child.