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What if some communities no longer have public schools? That question, once unthinkable in America, may now be something policy leaders and lawmakers in at least one state may want to consider.

In Michigan – home state to U.S. Secretary of Education Betsy DeVos whose political donations and advocacy for "school choice" and charter schools drastically altered the state's public education system – some of the state's largest school districts lose so many students to surrounding school districts and charter schools that the financial viability of the districts seems seriously in question.

According to a new report, more than half of Michigan school districts experienced a net loss in enrollment last year, and the percent of student attrition in many of the state's large districts is shocking, upwards of 60 to 70 percent.

Can a school district experiencing such losses in student enrollment continue to keep the doors open?

That question should be relevant to education policy leaders beyond Michigan as more states have enacted market-based policies that allow charter schools to proliferate, students to travel outside home districts to other districts, and voucher programs that let parents transfer students to private schools at taxpayer expense (something not yet allowed in Michigan).

Indeed, Michigan may be the canary in the coal mine, warning that not only does unrestrained choice and competition fail to improve academic results, it also may risk the financial feasibility of having functioning public schools in every community.

School Districts on the Brink

In Michigan, the intense competition for students is taking bigger bites out of student enrollments in some of the state's largest districts.

In Flint, where there are 14,325 public-school students living in the district, 39 percent attend charters and 32 percent are enrolled in another district – meaning the district loses 71 percent of its students.

In Pontiac, with 10,985 public-school students living in the district, 36 percent attend charters and 29 percent travel to other districts, leaving local schools with only 35 percent of the community's students.

In Detroit, the state's largest school district with nearly 104,000 students, 58 percent of them leave the district schools to attend charters (48 percent) or cross district borders (10 percent) to attend schools elsewhere.

How low can student enrollments go before a school district becomes financially unsustainable?

Why Schools Collapse

"Financial collapse is usually a function of multiple factors," Rutgers University professor Bruce Baker tells me in an email. The factors he lists include Insufficient total revenue, the increased costs of serving special needs children left behind, the mounting health and retirement benefits of teachers, the increased costs of operating and maintaining old, inefficient buildings, and "of course, rapidly declining enrollment [which] creates additional financial pressure."

Many of those factors certainly apply to Michigan where inadequate funding, rising populations of low-income and special needs students, mounting teacher pension costs, and a decaying infrastructure strain school district budgets.

Obviously, adding more choice to the education system in Michigan does nothing to address any of the above factors. But increasing the supply of schools in a state like Michigan where demand is in decline is especially nonsensical – student enrollments in Michigan are at their lowest point since the 1950s.

"It's just inefficient," Baker says. "Even if we believe that choice-induced competition creates some market-based efficiency gain, much if not all – or more – of that gain is lost due to the huge inefficiencies of trying to operate an increasing number of schools in the presence of smaller numbers of students."

But what about states where student populations are stable or on the rise?

Choice Is Financial Nonsense

The thinking behind a market-based approach to education is that when the funding follows the student, school districts vying across district lines to get their enrollments high for "count day", feel more intense pressure to provide services with greater financial efficiency. Adding charter schools, which in Michigan are allowed to start up wherever they want, without regard to the financial impact on district schools, brings into the mix an unregulated agent that can introduce even more financial efficiency into the system, the theory goes.

The academic benefits of a market-based approach to education have always been highly questionable, but in Michigan it has been a demonstrable disaster, as the state, when compared to the rest of the nation, continues to fall "further behind on test scores, on-time high school graduation rates, and getting young adults through college or post-secondary training," according to recent analyses.

But did the argument for more market-based school competition ever make financial sense?

Baker doubts it, pointing out, in fact, that unrestrained school choice and constantly shifting student enrollments among schools introduce multiple financial inefficiencies into the system. "We increase transportation costs," he writes, "create duplicative/redundant administrative structures and increase the inefficiency with which facilities are used (leaving empty space in some while creating pressure to build others).

"These problems exist even when we increase chartering in the context of more financially healthy school districts," he argues. "It's just that much worse in cases [as in Michigan] where total population is in decline and where districts are already cash-strapped."

How Low Can Schools Go

So at what point does the financial inefficiency of school competition push a public school district into collapse?

A recent study of the financial impact of charters on Michigan public schools finances found that “overwhelmingly, the biggest financial impact on school districts was the result of declining enrollment and revenue loss, especially where school choice and charters are most prevalent.” David Arsen, the lead author of the study, warns that when the share of charter schools in a district gets upward of “20 percent or so,” the adverse financial impacts on district finances are “sizeable.”

Baker suggests that for larger districts, there may be "a minimum scale threshold somewhere between district enrollment of 2,000 and 5,000 students" for optimal cost efficiency.

Should either of these calculations be anywhere near accurate, many of Michigan's school districts are on the road to big financial problems. Pontiac schools, with 65 percent student attrition and a net loss of 7,166, are left with fewer than 4,000 students. Flint schools with a net loss of over 10,000 students now serve under 5,000 students.

School districts have gone belly up in Michigan before. In 2013, two small districts, Buena Vista and Inkster, closed for good due to bankruptcies. But in these cases, the few hundred students left without schools could be bused to surrounding districts. What happens when that fate befalls a much larger district?

When The Safety Net is Gone

Some may blithely suggest that were a large school system to close due to financial insolvency, charter school operators, seeing a new source of demand, would rush to fill the void with a supply of new schools.

But the reality is charter opportunists aren't likely to start up new schools when prospects for a quick return on investment are unlikely. And charter schools can close whenever they want to, as they do all the time in Michigan.

Currently, lawmakers and policy leaders seem little concerned with the churn of charter schools coming and going because there is the reassurance of a safety net of public schools for students and families to fall back into. What happens when the safety net is gone?

"When charters suddenly close, there may be few other options available," Baker warns.

Even worse, when the community has been especially reliant on a large charter operator to serve thousands of students across multiple schools, should the charter suddenly close, "Not only would it be difficult for other charters and district schools to absorb all of these kids," he explains, "but it would come at infeasible short run costs."

State and local taxpayers, or other charters, would need to either build new schools or buy back – in bankruptcy proceedings – the buildings to house the students. Should the burden fall on taxpayers, as it almost certainly would, they would face the triple financial whammy of having paid for the school buildings to begin with, having paid the former charter's lease and maintenance costs, and then having to pay to get the buildings back after the charter operator collapsed.

How ironic it would be that faced with the consequences of having had so much school choice, some Michigan communities may soon find out just how few choices they really have.

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