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One of the most hotly debated issues in American education today revolves around low-performing schools and districts: how to define “low-performing,” what to do about them, and who gets to decide. That’s at the heart of the deliberations—and arguments—over the No Child Left Behind reauthorization now moving through Congress.
But there’s another species of “failing” schools and districts that doesn’t attract the same controversy, even though it should: institutions that are financially insolvent, or headed toward that status. For example, as of the 2014–15 school year, the School District of Philadelphia had massive deficits—to the tune of $320 million. In Michigan, nearly 7 percent of all traditional school districts and charter school districts (57 of 843) were operating at a deficit at the end of the 2013–14 fiscal year. Over 25 percent of New Mexico districts (23 of 89) required emergency state aid in 2013–14. And there are similar problems in Cleveland, Chicago, Detroit, and elsewhere.
Districts go insolvent primarily because there are insufficient counter-pressures on their leaders to stay fiscally solvent. Existing leaders are often rewarded—through elections, appointments, or re-appointments—when they make promises that...