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Opening Statement of the Efficiency Intervenors

By Chris DiamondMay it please the Court: I am honored to be here representing 5 families from across this state, plus the non-profit corporation Texans for Real Efficiency and Equity in Education and The Texas Association of Business. The evidence will show that these Efficiency Intervenors have been harmed by the denial of an efficient system of public free schools as required by the Texas Constitution. The Texas Supreme Court has clearly recognized, “money is not the only issue, nor is money the only solution.” After 30 years of litigation regarding funding issues in the system of public free schools in Texas, the Efficiency Intervenors have brought the first case regarding the qualitative efficiency of the system. From the initial Edgewood I case through the most recent West Orange-Cove decisions, the Texas Supreme Court has consistently called for qualitative efficiency and defines it as “conveys the meaning of effective or productive of results and connotes the use of resources so as to produce results with little waste.” Additionally, the court has consistently called for structural change to make the system efficient. The evidence will show in this case, that the structure of the current system of public free schools in Texas is not qualitatively efficient – it is not productive of results with little waste. That is a conclusion that is hard to debate. In fact, if it were effective or productive or results, none of us would be here today. The fact that the system is not productive of results, as the evidence will show, is a symptom of a larger, more fundamental structural problem: the current system is simply a public monopoly. And monopolies are inherently inefficient. This is not a new concept. The Texas Supreme Court in West Orange-Cove II stated: “Perhaps . . . public education could benefit from more competition, but the parties have not raised this argument . . . .” The Efficiency Intervenors have accepted that invitation and are standing before the court today as the only plaintiff who has actually been invited to this litigation by the court. Our case has been about efficiency and competition from the beginning. It has been wrongly classified by those who only read on the first few pages of our 18-page plea in intervention referring to us as a 1

charter school group. My friend, Mr. Robert Schulman, is sitting to my left and he is doing a fine job as the charter school group’s lawyer. The Efficiency Intervenors are first and foremost a case about bringing competition to the system – and just as importantly, the ability for consumer-driven, supply side change in the system. Key questions for this honorable court and then for the legislature: Can any monopoly be efficient? Does real equity for students require consumer choice? The evidence will show that nothing in the Texas Constitution requires that the system of public free schools be operated as a monopoly. In fact, that prohibition appears in the Bill of Rights of our Constitution: “Sec. 26. Perpetuities and monopolies are contrary to the genius of a free government, and shall never be allowed, nor shall the law of primogeniture or entailments ever be in force in this State.” To be clear in this opening statement, just as our pleadings are clear – this is not a claim under Art. I, sec. 26. It is an Art. VII, sec. 1 claim where the evidence of inefficiency is the existence of a monopoly, and the prohibition in the Texas Constitution is simply evidence that monopolies are fundamentally frowned upon in Texas and are contrary to the “liberties and rights” of the people. The evidence will show that experts from every group in this litigation – efficiency intervenors, plaintiff ISD’s, and the state defendants – agree on this: Dr. James Guthrie, an expert for the state referred to the system as a cartel, and agreed it was monopolistic. Dr. Jacob Vigdor, an expert retained by the plaintiff ISD groups, provided a report recognizing that since 1962, Milton Friedman noted monopoly power in the market for education. As the evidence will show, Vigdor went on to state that schools districts that have monopoly power over consumers, also have monopsonist power over teachers, which artificially drives down wages and demand for teachers. And, most of the Efficiency Intervenors’ own experts will testify that the current system is a monopoly. As pointed out, this is not a new idea – Nobel Prize economist Milton Friedman testified before the Texas House of Representatives just a few blocks away on March 18, 2003 that the system of public free schools in Texas is a monopoly. Why is this important? The evidence will show, as backed-up by history and common sense, that monopolies are inefficient. By definition, they drive up prices, increase costs, keep wages low, and erect barriers to others entering the market. Sound familiar? As the evidence will show; that last one will ring true throughout this trial, as the ISD Plaintiffs will forcefully contest any notion of allowing the demise of their monopoly power. This is not just about school choice. As Dr. Vigdor recognizes, school districts have a monopoly that affects the market for consumers AND a monopsony, that negatively affects the market for teachers. Thus keeping wages down, and inefficiency up. The best kept secret, the injection of market forces will benefit both teachers and students. 2

The only legal way for some of my family clients to exercise choice between two districts is either through a real estate transaction – moving their residence - or Public Education Grant. However, as our lawsuit alleges, Public Education Grants have not resulted in great choice for parents of children in underperforming schools. ISD’s have the power to reject those applications, without any reason, without any recourse, and they aren’t required to keep records of it. Another inefficiency symptom is the fact that schools are highly regulated. Thereby requiring excessive administrative staff to assure compliance with all the inefficient mandates imposed on the schools. The Home-Rule District Charter was another way for districts to become more efficient. Yet, as the evidence will show, by the time it was voted on in the House of Representatives, it was watered down with a list of 20+ regulations that made it unviable as an option. So much so that not a single district has opted to operate under this structure. There is a lack of effective competition in the market for teachers. Salary schedules that pay the same base salary for every teacher of the same tenure are not efficient. The evidence will be replete from the ISD’s with “I can’t hire good high school math and science teachers.” This is followed by the admission that they pay them the same base salary as a kindergarten teacher. As the evidence will show, there is not a single market for teachers. There is a separate market for kindergarten teachers, for high school math, science, English, etc. teachers, and each of those markets call for differentiation of wages. The absence of market forces driving teacher pay is a symptom of monopoly. Further, as the plaintiff’s expert has said, keeps overall teacher wages down. Texas has thousands of great dedicated teachers yet we fail to treat and reward them as professionals. That is inefficient. There is no competition amongst teachers; a concept which seems to draw the ire of many in the monopoly. Lawyers compete to be the best. Auto technicians compete to be the best. As do hair stylists, landscapers, doctors, sales people, interior designer, and on and on. In a competitive system, good teachers would be much better compensated. As it stands now a vast majority of districts utilize the current state model for teacher evaluation – a model that does not take into account each teacher’s student performance as a measure of their effectiveness. So, Texas currently has no idea which teachers are truly effective. Again, agreed to by experts from every group. Again, very inefficient. Chapter 21 is a classic response to a monopolistic system. If wages are to be held artificially low, and the demand for good teachers is to be held artificially low, then they have to offer something to keep the workforce in place. The message is, we won’t pay you market wages, but we will guarantee a risk-free workplace where mediocrity is accepted and rewarded the same as excellence, and your job is safe unless you do something really-really bad – and even then, it may cost districts up to $90,000 to fire you, as Mr. Thompson, I am told, has testified to before the legislature regarding Houston ISD. And meanwhile you will get full pay while they’re attempting to fire you. In the end, you may get to settle for a resignation, a severance package, and a good recommendation to the next victims…..I mean, classroom. 3

Charter schools – the first appearance of competition in the system in recent years -a small glimmer of hope for our system. Yet, in the end, they are capped at 215 licenses. The state is obligated to make arguments against erasing the cap, so there’s no surprise there that the Efficiency Intervenors, as well as the real charter school group will have to meet their burden on that issue. What will be telling is how hard the ISD Plaintiffs fight against charter schools. That’s a symptom of, and ultimately evidence of their monopoly. Monopolists fight against entry of competition in the market. The evidence will show that charter schools, while admittedly not perfect, offer choice to those fortunate enough not to be on a waiting list numbering in excess of 101,000. Most importantly, no child is trapped in a charter school. The Efficiency Intervenors will not ask this Court to order specific changes to the above, or any of the other specific inefficiencies listed in our pleadings. Most of which are simply symptoms of monopoly. We will ask the court that many of those symptoms be deemed causes of inefficiency in the system, and therefore as individually unconstitutional. Most importantly, the Efficiency Intervenors’ will ask this court to rule, as is obvious, what is conceded by all – that the current system is qualitatively inefficient, and therefore violates the requirements in sec VII, art. 1 of the Texas Constitution. We ask this honorable court to focus on equity for Texas school children, not just equity for school districts.