This post was co-authored by Evelyn B. Stacey, Education Studies Policy Fellow at the Pacific Research Institute in Sacramento, California.

Education Week just released its annual “Diplomas Count ” report. It found that nearly 31 percent of students ended up without a high school diploma in 2006-adversely affecting U.S. businesses and national competitiveness. Bill Gates, for example, identified an antiquated public schooling system as the root cause, even if students do manage to graduate. “What good is it for kids to graduate in 2006 from a school system that was designed in 1956?” What good, indeed when around six out of 10 freshmen entering the California State University system, and as many as nine out of 10 entering the state’s community college system, need remediation.

Gates added that if our K-12 public schooling system were a business, it would be bankrupt-and he was right. Flash-forward to 2009 and even states like California, with the world’s eighth largest economy, is broke. Like most other states, California’s K-12 education system receives the largest share of funding, but it’s no longer delivering-even in the tony suburbs where median home prices approach and exceed $1 million.

California was a national leader in academic achievement during the 1960s. Today it ranks 48th in basic reading and math performance. At $40 billion, California’s K-12 education spending approaches New York’s entire state general fund budget of $47 billion, and beats every other state’s general fund budget hands down.  The California public education system also rivals numerous Fortune 500 companies in terms of sheer revenue, albeit not results-including graduation rates.

According to Education Week, California’s graduation rate was 67.5 percent in 1996 and 2006. In contrast, neighboring Arizona posted one of the highest graduation rate increases over that same period, improving from 56.6 percent in 1996 to 68.6 percent in 2006-despite spending about $500 less per student, $7,112 versus $7,571, according to Education Week figures. Put another way, each percentage point increase in graduation rates costs Arizonans around $589-the least nationwide ($7,112 / 12.1 percent point increase in graduation rates). In contrast, spending more than $7,500 per student still isn’t enough to boost graduation rates in California.

What makes Arizona different? For more than 15 years students have had the right of exit from schools that aren’t working for them. This means all Arizona schools have to work harder to attract and retain students, and such competition is a powerful incentive to make the most of every education dollar.

Since 1994 Arizona has continued to expand public and private school choice. Regardless of where they live, parents in the Grand Canyon State can send their children to the public school of their choice, including more than 500 charter schools. Parents can also use one of four tax-credit scholarship programs, depending upon eligibility, to send their children to the private school of their choice.

In contrast, even though more than one in 10 California high schools has been deemed a “drop out factory,” students are largely stuck unless their parents can afford to move outside of their assigned district, which is beyond the reach of most families since California’s median home price is almost $400,000-nearly twice the national median. With one of the heaviest tax burdens nationwide, paying out-of-pocket private school tuition is also not a viable option for many California families.

Freedom may not be free, as the saying goes, but when it comes to effective education policy, parents’ freedom to choose schools for their children is a lot more affordable than alternatives like California’s system of government-assigned, one-size-fits-all schooling. 

This post was co-authored by Evelyn B. Stacey, Education Studies Policy Fellow at the Pacific Research Institute in Sacramento, California.