The Fiscal Impact of School Choice Programs

With 43 states now enacting school choice initiatives, there is a wealth of knowledge about how to successfully structure and fund school choice programs that can empower parents and students and meet their unique education needs. In this report, the Platte Institute provides a guide to policymakers with practical recommendations on the variables to consider in structuring school choice programs. Click here to read this report in PDF format.

 

Executive Summary

Allowing more families the choice of where to have their children educated is growing in popularity as an education reform and improvement strategy in states across the country. Despite socioeconomic characteristics of Nebraska students and spending per pupil that compare favorably to other states, improvement on a number of measures of student achievement and success in Nebraska lag the nation and a majority of states over the past decade.

 

Nebraska is one of only a few states without a law allowing publicly supported charter schools, or initiatives such as tax credit-funded scholarships or vouchers that provide opportunities for families to choose private schools. Our earlier brief, School Choice 101: Education Choice and Achievement in Nebraska, [1]   presented a description of the three most popular school choice initiatives in the country. This report discusses the impacts that each initiative could have on the budget of the State of Nebraska. The report highlights the key aspects of each choice program that will influence its state-level fiscal impact, with the goal of informing policymakers as they consider the fiscal impacts of charter, voucher and tax credit scholarship programs. Preliminary analysis suggests that a scholar­ship tax credit program would offer the most opportunity to introduce school choice in Nebraska while producing the greatest savings for the State of Nebraska.

 

Ultimately, the cost of any school choice or other education reform measure should be evaluated in the context of the results it produces. Reforms that increase costs can be a good value if they produce concomitant increases in student achievement and success. Reforms that simply increase education spending have proven to be ineffective as poli­cies to improve student achievement. Reforms that can increase parent satisfaction and student achievement at the same time as providing fiscal benefits to state governments present a much more attractive prospect. It should be no surprise that the popularity of school choice programs has grown dramatically over the past decade. This report is intended as a resource for policymakers seeking to structure choice programs so as to realize gains in achievement while maximizing fiscal benefits for state and local govern­ments.
 

 

Introduction

There is a large volume of research that indicates school spending is not related to school performance, student achievement, or graduation rates. Hanushek’s finding that differences from school-to-school are largely unrelated to student achievement is the definitive research on this topic and has been consistently validated. [2] Still, some will argue that Nebraska’s relatively low level of improvement on crit­ical educational measures, such as student achievement and graduation rates, is related to school finance issues. Despite the substantial variations among school districts of differ­ent sizes and characteristics (rural, urban, suburban), Ne­braska ranks relatively high on per pupil spending in public schools. Among all states, Nebraska ranked 17th in 2010 for the amount of spending per pupil in its public schools, just above Wisconsin and just below Hawaii. Adjusted for regional cost differences, Nebraska spent $13,643 per stu­dent in 2011, compared to a national average of $11,864, ranking 14th among all states.[3] Nebraska is one of a minor­ity of states where state education aid per pupil was higher in 2013 than it was prior to the recent recession.[4] Adjusted for regional cost differences between 2006 and 2011, only 11 states had larger increases than Nebraska in per pupil spending.

 

Although these data do not offer direct insight into the role of per pupil spending on student achievement, they do suggest that changes in spending in Nebraska compare favorably to other states and are unlikely to be a causal fac­tor in the relatively poor progress Nebraska has made on student achievement and success measures over the past decade.

 

Based on the growth in the number of choice programs across the nation, it is clear that school choice is increas­ingly viewed as a viable, long-term education reform strat­egy for states and individual school districts. Today, con­sideration of almost any public policy proposal, education reform or other, will begin by asking “how much will it cost?” This report begins the process of answering that question for school choice initiatives in Nebraska, describ­ing how key variables affect participation in three common school choice programs—charter schools, vouchers, and scholarship tax credits—and how this participation affects fiscal impacts.[5]

 

Key Factors Affecting the Fiscal Impact of Choice Programs

The two most important factors in determining the fis­cal impact of a private school choice program are: 1) the degree to which it induces students already attending, or planning to attend, Nebraska public schools to transfer to private schools: and 2) at what cost to the state. Private school choice will save money for the State of Nebraska to the extent it induces students to transfer from public to private schools at a lower cost than the amount of state funding provided if the student remained in public school.

 

Fiscal analysis of private school choice programs must con­sider the costs associated with providing vouchers or schol­arship tax credits. More specifically, one must examine the cost of direct payments to private schools (vouchers) or forgone tax revenue (scholarship tax credits), for students who would have enrolled in a private school even without a voucher or scholarship. When these students take advantage of these programs, the state does not realize savings in state education aid. To generate savings, the percentage of vouch­ers or scholarships going to students transferring from pub­lic to private schools must be high enough, and the average cost of vouchers or scholarships must be low enough, to offset the cost of funding for the students already inclined to attend private school without these programs.

 

Similarly, with charter schools the relevant cost is the state education aid provided for each charter school student. State education expenditures can be reduced if the state funding for charter school students is less than the funding for students remaining in traditional public schools. The fiscal analysis of charter schools is complicated by the po­tential for the program to draw students currently enrolled, or who would have otherwise enrolled, in private schools in the absence of charter schools.[6], [7] When this occurs, the state incurs an additional cost for students it otherwise would not have had to pay.

Overall, the fiscal impact assessments of charter school and voucher programs appear to be relatively straightforward. For each student attending a charter school, the state will incur a cost equal to the amount of state education aid allo­cated for each charter student. For a voucher program, the state’s cost is the dollar value of the voucher for each stu­dent in the program. In addition, there are small program administration costs (estimated at around $100,000 for two recent scholarship tax credit proposals in Nebraska).[8]

 

Estimating the Composition of Participating Students

To assist policymakers in designing school choice programs that compensate for anticipated costs, it is critical to de­velop accurate estimates of the number of students likely to transfer between public and private schools as a result of a scholarship tax credit, voucher, or a public charter pro­gram, including the number who would have done so even in the absence of receiving a voucher or scholarship. Ac­curate assessments can help eliminate the uncertainties sur­rounding the composition of likely participants in school choice programs, which are central to the opposition. Do­ing so can also provide greater confidence to policymakers that voucher, scholarship tax credit, and charter programs can be structured to realize savings at the state level.

 

At different income eligibility limits and different values of scholarship awards and voucher payments, the pool of likely choice program applicants changes, with the percent­age of students in the pool of applicants who would have enrolled in a private school even in the absence of a school choice program increasing or decreasing depending on these design features.

 

Analysts are correct to consider the percentage of students currently enrolled in private schools as one factor when es­timating the percentage of school choice program partici­pants who would have otherwise enrolled in private schools even in the absence of choice programs. Students currently enrolled in private schools will comprise a disproportion­ately large share of the applicant pool if income or other eligibility limitations are not in place.

 

In Nebraska, 11 percent of students have demonstrated willingness to enroll in private schools in the absence of a school choice program, and that percentage varies sig­nificantly by family income. Thus, 11 percent of Nebraska students are predisposed toward private school enrollment and can be expected to enter a pool of choice program ap­plicants. The applicant pool will also contain public school students who would enroll in a private school only if they receive a scholarship or voucher. In any case, the number of applicants for a choice program who would not likely enroll in private school without a scholarship or voucher will be much smaller than the total number of students eligible to apply to a choice program. The result is an ap­plicant pool that will contain a much higher percentage of students likely to have enrolled in a private school in the absence of choice programs than is suggested by the 11 percent of students currently enrolled in private schools.

 

Figure 1 demonstrates how the pool of applicants for a scholarship tax credit or voucher program in Nebraska would change in response to three different income eligi­bility limits and by scholarship value. The numbers reflect the percentage of voucher and scholarship tax credit ap­plicants who could be expected to enroll in a private school even without a scholarship.

 

 

The chart highlights program design features that can min­imize costs for choice programs. Higher average scholarship values lower the percentage of students in the applicant pool who would enroll in a private school even without a voucher or scholarship because they induce more applica­tions from students who would not likely enroll in a private school without a scholarship, while the number of students in the applicant pool who are predisposed to enroll in a private school remains the same. Students predisposed to enrolling in a private school can be expected to apply when they are eligible, regardless of the value of the voucher or scholarship. The value of the financial assistance will have little impact on their decision to accept an available scholar­ship or voucher. As scholarship or voucher values increase, the same number of students predisposed to private school enrollment remains in the applicant pool, but the number of students who would transfer from a public to a private school is increased because larger vouchers or scholarships reduce the price of private schooling even more, thereby in­creasing demand. When income eligibility is raised, this ef­fect is magnified because the pool of eligible students who would transfer to a private school only with the assistance of a voucher or scholarship increases by a far larger amount than does the number of applicants who were predisposed to attending a private school.

 

Higher value scholarships reduce the number of available scholarships and can reduce savings for the state. Increas­ing a voucher or scholarship tax credit program’s income eligibility significantly reduces the probability that a stu­dent who would enroll in a private school in the absence of the choice program receives a scholarship. This coun­terintuitive result occurs because, while raising the income limits increases the number of students in the applicant pool among both students who would and would not en­roll in private school without a scholarship, the number of students in the applicant pool who would not enroll in a private school without a scholarship grows by a much larger number.

These results suggest that many of the assumptions and estimates in other fiscal impact studies underestimate the potential costs in choice programs. Rather than bolster the arguments of opponents of school choice, our results, along with an increased understanding of other key variables that influence program participation and costs, can help advo­cates structure programs to provide greater confidence that fiscal benefits can be realized while educational opportuni­ties for students are expanded.

 

Other Key Variables and Program Design Factors That Influence Fiscal Impacts

The key variables influencing the fiscal impact of school choice programs at the state level are presented in Table 1. The table suggests the fiscal impacts of scholarship tax credit programs are influenced by more variables and design features than are either voucher or charter school programs. Although making the fiscal assessment more complex, these variables and program features also pres­ent scholarship tax credit programs with opportunities to produce greater savings than other types of school choice programs.

 

The variables and program design elements that influence the fiscal impacts of school choice programs interact with the unique characteristics of a state’s population of school age children to produce a set of fiscal outcomes. Under­standing how the socioeconomic characteristics of students and their families influence school enrollment decisions is critical to achieving the desired goals for school choice pro­grams. Structuring a school choice program in Nebraska that produces fiscal benefits begins with an understanding of the socioeconomic characteristics of the schoolchildren in the state.

 

Characteristics of Nebraska’s Public and Private School Students

The income distribution of families with school-age children in Nebraska will determine the number of students eligible for any means-tested school choice program in the state. The pattern of school enrollment between public and pri­vate schools by family income influences the number and percentage of choice program applicants and program par­ticipants who would enroll in a private school with or with­out receiving a scholarship tax credit or voucher. Income distribution also provides insight into how the demand for school choice programs will be affected by scholarships or vouchers.

Thus, it is helpful in designing a program that can expand educational options for targeted subgroups while also maximizing fiscal benefits (or minimizing fiscal costs). Additional analysis of the distribution of school age children across income categories according to their prevalence in ru­ral and urban locations would also provide useful informa­tion for program design and fiscal impact assessment. This is especially true for estimating charter school impacts and the degree to which charters will draw private school students back to publicly funded schools and increase program costs.

We used Nebraska-specific data from the U.S. Census Bureau’s American Community Survey (2010–12) to de­termine the number schoolchildren of Nebraska families at different income levels, as well as their distribution of school enrollment between public and private schools. Fig­ure 2 shows how different the family income distributions for public and private schools are in Nebraska. The chart highlights how students in public and private schools tend to be sorted along income lines in the absence of school choice programs that increase educational options for low­er and middle income students.

The demand for private schooling in Nebraska increases significantly at higher family income levels (Figure 3), in­dicating a high income elasticity of demand for private schooling.[9] This is important for school choice program design because it indicates how sharply participation in choice programs may increase with higher income eligi­bility limits. The income elasticity of demand for private schooling is especially important in the design of tax credit programs. These programs sometimes provide scholarships at values much lower than the cost of private schooling, raising concerns that there may be insufficient demand for the scholarships to induce enough students to transfer from public to private schools to generate savings to cover the cost of the tax credits.

 

Increasing income eligibility changes the mix of applicants for choice programs and can have a powerful impact on re­ducing the percentage of scholarships (or vouchers) award­ed to students who would have attended private school with or without a scholarship or voucher. When a primary goal of a choice program is to expand educational opportu­nities for lower income students, and generate savings for the state, it may also be appropriate to raise income eligibil­ity limits to allow higher income students to participate in order increase demand and assure enough students transfer from public to private schools.

 

Additionally, knowledge of the actual number of public and private school students by income category is criti­cal to estimating how the structure of a choice program will influence participation and fiscal impacts. Means-tested choice programs often use poverty guidelines and their multiples for setting income eligibility requirements. Figure 4 shows the number of school aged (K–12) public and private school students in Nebraska by family income measured as a percentage of federal poverty guidelines. Any analysis of fiscal impacts of school choice programs begin with an assessment of the size of the school age population that are eligible to participate.

 

Comparing Fiscal Impacts of Different Choice Programs

Fiscal notes that accompany proposed legislation have tre­mendous influence in legislative debates. Regardless of the depth of analysis, the impact assessments are the official “stake in the ground” from which any subsequent analyses are considered. Too often, fiscal notes are only static analy­ses that do not capture key relationships between program design and other variables that produce different net fiscal impacts. Nebraska’s Legislative Fiscal Office has recently ex­panded availability of fiscal notes by offering online archive copies of past versions and newer revisions. But the fiscal notes are not revised in “real time,” as debates over legisla­tive proposals occur and as proposals change and evolve in response. Thus, lawmakers are often debating legislative proposals that have evolved or been amended while the fis­cal notes that accompany the proposals have not. Ford and Merrifield provide a more detailed discussion of the im­portance and limitations of legislative fiscal notes related to charter school and voucher programs.[10]

 

The limitations of the official fiscal notes are especially problematic for school choice legislation where fiscal im­pacts are determined by the interactions of a number of variables including student demographics, the price and income elasticity of demand for private schooling, state education funding formulas, as well as program design el­ements. The absence of detailed models of school choice fiscal impacts that create a greater understanding of these interactions among key variables and program features contributes to education policy debates that are too often dominated by conventional wisdom that can result in large errors in estimated impacts.

 

To demonstrate the sensitivity of the fiscal impacts of char­ter school, voucher, and scholarship tax credit programs to changes in key variables program design elements, we ana­lyze three types of school choice programs. As a common reference point for comparing different types of choice programs, we assume participation by 3,000 Nebraska stu­dents or approximately one percent of the K–12 students in the state. A school choice program of this limited size would best be characterized as a demonstration project. This exercise is not intended to argue for any one program or size of program, it is designed to demonstrate the fiscal opportunities or limitations inherent in each type of school choice program.

 

Charter School Sensitivity Analysis

Analysis shows that authorizing a charter school program in Nebraska that enrolls a total of 3,000 students at no addi­tional cost (or that realizes savings) for the state of Nebraska will be challenging. The primary challenge confronting the ability of a charter school program to produce net fiscal ben­efits to the State of Nebraska is the question of whether or not the amount of state aid that would be provided for each charter school student is at or near the amount the state provides to local school districts if the student remained in a traditional public school, as is the case in some other states where charter schools have been established.

 

Because approximately 10 percent of charter school stu­dents are expected to be drawn from private schools — cre­ating costs for the state that would not occur in the absence of charter schools—it may not be possible for the state to spend the same or less money for 3,000 charter school stu­dents than it would on an equivalent number of students remaining in traditional public schools (TPS) without re­ducing the per pupil allocation of state aid. The potential for charters to increase state-level costs may be mitigated if the amount of per pupil state funding provided to charters is less than the per pupil education aid provided to local school districts. This variable amount of state education aid could be calculated as a portion of state funding that increases or decreases with changes in enrollments, instead of the total amount of state aid provided to a school district divided by the total number of students in a district. Most other states that base charter school funding on some por­tion of per pupil state aid provided to TPS use total state aid per pupil rather than on the variable portion of state aid as the basis for funding charter schools.

 

Table 2 provides a breakdown of Nebraska school fund­ing, by source, for the 2012–13 school year. It shows that 76 percent of the state’s average per pupil contribution to school funding varies proportionally by changes in enroll­ment.[11] This is a conservative accounting of the amount of funding that varies with enrollment. Some categorical funding that varies with enrollment is not included in the 76 percent estimate. The effect of this conservative treat­ment is to make realizing net fiscal benefits more difficult for all school choice programs.

 

The table shows that the variable amount of state aid per pupil was about $3,100 compared to nearly $4,100 when all state funding per pu­pil is included. Funding charter students at the variable amount of state aid would have resulted in just $3,100 (es­timated at $3,291 for 2015–16) allocated to charters for each student enrolled. This is the amount that would have to be provided for each charter student if the state were to break even, or not incur additional costs from charters drawing students from private schools. Adding these addi­tional costs (assumed to be 10 percent) as well as approxi­mately $130,000 in administrative costs[12] would require the state to provide approximately $2,829 in state aid per charter student compared to $3,291 provided for students in TPS in order to avoid additional costs.

Figure 5 presents the five-year total savings (costs) associ­ated with a charter program in Nebraska enrolling 3,000 when charter funding is based on either variable or total state aid per pupil and when funding is either all or a por­tion of those amounts. This example assumes that all 3,000 students would be enrolled in year one, admittedly unreal­istic, but for purposes of understanding the potential fiscal impacts and the dynamics of why they occur, this assump­tion is appropriate.

 

Alone, the potential for charter schools to increase costs for the State of Nebraska program should not preclude con­sideration of charter school legislation. The cost increases or savings associated with various school reforms must be evaluated in the context of their demonstrated impacts on individual student achievement and success, as well and their ability to do so in a more cost effective manner than other proposed strategies and reforms. Charter schools have demonstrated considerable promise as a reform that can result in improvements in student and school district performance. As importantly, there is clear evidence of their popularity among parents and students as charter en­rollments have grown dramatically over the past decade, with an estimated 2.5 million students enrolled in charters schools across the country.[13]

 

Vouchers Sensitivity Analysis

The fiscal impacts of a program that provides 3,000 vouch­ers to students will depend on several factors, most impor­tantly: the dollar value of the vouchers, the percentage of vouchers going to students who would enroll in a private school even without a voucher, the income eligibility limits for receipt of program, and the interactive effects between these and other variables. Voucher amounts that exceed the variable amount of per pupil state aid (estimated at $3,291 for 2015–16) cannot produce net fiscal savings for the State of Nebraska. Any voucher program will also incur ad­ditional costs equal to the percentage of vouchers that are awarded to students who would enroll in a private school without the voucher.

 

For this analysis we used voucher values ranging from $1,500 to $4,500. Although $1,500 is a relatively small amount for a voucher, scholarship programs across the country demonstrate that even relatively small decreases in the price of private school tuition (via a voucher or schol­arship tax credit) can induce significant numbers of stu­dents to switch from public to private schools, especially as income eligibility limits are increased. Of course, private schools could not be expected to accept such a small vouch­er amount as full payment for tuition. The results reported assume that students currently enrolled in private schools are not eligible to participate.

 

In addition this example uses a price elasticity of demand for private schooling of -.5027 and income eligibility limits of 2, 2.5, and 3 times federal poverty guidelines. A .50 price elasticity is a conservative figure. The effect of using a conservative estimate of price elasticity is to produce more conservative estimates of pro­gram demand and to increase calculated losses. These ad­ditional losses are calculated based on the expected pool of voucher applicants according to voucher values and income eligibility outlined in Section II of this report. Expected pri­vate school cost inflation, growth in per student state aid and other variables are also considered in projecting 5 and 10 year impacts. Similar to the charter school impacts, this analysis assumes that the 3,000 student voucher program would be fully implemented in year one.

 

Figure 6 shows the five-year fiscal impacts of a 3,000 stu­dent voucher program at three separate income eligibility limits. The chart shows that it is not possible to gener­ate net fiscal savings at voucher values above the variable amount of state per pupil aid to local school districts.

 

The chart shows that the potential for the largest fiscal savings occur at lower voucher values and higher income eligibility limits. Higher income eligibility limits increase fiscal benefits because, as discussed in Section II of this re­port, they alter the pool of applicants for the program by reducing the percentage of students in the applicant pool who are likely to enroll in a private school even without a voucher. This increases the chances that a higher percent­age of vouchers go to students transferring from public to private schools, reducing the program’s losses. Table 3 pro­vides additional detail for income eligibility limits at two and three times federal poverty guidelines.

 

Scholarship Tax Credits

Forecasting the fiscal impacts of a scholarship tax credit program is the most challenging of all the school choice options examined. There are a number of supply and de­mand variables that interact to produce fiscal benefits or costs for a state. For charter school and voucher programs, the state incurs a cost only when a student enrolls in a charter school or receives a voucher. With a scholarship tax credit program, the state incurs a cost (in foregone tax revenue equal to the tax credits that are awarded), regard­less of how many scholarships are awarded by SGOs.

For a scholarship tax credit program to produce maximum fiscal savings for a state, it must have income eligibility lim­its and scholarship values high enough to generate sufficient scholarship demand, but also scholarship values low enough to maximize the number of scholarships available for stu­dents transferring from public to private schools. Figure 7 shows the impact of different average scholarship values and income eligibility limits on the supply and demand for scholarships in Nebraska for a hypothetical $10 million dol­lar tax credit program with credits valued at 90 percent of contributions to scholarship granting organizations.

Scholarship tax credit programs are affected by more vari­ables than are charter school or voucher programs, but they also offer greater opportunities for structuring a program that generates net fiscal savings for a state. Despite the in­creasing popularity and number of scholarship tax credit programs, there has been little research on the fiscal im­pacts of programs after their enactment. The best known and most often cited analysis by the Office of Program Pol­icy Analysis and Government Accountability in the State of Florida found that Florida’s scholarship tax credit pro­gram produced $36 million in net savings in the 2008–09 school year.[14] Based on our analysis, we believe that study incorrectly assumes that just five percent of scholarships were awarded to students who would have attended private schools without a scholarship. However, even if that error were corrected, the program still would produce large fiscal benefits.

 

The exact number of scholarships awarded in a program with a fixed dollar amount of tax credits cannot be deter­mined because scholarship values will vary and will be de­termined by different scholarship granting organizations. Rather than analyzing a scholarship tax credit program with a fixed number of participants in the same manner as our analysis of charter and voucher programs, we analyze a program that caps available tax credits at $10,000,000 annually and that awards tax credits with a value of 90 percent of contributions to scholarship granting organiza­tions, resulting in $11,111,111 in contributions.

 

Increasing or decreasing the value of tax credits has a pow­erful impact on the fiscal impacts of a scholarship tax credit program. A lower credit value results in the supply of schol­arship money increasing by a larger amount than the cost of the credits (in the form of foregone revenue). Another way to view the importance of this feature is to consider an example of a scholarship that has a value of $3,100.

 

If con­tributions for scholarships receive a 90 percent tax credit, the cost to the state, in foregone revenue, for a scholar­ship with a value of $3,100 is just $2,790. If the value of tax credits is 80 percent the cost to the state of a $3,100 scholarship is just $2,480. Lower credit values help schol­arship programs compensate for losses in the program and allow more scholarships to be awarded when each scholar­ship saves the state some portion of state education aid for each student that receives one, creating larger fiscal benefits for the state. Assuming administrative costs of five percent would make $10,555,556 available for scholarship under a $10 million program with the value of credits at 90 per­cent. We chose a $10,000,000 program because at that level, the $10,555,556 in scholarship money would need to induce about 3,039 students to transfer from public to private schools for the program to “breakeven” or produce no additional costs for Nebraska state government. If the program induces more transfers, fiscal savings will result. If the program results in fewer than 3,039 transfers, the program will increase costs for the state.

 

Figure 8 shows calculated fiscal impacts for a $10,000,000 scholarship tax credit program at three income eligibility levels. These results present just one scenario where income eligibility is the variable being manipulated. Fiscal impact estimates for any number of scenarios can be calculated by adjusting assumptions about variables such as the price elasticity of demand for private schooling, the price of pri­vate schooling and growth rates in per pupil state aid, as well as key program design variables such as the value of tax credits (as a percentage of the value of contributions to scholarship granting organizations), all of which will influ­ence fiscal impacts.

 

Figure 8 reinforces the significance of not setting income eligibility too low. At lower average scholarship values low income eligibility raises the risk that there will not be enough students willing to transfer from public to private schools to offset the cost of the tax credits and the added costs of scholarships being awarded to students who would enroll in a private school without a scholarship. At the low end of average scholarship values demand becomes very important for a tax credit program with low income eligi­bility limits. Increasing income eligibility limits always in­creases fiscal gains or reduces fiscal costs in a scholarship tax credit program.

 

Not only do higher limits greatly increase demand for scholarships at all average values (this effect is especially helpful in generating or increasing net fiscal gains at low average scholarship values because higher income students can be more easily be induced to transfer from a public to a private school at lower scholarship values). Higher income eligibility limits also alter the pool of schol­arship applicants to significantly reduce the percentage of scholarships that will be awarded to students planning on attending a private school even without a scholarship.

 

At the high end of average scholarship values, too few schol­arships are awarded to offset the costs of a $10 million pro­gram and state government costs are increased. The impact of higher income eligibility can also be seen in Figure 8 at the high end of average scholarship values. At high average scholarship values, higher income eligibility limits reduce program costs to state government because they reduce the percentage of scholarships going to students who would otherwise enroll in a private school without a scholarship. Table 4 presents more detail on the five-year fiscal impact assessments presented in Figure 8.

 

Conclusion

This report examines the fiscal implications of three differ­ent school choice programs. More importantly, the report documents the key factors that contribute to the fiscal im­pacts of school choice programs, equipping policymakers to more comprehensively evaluate the fiscal impacts of differ­ent school choice proposals. The report makes a significant contribution to the understanding of how to estimate the costs of vouchers and scholarships being given to students who were already planning on enrolling in private schools. The report finds that scholarship tax credits offer the greatest opportunity to generate net fiscal savings for the state of Nebraska. In contrast, it will be difficult to achieve fiscal neutrality or net fiscal savings with charter schools unless the amount of state funding provided for each charter stu­dent is set well below the amount provide for each student in traditional public schools. This could, however, impede the formation of charter schools in the state. Voucher pro­grams can easily be designed to realize net fiscal savings for the state but only when the dollar value of vouchers is set below the amount of state funding provided for each stu­dent in public schools, an amount less likely to fully cover the cost of tuition at most private schools.

 

Although school choice programs will invariably be con­sidered within the context of their impact on state finances and that is what this report addresses, we believe it is equal­ly or more important to consider choice programs with re­gard to what each program can “buy” in terms of improve­ment in student achievement and success. It is possible that programs that result in increased costs to the state can also increase educational performance enough to make them a good value. More states are adopting school choice pro­grams in an effort to improve student achievement. Even if enacting school choice programs result in some increase in costs to the State of Nebraska they may prove to be a good value. The results of this study suggest, however, that it is possible for Nebraska to introduce school choice programs that will save the state money.

 

Endnotes
1. School Choice 101: Education Choice and Achievement in
Nebraska. Platte Institute for Economic Research. July 2014.
[URL: http://www.platteinstitute.org/research/detail/education-
policy-brief-school-choice-101]

2. Hanushek, Eric. “The Impact of Differential Expenditures on
School Performance.” Educational Researcher. Vol. 18, no. 4.
1989. pp. 45–62.

3. Editorial Projects in Education Research Center. [URL:
http://www.edweek.org/rc]

4. Leachman, Michael and Chris Mai. “Most States Funding
Schools Less Than Before Recession.” Center on Budget and
Policy Priorities. September 2013.

5. Readers interested in the fiscal impacts of choice programs
on local government and school systems should read the
following: Scafidi, Benjamin. “The Fiscal Impacts of School
Choice Programs on Public School Districts.” Foundation
for Educational Choice. March 2012.; Bifulco, Robert and
Randall Reback. “Effect of Charter Schools on School District
Finance.” New York State Education Department and The
Education Finance Research Consortium at SUNY Albany.
December 2011.

6. Chakrabarti and Roy found that about 13 percent of charter
students were drawn from private schools. See Chakrabarti,
Rajashri and Joydeep Roy. “Do Charter Schools Crowd Out
Private School Enrollment? Evidence from Michigan.” Staff
Report. Federal Reserve Bank of New York. September 2010.

7. Buddin examined data from across the country and estimates
10 percent of charter school students are drawn from private
schools, with the percentage varying by grade level and type of
district, with charters in highly urban areas drawing as much
as 31 percent of their elementary level students from private
schools. See Buddin, Richard. “The Impact of Charter Schools
on Public and Private School Enrollments.” Cato Institute.
Policy Analysis #707. 2012.

8. Legislative Bill 50 (2012) and Legislative Bill 14 (2013).

9. “Income elasticity” refers to the percentage change in demand
for private schooling that occurs with each percentage point
change in family income. High income elasticity means that
as income rises, the demand for private schooling rises by a
similar percentage, while a low income elasticity means that
the demand for private schooling does not change very much
across income levels.

10. Ford, Michael and John Merrifield. “School Choice Legislation:
Impact Assessment and Fiscal Notes.” Journal of School
Choice. Vol. 7, no. 1. 2013. pp. 37–60.

11. This amount was determined by examining a detailed accounting
of school funding by source and Nebraska’s TEEOSA
school funding formula.

12. Recent fiscal notes for legislation proposing choice programs
in Nebraska have included this amount as the administrative
costs of the programs.

13. “Total Number of Students.” The Public Charter Schools
Dashboard. National Alliance for Public Charter Schools.
[URL: http://dashboard.publiccharters.org/dashboard/students]

14. “Progress Report: Use of Investment Returns Has Increased;
Plan for Addressing Associated Risks Should Be Documented.”
Report No. 06-68. Office of Program Policy Analysis
and Government Accountability. Florida Legislature. November
2006. [URL: http://www.oppaga.state.fl.us/summary.
aspx?reportNum=06-68]

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