Bohanon: Yes to Vouchers but Let’s Stick to the Facts

August 5, 2013

by Cecil Bohanon, Ph.D.

Full disclosure: I have a dog in this race. I am on the board of Delaware Christian Academy (DCA), a private Christian school that uses a traditional curriculum and accepts state-financed vouchers. I have long advocated educational vouchers as a means for improving educational quality. I agree with Dr. Milton Friedman, who would have been 101 years old on July 31 of this year; I think competition in K-12 education is healthy.

No claims will be made here, however, about the merits or demerits of voucher finance of private schools or any speculation offered about its impact on public schools, except for the rather obvious fact that if students leave public schools for private schools, public-school funding declines in dollar terms. I nonetheless believe those are relevant and uncontroversial points, and, in a future column, I’ll put my advocate’s hat on.

That said, let me put on the hat of an economist to point out some simple economics of educational finance in Indiana.

A central principle of economics is the distinction between the average and the marginal. An often-referenced metric is “spending per student.” The total spending in a school system, public or private, can be defined as the total amount spent during a calendar period. For example, the XYZ school system spends $11 million on teacher salaries, building rent, office support, materials and supplies, school transportation, janitorial services and so on. If the school system enrolls 1,000 students, then the spending per student is $11,000 ($11 m/1000= $11,000). In economic terms, this is average spending per student; $11,000 is pretty close to the Indiana state average for public-school districts.

But what occurs to total spending at XYZ if an additional student — student number 1,001 — enrolls at XYZ? The change in total spending from an additional student is what economists call the marginal spending per student. The answer depends crucially on the way the XYZ school system is funded.

The (state) legislature has developed a rather complicated state funding formula that grants the public-school district a set amount per student, called tuition supports. This amount is based on a variety of factors specific to the local district and varies between districts, but it is typically around $5,500. So for XYZ public-school district, $5,500 is a good approximation for the marginal spending per student. (1)

How is it that state-tuition supports are only about half the average spending per student in public-school districts? The answer is that other sources of funding, generally from local, state and federal tax dollars, supplement the state-tuition supports in a school district’s budget. Particularly important is that local property taxes support public-school buildings funds.

The core provision of the statewide voucher program for private schools is as follows: If a student exits the XYZ public-school district for a participating private school, XYZ public-school district loses $5,500 from state-tuition supports, while the private school obtains a voucher from the state worth no more than $4,700. If 100 students exit XYZ public-school district to various private schools, XYZ loses $550,000 from state-tuition supports, but the private schools receive no more than $470,000. (2)

Although the structure of the program is a bit more complicated, the results are clear: What the public school loses in state-tuition supports is by design less than what the private schools obtain from the state vouchers.

Cecil Bohanon, Ph.D., an adjunct scholar with the Indiana Policy Review Foundation, is a professor of economics at Ball State University.





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