THE TAX-CREDITSCHOLARSHIP AUDITedchoice.org/ScholarshipAudit

BREAKING DOWN

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School choice advocates have always used the savings potential of choice

programs as a positive selling point for policymakers.

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Since the creation of the first modern school choice program in 1990, 30 empirical studies have

examined the fiscal impact of school choice on taxpayers.

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Of those studies, 27 find school choice programs save money.

SAVE MONEY

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Three find the programs theystudied were revenue neutral.

SAVE MONEY NEUTRAL

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No empirical study ever conducted has ever shown

negative fiscal effects.

SAVE MONEY NEUTRAL LOSE MONEYZERO

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But still, that wealth of evidence hasn’t stopped school choice critics from

claiming otherwise.

...in many states, including Pennsylvania and South Carolina, the wealthy can reap millions, while public schools continue to face deep cuts.

The research on Neovouchers says, A) They don’t save states money and B) They don’t increase achievement.

These and other state tax subsidies collectively funnel more than $1 billion in public funding toward private schools every year.

- Randi Weingarten, AFT

- Professor, California State Sacramento

- ITEP

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They say, simplistically, that school choice drains money from the public

school system.

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Context is helpful for evaluating such claims.

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For all the controversy around school choice programs, the reality is that their costs amount to drops in a bucket when compared

with states’ budgets for K–12 education.

AZ FL GA IA IN PA RI

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

0

Total Tax Support in SY 2014 Total Revenue, All Sources

Mill

ions

$121M

Total Tax Support as Percent of State’s Total K–12 Educational Costs, SY 2014

$286M $58M $12M $7M $68M $2M

$2,289M

$27,647M

$12,150M

$6,195M

$17,818M

$26,073M

$8,294M

1.5% ofTotal

Revenue( ) 1.1% ofTotal

Revenue( ) 0.3% ofTotal

Revenue( ) 0.2% ofTotal

Revenue( ) 0.1% ofTotal

Revenue( ) 0.2% ofTotal

Revenue( ) 0.1% ofTotal

Revenue( )

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But that rhetoric obscures an important fact: A public school is also relieved of costs for any student switching to private school.

$

$ $ $

$ $

VariableCost Savings

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By not acknowledging such variable cost savings, opponents implicitly argue that all public

school costs are fixed.

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By that logic: If there were no savings when a public school’s enrollment declines…

NO CHANGE IN COST

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…then when public schools take on more students, their costs wouldn’t increase either.

NO CHANGE IN COST

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Of course, that is not the case.

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Indeed, school officials will argue in front of their state’s

appropriations committee for more funding when their

enrollment increases.

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The truth is, the reduction in a school district’s funds when kids leave using school choice programs is usually similar to the reduction in that school district’s funds when kids move from one public school district to another.

OLD DISTRICT

NEW DISTRICT

PUBLIC SCHOOL

PRIVATE SCHOOL

CHANGEIN FUNDS( ) CHANGE

IN FUNDS( )

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Also, when school choice students leave their district, that district keeps federal and local funds.

FEDERAL

LOCAL

(No Change)

FEDERAL

LOCAL

$

$

$

$

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Colleges and universities do not keep any funds—public or private—when students transfer.

PELL GRANTS

PELL GRANTS

TUITION REVENUE

TUITION REVENUE

STATE APPROPRIATIONS

STATE APPROPRIATIONS

$

$

$

$

$

$

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You read that right.

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Public K–12 education is the only known enterprise in American

society where service providers keep a portion of people’s money even

after those people have determined they no longer want those services.

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Whether school choice critics want to admit it or not…

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School choice programs save money.

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But how much?

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In 2014, we estimated the cumulative savings generated by America’s school voucher programs over two decades.

Source: www.edchoice.org/research/the-school-voucher-audit

$1.76 BILLION

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This year, we continued that analysis by doing the same for seven states’

tax-credit scholarship programs, which cover 93 percent of total scholarships awarded to date.

1.2 MILLION SCHOLARSHIPS

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These types of school choice programs differ from school vouchers in

how they’re funded.

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Tax-credit scholarships programs allow individuals and businesses to reduce their state tax liability

by making a private donation to a nonprofit organization that provides

students scholarships to attend private schools of their choice.

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For a tax-credit scholarship program to result in savings, this must be true:

DISTRICTS' VARIABLE

SPENDING PER STUDENT

NETSAVINGS

PER STUDENT

DISTRICTS' TAX REVENUE

LOST PER STUDENT( () )>

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There are two other factors we took into account, which are explained in more

detail in the report:

The proportion of scholarship students who switched (or were likely to switch) out of public schools vs. those who already were in (or were likely to attend) private schools even without the assistance of the scholarship

Some programs allow students to receive multiple scholarships.

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To determine a tax-credit scholarship program’s net fiscal impact, use the

following equation:

Net Fiscal Impact = (p x C x E) - (t x E)

p = percentage of scholarships given to public-to-private school switchersC = average variable cost to educate a student in public schoolE = total number of program participantst = average amount of tax credits awarded per program participant

So (p x C x E) represents the total savings to the state and districts because students left public schools, and (t x E) represents the total cost to operate the program.

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We did the math.

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Our low-end estimate* reveals students have saved states and districts

$1.7 billion, or $1,647 per student, using tax-credit scholarships to

attend private schools.

*assuming a very conservative 25 percent of scholarships went to multi-scholarship students and a fixed 60 percent of

recipients were public-to-private switchers

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Yep, that’s the low end.

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The high-end estimate* shows tax-credit scholarships have saved $3.4 billion, or

$2,974 per student.

*assuming 10 percent of scholarships went to multi-scholarship students and state-specific rates for

public-to-private switchers

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These savings are most commonly captured by either the public school

districts or the state treasury, which can use them to do any number of things:

invest in other priorities such as law enforcement or healthcare,

reinvest in public schools,

build reserves, and/or

lower taxes.

lower total state spending,

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But what actually happens to those savings is anyone’s guess.

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State governments don’t do much, if anything, to track

where those savings go.

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But that doesn’t mean that savings aren’t there.

Wondering about your state’s education spending? Check out individual program breakdowns and more in the full report at

EDCHOICE.ORG/ScholarshipAudit

To contact the author, EdChoice's Director of Fiscal Policy and Analysis

Marty Lueken, email marty@edchoice.org.