Counting CorrectlyHow the Fiscal Effects of School Choice are

Often Miscalculated

Presented by Jeff Spalding

OUR FOUNDERS“We have concluded that the achievement of effective parental choice requires an ongoing effort to inform the public about the issues and possible solutions, an effort that is not episodic, linked to particular legislative or ballot initiatives, but that is educational. This Foundation is our contribution to that objective.”

Rose D. FriedmanNoted Economist

1910-2009

Milton FriedmanNobel Laureate

1912-2006

Today’s Agenda• Overview of New National Study of School

Voucher Savings• Results• Lessons learned about school voucher savings

• Examination of Savings from Indiana’s Choice Scholarship (Voucher) Program• Flaws in the official savings calculation

Available at: http://www.edchoice.org/Research/Reports/The-School-Voucher-Audit--Do-Publicly-Funded-Private-School-Choice-Programs-Save-Money-.

aspx

What we found:• 10 school voucher programs have saved $1.7 billion over 20 years (cautiously

estimated)• Over 500,000 student FTEs awarded school vouchers• Over 470,000 students FTEs diverted from public schools (94%)

Behind the overall net savings number:• Average Public School Variable Cost per Student - $9,647

Range: $4,958 FL Opportunity Scholar to $22,359 OH Autism• Average Voucher Cost - $5,637

Range: $2,257 Cleveland to $14,862 OH Autism• Average Net Savings per Voucher Student - $3,375

Range: $1,018 FL Opportunity Scholar to $7,532 OH Autism

$9,647 - $5,637 = $4,010 not $3,375WHY?

Some voucher students would have still attended a private school without the voucher’s financial assistance….so, they are not diverted from public school!

The cost of vouchers for students not diverted is similar to the “free rider” or “deadweight loss” problems in economics.

If you invested $5,637 each to educate students and 94% of the time you saved $4,010 while 6% of the time you lost $5,637…what’s your ROI?

Milwaukee Parental Choice Program

UT - Carson Smith Special Needs Scholarships

FL - A+ Opportunity Scholarships

DC Opportunity Scholarships

Ohio Autsim Scholarships

Cumulative Weighted Average ROI

FL - McKay Scholarships for Students with Disabilties

LA - Student Scholarships for Educational Excellence

OH - Educational Choice Scholarships

Georgia Special Needs Scholarships

Cleveland Scholarship & Tutoring Program

0% 20% 40% 60% 80% 100% 120% 140% 160% 180%

20.9%

24.3%

25.8%

27.4%

50.8%

59.9%

78.1%

83.0%

99.5%

111.0%

167.1%

School Voucher Return on Investment (ROI)Cumulative ROI from Inception through 2011

Rate of Return

So what happened to the $1.7B in net savings?Most of these savings were passively re-spent…typically rolled back into funding public schools• States’ school finance laws often protect public schools from a full funding loss as their enrollment declines• Political pressure to annually raise per student funding is immense

Since public school spending is rarely cut, this gives credence to opponents’ claims that no voucher savings actually occurred.

Just because the voucher savings were re-spent……does NOT mean the savings never happened!

State’s typically don’t annually track savings from school choice programs• This needs to change!• Indiana requires annual tracking and reporting, but its process is seriously flawed

Available at: http://www.doe.in.gov/sites/default/files/choice/choice-scholarship-program-annual-report-061614.pdf

Indiana’s school voucher program saw tremendous growth of its first 3 years

Initially, eligibility was tightly restricted to: 1) students previously enrolled in public school; and 2) students transferring from a tax credit scholarship program.

For 2013-14, eligibility expanded to include: students assigned to “failing” public school (even if they weren’t enrolled); students with special educational needs; and siblings

The 2013-14 expansion substantially raised the program’s “deadweight loss” exposure.

The money shot!

Spoiler Alert: Actual savings are MUCH higher!

Let’s see why

Don’t be fooled by a false premise!

Not Previously Enrolled ≠ Not DivertedPivotal Question: Would the student be attending a public school now if not for the financial assistance provided by school choice when they first enrolled in a private school?

So what’s everyone missing?The vast majority of kindergarten students enrolling in a private school, with school choice financial assistance, are diverted from public school…even though they were never enrolled in a public school!

Key Presumption for this Analysis: If a student is first diverted from public school by using a tax credit scholarship, they are still a diverted student when they switch to the voucher program.

A crucial point that the official calculation misses!

Estimating How Many Voucher Recipients were Not Diverted from the Public School System

Starting Point: 7,779 Choice Scholarship recipients in 2013-14 never previously enrolled in a public school in Indiana (39%)

Four (4) key cohorts of diverted students are buried in the 7,779 count:Cohort #1 – Voucher recipients that previously entered Kindergarten under the tax credit scholarship program

Estimated Diverted Student Count in Cohort #1:3,271

Cohort #2 – Voucher recipients now entering Kindergarten via the “Failing School” PathwayCohort #3 – Voucher recipients now entering Kindergarten via the “Sibling” PathwayCohort #4 – Voucher recipients new to Indiana and now entering grades 1-12 via the “Failing School” Pathway

Estimated Diverted Student Count in Cohorts #2, #3, and #4: 729

7,779 Students Not Previously Enrolled – 4,000 =3,779 Students Not Diverted

Equals 19% of 2013-14 Choice Scholarship recipients!

School Yr2011-12

School Yr2012-13

School Yr2013-14

($20.0)

($15.0)

($10.0)

($5.0)

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$4.2 $4.9

($15.8)

$7.1

$17.4

$20.7

Choice Scholarship Program - Net SavingsOfficial vs Corrected Calculation

Net Savings - Official Calculation Net Savings - FFEC Corrected Calculation

$ m

illio

ns

The $36.5M swing, for 2013-14, exposes an even larger discrepancy in categorizing voucher recipients than calculated above.

At $6,203 gained for every student flipped from not diverted to diverted, the $36.5M swing reveals a 5,878 discrepancy in how voucher recipients were categorized!

School Yr2011-12

School Yr2012-13

School Yr2013-14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

3,911

9,139

19,811

24 192

3,779

Choice Scholarship Program - ParticiPationShare Not Diverted From Public School

Choice Scholarship Recipients - Full Count Not Diverted from Public School

Choi

ce S

chol

arsh

ip R

ecip

ient

s

0.6% NotDiverted

2.1% NotDiverted

19.1% NotDiverted

My count indicates 34% of the 2013-14 voucher program growth was students not diverted from public school…hardly a “friendly” assumption!

Eligibility expansion for 2013-14 spurred a doubling of participation, but a 20x increase in “deadweight loss”.

School Yr2011-12

School Yr2012-13

School Yr2013-14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

3,911

9,139

19,811

532

2,287

9,657

Choice Scholarship Program - ParticiPationShare Not PREVIOUSLY Enrolled in Publ ic School

Choice Scholarship Recipients - Full Count Not Previously Enrolled in Public School

Choi

ce S

chol

arsh

ip R

ecip

ient

s

13.6% Not Previ-

ously En-rolled

25.0% Not Previously Enrolled

48.7% Not Previously Enrolled

The official savings/loss calculation used a 49% “deadweight loss” share for 2013-14, not 39% as reported…without providing any explanation.

This data suggests that 69% of the 2013-14 growth was students not previously enrolled in public school. Key drivers were: 1) eligibility expansion; and 2) an accumulation former tax credit scholarship recipients that have switched to the voucher program.

Larger 49% “deadweight loss” share is due to using a one year look-back period (instead of the multi-year look back used to generate the 39% share reported).

Choice Scholarship Savings OverviewOfficial Calculation

Per Student Savings Analysis:Average School Formula Regular $ per Student (for Choice Scholarship recipients) $5,828 $5,976 $6,203 Average Choice Scholarship $ per Recipient $3,967 $3,944 $3,976 Per Student Savings from Choice Scholarships (for students diverted from public school) $1,862 $2,032 $2,227

Participation Data:Choice Scholarship Recipients - Full Count 3,911 9,139 19,811 Choice Scholarship Recipients - New Cohort Count 3,911 5,228 10,672

Prior SGO Recipients/Students Not Previously Enrolled in Public Schools - Full Count 532 2,287 9,657 Prior SGO Recipients/Students Not Previously Enrolled in Public School - New Cohort Count 532 1,755 7,370

Net Change in Public School Enrollment - Full Count (3,379) (6,852) (10,154) Net Change in Public School Enrollment - New Cohort Count (3,379) (3,473) (3,302)

Overall Savings Calculations:Change in State Allocations to Public Schools (for students diverted from public school) ($6,290,704) ($13,924,101) ($22,610,352) Year-over-Year Change in State Allocations to Public Schools - New Cohort Change ($6,290,704) ($7,633,398) ($8,686,250)

Cost of Choice Scholarships to Students Not Previously Enrolled in Public School $2,110,320 $9,019,604 $38,396,094 Year-over-Year Change in Cost of Choice Scholarships to Not Prior Public School Students - New Cohort Cost $2,110,320 $6,909,285 $29,376,489

Net Impact on State Tuition Support Cost Burden (negative = savings) ($4,180,384) ($4,904,497) $15,785,742 Year-over-Year Change in Net Impact on State Tuition Support - New Cohort Impact ($4,180,384) ($724,113) $20,690,239

Comparative Calculations:Minimum Ratio of Choice Scholarship Awards to Prior Public School Students vs Students Not Previously Enrolled in Public School

2.13 1.94 1.79

Actual Ratio of Choice Scholarship Awards to Prior Public School Students vs Students Not Previously Enrolled in Public School

6.35 3.00 1.05

School Yr2011-12

School Yr2012-13

School Yr2013-14

Choice Scholarship Savings OverviewFFEC Corrected Calculation"Diverted vs Not Diverted" Replaces "Previously Enrolled vs Not Previously Enrolled"

Per Student Savings Analysis:Average School Formula Regular $ per Student (for Choice Scholarship recipients) $5,828 $5,976 $6,203 Average Choice Scholarship $ per Recipient $3,967 $3,944 $3,976 Per Student Savings from Choice Scholarships (for students diverted from public school) $1,862 $2,032 $2,227

Participation Data:Choice Scholarship Recipients - Full Count 3,911 9,139 19,811 Choice Scholarship Recipients - New Cohort Count 3,911 5,228 10,672

Students Not Diverted from Public Schools - Full Count 24 192 3,779 Prior SGO Recipients/Students Not Previously Enrolled in Public School - New Cohort Count 24 168 3,587

Net Change in Public School Enrollment - Full Count (3,887) (8,947) (16,032) Net Change in Public School Enrollment - New Cohort Count (3,887) (5,060) (7,085)

Overall Savings Calculations:Change in State Allocations to Public Schools (for students diverted from public school) ($7,236,450) ($18,181,397) ($35,699,149) Year-over-Year Change in State Allocations to Public Schools - New Cohort Change ($7,236,450) ($10,944,947) ($17,517,752)

Cost of Choice Scholarships to Students Not Diverted from Public School $95,202 $757,221 $15,025,250 Year-over-Year Change in Cost of Choice Scholarships to Not Diverted Students - New Cohort Cost $95,202 $662,018 $14,268,029

Net Impact on State Tuition Support Cost Burden (negative = savings) ($7,141,248) ($17,424,177) ($20,673,899) Year-over-Year Change in Net Impact on State Tuition Support - New Cohort Impact ($7,141,248) ($10,282,929) ($3,249,723)

Comparative Calculations:Minimum Ratio of Choice Scholarship Awards to Students Diverted from Public School vs Students Not Diverted

2.13 1.94 1.79

Actual Ratio of Choice Scholarship Awards to Students Diverted from Public School vs Students Not Diverted

161.96 46.60 4.24

School Yr2011-12

School Yr2012-13

School Yr2013-14

Jeff SpaldingDirector, Fiscal Policy & Analysis317-681-0745 | email@edchoice.org