The School Voucher Audit: Do Publicly Funded Private School Choice Programs Save Money?

One of the pillars of Dr. Milton Friedman’s school voucher idea was that it not only would expand personal freedom and improve student achievement but also save money.

To see if that is indeed the case, this paper presents a cautious, rational estimate of the overall fiscal effects of school voucher programs that have been established over the past 24 years. It is not to lay claim that this analysis is a definitive, to-the-penny calculation of the fiscal impact incurred by every state government and local public school district where those voucher programs are in effect. That arduous undertaking would take too long and add too little value to the broader public policy debate to justify the immense effort and cost. That’s a task best addressed at the individual state level.


The School Voucher Audit: Do Publicly Funded Private School Choice Programs Save Money? from The Friedman Foundation for Educational Choice

For the 10 school vouchers programs examined in this report, a cumulative total savings of at least $1.7 billion has been realized since 1990-91, the first year of the historic Milwaukee Parental Choice Program (MPCP), through 2010-11, the end of this paper’s review period. During that same timeframe, participation in school voucher programs grew from 300 students to nearly 70,000, an increase of over 230 times.

Beyond just calculating the cumulative savings realized from school vouchers, this report strives to substantially elevate the reader’s understanding of how school choice savings are measured. The most relevant relationship in calculating the fiscal impact of school choice is the difference between: (1) the amount of financial assistance (i.e., the voucher amount) provided to participants and (2) the current cost of educating those students in the public school system. If the average voucher amount is less than the average per-student educational cost, a savings is realized for those students that use a voucher to leave a public school to enroll in a private school. It’s that simple!

What can complicate the task of calculating potential voucher savings are other factors that can affect the results:

First and foremost, eligibility for a voucher program may include some students who would have enrolled in a private school even without the vouchers’ financial assistance. This “private school propensity” effect is an incremental public cost that must be taken into account.

Second, the voucher amount typically varies among students, requiring an average voucher amount be calculated to generate a reasonable savings estimate.

Finally, the many nuances and complexities of the K-12 federal-aid allocation formulas and each state’s school finance laws and policies often cause confusion about school choice savings. But they really shouldn’t. Although this complex web of formulas, laws, and policies determine whether the savings are captured or reallocated and precisely how the finances of the federal government, state government, and local public schools are affected by school choice, it does not change the total amount saved by school vouchers.

Frequently, a state’s school finance laws are written in a way that results in much of the savings from a school voucher program being passively reallocated back to the public schools. A common example is provisions that protect public schools’ revenues amid declining enrollment. In other words, a public school’s funding remains constant, or nearly so, even as their cost burden for educating students is reduced. Opponents of school choice, then, often claim that no savings ever occurred. That is simply not true. The financial fact is that the savings were automatically distributed back to the public school that the voucher recipient left. That is, the public schools are still paid for students they no longer serve. So, instead of taxpayers receiving those savings, or the government spending them to improve, say, roads or parks, the public school system keeps the savings.

It was Dr. Friedman’s view that, by expanding school choice, the basic economic principle of competition would work to temper cost growth over time. Today, private school tuition is typically much less than the amount spent to educate a student in public school. Granted, that is true, in part, because of private schools’ extensive fundraising efforts. It’s also hard to predict how broader private school choice, facilitated by taxpayer funding, would impact both giving to private schools and tuition levels in the future. But what is certain is that, with more parental choice, spending for all schooling will move more quickly toward its proper level. Whether that level is more or less than what the current system generates is unknown. However, what is known is that the current government-sanctioned monopoly tends to drive up overall spending while under-rewarding excellence.

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