Savings from tax credit scholarships

Today, the Budget and Tax Center (BTC), a project of the NC Justice Center, published a report that pans a bipartisan tax credit scholarship bill, House Bill 1104.  It does not actually quantify how the bill would “decrease available funding for public education” in North Carolina, but it does identify one report that found that the Arizona tax credit operated at a “net cost to the state.”

So, what does the report actually argue?

The problem with using per?pupil spending as the basis of estimating cost savings is that this figure includes costs that do not decrease proportionally for each student who leaves the system, such as school buildings, infrastructure, and the expense of maintaining student?teacher ratios.

This is a valid point.  Far too many proponents of school choice fail to acknowledge the importance of marginal cost.  Fortunately, there is a great deal of research that addresses the relationship between school choice and marginal cost, none of which are mentioned in the BTC report.

For a good primer on the debate, see “Marginal Cost of a Student” by Professor Cotton Lindsay of Clemson University and a response to Lindsay’s study, “Marginal Cost and the Fiscal Impact of a Proposed Tuition Tax Credit in South Carolina” by Miley and Associates.  Lindsay and Alex Grecu’s follow-up, “Cost Savings from Pupil Migration to Private Schools,” is a valuable assessment of the methodological issues involved in the debate.

Although somewhat dated, “Estimating Demand and Supply Response To Tuition Tax Credits For Private School Tuition in Utah” by Utah State professors Roberta Herzberg and Chris Fawson is also a worthwhile read.  The authors provide an extensive discussion of the elasticity of demand for private schooling, another important consideration for those who want to quantify public school cost savings/losses from tax credit scholarship programs.  Herzberg and Fawson concluded, “We found under most reasonable assumptions regarding demand and supply, the overall saving to the state would be positive.”

The BTC report fails to address a number of other studies that concluded that tax credit programs may save states money.  Since 2007, the Friedman Foundation for Education Choice has published four reports that concluded that tax credit programs realize net savings for states.

The Fiscal Impact of Tax-Credit Scholarships in Oklahoma 6/15/2011

Tax-Credit Scholarships in Nebraska – Forecasting the Fiscal Impact 6/29/2010

Tax-credit Scholarships in Maryland: Forecasting the Fiscal Impact 5/17/2010

The Fiscal Impact of a Corporate & Individual Tax Credit Scholarship Program on the State of Indiana 4/22/2009

Education by the Numbers: The Fiscal Effect of School Choice Programs, 1990-2006 5/9/2007

Of course, I do not expect the good folks at the Budget and Tax Center to embrace these reports, but, at minimum, I do expect their researchers to offer some kind of rebuttal to them.

One final note.  According to the BTC report,

…school data over the implementation of these credits shows that 4 of the 7 states with tax credit scholarship programs experienced steady growth in public school enrollment between FY2007?08 and FY2011?12…all but one state (Indiana) experienced a drop in estimated private school enrollment between FY2006?07 and FY2008?09.

If tax credits do not expand private schooling significantly, then what is the threat to public schools exactly?  Liberals often accuse school choice proponents of wanting to dismantle or “privatize” public education by offering vouchers and tax credits to families.  But if tax credit scholarship programs in other states did little to expand private-sector schooling there, then why should we expect North Carolina to be any different?  In fact, it sounds like the public schools in these states are doing fine despite the presence of large-scale tax credit programs.

Terry Stoops / Director of the Center for Effective Education | John Locke Foundation

Terry Stoops is the Vice President for Research and Director of Education Studies at the John Locke Foundation. Before joining the Locke Foundation, he worked as the progra...