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White Paper

January 31, 2006

Spreading Freedom and Saving Money: The Fiscal Impact of the D.C. Voucher Program

by Susan Aud and Leon Michos

Susan L. Aud is senior fellow at the Milton and Rose D. Friedman Foundation. Leon Michos is an adjunct professor of economics at George Washington University.

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In August 2004 the first ever federally funded school voucher program began in Washington, D.C. Eligible students could attend a private school of their choice in the District of Columbia. Each participant received up to $7,500 for school tuition, fees, and transportation. In addition, the D.C. Public School System (DCPS) and D.C. charter school system each received $13 million in federal grants to improve their programs.

This study examines the fiscal impact of the voucher program on DCPS and the District of Columbia. The program is currently funded by the federal government and creates a net inflow of funds to both the District and DCPS. This study also examines the fiscal impact of the program under several proposed changes to the law. Those scenarios include funding the program locally, making it universally available to all D.C. public school students, and expanding capacity by including regional private schools.

Our findings include the following:

• The current program saves the city nearly $8 million, mostly because it is federally funded and includes a federal grant to public schools.
• If federal grant subsidies were withdrawn and the program were locally funded, the city would still save $258,402 due to the greater efficiency of school choice.
• A locally funded universal program would maximize the economic benefits of school choice, saving $3 million.
• The process by which both DCPS and its schools are funded is not conducive to efficiency or excellence. The voucher program currently allows the central administration to retain an even higher share of overall funding than it did previously, leaving the management of reduced expenditures predominately at the school level. A universal school choice program could help to put a larger share of resources into the hands of schools.

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