How School Choice Saves Money

School choice programs expand educational opportunity, but at what cost?

Opponents of school choice frequently claim that vouchers and scholarship tax creditssiphon” money from public schools and increase the overall cost of education to the taxpayers. However, these critics generally fail to consider the reduction in expenses associated with students switching out of the district school system, wrongly assuming that all or most school costs are fixed. When students leave, they claim, a school cannot significantly reduce its costs because it cannot cut back on its major expenses, like buildings, utilities, and labor. But if that were true, then schools would require little to no additional funds to teach additional students. A proper fiscal analysis considers both the diverted or decreased revenue as well as the reduction in expenses related to variable costs.

A new study by Jeff Spalding, Director of Fiscal Policy at the Friedman Foundation for Educational Choice, does exactly that. The study examines the fiscal impact of 10 of the 21 school voucher programs nationwide, finding a cumulative savings to states of at least $1.7 billion over two decades. Spalding, the former comptroller/CFO for the city of Indianapolis, is cautious, methodical, and transparent in his analysis. He walks readers through the complex process of determining the fiscal impact of each program, identifying the impact of each variable and explaining equation along the way. He also makes relatively conservative assumptions, such as counting food service and interscholastic athletics as fixed costs even though they are variable with enrollment. Critically, Spalding accounts for those students who would have attended private school anyway, explaining:

One common complicating factor is student eligibility. If a voucher program allows students already enrolled in a private school to qualify, then those students do not directly relieve the public school system of any costs. Thus, there is a new public cost incurred for the vouchers provided to those students, but no corresponding savings for the public school system. Anytime voucher eligibility extends to students not currently enrolled in a public school, the net savings calculation must include that complicating factor.

States save money when the variable cost of each student to the district schools is greater than the cost of the voucher, accounting for the students who would have attended private school anyway. After wading through each state’s byzantine school funding formula, Spalding calculated that the voucher programs reduced expenditures across all 10 programs by $4.5 billion over two decades while costing states $2.8 billion, producing $1.7 billion in savings.

In the last 40 years, government spending on K-12 education has nearly tripled while results have been flat. Moreover, the Census Bureau projects that the elderly will make up an increasingly larger share of the population in the coming decades, straining state budgets with spending on health care and retirement benefits. Schools will have to compete with hospitals and nursing homes for scarce resources.

In other words, our education system needs to become more effective and financially efficient, fast. Large-scale school choice programs promise to do both.