The second issue of our series published jointly with the Milton and Rose D. Friendman Foundation includes an essay by Milton Friedman on “The Role of Government in Education” and an explanation of the principles of a well designed program.
Issue 2: Milton Friedman and the principles behind school choice

POLICY IN BRIEF


The Josiah Bartlett Center for Public Policy

Let families of modest means choose a school
By CHARLES M. ARLINGHAUS

The following was written for the New Hampshire Union Leader and appeared on Wednesday, Mar. 8, 2006

WHEN 25 PERCENT of New Hampshire’s high school students drop out something needs to change.

Politicians of every stripe agree that the state’s dropout rate is a tremendous problem and the solution must include alternatives, particularly for children from lower-income families. Tellingly, the dropout rate at high schools with a wealthier population, like Hollis or Amherst, is close to zero, while it is much higher at schools with lower-income populations.

Everyone admits that the choices enjoyed by those who can afford them lead to better outcomes for their children. For more than two years the Josiah Bartlett Center has been fighting to extend those same choices to parents of lesser means.

Despite an excellent public school system, no one school will be just right for every single child. The economic power of wealthier families lets them make individual choices for individual children. But for the 25 percent of our children who drop out, their limited educational options will serve to limit their options in life.

After working for years to increase educational opportunities, the New Hampshire Legislature is poised to provide real alternatives to lower-income families. The Senate passed a bill in January that would provide a certificate to lower-income families that they could use at the school that they feel best meets their child’s needs. The House Education Committee passed its own version of a means-tested school choice bill last month.

Despite a barrage of misleading criticism, this debate is fundamentally about creating alternatives for parents of modest means, the same alternatives that wealthy families already enjoy.

A school administration lobbyist said to me during a discussion that our traditional public schools do the best possible job for the greatest number of children. And of course he’s right. In general, they do a terrific job for most children. However, no one school can possibly be right for all children. Even with tube socks, one size does not fit all.

For parents with economic means, this isn’t a problem. If one child has different needs, tuition at another school is easily accessible. As one wealthy parent described it to me, “I already have school choice for my kids.”

But parents with limited income have limited choices. All too often there is no alternative for the child that doesn’t fit into the system. School choice proposals in the Legislature are designed to create a small program for parents and students with the greatest economic need.

The city of Milwaukee has a similar targeted program that has significantly raised graduation rates. It may have been possible at one time to succeed in life without a high school diploma, but in today’s world, a child without a diploma will have few opportunities and almost certainly live on the fringes of the economy. We should have a strong economic interest and an equally strong human interest in helping at-risk children get the education they need.

Because a school choice certificate program makes so much good common sense, opponents throw up a smokescreen of misleading criticisms. They allege constitutional concerns, citing a recent case down in Florida. Yet Florida’s court has struck down only one of that state’s many choice programs by depending on a uniformity clause that does not exist in New Hampshire’s constitution. More importantly, a Josiah Bartlett Center study found the program under consideration meets the tests suggested by past New Hampshire rulings on the subject.

Some lobbyists have suggested non-public schools have a competitive advantage because of the regulations on public schools. The obvious solution is not to deny alternatives to lower-income pupils, but to work together to reduce those regulations.

Finally, some opponents of school choice will try to pretend school choice is an attack on the public school system. But the attempt to provide greater opportunities to the neediest students is nothing of the sort. New Hampshire’s public schools do a terrific job for the vast majority of students, but no system can be perfect for everyone.

Far too many of the students who need the benefit of a good education fall through the cracks and drop out. A targeted school choice program can provide students whose only current option isn’t working with an opportunity to find another choice to help them succeed.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy in Concord.

A SCHOOL CHOICE CERTIFICATE PROGRAM COULD SAVE THE STATE BUDGET $32 MILLION OVER EIGHT YEARS by Brian J. Gottlob “The basic financial calculus of a school choice certificate proposal is that if the per student cost of each child receiving a school choice certificate is less than the per student state aid cost associated with these children if they attend public schools, then the program will save the State of New Hampshire money.” In this study, economist Brian Gottlob determines that a means tested school choice certificate program could save the state budget $32 million over eight years. For this study, Mr. Gottlob examined a program like the ones introduced in the legislature the last two years that would cap the total number of vouchers, direct a full voucher to children at the lowest income levels and award partial vouchers on a sliding scale to more moderate income families.1 According to this analysis, a School Choice Certificate Program like the ones introduced in the New Hampshire legislature each of the last two years would save the state budget $2 million in the first biennium and $32 million over the first eight years. The basic financial calculus of a school choice certificate proposal is that if the per student cost of each child receiving a school choice certificate is less than the per student state aid cost associated with these children if they attend public schools, then the program will save the State of New Hampshire money. In the first year of the program, only 1,200 certificates would be awarded. Table 1 analyzes the cost of a school choice certificate program for that introductory year. Savings are greater with a larger number of students but the methodology is the same. The analysis uses census data to calculate the number of students by income distribution and uses the current FY 2006 state adequacy aid figure of $3,580. A student below 200 percent of the federal poverty level would receive a certificate equal to 80 percent of state adequacy aid with the remainder sent to the student’s home district. For higher income levels (between 200 and 300 percent of federal poverty guidelines), the student would receive progressively smaller amounts but the district’s portion would remain the same. For each of those students, the state saves money. 1 While based on the specifics of a current proposal, the analytical model developed can be applied to other means-tested school choice proposals. The 2005 bill is Senate Bill 131. The text is available online at http://www.gencourt.state.nh.us/legislation/2005/SB0131.html. Some percentage of students using a certificate would have gone to private school even in the absence of a certificate program. This analysis uses the most conservative estimate of that “deadweight effect” by using the actual percentage of private school students in each of the poverty categories. For example, since 7.3 percent of children who have incomes below 200 percent of poverty attend private schools today, we assume that they would have attended private school without a certificate program. Therefore, the costs of providing certificates to these children are included in the cost of a certificate program but are subtracted from the costs without a certificate program, reducing the net savings of the program.
2
TABLE 1 FIRST YEAR COSTS OF SB 131 State Adequacy Aid Per Pupil: $3,580 Number of Certificates: 1,200 Income Level % Poverty % Students Grade 1-8* Pct. of Certificates # of Certificates Dollar Value of Certificates Per Pupil $\’s Retained by District Total Cost of CertificatesCost if Student Enters/Stays Public School* \”Dead-weight Loss\”**Avg. Value Per Certificate301% + 54.6% Not Eligible Not Eligible N/A N/A N/A N/A
N/A N/A 276-300% 5.9% 13.0% 156 $111,631 $111,631$223,263$516,853 12.0% $716 251-275% 6.5% 14.3% 171 $245,515 $122,758$368,273$547,499 10.2% $1,432 201-250% 11.6% 25.6% 307 $659,143 $219,714$878,857$1,035,953 4.8% $2,148 Up to 200% 21.5% 47.3% 567 $1,624,147 $406,037$2,030,184$1,881,981 7.3% $2,864 Total Cost To Trust Fund: $2,640,437 $860,140$3,500,577$3,982,286 $2,200 Average Cost Per Pupil: $2,200$717$2,917$3,319 ** Equals the percent of students who would have gone to private school even without certificates. These costs are subtracted from the preceding column. Table 1 shows that school choice certificates will save the Education Trust Fund approximately $481,000 in the first year of the program. In addition, several important characteristics of the proposed school choice certificate program are presented in Table 1: • A majority of New Hampshire’s school population in grades 1-8 will not be eligible because they reside in families above 300 percent of federal poverty guidelines. • Nearly half of the certificates will go to children from families with incomes below 200 percent of federal poverty guidelines. These children will receive certificates with a value of about $2,864 or almost 75 percent of the average tuition at independent elementary and middle schools. • School districts retain $717 for each student from their district that receives a school choice certificate. • On average, the total cost of each school choice certificate (the certificate plus the 20 percent payment to districts) will be about $2,917, compared to an average cost of $3,319 per pupil (net of “deadweight loss”) in the absence of school choice certificates. As the number of school choice certificates increases with each year, the savings to the Trust Fund become much larger (Table 2) and the beneficial impact on school districts becomes greater (Table 3). Table 2 shows that as school choice certificates increase in number, based on the current distribution of children by income level in New Hampshire, the cumulative savings to New Hampshire’s Education Trust Fund will reach $32 million.
3
TABLE 2 SCHOOL CHOICE COSTS AT FULL PROGRAM IMPLEMENTATION Year Total # of Certificates Cost of Certificates Cost Without Certificates Cost of Certificates vs. No Certificates Cumulative Savings to Trust Fund 1 1,200 $3,500,577 $3,982,286 -$481,709 $481,709 2 4,000 $11,668,590 $13,274,286 -$1,605,696 $2,087,405 3 6,000 $18,483,047 $21,026,469 -$2,543,423 $4,630,827 4 8,000 $24,644,062 $28,035,292 -$3,391,230 $8,022,057 5 10,000 $32,438,680 $36,902,515 -$4,463,835 $12,485,892 6 12,000 $38,926,416 $44,283,018 -$5,356,602 $17,842,495 7 14,000 $47,701,196 $54,265,282 -$6,564,085 $24,406,580 8 16,000 $54,515,653 $62,017,465 -$7,501,812 $31,908,392 Totals $231,878,222 $263,786,614 -$31,908,392 Assumes that per pupil state adequacy figures are adjusted every two years to account for inflation, as is required in current law. I have noted in prior research2 that in any school choice program where the dollar value of the certificate is less than the cost of education a child, a school district will not be financially harmed by a loss of students. The actions of school districts and communities bear this out. Despite increases in state aid since 1999, communities still recognize that adding students is costly while limiting the growth in enrollments or reducing them is fiscally wise. I know of no school district that believes that the secret to healthier finances is to add students, regardless of the amount of per pupil state aid they receive. The only districts that look to expand enrollments are those than can charge tuition to a “sending town” that more closely reflects per pupil costs in their district. School districts across the state regularly see decreases in annual enrollments and thus reductions in state aid without retaining 20 percent of the per pupil adequacy aid proposed in a certificate program. As a recent publication by the NH Center for Public Policy Studies notes: “In smaller towns, however, changes in [enrollment] of plus-or-minus 5 to 10 percent are not uncommon.”3 No district will experience enrollment changes of 10 percent under SB 131, and thus it will cause no more disruption in district financial planning than occurs in a normal year. Finally, it is crucial to note that when a student leaves the public schools because of a school choice program, he or she subsidizes the students remaining in the public schools. Table 3 illustrates this point using Manchester as an example.4 The table shows that by the end of the eighth year of the program Manchester will be eligible for school choice certificates that reduce its elementary and middle school population by about 8 percent, with a decline in state adequacy aid of less than 3 percent of expenditures. Table 3 also shows that when the value of a choice certificate is less than the cost of educating a child, the loss of students to a choice program subsidizes the remaining students in a school district. Per pupil expenditures increase as more students participate in the school choice certificate program. 2 Brian J. Gottlob, “The Fiscal Impacts of School Choice,” The Josiah Bartlett Center for Public Policy, February 2004. Available electronically at http://www.jbartlett.org. 3 Richard Minard, “Understanding State Aid FY 05 & FY 06”, NH Center for Public Policy Studies, December 2004. 4 Financial data are based on detailed reports submitted by the school district for the 2002-2003 school year and adjusted by 5 percent annually to reflect inflation adjusted increases in expenditures.
TABLE 3 THE IMPACT OF SCHOOL CHOICE CERTIFICATES ON THE MANCHESTER SCHOOL DISTRICTYear # of Certificates % of Grade 1-12 Students Impact on Education Aid % of District\’s Expenditures Per Pupil Expenditures W/O Certificates Per Pupil Expenditures With Certificates 1 102 0.6% -$292,535-0.24% $7,332 $7,395 2 340 2.0% -$975,116-0.77% $7,625 $7,844 3 511 3.1% -$1,544,584-1.16% $7,930 $8,275 4 681 4.0% -$2,059,445-1.48% $8,247 $8,723 5 851 5.0% -$2,710,823-1.87% $8,577 $9,201 6 1,021 6.0% -$3,252,988-2.15% $8,920 $9,694 7 1,192 7.0% -$3,986,275-2.52% $9,277 $10,224 8 1,362 7.9% -$4,555,743-2.75% $9,648 $10,768
Table 3 uses data from the Manchester school district but illustrates the impact that school choice certificates will have on any school district in New Hampshire. It shows that the percentage decline in students as a result of school choice certificates will be greater than the percentage decline in state education aid as long as the value of certificates are less than the actual cost of education a child. The calculations in Table 3 assume certificates are allocated to districts according to the percentage of NH’s students the district educates, that the number of students will increase at a rate of .5 percent (one-half of one percent) annually, and that district expenditures will increase by five percent annually. Brian Gottlob is the Principal of PolEcon Research in Dover, New Hampshire. You can contact him at bgottlob@poleconresearch.com. February 2005 4

A study in partnership with the Milton & Rose D. Friedman Foundation to examine the financial impact of a state school choice pilot program. The study shows that the voucher would be less than the avoided variable costs – resulting in a net financial gain for most communities.