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.
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.
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 [email protected] 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.
Recent editorials and letters to the editors in various newspapers opposing the proposed constitutional amendment to restore to the Legislature its traditional power to determine education policy and funding (CACR2) all sound a common theme – those who suggest that the Judiciary should be excluded from the process are really only out to shrink the state’s share of the education budget. This is not a fair criticism.
There are many reasons to consider amending the Constitution to change the result of the Claremont case. To begin with, in the long run, Claremont will not be good for education. When courts make constitutional pronouncements, it is as if they were creating a mold. Henceforth, if something doesn’t fit in that mold, it must be discarded. Accordingly, whenever the Supreme Court opines as to the content of an adequate education, it is as if those particular concepts had been encased in constitutional cement. To use an extreme example, just imagine what would happen to our education system if the Court were to decide that phonics or new math were (or were not) essential elements of an adequate education. These are policy questions for which there are no clearly right or clearly wrong answers and it is simply foolish to put them in the hands of those whose job it is to come up with only one answer.
A second reason that it is so important to get the Court out of the business of setting education policy and funding levels is because the Court’s involvement in the process is not good for taxpayers. When the Court said in Claremont that it was exclusively the state’s responsibility to fund an adequate education, New Hampshire found itself in the peculiar situation of having taxpayers in poor communities financing the educational systems of taxpayers in wealthy communities. It makes no sense at all that the Amhersts and Bedfords of the world should receive state education funding and yet the Claremonts and the Allenstowns are still struggling to make do. However, because courts only know how to make rules where one-size-fits-all, that is the system we now have.
We should target state education aid so that it gets to where it is needed the most. In order to do that, there must be some flexibility in the system. But once some particular quantum of education is labeled a “right”, every citizen is entitled to an equal share of the pie and notions of targeting go out the window. The net result is that we have reversed the story of Robin Hood; instead of stealing from the rich to help the poor, Claremont compels us to create a spending policy which steals from the poor to help the rich.
The final reason for amending the Constitution to reverse the Claremont case is because setting education policy and determining the appropriate level of education funding are simply not proper functions for a court. Courts decide issues of law. The very notion of the rule of law implies the existence of fixed standards against which a court can measure whether a particular act is lawful or unlawful.
The writers who are so enamored with the Claremont decision claim that the Court needs the court to sit in judgment of whether the Legislature is providing New Hampshire’s school children with an “adequate” education. Nowhere, however, do these scribes tell us what an adequate education is – or even how the five Justices of the Supreme Court could figure out what it is. That is because there is no commonly accepted standard of an adequate education. If one were to pose the question “what is an adequate education?” to a room packed with 100 people, one would get 100 different answers. The point is that an “adequate” education and an “adequate” level of funding are matters of opinion; they are not points of law. And it is for this reason that they should be decided by those whose opinions we have a right to expect conform to our own – our elected representatives in the Legislature.
Nevertheless, those who oppose a constitutional amendment claim that all this talk about separation of powers and the proper role of the Judiciary is just a smokescreen – that what we really want is to take the shackles off the Legislature so that it can go back to the “bad old days” ante Claremont. This is pure bunk. Being against Claremont does not mean that one is against education. It may well be that some advocates of a constitutional amendment would prefer not to spend as much on education as these editors do. But that does not make them anti-education. Perhaps they are just pro-health care or pro-the environment. One can cherish education and yet still value things other than education.
The problem with “rights” is that they act as trump cards; no matter how needy a competing interest may be, it must give way to a right. We are told, however, that the New Hampshire Constitution makes education a right, just like the right to free speech or the right to peacefully assemble, both of which do indeed trump an act of the Legislature. But that is simply not true. The Constitution does not say that education is a right; only the Supreme Court says that. And the reason that the Constitution does not describe education as a right is because there is a fundamental distinction between our genuine rights, which Government may not take from us, and social goods like education, which we desire Government to provide to us.
The point is that our Constitution is not a menu of entitlements. As important as education is – and that does mean an excellent, well-financed education – it is only one of many things that deserve Government’s attention. The very provision in the Constitution which admonishes us to “cherish” education also encourages us to favor “agriculture, arts, sciences, commerce, trades, manufactures, and natural history”. None of these things are described as rights and there is absolutely no evidence that the Framers contemplated that citizens could go to court to obtain them.
Education policy should be determined through legislation, not litigation. Let us learn from the experience of other states who have been subjected to lawsuit after lawsuit after lawsuit.
Political leaders from the right and left, Democrats and Republicans, agree that the current system of state aid to education is a failure. Without constitutional change, legislators are stuck tinkering at the edges of the current system that no one likes. Yet opponents of any constitutional amendment contend that we can’t trust the people we elect and the current flawed system would just be replaced with the problems of the past.
In one sense, they are quite right: each of the various constitutional amendments regarding state education aid would give the legislature the flexibility to change the current flawed education finance system. The only reason to oppose amending the constitution is because you don’t trust the people we elect.
Yet without change the authority over education policy rests with five court justices. In fact this is just as the anti-change group wishes it to be. In a radio forum, the leading trial lawyer for the group that filed the initial lawsuit summarized their goal as a bumper sticker: “stop me before I legislate.” Other opponents lament “we just can’t trust the legislature.”
They believe the legislature won’t do what they want, what they regard as just, so the power to act must be taken away from them.
But “we” the people in fact ARE the legislature. New Hampshire has a more representative legislature than any state in America. We elect a set of representatives to act on our behalf and none of them serves more than two years before we decide to re-elect them or throw them out of office.
Any system of state aid to education must by right come from the people we ourselves elect to make those decisions. Taking that power away from them means we don’t trust ourselves to elect people we can trust.
Furthermore, keeping authority out of the hands of the people we elect to represent us will condemn us to live with the system leaders from every party regard as a failure.
In the last election, the current system was soundly condemned by candidates in both parties. Shortly after the election, Democratic standard bearer Mark Fernald described the current system as “broken and out-of-control.” Ironically Mr. Fernald prefers the one change that would not require an amendment – the even more unlikely broadbased tax. Governor Craig Benson made fixing the education funding system without a tax the centerpiece of his campaign and listed “solving the education funding mess” as his top priority as Governor.
However, time and again attempts to correct the deficiencies of the current system have foundered on the current constitutional interpretation.
In June, The Josiah Bartlett Center’s comprehensive study of the current education finance system demonstrated graphically its failures, how poorer towns fall further behind their richer neighbors. Yet legislator after legislator said “we’d like to do something that makes more sense but the court won’t let us.” So we end of sending $13 million of scarce state resources to the four richest towns in the state – about the same amount it would cost to fund the waiting list for services for the developmentally disabled.
The same opponents of any change who won’t trust the legislature would have us believe our only choices are between the past and the present – the current flawed system and its problem-ridden predecessor. Their scare tactic is to convince us that any change condemns us to the past so we must avoid change at all costs. In reality, the extreme view that would reject change condemns us to the present failure and a hopeless future.
Without constitutional change, legislators make relatively minor changes to a system almost no one likes. The common sense changes most legislators would like to make are held hostage to the Supreme Court’s current interpretation – an interpretation that stopped both Democratic Governor Shaheen’s first attempts at a solution and the sensible targeted aid plan of North Country Republican Fred King.
The first step toward any common sense solution must be to amend the constitution to allow our elected representatives the flexibility to act on our behalf. To reject constitutional change is to say this is the best we’re going to do because “we just can’t trust the legislature.”
Our study of the effects of New Hampshire’s current education funding system suggests the system is an abject failure that has not improved the relative situation of poorer towns and may be making things worse. Poorer towns have not made progress relative to wealthier towns on education spending and are losing significant ground on tax rates.
As the New Hampshire Legislature continues its struggle with the school funding issue, the debate still seems to shed more heat than light. Some of the apparent confusion derives from faulty logic, some from loose terminology used for key concepts.
Discretionary Aid vs. Obligatory Payment
For example, there has been a lot of talk about misused “school aid” and about “targeted school aid” as the means to satisfy the State’s constitutional obligation to fund an adequate education. In the post-Claremont context, however, the subject is not really discretionary “aid” but rather obligatory payment due from the State. We don’t normally use the term “aid” or “grant” to refer to obligatory payment of bills to people who do work for us, for example, payments to the carpenter we contract to work on our house.
The Supreme Court held that the Constitution required the State to provide an “adequate education.” The State may delegate the administration of that education to the local school districts, but the obligation to fund adequate education remains the State’s, and any tax to fund performance of that obligation is therefore a State tax subject to the constitutional requirement that a State tax be “proportional and reasonable.”
The State’s portion of the school district’s funding is for the core elements essential to “adequacy,” with the discretion left to each local school district as to how much its taxpayers want to tax themselves beyond “adequacy” to fund more languages, interscholastic athletic teams, and the like. This is conceptually the reverse of the pre-Claremont situation in which it was the school districts who were obliged to bear the bulk of the cost of education and the State had the discretion to decide how much it would grant to the school districts as supplementary “school aid.”
Alleged Misuse of State Aid
Another fallacious notion deriving from the “state aid” terminology is that towns have misused their “aid” or “grants” for non-school purposes, particularly for reduction of taxes. In no case has a school district spent less for education than it received as the State’s payment for the State’s obligation.
Property poor towns which had already collected on high tax rates set before they could count on the State’s “adequacy” share quite properly considered the misnomered state “grants” as reimbursement of funds the districts had already advanced to cover the State’s share of the total school budget. Further, the Claremont case was as much about “proportional and reasonable” taxation as adequate education. Those low property-value-per-student communities that had previously suffered disproportionately high taxes to support adequate education were hardly expected to continue taxation at those high levels.
Is There a Real New Hampshire Advantage?
Another frequently used term which covers some faulty logic is the so-called “New Hampshire advantage,” said to be enjoyed by our state because of the lack of sales or income taxes and relatively low per capita tax burden. Undoubtedly businesses and certain wealthier and more sophisticated individuals will be influenced in their location choices by the amount of con-sequent tax liability. But they will be concerned for the total tax burden rather than the types of taxes.
Prior to the recent addition of the state property tax, New Hampshire’s exceptionally heavy reliance on local property taxes to cover cost of public education, combined with variance among communities of over 400 percent in property value per pupil, had meant that the tax burden in New Hampshire varied widely from one community to another depending on such fortuitous factors as abundance of lake shore and location of power plants. So there had been no real “New Hampshire advantage,” but rather a Portsmouth or Wolfeboro advantage matched by a Pittsfield or Claremont disadvantage. Indeed our pre-Claremont tax system had pushed these latter communities into a vicious downward spiral whereby loss of one major business and its tax base would substantially increase the tax burden on remaining businesses, tending to drive them away and to discourage other businesses from coming in to take their place.
Donor Towns are Unnecessary
A particularly pernicious notion propagated by politicians and the media who should know better is that of “donor towns.” Gubernatorial candidate Gordon Humphrey even included in his platform a constitutional amendment plank to “disestablish the concept of donor towns.” So-called “donor towns” were not created by the Constitution or by the Supreme Court, but rather by the Legislature which chose to have the state real estate tax collected by the towns, some of whom collect more for the State than they are entitled to receive from the State for the State’s “adequate education” obligation, and therefore must pass on the excess to the State.
The State could just as well bill the state real estate tax directly to each taxpayer, as it does for the interest and dividends tax. With that change in tax administration, there would be no “donor towns” under the statewide property tax, just as there are no “donor towns” under the interest and dividends tax. All property owners in the state would continue to pay the statewide property tax at the same rate, $6.60 per $1,000 of equalized valuation. Variations in payments by town, which are irrelevant from a tax equity standpoint, would not be highlighted under such system of tax administration.
A Direct Funding Obligation Cannot be Met by Targeted Aid
Many who are fearful of substantially increased taxation at the State level would prefer that the State role in public education be limited to aid to “poor towns.” At first they hoped to achieve this result through interpretation of the Claremont decision as requiring only that the State “guarantee” adequate funding for an education. But in Opinion of the Justices on SB462, December 7, 2000, the Supreme Court made doubly clear that the State’s constitutional obligation Such degree of local taxation, combined with continued administration of education by the local school districts, will help promote quality of education by empowering our citizens to take local initiatives to improve their schools, and encouraging local taxpayers to continue their involvement with their schools to see that their tax dollars are well spent.