Taxpayer support of public school systems dwarfs public resources devoted to educational choice programs. On average, spending on students enrolled in public schools is nearly three times that used for students who participate in choice programs — $14,000 vs. $5,000, respectively. This gap implies significant fiscal benefits when students leave public schools to participate in educational choice programs. Moreover, choice programs consume only a sliver of total taxpayer support of public school institutions and programs: Just 2% of students enroll in private school choice programs, and these programs receive just 1% of all public funding for K-12 education.
School choice opponents argue that these programs drain resources from public schools and harm students who attend these schools. Some even go as far as claiming that choice will decimate or destroy public education. These critics often point to the cost of choice programs without acknowledging the relevant financial context these programs operate in nor the fiscal benefits these programs generate.
The cost of a school choice program tells just one part of the fiscal story. The net fiscal impact provides a more complete picture — the net fiscal impact of a choice program to the state is a function of both cost and savings:
Overall net fiscal impact of choice program = Program cost – Savings when students leave public schools
While it is true that there is a cost associated with a student who leaves a public school to enroll in a private school choice program, that student also generates savings for the state because most states, including Michigan, fund public schools primarily based on how many students are enrolled. The state fiscal effect then is straightforward, similar to the equation above.
Furthermore, when school districts have fewer students to educate, they have lower costs. In the short run, costs go down by the portion of a district’s spending that is variable. Variable costs are those which vary directly with enrollment. In the long run, all costs are variable, meaning that schools can adjust fully over time to changes in enrollment.
Districts lose students for a number of different reasons — e.g., families want to access a different school, families move, students graduate. The fiscal effects of students leaving via a choice program is the same as that of students leaving for other reasons. Most Michigan school districts have experienced these effects for more than a decade as the state’s total enrollment has continued on a downward trend.
School choice opponents argue that these choice programs hurt districts because funding decreases when enrollment drops. They claim that public schools have high fixed costs, such as electricity bills, maintenance and staff salaries. However, some also argue for increased funding for public schools during times of enrollment growth, claiming schools need more textbooks, supplies or staff. This suggests that public schools have high variable costs. But both cannot be concurrently true. The fact is, despite what school opponents argue, some school costs are more variable than others, but in the long-run, schools can adjust their costs based on their enrollment.
Economist Benjamin Scafidi estimated the short-run variable costs for public schools in the U.S. To identify which costs are variable, he looked at school districts in Georgia with significant declining enrollment. He then observed which types of expenditures school officials were able to reduce proportional to their enrollment decline. That is, he identified where the percentage reduction in an expense category for a district was greater than the district’s percentage decline in enrollment.
Scafidi identified five categorical expenditures that these districts reduced that was more than commensurate with the percentage decline in enrollment. These were instruction, pupil support services, instructional staff support services, food service and enterprise operations.[*] He estimated that these expenditures made up 63% of total expenditures for public schools in Michigan. That is, 63% of all spending for Michigan public school districts is variable in the short run.
The question of whether students who remain in public schools have more or fewer resources for their education when students leave via choice programs depends on the relationship between its short-run variable costs and its reduction in revenue:
District net fiscal impact = Decrease in variable costs – Revenue reduction
As long as variable costs exceed a district’s corresponding revenue reduction as a result of a choice program, then students who remain in public schools will have more resources devoted to their education on a per-pupil basis.
In addition to the regular intake of state, local and federal funds, Michigan public school budgets received over $5.9 billion in COVID-related federal relief. As of April 2022, local school officials had spent less than a quarter of those funds. Both local and national reports indicate some districts have taken in more extra money than they are able to spend. Others are implementing strategies that hold very little promise of improving student achievement, such as issuing large across-the-board employee bonuses.
Students who leave public schools via choice programs generate fiscal benefits for the state. We refer to these students as “switchers.” “Nonswitchers,” then, are students who would enroll in a private school even without financial assistance from a choice program. To the extent that these students qualify for a choice program, they become a new cost to the state. Thus, another necessary factor for estimating the fiscal effects of a choice program is the switcher rate, or the percentage of students participating in the choice program who would enroll in a public school but for the choice program.
It follows that if the switcher rate is greater than the ratio of the average cost of the choice program to the average cost of public schools, then the program will generate net fiscal benefits for the state.
Switcher rate > Avg. cost of choice program per student / Avg. per-pupil cost to educate choice students in public school systems
From the perspective of state taxpayers, the break-even switcher rate is the average per-student cost to fund the choice program divided by the state average per-student cost of educating these students in the public school system.
Michigan’s school funding system protects public school institutions because not all dollars are allocated based on enrollment levels. In Michigan, when districts lose students, they keep all local funds (which are based on local property values, not enrollment) and some federal funds, those based on census tract data and other factors unrelated to enrollment. On average, about 67% of Michigan state and local funds are disbursed based on enrolled students. Thus about a third of a school district’s total funding is unaffected when a student leaves for a different school. This mechanism has fiscal implications when district enrollment changes for any reason, including for a new choice program.
[*] According to the National Center for Education Statistics, enterprise operations “include expenditure for business-like activities (such as a bookstore) where the costs are recouped largely with user charges.” “Documentation for the NCES Common Core of Data School District Finance Survey (F-33), School Year 2016–17 (Fiscal Year 2017)” (National Center for Education Statistics, March 2020), https://perma.cc/9DLQ-5PNA.