Monday, December 19, 2016

Spending Reform, Part 1: School Choice

Education is becoming a hot topic in the debate over the state's budget crisis. Governor Mead has made clear that he believes the budget deficit to be entirely related to education. That is not true, of course - the deficit is the cause of a general revenue crisis - but let us assume for a moment that the governor is correct. 

Suppose that our public education system is suffering from a free-fall deficit problem, and that government has become structurally unable to fund our schools. What is the logical solution?

So far, Governor Mead has left the solutions issue open. He wants the entire state to be engaged in a discussion about the future of our education system. For that, the governor deserves recognition and respect - at least officially, he is not trying to ram his or his government's solution down the throats of Wyoming families. On the contrary, we should take seriously his invitation to a debate about future school funding. 

As a conversation starter, it is reasonable to start with questioning the current K-12 education system. As the governor has explained the situation, our education system would be facing a runaway deficit that, over the next 3-4 years, will grow in excess of $700 million, with no balancing point in sight.

With a deficit as big as the governor predicts, and with the trajectory he has forecasted, it is entirely unrealistic to expect that we should be able to raise taxes to pay for the deficit. What kind of taxes would the governor have in mind? Who would pay those taxes? And most important of all: how would the governor guarantee that those new taxes would be enough, given the projected increase in taxes over the next few years? 

More than likely, a tax-funded solution to our budget crisis - assuming again that it is concentrated to the education system - would require repeated tax increases for the foreseeable future. What is worse: those tax increases would go into funding our current school system as it is. Remember: the current budget deficit, which Governor Mead describes as a deficit in education funding, has come about while our schools have continued to operate as usual; there have been no changes to school spending (outside of normal increases) that have contributed to, or diminished, the budget deficit. 

In short: if the governor's budget-crisis narrative is correct, with a deficit galloping away toward $1 billion, then any use of taxes to close the budget gap will force us to tax ourselves back to the proverbial stone age just to keep our schools at status quo.

Therefore, it is time for us to look for alternatives with a chance of funding sustainability. In the case of K-12 education, a parental-choice reform comes to mind. 

Let us delineate the terminology before we proceed:

1. Parental choice can, but does not have to, mean privatization. Privatization means private schools, paid for with private money. There is nothing wrong, either theoretically or empirically, with an entirely private school system. A private system can be kept open to all kids through various forms of charitable contributions, such as scholarships from private foundations.
2. Parental choice can be guaranteed without full privatization. A sufficient condition for parental choice is to allow private schools to compete with public schools under a tax-based funding system. In other words: school vouchers. 
3. Tax-paid vouchers can be combined with private funding; call this "voucher-plus". The voucher provides the same per-student amount of funding regardless of where the child goes, allowing the individual school to add requirements of parental contributions on top of the voucher if they feel so inclined. 

I have personal experience as a parent of the voucher-plus model. While living in Denmark (where I went to graduate school) my son attended a private school that charged a small fee on top of the tax-paid voucher. As a parent, all I had to do was find a school I liked, fill out an application with the school's enrollment office and they did all the paperwork. I could even bring the school voucher across city lines, from the suburb where I lived into Copenhagen city where the school was located. 

There were other private schools that did not charge anything additional to the voucher; there were also schools that charged the equivalent of $20,000 per year on top of the tax-paid voucher (a lot of money in a country where low-wage workers pay 40+ percent in income tax). The range of educational choices was equally impressive, from schools where high-school graduates did not earn the eligibility to go to college (the curriculum was artistically oriented or deeply sectarian) to schools where college credits were an integrated part of the high-school curriculum.

The Danish school-choice system works well, both in the big cities and out on the countryside. I see no reason why we, here in Wyoming, should not be able to create a school-choice system of similar quality. 

Let me stress that any advocacy of school choice is just that - an argument for parents being allowed to choose their children's education. It is not a criticism per se of public education; if anything, it is a criticism of the funding of public education. If we cannot pay for our schools as we have - a point made clear by Governor Mead - then we have to find another funding model. One way to do so is to introduce competition between schools. Just like private monopolies, government monopolies tend to become complacent, accumulate unnecessary weight and lose that keen sense of thrift with taxpayers' money.

One piece of evidence that there is pork to be cut in our public education system is the Gargantuan gap between the cost of sending a child through K-12 in Wyoming and doing the same in Milwaukee, WI. It simply is not reasonable that it should cost Wyoming taxpayers 135 percent more to educate their children than it costs parents under the Milwaukee Voucher Program. 

With that difference as a base, let us see what a Milwaukee-style school-choice model could do for Wyoming in terms of cost savings. There are, roughly, 95,000 students in public schools in our state. Suppose it costs $15,000 to educate each one of them for one year, or $1,425,000,000 per year. Suppose, now, that we introduce a voucher system that cover the full cost of attending a public school, and that returns the margin between $15,000 and the actual tuition to taxpayers. 

The national average for private-school tuition is $10,000 per year. This, however, includes elite schools on the east coast that cost more than the most expensive first-tier universities. It is unlikely that any such schools would pop up in Wyoming if we introduced a voucher system; a more reasonable assumption is that private schools in Wyoming would charge around $8,000 per year and be able to provide a quality education based on that funding. (As we just noted, in 2012 the Milwaukee system paid schools within its jurisdiction 42 cents per dollar we spent here in Wyoming.) 

Suppose, now, that half of all our K-12 students attended private schools. This would bring down the cost for education from the $1.4 billion mentioned above, to just below $1.1 billion. The savings to taxpayers would amount to $332 million. This is money that we could now return to taxpayers' pockets, either in the form of an elimination of the state share of our property tax (the amount is roughly equivalent) or, even better, in the form of a cash refund. 

What would this school-choice model do for the Wyoming economy? Long term, we would see unexpected yet compelling dynamic effects, such as a distinct increase in young people starting businesses. This, in turn, would have very good long-term effects on growth and prosperity in our great state. 

Over the shorter term, a return of $332 million to taxpayers would have positive effects on consumer spending. The exact benefits would depend on the form of returning this money to where it came from: if it came back in the form of an eliminated property tax, the consumption effects would be mild but still positive; if it came back in the form of a check to taxpayers, the effect would be stronger. 

As a middle ground, suppose consumers would spend two thirds of the money, or about $220 million. Using a standard consumer multiplier, this would inject almost $630 million in new consumer spending into the Wyoming economy. On a permanent basis. The more kids choose private schools, the more money would be returned to taxpayers - and the stronger the consumer-spending effect would be.

Given that each non-minerals private-sector job pays $36,000 per year, and given normal mark-ups on employment, $630 million is equivalent to the creation of almost 15,000 new private-sector jobs in Wyoming. 

Permanent jobs. 

Better schools, lower costs, more private-sector growth, both short term and long term... Perhaps that is a perspective that could convince Governor Mead to consider other alternatives than higher taxes to do away with the deficit in our state budget?

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