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The Fiscal Impact of Tax-Credit Scholarships in Oklahoma. State

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The Fiscal Impact of Tax-Credit Scholarships in Oklahoma. State The Foundation for Educational Choice WWW.EDCHOICE.ORG STATE RESEARCH The Fiscal Impact of Tax-Credit Scholarships in Oklahoma June 2011 Brian Gottlob About the Foundation for Educational Choice The Foundation for Educational Choice is a 501(c)(3) nonprofit and nonpartisan organization, solely dedicated to advancing Milton and Rose Friedman’s vision of school choice for all children. First established as the Milton and Rose D. Friedman Foundation in 1996, the foundation continues to promote school choice as the most effective and equitable way to improve the quality of K-12 education in America. The foundation is dedicated to research, education, and outreach on the vital issues and implications related to choice in K-12 education. Commitment to Methods & Transparency The Foundation for Educational Choice is committed to research that adheres to high scientific standards, and matters of methodology and transparency are taken seriously at all levels of our organization. We are dedicated to providing high-quality information in a transparent and efficient manner. All individuals have opinions, and many organizations (like our own) have specific missions or philosophical orientations. Scientific methods, if used correctly and followed closely in well-designed studies, should neutralize these opinions and orientations. Research rules and methods minimize bias. We believe rigorous procedural rules of science prevent a researcher’s motives, and an organization’s particular orientation, from pre-determining results. If research adheres to proper scientific and methodological standards, its findings can be relied upon no matter who has conducted it. If rules and methods are neither specified nor followed, then the biases of the researcher or an organization may become relevant, because a lack of rigor opens the door for those biases to affect the results. The author welcomes any and all questions related to methods and findings. The Fiscal Impact of Tax-Credit Scholarships in Oklahoma Brian Gottlob Table of Contents Executive Summary .......................................................................................................................1 Introduction and Overview ............................................................................................................3 How Oklahoma Funds Public Schools .........................................................................................4 How Oklahoma School Funding Varies with Enrollment ............................................................5 How School Expenditures Vary with Enrollment .........................................................................8 The Difficulty in Estimating Marginal Costs ..................................................................................8 How State Education Aid Affects Local Education Expenditures ........................................... 11 Each Dollar of Additional State Aid Increases School Expenditures by Only 32 Cents ............. 11 Demographics of Oklahoma’s School-Aged Children ..............................................................12 Oklahoma Children Have Fewer School Choices ......................................................................14 Proposals to Increase Educational Options and Opportunities ..............................................16 Estimating Program Participation Levels ..................................................................................18 Contributions from Individuals ....................................................................................................19 Tuition Prices Strongly Influence Demand for Private Schools ..................................................20 Demand from Special Needs Students ......................................................................................25 Combining Supply and Demand Models to Estimate the Number of Scholarships ................... 25 Program Tradeoffs .....................................................................................................................26 Fiscal Impact on the State of Oklahoma ....................................................................................29 The Percentage of Scholarships that Must Go to Students Transferring from Public to Private Schools in Order for the State of Oklahoma to “Break Even” Varies by Scholarship Value ................................................................................31 Maximizing Fiscal Benefits .........................................................................................................35 Fiscal Impact on Local School Districts.....................................................................................35 Conclusion ....................................................................................................................................37 Notes..............................................................................................................................................39 About the Author ..........................................................................................................................40 List of Tables Table 1: Oklahoma Public School Revenue (2008-09) ........................................................................ 6 Table 2: Oklahoma Public School District Revenues Resulting From a Decline in Enrollment (Enrollment Decline From 638,817 to 628,817) ................................................ 6 Table 3: Changes in enrollment are the strongest predictor of changes in school district expenditures ............................................................................ 10 Table 4: 2011 Federal Poverty and Free or Reduced-Price Lunch (FRPL) Income Guidelines ................................................................................................................. 13 Table 5: Cumulative Scholarship Demand Among Public School Students by Scholarship Value and Income Eligibility (Low Price Elasticity of Demand (-.60) Scenario) ................................................................................................... 28 Table 6: Cumulative Scholarship Demand Among Public School Students (as a Percentage of all Public School Students) by Income Eligibility (Low Price Elasticity of Demand (-.60) Scenario) .................................................................. 28 Table 7: Percentage of Scholarship Demand Among Public School Students that Can Be Satisfied by the Proposed Tax Credit Scholarship Program if all Scholarships go to Public School Students (Low Price Elasticity of Demand (-.60) Scenario) ................................................................................................... 29 Table 8: Net Fiscal Impact of Scholarship Program (in millions) By Year and Average Value Of Scholarship (80% of Scholarships are Awarded to Public School Students) ............................................................................... 33 Table 9: Net Fiscal Impact of Scholarship Program (in millions) By Year and Average Value Of Scholarship (67% of Scholarships are Awarded to Public School Students) ............................................................................... 34 Table 10: Net Fiscal Impact of Alternative Tax-Credit Scholarship Program (in millions) By Year and Average Value Of Scholarship (Assumes 80% of Scholarships are Awarded to Public School Students) ............................................................................... 36 Table 11: Impact of a Scholarship Program on Local School Districts (80% of Scholarships Going to Public School Students) ....................................................... 37 List of Figures Figure 1: About 90% of public school students meet scholarship eligibility at 300% of federal Free or Reduced-Price Lunch guidelines .............................................. 13 Figure 2: Minority students in Oklahoma are less likely to attend private schools than white students .................................................................................... 14 Figure 3: In Oklahoma, household income correlates with type of school attendance ...................... 15 Figure 4: Household income affects educational choices .................................................................. 15 Figure 5: Demand for scholarships increases with scholarship value ................................................ 22 Figure 6: Means-testing for scholarship eligibility dramatically impacts the eligibility and demand for scholarships ............................................................ 24 Figure 7: Only 72% of current private school students (compared to about 90% of public school students) will qualify for scholarships if eligibility requires household income to meet 300% federal Free or Reduced-Price Lunch guidelines ............................ 24 Figure 8: Among public school families, demand increases as the scholarship value increases, but the supply of scholarships decreases ................................................ 27 Figure 9: Under the proposal in this paper, Oklahoma’s fiscal break-even point starts at about 6,480 public school student transfers in 2012, and then substantially decreases over time ....................................................................................... 31 Figure 10: If the average scholarship value is $2,000 in 2012, nearly 50% of scholarships will need to go to public school students for the program to meet its fiscal break-even point ......................................................................................
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