Jay P. Greene's Blog

(Guest Post by Matthew Ladner)

The Arizona Republic ran a complex story with an unfortunately simplistic headline: Tuition tax credits drain state money.

The reporter made a serious effort to bean-count the individual and corporate tax credit programs. The headline is all the more unfortunate given the fact that by the Republic’s own estimation the program results in a $3 million savings to taxpayers.

 I wish someone would “drain” my bank account in a similar fashion.

The corporate tax credit, which makes only those switching from public schools eligible, was designed to generate savings, and obviously does so. The individual credit does not have the same eligibility requirements, and thus is a good deal more complex.

The Republic reporter, Ronald Hansen, made a good faith attempt to estimate the potential costs and/or savings of the individual program by looking at the National Center for Education Statistics figures on private school enrollment from before and after the tax credit passed. Making the assumption that the increase can be attributed to the credit, Hansen then made estimates regarding the number of kids who would not have gone to private school without the credit (savings generators) versus the number benefiting from the program but who would have gone to private school anyway (cost generators from the state’s perspective).

In short, this is an incredibly complex task- an attempt to estimate the price elasticity of demand for private schools. Hansen has made a serious attempt at estimation, but it is fraught with peril.

For starters, there are more than one estimate of private school attendance in Arizona. The estimation technique is highly dependent on this, and the Arizona Private School Directory lists more than 3,000 more private school students than the NCES. It would not shock me if they both underestimate the true number, which would generate larger savings.

Second it is also important to note that several other things happened during the same period of history. Arizona, for instance, is closing in on 500 charter schools being in operation. Ron Zimmer of the RAND Corporation and two colleagues studied the impact of charters in Michigan and that private schools lost one student for every three students gained in the charter schools.

There are over 100,000 students attending Arizona charter schools. In the absence of the tax credit program, there would have been a substantial overall decline in private school enrollment. Whether those kids went to charter or district schools, they would have cost you money. More to the point, they will have led the Republic to seriously underestimate the number of private school children who would otherwise be attending public schools without the tax credit program.

If private choice opponents are scandalized by the thought that the credit might cost the state money, I’d like to call their bluff. Arizona lawmakers can create a personal use tax credit for students switching from public to private school (i.e. my kid switches to a private from a public school, I take a tax credit). We can set the maximum credit at $3,000, and taxpayers will save thousands upon thousands of dollars every time a kid switches. Such a program would help close the state’s yawning structural budget deficit.

Any STO critics willing to cut out the middle man for the next generation of parental choice reform and save big money in the process? Or is generating savings not the real issue? If not, let’s keep our focus on real issues. Email me at mladner@goldwaterinstitute.org and let me know.

This entry was posted on Thursday, October 15th, 2009 at 8:01 am and is filed under tax-credit scholarships. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.