A fiscal impact of statewide voucher expansion on Wisconsin school districts
The recently approved Joint Finance Committee K-12 education omnibus motion greatly expands the statewide parental choice program by removing the current enrollment cap. At first, no more than 1% of students in a school district can receive a voucher, but this limit will be increased every year and completely eliminated by 2019-2020.
Some superintendents and advocates across Wisconsin have sounded the alarm, expressing concerns that this expansion will devastate the finances of traditional public schools. State Superintendent Tony Evers proclaimed that the budget “evades the basic foundation of Wisconsin’s public school system” and “we cannot continue to ask our public schools to do more with less.” A leader of the Wisconsin Public Education Network, an advocacy group, said that this proposal is a “laundering scheme that essentially siphons tax dollars directly into private schools through expansion of the voucher program that Wisconsin citizens so clearly oppose.”
But, are these claims accurate? Is the sky about to fall on Wisconsin public education? The concerns of expansion opponents were prompted by a recent memo prepared by the non-partisan Legislative Fiscal Bureau (LFB), which estimated that districts’ $600-800 million in state aid could be used to fund vouchers. No one knows for sure whether that will actually happen. Even if it does, another LFB memo estimated that public school districts will take in a total of $94 billion in state and property taxes over the same period. In other words, if statewide voucher expansion costs $800 million over the same period, that reduction in state aid to public schools (who will, of course, no longer educate departing students) would amount to less than one percent (0.85%) of their total state and local revenue.
Yet, there is more to consider. Will children attending public schools have less money spent on their education? To address that question, this report uses data from the Wisconsin Department of Public Instruction (DPI) to analyze the fiscal impact on public school districts from children leaving the district with a voucher. We conclude that while the departure of students from public schools to the statewide school choice program has the effect of lowering the total revenue for school districts, school districts will actually have more revenue per pupil when this occurs (see Table A on page 7 for each school district).
II. Explanation of the Funding for Statewide Parental Choice Program Expansion
Under the approved omnibus motion for K-12 education, new student vouchers in the statewide program, as well as Racine1, will be funded similar to Wisconsin’s open enrollment program. That is, when a student and her family choose to leave a school district to attend a private school in the choice program, some of the state aid that would have been paid to the district will follow her to the private school. More specifically, the following occurs when a student uses a voucher to attend a private school in the statewide parental choice program:
1) Parents choose: A qualifying family makes the decision to use a voucher to send their child to a private school participating in the Wisconsin Parental Choice Program. A family qualifies for the program if household income is below 185% of the Federal Poverty Level.
2) Because of the parents’ choice, the state pays the private school: The State pays the private school the voucher amount of $7,210 for students in grades K-8 and $7,856 for students in grades 9-12. To offset this cost, the State will reduce some of the state aid (i.e. equalization aid) to the resident school district by the voucher amount.
3) But the public school district still receives property tax revenue and state aid for the departing child: The school district is still allowed to count the departing child as a student for state aid and revenue limit purposes. The district, therefore, can collect the portion of state revenue associated with this departing student and levy property taxes up to the revenue limit. As a result, the amount of revenue the district receives from property taxes remains unchanged because voucher students remaining in the district’s membership count for revenue limit purposes.
4) School district loses some of their state aid: This district’s state aid is, as explained in step 2, reduced by the voucher amount. If equalization aid is not sufficient to cover the voucher amount, then other state aid is reduced to cover the gap. The district is not allowed to levy property taxes to make-up for this loss of state aid.
A feature of this funding mechanism allows school districts to receive a “school choice bonus.” Because the districts can count the departing child for revenue limit purposes – and the revenue limit for each district is greater than the voucher amount, the voucher expansion results in school districts keeping some revenue when a student uses a voucher – even though the district no longer educates the student. In other words, while the funding mechanism has the effect of reducing the total amount of revenue, the amount of revenue per student is higher when a student leaves a district for the voucher program.
Let’s consider a simple example: Public School District A enrolled 100 students last year. It has a revenue limit of $10,000 per pupil, which means that it can receive up to $1,000,000 in total revenue ($10,000 per student X 100 students). We assume District A will receive $500,000 in state aid, so an additional $500,000 may be raised through levying local property taxes. We also assume District A exercises its maximum authority to levy taxes.
In the first year of the voucher expansion program, enrollment is limited to 1% of the district’s prior year’s enrollment. In this scenario, only one student is eligible for a voucher.
1) Parents choose: A parent chooses to use a voucher of $7,210 to enroll his child in elementary school at Private School Z in the choice program. The child leaves Public School A.
2) Because of the parents’ choice, the state pays the private school: The State pays Private School Z the voucher amount of $7,210.
3) But the public school district still receives property tax revenue and state aid for the departing child revenue: School District A still counts the departed student in their membership for state aid and revenue limit. District A will receive $500,000 in state aid because, for funding purposes, they are treated as if they still have 100 students. They can still levy the full amount of $500,000.
4) School district loses some of their state aid: District A’s state aid will be reduced by $7,210 to offset the cost of the voucher and they cannot levy additional taxes to makeup this amount. The total state aid is now $492,790. Because they count the student in their membership for revenue limit purposes, District A receives $10,028 per pupil ($992,790 / 99 students).
In the end, although $992,790 is less than the total amount of revenue for District A before the voucher expansion ($1,000,000), the amount per pupil is slightly higher than the revenue limit. This results in a student who uses a voucher bringing in an extra $28 for each of the remaining students in the district.
III. Fiscal Impact on Wisconsin School Districts
Using data from the DPI, we apply the funding mechanism to find the fiscal impact for voucher expansion for every school district in Wisconsin (excluding Milwaukee). This information for each district can be found in Table A, starting on page 7. The last column in Table A indicates the difference between a district’s per-pupil revenue before students leave for the statewide voucher program and the revenue available for each remaining student in the district after the voucher students’ departure. We assume that maximum number of students eligible for a voucher take advantage of it to enroll in a private school (i.e. 1% of each district’s enrollment last year).2
According to our analysis, every school district is financially better off – for each student it actually educates – when students leave to attend a private school with a voucher. Assuming that the maximum number of students in each district uses a voucher – which is unlikely – we observe that the majority of school districts in Wisconsin (398 districts) would end up with between $20 and $60 more for each student the district actually educates.3 Although a modest amount, it reflects a larger share for individual students.
Column A gives the district’s full-time equivalent student membership, which may be slightly different from actual enrollment.
Column B provides the revenue limit for each district.4 Multiplying these two values gives the total state and local revenue that can be raised for each district (column C). The next column (D) shows total state aid. Column E represents the maximum number of eligible students from the district that is allowed to choose to enroll in the voucher program. It is based on the district’s prior year’s enrollment (not included in the table for brevity). We estimate the total cost of voucher payments by multiplying (E) by $7,210. Column G subtracts this amount from the total revenue (C) and shows us the new total revenue amount. Dividing this by the new enrollment (99% of column A) give the new per-student revenue figure (column I). The difference between the original and new per-student revenue is reported in column J. Multiplying (J) by the new enrollment gives the total school choice bonus for each district.
For example, in Wauwatosa School District, a maximum of 62 students – 1% of total enrollment – could be eligible for a voucher to enroll in the parental choice program. Because the district’s revenue limit is $10,261, it could receive up to $63.2 million in state and local revenue for the total number of students it currently enrolls. If the maximum number of students (62) use a voucher, then the district’s state aid will be reduced by about $450,000. This would reduce its total revenue from state and local sources to $62.8 million. But because the district would no longer educate these 62 students, Wauwatosa School District ends up with $31 more per student. This results in an extra $188,246 for the remaining students in the district. Full data for Wauwatosa is on page 15.
In Appleton Area School District, for another example, 150 students attending public schools could qualify for a voucher.5 Appleton’s revenue limit is $9,899 per pupil, so it can potentially receive up to $148.5 million in total revenue from state and local sources. If all 150 students use a voucher to enroll in a private school, the district’s state aid would be reduced by about $1.1 million. This would reduce its total revenue from state and local sources to $147.5 million. But because the district would no longer have to educate these 150 students, the amount of revenue it has for the students it actually educates is $9,926 per pupil. Thus, the district would have $27 more available for each of its own students. This results in a total bonus of $403,550 for the remaining students in the district.6
IV. Additional Considerations
It is noteworthy that a school district is actually worse off, financially, when a family moves out of the district than compared to a student using a voucher to attend a private school. In the latter, the district incurs the cost of the voucher but can still count the child. For the former, however, the district would see its total revenue decline by about the per pupil revenue limit amount. This decline occurs because, after a three year period, the child is no longer counted for purposes of determining the district’s revenue limit or equalization aid. Therefore, the district receives no state aid and cannot levy property taxes for the departed student.
One might argue that, if only a few students depart from public schools for private schools, then the savings to each district will be very small. Perhaps the total revenue loss will exceed the total savings even as per pupil expenditures increase. That could happen – in theory – if choice expansion is not popular. If that does happen, then public school districts will not lose even the $800 million in aid (0.85% of total revenue) over the next ten years, as the LFB memo predicts.
While we show that school districts will receive a bonus for children leaving their district for a voucher, what happens to their costs? Economist Benjamin Scafidi estimated that in Wisconsin, about 35% of district costs are fixed and 65% of costs are variable. Some fixed costs will become variable when larger numbers of students leave in the longer run. If school choice proves to be popular, districts that lose students – and no longer must educate them – ought to be able to reduce costs commensurately. In other words, an increase in per pupil expenditures could reflect a real gain in available resources or, at least, no appreciable loss.
V. Conclusion
Our analysis demonstrates that a school district that “loses” a student to the school choice program is actually rewarded with a “school choice bonus.” When students leave public schools with a voucher to attend private schools, to be sure, the overall amount of revenue for the district will be less. Yet, the funding mechanism is set up in a way to actually allow districts to have more revenue per student after children leave for the voucher program. Click on Table below.
Table: Fiscal impact on individual school districts when 1% of students leave with vouchers*