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Day 22 - Finally!

Last Friday, the Utah House of Representatives finally passed a broad-based voucher bill (HB148). Fortunately, the House did not buy the doom and gloom that voucher opponents were preaching. The Senate will pass HB148 sometime within the next week or so, and Governor Huntsman will sign the bill. Then the UEA or one of their designees will challenge the law in court. Once the Utah Supreme Court approves the law, there will most likely be an attempt within the state education apparatus to obstruct the law’s implementation. The battle for education reform is never ending, but taxpayers made significant progress last week.

As the intensity of the voucher debate fades, we’ll be spending less time on this issue. We’ve already addressed several of the issues that voucher opponents have cited:

- fairness for taxpayers without children
- alleged subsidies for private schools
- so-called fixed costs and fiscal impact of vouchers on public education

We briefly address a couple more objections.

Will private schools raise tuition?
Voucher opponents have argued that private schools will raise tuition by thousands of dollars because the average voucher amount will be about $2,000.

This argument is flawed because the largest voucher amounts will go to the poorest students while the smallest voucher amounts ($500) will go to students from higher income families. According to voucher opponents’ arguments, current private school students come from high income families. Therefore, private schools will have minimal opportunity to raise tuition since the existing private school client base will be eligible for vouchers of small amounts. If private schools raise tuitions by thousands of dollars, they will price out existing customers and some of the low income students receiving vouchers and other forms of financial assistance.

Moreover, if voucher opponents are correct, they should also be arguing that elimination of Pell Grants will cause universities to lower tuition.

What about vouchers for other government services?

Voucher opponents argue that vouchers are bad policy because home owners do not have the opportunity to opt out of paying taxes to the local police department if they buy their own security system nor do they have to option of choosing which fire department will respond if their house catches fire.

As we’ve noted previously, some government services are not easily “voucherized” or suited for choice and competition, just as some private sector endeavors like electricity and natural gas distribution are not suited for competition. Diverting public school enrollment to the private sector at less than half the cost of educating those students in the public sector without harming those who remain in the public school system clearly benefits taxpayers. If someone figures out a way of diverting existing customers of government public safety services to the private sector while saving tax dollars and benefiting those that continue to receive government public safety services, we’ll support that also. However, just because choice and competition are not practical in some areas of government services, does not mean it is not practical in K-12 education.

Some additional comments on the fiscal impact
We’ve already commented on the fiscal impact of vouchers, but we would like to add a few more observations.

The absolute worst case fiscal scenario would be that only current private school students would use the voucher and no existing or future public school students would switch to private schools because of the voucher. Since all existing private school students come from high income families – that’s what voucher opponents tell us – existing private school students would receive a $500 voucher per student. Since there are about 16,000 private school students in Utah (plus or minus a couple hundred), the worst case fiscal impact would be about $8 million, and that assumes that ALL current private school students would be eligible for vouchers in year one.

In FY2008, Utah public schools will be spending more than $4 billion, and that includes capital and debt service that are excluded in most media reports on public education. Therefore, even in the worst case scenario, the voucher impact would be 0.2% of total spending.

Of course, this is the worst case scenario, and it’s an unrealistic scenario. The actual fiscal impact will be much less than the $8 million. In fact, if enough low income students use a voucher, the fiscal impact will be positive. For example, if a student switches to a private school because of a $3,000 voucher, taxpayers save more than $3,300 because the state spends more than $6,300 per student (FY2005) to educate students in public schools. In FY2008, the per student amount -- including capital and debt service -- will be more than $7,000, which means the savings would be at least $4,000.


If 2,000 students receive vouchers of $3,000 each, the savings to taxpayers in FY08 would be $8 million, which offsets the $8 million impact of current private school students receiving vouchers.

But are there really any savings if education costs are fixed?
Education costs are not fixed. In growing areas, additional schools have to be built, additional teachers need to be hired, and new equipment needs to be purchased. There are no capital or operating fixed costs associated with schools that haven't been built yet. Diverting a portion of enrollment growth to the private sector at a lower cost per student saves tax dollars.

Education costs are not fixed in areas with declining enrollment either. In recent years, enrollment and enrollment-related funding have shifted from districts like Salt Lake, Granite, Murray, and Provo and shifted to districts like Alpine, Nebo, and Tooele. Have these growing districts "harmed" declining enrollment districts? No, in fact we'll present data that show

- declining enrollment districts spend more on instruction per student than growing districts (even after adjusting for poverty-driven federal dollars)

- instructional spending per student has grown at similar rates in declining enrollment districts as in growing enrollment districts

- growing districts have had much higher property tax increases than declining enrollment districts.

Finally is right, I can't believe it has taken this long to get vouchers in place. Thanks for your work on the issue!

A lot of people deserve thanks on this. Here is an incomplete list:

Former Rep. John Swallow
Sen. Chris Buttars
Former Rep. Jim Ferrin
Rep. Steve Urqhuart
Speaker Greg Curtis
The 38 representatives who voted yes on Friday
The 19 (or so) senators that will vote yes later this week
Gov. Huntsman who will sign the bill
Utah Supreme Court that will uphold the law
Jordan Clements
Doug Holmes
Elisa Peterson
Royce Van Tassell
Lincoln Fillmore
Nancy Pomeroy
Adam Dynes
Chuck Warren
Patrick Byrne
Utah Taxpayers Association
Deseret News Editorial Board

Private schools will absolutely raise tuition until supply meets demand. There are currently a limited amount of quality private schools in the state of Utah. They might have some excess capacity but not enough to accommodate every child in this state that might want to use vouchers. Once the capacity of the current private schools is reached then they will either just turn away the excess demand or they will raise the price until the demand is reduced and the supply meets demand. Some will argue that new private schools will open which will inevitably be true but what will the quality of these literally fly by night operations be.

I was thinking about this when watching the super bowl this weekend, all those hotels raised their prices because they could, there was excess demand, did they care that they left poorer customers out in the cold...NO, they raised the price until they met demand and there is nothing to stop private schools from doing the exact same thing.

Also something that voucher proponents don't want to talk about is exactly what kind of quality private school is just 2000 dollars, the amount that the fiscal note said the average voucher would be worth.

What I feel will ultimately happen is the poorer students will try private schools but only be able to afford the lower quality private schools and then eventually switch back to public schools as they realize these fly by night operations are not what they were sold. Then maybe people will realize that public schools are really better than people like you want us to believe. Then the only ones left using the vouchers will be the rich that could afford private schools in the first place.

I find it really sad that the ones that claim to care about our tax dollars has supported this bait and switch, this will do nothing to help the majority of students in this state and will become a subsidy for the rich in this state that feel their kids are too good to hang out with our kids. That is not what I consider a good use of my tax dollars. Not with my tax dollars.

Marshall,

Your theory ignores the fact that a price equilibrium already exists. If high income people are already paying x amount in tuition and they get an additional $500, the most private schools could raise their tuitions would be $500 or they would begin pricing out their existing clientele.

Secondly, you are trying to have it both ways. One the one hand you say that the voucher amount isn't enough to enable low income families to afford quality private schools, and then you argue that the vouchers would increase demand at quality private schools from those same families, which would cause private schools to raise tuitions. These are mutually exclusive propositions. Either the low income families won't be able to afford a quality private school -- meaning that demand won't be increased -- or these families will be going to quality private schools.

If the low income use vouchers only at "fly by night" schools, then they won't be increasing the demand for existing private schools. Therefore, the worst case is a $500 tuition increase at existing private schools.

You also falsely assume that a $2,000 voucher is all the low income students will have at their disposal. Scholarships from Children First Utah and private schools themselves as well the families' own sources (though meager) will supplement the voucher amount.

Your Superbowl analogy isn't valid either. No matter where the Superbowl is held, customer demand will outstrip supply because supply is not geared towards accommodating Superbowls on a regular basis. If the Superbowl were held in the same town 52 times a year, then supply would expand to accommodate demand.

Private school supply will react to demand, but it won't be highly infrequent and unpredictable "Superbowl" demand but rather predictable constant demand.

If price equilibrium does exist then what will happen when new money (vouchers) is entered into a system with limited capacity (quality private schools)?

Simple economic question.

My superbowl analogy wasn't perfect but the point of it was that in a free market the seller doesn't care that there might be poorer customers that want to use their product, instead all they care about is there is enough demand to sell their product at the current price. As long as that demand is sufficient they can and will raise their prices until there is no longer sufficient demand to sell their supply.

The superbowl example was more a way of describing a situation with excess demand which I have argued will be the case for quality private schools under this voucher bill.

Luckily our kids get to be the guinea pig for this experiment.

Marshall,

First, the Superbowl analogy is more than imperfect as I cited earlier: the inability of supply to quickly react to inconsistent and unpredictable demand. This is apples and oranges as far as the private school debate is concerned.

Besides, your statement that businesses only care about selling at the current price is not accurate. In addition to price (and profit margin), businesses are concerned about sales volume, and sales volume depends on expanding capacity. Profit = (margin) x volume.

According to your argument, Pell Grants should be eliminated because they increase college tuitions, and any kind of private or public assistance to low income people should be eliminated because they drive up the price.

Will private school supply expand to meed demand? You haven't presented a case as to why it wouldn't. Private schools are mostly non-profit, but they are still motiviated by non-financial reasons to expand capacity if the demand is there.

Is it just me or do school choice opponents have no grasp on basic economics? Now, I'm not saying that every person who understands economics is a voucher lover, but after going through a bunch of the anti-voucher blogs, I'm starting to see a pattern of ignorance when it comes to economics, basic business practices, and how markets work.

I remember when Kim Campbell, the president of the UEA, made the claim that increasing education funding would improve the economy not because we'd have a better educated or more skilled work force but because it would create more public sector jobs (and in her mind, more jobs automatically mean a better economy no matter how they're created).

I'll admit that capitalism has it's faults and that there's definitely good arguments for government taking important roles in the economy, but I can't believe that Ms. Campbell actually believes that increasing taxes and creating more government jobs would boost the economy.

Did I miss that lesson in my college economic classes or does she know something about economic growth that my university professors didn't?

And sales volume is based upon supply. You can't sell something at a price you don't have the capacity to provide for. Oh wait, that is called the bait and switch.

I think private schools will add capacity but most likely that capacity will be added to the lower end of the quality spectrum. Just look at our colleges, what is the average age of a quality college?

And these lower quality private schools are going to be the only kind that poorer students are going to be able to afford to go to even with the maximum three thousand dollar voucher.

When we get to revisit this issue in future years hopefully we will see who exactly are using these vouchers. I predict that a good portion will be from the upper income portion. We will see.

I still don't understand how this is the Utah taxpayer association's fight, I should be having this conversation with Parents for School Choice, not the Utah taxpayer association which I think normally does decent work, too bad they sold out on this issue.

Marshall,

Based on your arguments, we would never get more of anything, unless it was low quality and/or more expensive.

Over the years, we've had increased demand for just about everything (computers, cars, cameras), and the result has been more of everything, and the quality has improved. In most cases, the prices for everything have increased at 2% to 3% per year (general inflation).

Now, there are some exceptions, but increased demand for goods has resulted in higher supply and stable prices (general inflation) and better products. As long as there are no artificial barriers to entry and no natural or physical production limits, supply has risen to meet demand.

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