Taxpayer Savings Grants

Taxpayer savings grants are a win-win for both students and Texas taxpayers saving the state $2 billion over the next two years. Every student is unique with different interests, abilities and educational needs. Providing parents voluntary options in education benefits students, the state budget, the Texas economy, and Texas taxpayers. This voluntary program decreases school expenses to help cover our school budget shortfalls thereby leaving more money on a per student basis in the system.

The average total cost per student in Texas public schools is $11,567. Grants are calculated on maintenance and operations expenditures alone ($8,572 per student) and therefore equal to a maximum of 60% of M&O, which is $5,143 per student. The state saves the other 40% of the M&O expense, which is $3,429 per student.

Additionally, the difference between operating expenditures and total expenditures is about $3,000 per student. That $3,000 remains in the Texas public school system, thereby increasing funding on a per student basis.

The Taxpayers’ Savings Grant Program Summarized

Proposed legislation creating the Taxpayers’ Savings Grant Program, as it was submitted to us for analysis, reads as follows:

1. Any parent or legal guardian of a school-age child who resides in Texas and is entering kindergarten or attended a public school for all of the academic year prior to their participation in this program, who is willing to help the State of Texas save money by accepting less than the average per pupil expenditure in the district in which they reside, may receive reimbursement from the state for tuition paid for enrollment of said child at a private school in the amount of actual tuition or sixty percent of the state average per-pupil maintenance and operations expenditure, whichever is less, and the gratitude of the State of Texas.

2. Within 45 days of the passage of this Act, the Comptroller shall adopt rules solely to effectuate reimbursement and prevent fraud in financial transactions under this program. Such rules shall include the method for counting Taxpayers’ Savings Grant students in the Foundation School Program and the consequent savings therefrom. No funds from the Available School Fund shall be used for Taxpayers’ Savings Grants.

The TSGP apparently is intended to address the state’s looming two-year budget deficit, estimated at up to $27 billion, by reducing enrollment in and the associated costs of the state’s public K-12 schools. By reimbursing parents and legal guardians for “the amount of actual tuition costs or sixty percent of the state average per-pupil expenditure, whichever is less,” the state expects to save money every time a child is moved from a public to a private school.

It is important to note that the TSGP limits participation to the parents of a child who “resides in Texas and is entering kindergarten or attended a public school for all of the academic year prior to their participation in this program.” This means children who are already enrolled in private schools are not eligible for the tuition assistance. Also, the proposal does not rule out allowing parents to add their own money to the savings grant in cases when tuition exceeds the amount of the grant.

How much the TSGP would save the state depends on a number of factors and variables, some of them known and some of them not previously estimated. They include:

1. How much the state currently spends per student in public schools;

2. How much private schools charge in tuition;

3. How many parents are likely to move their children from public to private schools;

4. Whether private schools will increase their tuition in response to the program; and

5. Whether parents with children already in private schools will move them to public schools for a year to qualify for savings grants in later years.

Public K-12 schools in Texas are funded by a combination of state and local sources. The formula used to determine how much the state pays, or how much each district pays to the state, is complicated.

As parents decide to utilize the savings grants, the money due to or from the district will change based on changes in enrollment in the Foundation School Program (FSP). This program determines the funding each district receives from or pays to the state. We have incomplete information about private school tuition levels in Texas. We do know tuition varies widely by grade level (elementary schools charge considerably less than high schools) and by type (Catholic schools charge less than independent private schools). This study depends primarily on a national enrollment-weighted average tuition amount as reported by the U.S. Department of Education.

How many parents are likely to move their children to private schools depends on what economists call the price elasticity of demand for private schools – the ratio of the change in the quantity consumed and the change in the price per unit consumed. There is disagreement in the literature about the value of that ratio. Estimates also can be derived from school choice programs already operating in other states or on a smaller scale in Texas, but those programs have different eligibility rules and tuition grant levels.

The impact of this program on private school tuition depends on the price elasticity of supply for private schools – the ratio of the change in the quantity provided and the change in the price per unit that consumers pay. This value can be surmised to be quite large in the long run, but it has not been rigorously estimated for short periods immediately following large demand changes.

Some parents with children already in private schools might be prompted to enroll them in public schools for a year to qualify them for savings grants in future school years. This sort of strategic behavior is difficult to predict, but we estimate it would reduce total savings from the program by no more than 10 percent, and that reduction in savings would diminish over time.

For more information, see The Heartland Institute's Policy Brief on the "Budget Impact of the Texas Taxpayers' Savings Grants" (PDF).