Policy Documents

Budget Impact of the Texas Taxpayers’ Savings Grant Program

John Merrifield, Ph.D. and Joseph L. Bast –
April 1, 2011

The Taxpayers’ Savings Grant Program (TSGP) is a very concise piece of legislation, apparently intended to address the state’s looming biannual budget deficit by reducing enrollment and associated costs in  he state’s public K-12 schools at a time of budget shortfalls. By reimbursing parents and legal guardians for “the amount of actual tuition costs or sixty percent of the state average per-pupil maintenance and operations expenditure, whichever is less,” the state should save money every time a child is moved from a public to a private school.

The TSGP was submitted to the authors for an independent examination of its likely fiscal impact. Using the assumptions and methodology described in this report, government data on enrollment levels, and three independent estimates of the probability of parents choosing private schools under such a program, the authors determine the program would generate a net savings to the state of approximately $2.0 billion in the first two years.If the program started in time for the 2011-12 school year, between 6.3 and 7.6 percent of public school students would be using savings grants to transfer to private schools in 2012-13. This means between 314,245 and 382,501 students would participate in the program that year. The TSGP would increase private school enrollment by between 133 and 163 percent in the second year of the program.

Experiences in Milwaukee and the Edgewood School District near San Antonio point to slightly higher rates of private school enrollment growth than the estimate we took from peer-reviewed literature to reach our savings estimate. Using the Edgewood experience would increase the forecast of two-year fiscal savings to $2.2 billion. Using the Milwaukee experience would yield a two-year fiscal savings of $2.3 billion.

The rapid increase in demand for private schooling is unlikely to outpace that sector’s ability to expand. We believe tuition prices will rise by no more than 4 percent of the difference between average private school tuition and the amount of the education savings grant. It is possible that some parents will act strategically to qualify their children for the program by withdrawing them from private schools for one year. We estimate that this could reduce savings to state taxpayers by no more than 10 percent. Biennial savings still amount to about $2 billion, and would rise in future years.

Part 2 summarizes the features of the proposed plan that are relevant to this analysis. Part 3 estimates the effect of the plan on the price of tuition at private schools. Part 4 estimates the effect of lower tuition prices on the demand for private schooling. Part 5 estimates the net impact of the program on the state’s taxpayers. Part 6 is a brief summary and conclusion.