Tuition Tax Credits

The Utah legislature's commissioned study of tuition tax credits was presented last week. I've mentioned a few times on this blog that I was working on a big team project that I couldn't give details about because it is politically polarizing - well this is it. Broadly, we concluded that tuition tax credits for parents sending their children to private schools would satisfy an unmet need, and save the state money.

My part was to make cost estimates (see pp. 32-45). We got access to a lot of data and I think we are the first to make cost function estimates that will be publishable in a top academic journal. Specifically, I fit a translog cost function to district level cost, input price, and output data.

The biggest thing we got out of this was a solid estimate of what the marginal cost of educating a typical student in Utah is: $8,675 per year, give or take about a thousand. That is about 30% higher than per pupil spending, a measure similar to average total cost that educators like to use (and abuse) as their yardstick.  For non-economists reading this, marginal cost estimates are a better basis for understanding how decisions are actually made than other cost measures. One implication is that competition tends to force operations with marginal costs in excess of average total costs to economize to stay competitive.

How much is public school education in Utah overpriced? A measure of average total costs that is compatible with how I estimated marginal costs is $4,928 per year. One way to think about this is that the competition will drive marginal costs down (ultimately ) to average total costs. This puts an upper bound on how much can be saved by introducing competition into public education in Utah - just over 40%.

I also made elasticity estimates. Not surprisingly, districts have very inelastic demands, with low cross-price elasticities as well. For non-economists, this means that when confronted with (say) rising salaries or costs of benefits that districts don't economize on their purchases too much; rather these price increases go pretty much straight into increasing their district's total costs.

Lastly, I made some estimates of returns to scale. Not surprisingly, the small districts in the state show some evidence of increasing-returns-to-scale. The large districts tend to hover around constant-returns-to-scale. For non-economists, this means that the small districts can increase the number of students they educate without driving costs up too much. This makes a lot of sense - in a rural area the facilities are often there but they are frequently underutilized. This also means that the big districts are appropriately sized, in that getting larger or smaller won't affect their efficiency too much.

I came in late to the project, and worked as a subcontractor rather than as a principal investigator (The co-P.I.'s were Roberta Hertzberg and Chris Fawson of Utah State University. Joe Baker of Southern Utah University was also a co-P.I., but was pushed off the project after allegations that his newspaper op-ed pieces revealed that he was not neutral). There were actually quite a few people like me who did a lot of work, but whose names are not on the finished product. But, for the curious, the pages cited above are pretty much all me.

Comments

[Josh]

I have heard Chris Fawson is a lackey of the Sutherland dunk tank. If so, I question the validity of the study. Some of the problems I have include that the numbers keep getting bigger and bigger and that the "savings" amounts are really not sure. Indeed, the last I checked, the amount had been reduced by a third.

Another thing that is completely false is that it assumes money goes back "into the system." Because educational funding is done on an enrollment basis, if the student goes, that money disappears. No money is left in the system.

As a conservative, I am increasingly concerned about the liberal nature of tuition tax credits. At the very least it represents a subsidy paid by other taxpayers for soneone's personal choice. It is also increasingly being used as the vehicle to promote a liberal political agenda against education in some part by social engineering.

NO ttc's should be given to people already in private schools. Some of the ed-libs that argue for them, do so out of a sense of entitlement or gimmee gimmee gimmee. There are some that say they are "double-taxed," which amounts to a pile of horse m______, for lack of a better term. Those who support TTC's do want others to be double-taxed to subsidize their liberal political agenda. Some of the benefactors will no doubt be those who complained against education the most or continually find fault with it, focusing on the negative, and blaming those gosh-darned teachers for the ills of society. These are other liberal traits. That's what liberals are good at doing.

Utah is supposedly about self-sufficiency. Let's keep private schools private and have people "pay their own way" as opposed to using others' tax dollars to subsidize their personal choices (a reason I don't support taxpayer funded abortions).

Yes, there is the argument about choice. We have more so-called choice than ever before in any level of education. I could go through an extensive list but won't. Each parent has a choice on how his/her child is educated and raised. They should not need a big-government welfare program to provide that. My father and mother certainly realized this. We were all top students. My parents did terrible things like limit TV, not letting us play with friends on school nights, helping us with homework, continually stressing the importance of education, made us attend church, stressed the importance of family, etc. Each parent has the freeagency to do the same. The choice argument gets batted around by the pro-abortionists anyway. Why should the ed-libs do the same?

[Dave Tufte]

There's a whole lot here about society and politics I'm not going to comment upon - I'm not too interested about either one.

I did part of the study, my numbers are solid, but beyond that my opinions are limited on this issue. But here's what I can add.

1) Chris Fawson is associated with Sutherland. I doubt he is a lackey for anyone.
2) Don't question the validity of the study. There was neither the time or the interest to do anything but crunch the numbers and discuss the sources of variability that the legislature would need to know about.
3) Don't assume there are problems because the numbers get updated. What are we supposed to do when confronted with new information - not update them? I didn't think so.
4)The only sense in which the money "disappears" is from the public school "system". The TTC proposal (which has changed a bit from when we wrote the study) wouldn't change the amount spent on education in the state.