Additional Tuition Tax Credit Information
Utah Cost Savings Myth
TTC proponents base the cost savings argument entirely on the following assumption: If the amount of the credit is less than the education costs associated with each student then the system saves money by exporting education costs to the private school. That simple equation may be true – but only if certain circumstances are incorporated into the analysis:
- Before any savings are realized the fixed costs associated with the tuition tax credit need to be covered.
- Tuition tax credits need to increase private school enrollment sufficient to produce the intended savings.
Fixed Costs
For purposes of this analysis the term “fixed costs” involves two components. The first area involves those costs associated with paying the credit to people who are already attending private schools. Any credit payment for students already attending private schools or for students who would attend private schools regardless of the credit is a direct expenditure with no associated savings. (In fact, some more cynical observers would argue that payment for existing attendees is actually the primary motivation for the tuition credit.)
It is estimated that approximately 3% of the nearly 500,000 school age students currently attend private schools. That estimate means that 15,000 students would be eligible for the credit. A credit amount of $2000/student means that there is a fixed cost of $30 million dollars (15,000 X 2,000). In other words, before any savings occurs there is an immediate outlay of $30 million. System-wide savings occurs only when this $30 million is covered.
One critical point must be addressed: Some advocates have indicated a desire to apply the credit initially only to kindergarten and/or first grade. The credit would then continue for those students as they progress within the school system and a new group of 1st graders would be added each year. Advocates of this position appear to advance the premise that such an approach eliminates payments for existing private school students.
This approach does not eliminate the fixed $30 million cost. All it does is spread the cost over a period of time. Eventually, the total cost of payments for existing private school students must be covered. Any other position operates on the assumption that there would be no students entering private schools except those induced by the tax credit – a position that is false.
The second fixed cost component concerns those operational costs regardless of the number of public school students. It is difficult to ascertain with any precision what those costs would be. Determining that amount is somewhat problematic although conceptually valid. For example: A reduction of a single student from a school of 500 will not meaningfully reduce any school operational costs. There would not be a reduction of faculty, administration, etc. due to a single student leaving the school.
However, it must also be stated that direct state funding for education via the uniform school fund is done on a per student basis. Local school funding provides financial support for physical facilities. In short, there would be legitimate savings (after covering the initial $30 million outlay) with individual enrollment decrease. It may not be the entire amount stated by credit supporters
Savings Potential
Proponents of credits have used a variety of numbers for the education costs for public school students. However, the most commonly used figure is approximately $4000. That amount appears to correlate to basic O&M costs per student basis.
The question is ho
Many additional private school students would be required to cover the fixed costs of tuition credits. Simple arithmetic would indicate that an additional 15,000 students now in public school would need to leave for private schools before the fixed costs are covered. In other words, current private school enrollment would need to double before any savings are realized. (Note: This is a static number and does not incorporate any natural private school enrollment growth.)
Taxes and Product Demand
The use of state taxes as a means of creating or enhancing demand for products/services is less than stellar in actual performance. Federal taxes may impact in some instances, but as instruments of social policy state taxes have a very limited track record.
In the case of tuition credits the question is what type of demand for private school services exist within Utah? If there were huge pent-up demand that a partial subsidy of tuition costs would immediately impact, then significant enrollment increases may be possible. However, there is no empirical evidence to support that premise, and in fact, many believe that the current private school providers would simply increase tuition to take advantage of a new imbalance between supply and demand.
Rather, a more logical conclusion is that parents who deem private schools important have likely already made the necessary sacrifices, financial and otherwise, to enroll their children in private schools. For individuals who are not already committed to private schools, it is unlikely that a partial tuition subsidy would in and of itself induce behavioral changes. The decision to attend private schools also involves other factors such as peer groups, the geographic location of the private school, transportation costs and other lifestyle issues.
Some Facts and Figures
- According to the Sutherland Institute, the cost of tuition and books for Wasatch Front private secondary schools (1997-98) ranges from $4,350 to $11,300 per year. If the tax credit were $1500, the average taxpayer would have to earn over $45,000 per year just to qualify for one full credit. This means the UTTC is designed to help those who need help the least.
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It would cost the state $19 million to fund a tuition tax credit just for the current number of students enrolled in private schools in Utah. Experts say that in 10 years, tuition tax credits could cost Utahns an additional $29 million a year in lost revenue to public schools. Although schools are receiving more money from the state than they were 10 years ago, the percentage of the total state budget going to education has decreased dramatically.
- Ten years ago, the ratio of school-age dependents to adults was 48 to 100. Today, there are 10 fewer dependents per 100 adults, and the dependency ratio is projected to remain at 38 to 100 for the next 30 years (Governor’s Office of Planning and Budget). This means Utah will have more taxpayers per school age dependent to pay for the projected student enrollment growth.
Conclusion
The Utah debate over private school credits has incorporated one novel twist by focusing on the concept of direct budget savings as a rationale for support. That argument is valid only if there is a significant demand for private schools that will be triggered by the existence of the credit. There is no evidence to support this premise.
One of the difficulties of this debate in Utah has been the lack of any actual legislation. As such, the debate inevitably centers on concepts rather than actual legislative language. When confronted with the revenue loss issue some proponents simply state that the “bill is not written in that fashion”. However, there is simply no constitutionally permissible (equal protection issues) or administratively viable (you have no means of knowing who they are) means of distinguishing between those students who are already in private schools or would attend due to other reasons and those students enticed by the existence of the tax credit. As such, all private school students covered by the legislation are entitled to the credit. Any payment for students already in the private system represents a direct revenue loss. There are no savings until that loss is covered.
The recent debate over the tuition tax credit proposal found in Senate Bill 34 ultimately came down to a plea by a legislator supporting the bill to set aside reservations and engage in a “grand experiment”. Utah’s children and their public schools are far too valuable to be subjected to financial experimentations, especially when similar experiments in Arizona and Florida have been unsuccessful.
