howardnlby Howard Stephenson
There are two tuition tax credit bills in the Utah Legislature this year. One is sponsored by a powerful advocate for parental rights in education – Senator Chris Buttars. The other is sponsored by a long-time opponent of what she sees as diversion of public money for private education – Representative Sheryl Allen. Actually, Allen’s bill – H.B. 195 – “Election Process for Nonbinding Statewide Opinion Question” is an attempt to scuttle Tuition Tax Credits by feigning to ask the public what they think about them. If the question is placed on the ballot, the Utah Education Association teachers’ union would be expected to spend hundreds of thousands of dollars convincing voters that tax credits would decimate Utah’s already underfunded public schools. But, they believe, a mandate of that sort would surely take the wind out of the sails of Utah Legislators working for passage of a bona fide tax credit.
Senator Buttars’ bill would extend approximately $2,100 per student to those who pay to send a child to a private school and would actually have a positive fiscal impact on state budgets.
Proponents and opponents of tuition tax credits have debated the potential fiscal impact that a tuition tax credit would have on Utah public education. While both sides still disagree over the probable fiscal outcome, recent analyses indicate that a tuition tax credit will be financially beneficial for Utah public education.
Variable Costs vs. Fixed Costs
Recently, progress has been made on the fixed cost issue. Traditionally, tax credit opponents have argued that all education costs were fixed and that no savings would occur by diverting students to the private sector via a tax credit unless all the children in a neighborhood school used a tax credit so that a school could be closed. Recently however, four groups, including two that oppose tax credits, have independently concluded that instructional costs are variable. That is, as enrollment decreases, so does the total instructional cost. The four groups calculated the variable instructional costs as follows:
Utah School Boards Association $2,524
Utah State Office of Education $2,672
Utah Taxpayers Association $2,905
Employers’ Education Coalition $3,300
Average $2,850
In each case, the groups assumed that sufficient students would use a tuition tax credit to allow for a reduction in total instructional costs, even if no schools were closed. The above values are actually low estimates since all four groups assumed that students using the tuition tax credit would come from existing or base student enrollment. However, with Utah’s school age population expected to increase nearly 25% in the next ten years, many of the students using the tax credit will come from enrollment growth. Since 170 new schools will need to be built and at least 4,000 additional teachers will need to be hired, the variable cost associated with diverting student enrollment growth to the private sector will be approximately $5,500 per student since diverted students reduce the number of schools that need to be built and the number of teachers that need to be hired.
Variable Cost vs. Tuition Tax Credit Amount
The proposed tax credit amount, $2,132 per student, is less than the variable cost per student. That means revenues diverted by the tuition tax credit are lower than the costs saved due to reduced enrollment. Therefore, students diverted to the private sector save the system $718 if the student is diverted from base enrollment or $3,368 if the student is diverted from enrollment growth. These savings are used for those students who remain in the system. Even though total system spending is reduced, the amount of funding available per student increases since costs are being reduced more than funding.
In a highly publicized study from the Utah School Boards Association, opponents of tax credits have argued that districts will lose money because the variable cost is less than the amount each district receives per student from state and local taxes. In other words, their model compares the variable cost with the revenue per student instead of the variable cost per student. Basically, this merely demonstrates that less money will remain in the system—a point no one disputes—but does not demonstrate how much funding per student will remain in the system. In their model, the value of the tax credit is not even considered, and their model predicts that districts will lose funding even if students leave the system without a tax credit. Their model fails to account for the increased funding per student that inevitably results if the value of the tuition tax credit is less than the variable cost.
Will Private Schools Rise to the Challenge?
Tax credit opponents are claiming that Utah’s private school capacity is limited and nonresponsive to increased demand. Opponents therefore claim that tuition tax credits will be used primarily by those students who would have attended private schools anyway. Based on this assumption, the State Office of Education projects that the proposed tuition tax credit will cost $4.3 million, a very small 0.14% of total education spending in Utah. The Legislative Fiscal Analyst disagrees and projects a healthy yet realistic growth in private school enrollment, especially considering that private schools currently have capacity for a 25% to 40% enrollment increase. The Fiscal Analyst projects a net savings of $90,000 in FY 2004 and $495,000 in FY 2005. Tuition tax credits will increase the demand for private schools, and private schools will respond by increasing capacity.
If Utah is to handle the coming wave of new students without massive tax increases, tuition tax credits must be part of the solution.