Getting More, Paying Less: Children, Taxpayers, and Public Schools Benefit from the Educational Improvement Tax Credit

Executive Summary

The public school system is one of the most expansive and expensive government monopolies in America. Yet both real-world experience and economic research suggest that this monopoly of schooling particularly harms children in cities such as Philadelphia, where lower-income families are largely deprived of educational choices for their children and schools are immune from the healthy impact of competition.

Despite efforts to solve this crisis with more taxpayer money, the system continues to under serve the Commonwealth’s neediest children. Over the past twenty years, funding for Pennsylvania’s public schools increased in inflation-adjusted dollars from $8.72 billion in 1980 to more than $15 billion in 2000—an increase from $4,500 per student in inflation-adjusted dollars in 1980 to approximately $8,300 per student in 2000—while academic performance remains stagnant at best. Indeed, scholars debate whether increased school funding has any impact at all. As Richard Murname points out, more money for the public schools “will not help unless strategies are devised to change the way people interact.”

Yet as Governor Ed Rendell and members of the General Assembly on both sides of the aisle prepare to promote their respective policy agendas during the 2003-2004 Legislative Session, they are already pledging to spend even more money on Pennsylvania’s public school system. However, it is becoming clearer that all the money in the world will not accomplish what matters most when it comes to education: putting parents in charge with more opportunities to choose how and where their children are educated.

There is hope, fortunately. This study focusing on the Educational Improvement Tax Credit (EITC) scholarship program offers an enlightening snapshot of the initial success of this “parental-empowering” alternative by examining the experiences of some of the program’s first beneficiaries in Governor Rendell’s home city of Philadelphia.

During the 2002-03 school year, an estimated 15,000-20,000 low-income students are benefiting from the contributions of more than $18.9 million from nearly 1,000 Pennsylvania corporations via 127 local scholarship organizations across the Commonwealth.

Many of these private school scholarships are awarded on a financial need basis to provide low-income families with educational choices that were previously unavailable to them. One organization that is providing parents and their children with greater educational opportunities is Futuro Educacional (Futures in Education)—one of the first scholarship organizations to distribute private school scholarships in the 2001-02 school year.

While opponents of the program argue that the EITC pilfers much-needed funds away from public education, this survey research conducted with 35 of the 47 children (21 of 29 parents or guardians) participating in the Futuro program strongly suggests that this tax credit produces the following dramatic benefits for parents, students, the public school system and taxpayers alike.

• Futuro scholarships primarily benefit low-income, minority students. All the school principals report that nearly all of Futuro’s scholarship recipients are low-income. In fact, most of the children are in families headed by single mothers, grandmothers, or aunts with incomes far below the $30,700 average for Philadelphia families. In addition to low incomes, many of the scholarship recipients have recently suffered family catastrophes, making it more difficult to pay even modest private school tuitions. In general, these findings dovetail with those of previous studies of both private and public sector voucher programs, which suggest that vouchers serve low-income families, particularly minorities, and not middle class families. Furthermore, big city institutions, particularly public schools, have not always done an adequate job of serving minority students.
• Parents and guardians choose private schools based on academics, safety, and religion. Once again, these findings mirror previous research findings on school voucher programs, with 100 percent of respondents identifying academics, 95 percent identifying religion, 91 percent citing safety, and 91 percent identifying class size as very important reasons for choosing private schools over public schools. In contrast, 62 percent of respondents identified school size, only 19 percent identified sports, and 33 percent identified proximity as very important.
• Parents and guardians rate the private schools as superior to Philadelphia public schools. When asked to rate their current schools on a scale from 1 (very satisfied) to 4 (very unsatisfied), Futuro parents reported high levels of satisfaction with their current (private) school, awarding particularly high marks on academic matters, general openness, safety, values and increased opportunities for parental participation. When asked to compare their current school with local Philadelphia public schools, the vast majority rated their private school as better than local public schools.
• Futuro scholarships save Pennsylvania taxpayers and Philadelphia City Schools more than $360,000 annually. During the 2000-01 school year, the Philadelphia City School District spent an average of $7,669 per student. Therefore, if each of the 47 Futuro students had been forced back into the Philadelphia public school system, taxpayers would have been compelled to pay an additional $360,443. Parents or guardians of 23 children reported that they would have to put their children in the Philadelphia public schools were it not for the Futuro scholarship. It would cost the Philadelphia public schools $176,387 to educate 23 students for one year; thus a conservative estimate suggests that Futuro saves taxpayers roughly $136,000 annually ($176,387 minus the program costs of approximately $39,600).

In other words, taxpayers who were spending $7,669 per student in the public schools are now, according to Futuro parents or guardians, receiving much better service for only $822 per child through the EITC. In addition, the public schools are able to reduce class sizes and allocate more resources to the students who remain in the public schools. Although the dramatic savings to taxpayers are important, it is ultimately the educational benefits provided to Futuro’s families and children that make the EITC a success.

Based on these initial findings, it appears that the EITC is serving its intended purpose—to help Pennsylvania’s neediest children find better educational opportunities. While empirical research will likely be conducted in the coming years, the initial evidence indicates that Futuro Educacional benefits children, taxpayers, and the Philadelphia public schools.

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The Commonwealth Foundation is a free-market public policy research and educational institute based in Harrisburg, Pa.

The Policy Brief, Getting More, Paying Less: Children, Taxpayers, and Public Schools Benefit from the Educational Improvement Tax Credit can be accessed here.