JANUARY 2015 The Texas Economy and School Choice An analysis of the Taxpayer Savings Grant Program commissioned by Texas Association of Business and Texas Public Policy Foundation LAFFER ASSOCIATES Investment Research AUTHOR ARTHUR LAFFER BOOK + COVER DESIGN MICHAEL BARBA PHOTOS COPYRIGHT AMERICAN FEDERATION FOR CHILDREN The Texas Economy and School Choice An analysis of the Taxpayer Savings Grant program commissioned by Texas Association of Business and Texas Public Policy Foundation By Arthur Laffer LAFFER ASSOCIATES Investment Research EXEC UT IVE S UM M A RY The Texas Association of Business and the Texas Public Policy Foundation jointly commissioned Laffer Associates to perform an analysis of the Taxpayer Savings Grant Program (TGSP), which is a statewide universal school choice program under active consideration by the Texas Legislature, in order to ascertain the effect of such program on the state’s economy. This report is the result of that evaluation. The survey of the educational benefits of school choice across the nation in this study shows that broad, universal, statewide school choice can achieve similar educational results for Texas. For instance, reducing the 130,000 dropouts statewide by half is achievable by statewide school choice. So is closing the educational achievement gaps between the races, between students from lower income and higher income families, and between the U.S. and the higher achieving countries in education performance. These results would be further enhanced by educational innovation, in a sector that has so far failed grossly to take advantage of modern communication breakthroughs, which can greatly increase productivity, education results and achievement. The competitive market created by broad, nearly universal, statewide school choice would accelerate such badly lagging innovation. Broad, universal, statewide school choice, as envisioned in the TGSP, would substantially increase economic growth in Texas first by increasing residential and commercial property values, which would, in turn, increase residential and commercial development. More importantly, school choice would raise wages and incomes by reducing dropout rates, and increasing graduation rates, and educational achievement, as measured by standardized test scores, all of which would increase human capital, leading to increased productivity and output. Specifically, universal school choice as proposed by the TSG program would increase Texas state GDP up to an estimated 17% to 30% over twenty-five years, meaning an additional roughly $260 billion to $460 billion for the people of the state each year. The improvement in standardized test scores that has already been shown to develop from broad school choice reforms indicates a present value net gain of future GDP increases for 1 The Texas Economy & School Choice What impact would reform have? x Texas’ GDP & standard of living would increase by 17% - 30%. .30 That means $260 - $460 billion more in our economy. AK In other words, Texas would add the economies of nine other states. ME VT RI MT ID WY ND SD Texas alone of $4 trillion to $10 trillion. And the increased economic growth in Texas would produce between 560,000 and 985,000 new jobs. Such an economic boom would draw population in-migration to Texas from the rest of the country of between 650,000 and 1.1 million people. The Economic Effect of Reducing the Number of Dropouts In the 5 largest metro areas, 77,600 students drop out each year. El Paso I N TR ODUCT ION Under the Taxpayer Savings Grant Program, every student who attended public school in the state for the prior year, or who is entering school in Texas for the first time, would be eligible for a Taxpayers’ Savings Grant. The grant would be equal to tuition at a private school of the student’s choice, subject to a maximum of 60% of the average per-student cost for maintenance and operations in public school. The reform is estimated to save the state billions, while substantially improving education performance, results and achievement for students in the public schools (through documented effects of competition), as well as for the students who exercise school choice. Austin Houston San Antonio If the TSG cut this in half, the new graduates would... ...buy homes worth almost $750 million. SOLD ...pay $4.6 million more in state and local taxes. Laffer Associates has determined that by slashing student dropout rates, raising graduation rates, expanding education performance, results, and achievement, and consequently growing human capital, school choice reform would substantially increase economic growth, producing waves of new jobs and propelling up wages and income for working people and their families in Texas. yo u r g o ve r n m e n t $ ...spend $351 million more as consumers. These benefits from education reform would increase Texas state GDP by up to an estimated 17% to 30% over twenty-five years, meaning an additional roughly $260 billion to $460 billion for the people of the state each year.1 That is the equivalent of adding to Texas the entire state economies of 9 other states— Vermont, Wyoming, Montana, South Dakota, North Statewide school choice resulting from the Taxpayer Savings Grant program would increase property values in Texas by 20 percent or more. Dallas ...invest $127 million more. ...create 4,000 new jobs. ...and increase Texas GDP by $653 million annually. +$653 million The Texas Economy & School Choice 2 For more on these economic effects, see page 28. Why Teachers Win The average salary of Texas teachers is $48,821. Such increased economic growth in Texas would produce between 560,000 and 985,000 new jobs. Such an economic boom would draw population inmigration to Texas from the rest of the country of between 650,000 and 1.1 million people. But Total Spending per student was $12,106 in 2012-13. That means Texas spends $215-$325,000 per classroom. Choice would drive up wages as schools divert more funds to classrooms where they have the greatest effect on students. Dakota, Rhode Island, Maine, Alaska, and Idaho. The improvement in standardized test scores that has already been shown to develop from broad school choice reforms indicates a present value net gain of future GDP increases for Texas alone of $4 trillion to $10 trillion.2 $215K+ Report of Dr. Jacob Vigdor “Introducing greater competition into the market for teachers will raise teacher salaries.” As a result, teachers could choose what kind of school to teach at without sacrificing their financial health. To produce such a massive increase in prosperity, there are a number of contributing factors. All of this results, however, because the improved educational outcomes resulting from school choice increase the human capital of the population. More human capital increases production and output, which means more economic growth. It also produces more jobs and higher wages and incomes, resulting from increased productivity, which further reflects higher economic growth. The majority of these human capital gains will result from improved performance of the Texas public school system. Market dynamics will result in meaningful school reform which the politically driven system cannot achieve. Moreover, reducing the 130,000 annual dropouts statewide by half, which is achievable by statewide school choice, would result in an additional 65,000 high school graduates each year. As part of the increased GDP effects discussed above, those graduates would earn an additional $800 million in earnings every year, or individually an average of an additional $10,000 a year. They would initially each gain additional income of 23 percent a year when they first graduate, growing to an income gain by age 40 of 54 percent a year. These additional graduates would ultimately use their higher incomes to buy bigger, better, newer homes worth an additional $1.2 billion. They will spend an additional $585 million each year, and invest an additional $212 million. That increased economic activity from these new graduates alone would create an additional nearly 6,600 jobs, increasing GDP in the state by an additional $1.1 billion a year. Furthermore, based on the results from school choice 3 The Texas Economy & School Choice found in the academic literature discussed below regarding improved test scores and increased property values, we estimate that the statewide school choice resulting from TSGP would increase property values in Texas by 20 percent or more. Due to all of these benefits, school choice programs have proven to be powerful economic growth magnets. The availability of school choice draws more young families with children, and their working adults, to districts, neighborhoods, and towns offering school choice. That surge in local population drives up the value of residential housing in the district, which promotes more residential development. The resulting surge in consumer demand from the new families moving in promotes business expansion and creation, and commercial development. This translates into new shopping malls, grocery stores, drug stores, restaurants, movie theaters, and other retail and recreational outlets serving the booming local population. This developing local economic boom attracts more capital investment to the area, which creates more jobs and raises wages. Over the long run, the improved educational outcomes resulting from school choice increase the human capital of the population. While this is a dry, boring economic term, the real life implications of the effects of educational choice are anything but hum drum. This paper demonstrates that school choice will provide opportunities to hundreds of thousands of children that they never dreamed were possible. PAR T I: T HE T A X PA Y E RS’ SA VIN G S G RA N T PR O G R AM The proposed Texas Taxpayers’ Savings Grant Program provides for every school age child who attended Texas public schools for the entire prior year, or who is first entering a new school year in Texas, the choice of an annually renewable Taxpayers Savings Grant (TSG) equal to tuition paid for enrollment in a private school of the parent’s choice. The grant is subject to a maximum of 60% of the current average public school expenditure per student for operations and maintenance.3 That means the state saves money for every student that chooses to use the grant to attend private school, as the state then has to pay at most only 60% of the marginal cost of the student attending public school. The cost to the state could even be lower than 60% of the average public school cost per student if the tuition in the private school in which the student has enrolled is less, which it would be for many private schools in Texas, especially parochial, schools. The Texas Economy & School Choice 4 Long-Term Impact The TSGP consequently provides for broad, universal school choice for every student residing in Texas. Parents and their children are free to choose among every private school, and every public school open to their enrollment, in the state. They are also free to choose to supplement the grant with their own funds if they choose a private school costing more than the maximum grant amount. Several studies have evaluated the TSGP; we’ll examine them below. EVALUATING THE TSGP The Texas Education Agency (TEA), the state agency overseeing primary and secondary education, estimates that the Foundation School Program portion of public school operations and maintenance expenditure per student currently averages $7,500.4 At this level of funding, the maximum grant per student (60% of $7,500) would currently be $4,500 per year, resulting in a savings to the state of approximately $3,000 for each public school student that chooses to use the TSG program to attend private school. TEA estimates the available private school capacity in Texas over the past year at 78,870 additional students.5 That many students switching to private school would save the state nearly a quarter billion dollars ($236 million) under the TSGP over the first year alone. TEA projects private school capacity increasing 20% a year through FY 2018, with 163,296 students then able to participate in TSGP.6 That many students exercising the school choice grants would save the state nearly half a billion dollars ($490 million) per year. TEA projects that over the 5 year period, 2014 to 2018, TSGP could save taxpayers a gross sum of $1.758 billion.7 Total costs over that period to administer the program would be $758,690, for expenses such as an IT contract to build and maintain a website for the grant program, wages and benefits for employee personnel, and office space, furniture, and equipment. According to TEA estimates, that would leave a net savings to the state over that five-year period of $1.757 billion. Another examination of the TSGP was made by, the Legislative Budget Board (LBB), a permanent joint committee of the Texas Legislature. In a Fiscal Note dated May 18, 2013, the LBB reported that the average 5 The Texas Economy & School Choice $4 - $10 trillion The TSG’s long-term impact will add $4 - $10 trillion in present value GDP to our state’s economy. per student public school expenditure for operations and maintenance was $8,276 for FY 2012 based on the actual, audited, financial data submitted to the Public Education Information Management System (PEIMS).8 The maximum grant would consequently be $4,966 (60 percent times $8,276). The LBB determined that under the TGSP the state would save $2,500—“the difference between the average FSP entitlement of $7,500 and the reimbursement amount—for each student in average daily attendance who left the public school system and attended a private school.9 The Legislative Budget Board assumed that in the first year of the program, one half of one percent of eligible public school students would choose to use the TSG to attend private school, rising to one percent in the second year, and by an additional percentage point for each successive year of students after that. The Board consequently estimated taxpayer savings of $91.4 million in the first biennium, rising to $476.2 million by the fifth year of the reform, and $1.1 billion in cumulative savings over 5 years.10 Another review of the TSGP was conducted by John Merrifield and Joseph L. Bast, in their paper, Budget Impact of the Texas Taxpayers’ Savings Grant Program. Based on official state data, Merrifield and Bast estimated per-student operations and maintenance spending in Texas of $8,572.11 They consequently estimate the maximum TSGP grant to be $5,143, resulting in savings for the state of Texas of at least $3,429 for every student choosing to use the grant to attend private school.12 The study shows that the maximum TSGP grant would be more than enough to cover the average tuition at parochial elementary schools in Texas.13 About two-thirds of students in Texas attending private elementary schools attend such religiously affiliated schools,14 which are particularly popular among the Hispanic population. Based on academic research regarding demand for private schools,15 Merrifield and Bast estimate that under the TSGP, 6% of public school students would choose private schools over public schools in the first two years.16 That would result in taxpayer savings of at least $2.01 billion.17 Based on the experience with the school choice program in the Edgewood school district in San Antonio, Merrifield and Bast alternatively According to the TEA, the Taxpayer Savings Grant would save $1.76 billion over 5 years. Taxpayer Savings Grant FAQ What is the Taxpayer Savings Grant?  It is a school choice program administered by the Comptroller of Public Accounts. Who exactly would qualify?  School-age children who: (1) are entering kindergarten or 1st grade, or (2) attended a public school for all of the year preceding initial participation, or (3) are prior participants in the program. How much money would the Grant provide?  An amount that is the lesser of: (1) the tuition paid, or (2) 60 percent of the state average Maintenance and Operations spending per student. ($5,143) Has this been tried in other states?  Yes and no. There are 22 other grant programs in the United States, but each is tailored to a specific group of students. The TSG would give choice to a much wider group of students. Do Texans support school choice? 87% 84% 80% 2014: 87% of 2012: 84% of 2014: 80% of Texans say school Republican voters Texas Hispanics choice would statewide support support the TSG. reduce poverty. the TSG. The Texas Economy & School Choice 6 estimate that 6.8% of Texas public school students would choose private schools over public schools in the first two years,18 resulting in a savings to taxpayers of at least $2.18 billion.19 If Texas parents exercise the school choice grants at the same rate as parents did under the school choice program in Milwaukee, Merrifield and Bast alternatively estimate that 7.6% of Texas public school students would choose private schools over the first two years,20 saving Texas taxpayers at least $2.3 billion.21 Merrifield and Bast argue that the savings to taxpayers from the grants would likely be substantially higher because their analysis did not consider that many, if not most, students would be getting less than the maximum grant amount, as tuition for the private school they have chosen would be less than the maximum grant. Two-thirds of private elementary school students in Texas attend parochial schools, where the average tuition is about 22% less than the maximum grant amount. So the savings to taxpayers would be 22% more than estimated above for students that choose to attend those private schools.22 Moreover, Merrifield and Bast indicate the actual savings to taxpayers would likely be at least 35% more than the estimated savings based on public school costs for operations and maintenance alone, more accurately reflecting the total costs of attending public schools.23 In addition, the estimated net taxpayer savings do not consider the revenue increases that would result from increased economic growth due to the statewide school choice program. Enrollment Growth in Private School Choice Programs 308,560 245,854 158,725 81,524 90,613 96,528 108,705 182,608 171,478 210,524 190,811 126,519 55,373 29,003 2000-01 2005-06 2010-11 2013-14 Enrollment in private school choice programs nationwide is increasing. In Texas, demand for choice in the form of public charter schools has resulted in waiting lists over 100,000 students long. An estimated 0.5% 6% of public school students would enroll in the TSG within the first two years of the program’s creation, allowing another 25,000-300,000 students to enroll in the school of their choice. source: American Federation for Children 7 The Texas Economy & School Choice PAR T II: CHOICE LE A D S TO A C H IE VE M E N T The economic theory is clear—the increased choice and competition associated with school choice propels improved educational outcomes. The research literature bears this out time and again. Table 1 below summarizes the documented positive educational improvements associated with school choice programs. HIGHER TEST SCORES WITH CHOICE Published, academic, school choice studies consistently show that students who are empowered to choose schools they prefer gain in educational achievement as measured by standardized tests and other critical measures. Jay Greene points out that several of these studies involved school choice programs where there were far more applicants than school choice scholarships available.24 As a result, the students who received one of the available school choice scholarships were chosen by lottery. Greene explains that, due to this lottery assignment methodology, “the research on school choice includes several random-assignment studies, the ‘gold standard’ of research design, where subjects are randomly assigned to treatment and control groups as in a medical study.”25 The control group was randomly assigned as well, as they were those who lost the lottery for the available school choice scholarships. Through this means, there have been at least seven studies involving random-assignment school choice experiments, covering five different programs in different cities, conducted by several different researchers.26 Green summarizes, “Every one of those analyses finds statistically significant benefits from school choice for those who are provided with opportunities to choose a private school.”27 Harvard The Harvard Program on Education Policy and Governance (PEPG) reported on the results from the The maximum TSGP grant would cover most of the average tuition at private schools in Texas. The Texas Economy & School Choice 8 Table 1: Educational Improvements Documented as a Result of School Choice Author Choice Program Location(s) New York, NY; William Howell, Harvard Washington Program on Education Policy & DC; Dayton, Governance OH Greene, Peterson, & Du, published book Milwaukee, WI Cecilia Rouse, Quarterly Journal Milwaukee, WI of Economics Greene, Howell, & Peterson, published book Howell & Peterson, Brookings Institution Kim Metcalfe, Indiana University Charlotte, NC Dayton, OH Cleveland, OH Paul Peterson, Harvard Program Cleveland, OH on Education Policy & Governance JW Diamond, Texas Public Policy Foundation San Antonio, TX Test Score Improvements Standard Deviation Gains 6.3 national percentile points 0.33 s.d. – 1.0 s.d. Math: 11 percentile points 0.5 s.d. Reading: 6 percentile points 0.25 s.d. Math: 6–8 percentile points Math: 6.5 percentile points Reading: 5.9 percentile points 6.5 percentile points Reading: up 12.5% Science: up 11% 9 New York, NY The Texas Economy & School Choice 0.5 s.d. Math: 15.6 percentile points Reading: 7.5 percentile points Hispanic: 18.2 percentile points Reading: up 2% Shapiro & Hassett, The Heartland Institute Graduation Rates Math: up 4% 0.75 s.d. Hispanic: Up 50% Total: Up 11.4 percentage points Blacks: Up 12.1 percentage points Hispanics: Up 12.6 percentage points privately funded school choice programs in New York City, Washington, D.C., and Dayton, Ohio. Their report found, “In the three cities taken together, the average, overall test-score performance of AfricanAmerican students who switched from public to private schools was, after one year, 3.3 NPR (national percentile ranking) points higher, and after two years, 6.3 NPR points higher than the performance of the control group remaining in public schools.”28 The Harvard researchers put these results in context, “A difference of 6.3 NPR points in overall test performance is 0.33 standard deviations, generally thought to be a moderately large effect. Nationwide, differences between black and white test scores are, on average, approximately one standard deviation. The school voucher intervention, after two years, erases, on average, about one-third of that difference. If the trend line observed over the first two years continues in subsequent years, the black-white test gap could be eliminated in subsequent years of education for black students who use a voucher to switch from public to private school.”29 The same analysis would apply to the similar gap between Hispanic and white test scores, which also would be eliminated over time through broad, universal, school choice. Greene, Peterson, and Du Another randomized study of the publicly funded school choice program in Milwaukee found that students who won the lottery to receive a school choice scholarship gained 11 points on standardized math tests and 6 points on standardized reading tests, 3 to 4 years after exercising their school choice, as compared to the control group composed of students who lost the school choice lottery.30 This is equivalent to one half of a standard deviation in math and one-quarter of a standard deviation in reading. That gain would apply to all students, not only blacks and Hispanics. Quarterly Journal of Economics Princeton economist Cecilia Rouse, who formerly served on President Clinton’s Council of Economic Advisors, conducted another study of the Milwaukee Every random-assignment analysis finds significant benefits from school choice for those who are allowed to choose a private school. school choice program and found standardized test score gains of 6 to 8 percentage points in math after four years of participating in school choice.31 Moreover, Rouse reports that the students applying for the school choice scholarships “were considerably more disadvantaged than the average student in the Milwaukee public schools.”32 Their average family income was only about $12,300, about half the average in Milwaukee public schools. They were “more likely to be minority and had lower math and reading scores than the average student in the Milwaukee public schools.”33 Greene, Howell, & Peterson Another random assignment study involved the privately funded school choice program in Charlotte. It found as well that students who won the lottery to receive a school choice scholarship gained 6.5 percentage points on standardized tests in math and 5.9 percentage points in reading, after one year, as compared to the control group who lost the school choice lottery.34 More than three-fourths of the choice students in the Charlotte program were AfricanAmerican.35 A study of the school choice program in Dayton, Ohio found that African-American students gained 6.5 percentage points on standardized tests after two years.36 Indiana University The studies regarding the publicly funded school choice program in Cleveland did not involve random assignments, so they were not as rigorous. Nevertheless, one study found that students with school choice scholarships scored 12.5% higher on standardized tests involving language skills and 11% higher on standardized tests involving science, compared to public school students with no choice The Texas Economy & School Choice 10 scholarships.37 In other words, reading skills for all students exercising choice improved by roughly one half standard deviation as well. Another study found that students who had exercised school choice to attend private schools gained 15.6 percentile points in math, and 7.5 percentile points in reading over two years, compared to their scores when they entered the private schools.38 The authors noted that the school choice students in Cleveland “were among the most disadvantaged students” in the city.39 They concluded that the demographic realities made the test score gains particularly impressive because nationwide “over time inner-city students tend to have declining test scores relative to national norms.”40 Texas Public Policy Foundation & The Heartland Institute Private sources funded a school choice program, the Edgewood Voucher Program (EVP) for the Edgewood School District (EISD) in San Antonio, Texas from 1998 to 2008. This successful experiment provided a wealth of data and experience demonstrating the success of the concept of school choice. The EVP was a universal school choice program, which means that it applied to all students in the Edgewood School District, not limited only to lower income or troubled schools or students. Moreover, the school choice scholarships could be used at any private or public school that would accept the scholarship funds in partial or full payment of required tuition and costs. School choice scholarship use peaked at nearly 12.8% of all EISD students in 2003-2004.41 Just as with the Milwaukee and Cleveland school choice programs, those who used EVP scholarships to transfer to private schools experienced academic gains.42 Moreover, as Diamond states, “students who participate in [school choice] programs are more likely to graduate and go to college; this is especially true for low-income students and minorities.”43 Indeed, the three private schools in San Antonio with grades 9-12 that educated most of the school choice users maintained graduation rates and college education rates near 100%.44 Diamond confirms that 91% of Edgewood school choice students graduating in 2005, and 93% of those graduating in 2006, went on to college.45 Yet, only 60% of Edgewood students overall 11 The Texas Economy & School Choice even took college admissions tests in 1999.46 Diamond adds that the vast majority of these college bound students were Hispanic, with average family incomes less than $25,000, 22 percent less than the average Edgewood family income.47 Statewide, only 62% of Hispanic high school seniors were college bound in 2002.48 Conclusion Conclusion Greene concludes, “[T]he U.S. Department of Education estimates that 59 percent of students currently attend ‘chosen’ schools. But many of the remaining 41 percent lack the financial resources to move to a desired public district or pay private school tuition.”49 The Texas TSG school choice reforms would merely extend to everyone the same freedom of choice in education now reserved primarily for the more welloff. HOW COMPETITION AFFECTS PUBLIC SCHOOLS Public Schools, the defenders of status quo government monopolization in education, argue that allowing freedom of school choice to all would only “cream the best students from the public schools, draining talent and resources from the public system.”50 But it can rightly be asked, isn’t that what happens under the current, failing, restrictive system, with the affluent, and more gifted and higher achieving, fleeing the lowest common denominator public schools to the more elite private or public schools serving the more prosperous? Milwaukee Moreover, experience shows that it is primarily low income parents of students suffering the most difficulty and trouble in current public schools who are the most interested in school choice that would liberate them to choose better opportunities. Greene recounts: “The average income of families participating in the Milwaukee program was $10,860. In Cleveland, the mean family income was $18,750; in New York, $10,540; in Washington, D.C., $17,774; and in Dayton, School choice would unambiguously improve education performance and achievement for all students, not just those who exercise school choice to leave their currently assigned public school. $17,681. In Milwaukee, 76 percent of choice students were from single, female headed households. In Cleveland, the figure was 70 percent. In Washington it was 77 percent, and in Dayton it was 76 percent. The standardized test scores of choice students before they began private school averaged below the 31st percentile in Milwaukee, below the 27th percentile in New York, below the 33rd percentile in D.C., and below the 26th percentile in Dayton. In other words, choice students were generally performing in the bottom third academically.”51 Another argument against school choice raised by defenders of the status quo is that they are interested in reforms that can benefit all students, not just those who choose to leave the public schools by using school choice scholarships. But based on fundamental principles of economics, school choice would unambiguously improve education performance and achievement for all students, not just those who exercise school choice to leave their currently assigned public school. That is because school choice introduces competition to the public schools. An exodus of students from a public school brings the loss of some public funds, which generally follow the student.52 But students fleeing a particular school is also a professional embarrassment for the school. Consequently, public schools coming under such competitive threat would be expected to focus on improving their education performance and increase education results and achievement for students. And real world experience with school choice confirms precisely those results. For example, in response to the Milwaukee school choice program, the Milwaukee public schools introduced broader freedom of choice for students within the public school system. They also guaranteed parents that students would be reading at grade level by at least the third grade, or the student would receive individual tutoring. That guarantee was proclaimed very publicly, with extensive advertising to promote it, on billboards, and the sides of buses. Florida Similarly, under the A-Plus school choice program in Florida, the public schools guaranteed students that if their school received two failing grades from the state, the school would offer students a voucher to help finance a switch to a public or private school of the student’s choice. Greene reports that “the test score gains of schools facing the imminent prospect of vouchers were more than twice as large as the gains realized by the other schools. When Florida schools had to compete to retain their students under a choice system, they made substantial progress.”53 San Antonio In San Antonio, the effect of competition shows up in the Edgewood school district test scores. Edgewood is predominantly Hispanic, with only 1% white students. Economically disadvantaged students comprise 94% of the Edgewood student body. Even though those demographics indicate Edgewood has a school population more challenging to educate than the control districts, Merrifield et al. found that from 1998 to 2004, when the school choice effects were most powerful, the number of Edgewood students passing state standardized tests increased by 38%.54 The passage rate for the second highest control district was only 22%. The average increase for all the control districts was only 9.6%. Greene and Forster similarly found that Edgewood test score improvements ranked in the 85th percentile compared to control districts rated across the entire state.55 Diamond further analyzed these state standardized test scores and found that, during the first 5 years of the school choice program, when the competitive effects were most powerful because the program was not limited and subject to being phased out, the gap in passage rates between Edgewood and the rest of the The Texas Economy & School Choice 12 13 The Texas Economy & School Choice Coreana Carson (standing, second row, second from left) is the third child in her family to use a private school grant in Milwaukee. In 2014, she graduated validictorian and enrolled at Marquette University. What happened in Edgewood ISD? Edgewood ISD is: 92% 97% Economically Disadvantaged Hispanic Before it was ended, the choice program began to close the achievement gap on tests... 80% Standardized Test Passing Rates State Average 60% FAQ Why was school choice established in Edgewood? The Children’s Educational Opportunity Foundation wanted to open private school options to public school students. Who qualified for the choice program? 40% 20% Edgewood ISD is a school district in Southwest San Antonio. Edgewood ISD Program Began 0% 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 ...and the gap in graduation rates: To qualify, students had to reside in EISD boundaries and meet the income test for the federal free/reduced price lunch. How much money did the grant give? Up to $3,600 for grades Pre K - 8 and $4,000 for grades 9 - 12. 100% 90% Graduation Rates 80% 70% 60% 50% How many students enrolled in the program? State Average State Hispanic Edgewood ISD Class of 99 Class of 00 Class of 01 Class of 02 Class of 03 Class of 04 Class of 05 At its height in 2003-04, enrollment was 2,144 students, or 16 percent of all EISD students. The Texas Economy & School Choice 14 state’s Hispanic population was virtually eliminated. Moreover, the gap between Edgewood, with its overwhelmingly Hispanic student population, and the entire rest of the state was reduced from 23.7 percentage points in 1994 to 5.5 in 2002, a reduction of over 80 percent.56 In addition, as Diamond states, “increased competition from school [choice] will tend to increase graduation rates in the public school system.”57 Diamond reports that from 1999 to 2005, the graduation rate for all Edgewood students increased by 25%.58 Yet, the graduation rate for all state students increased by only 5.7%, less than one-fourth as much. These graduation and college attendance rates are especially significant given that the student population of the Edgewood school district was 97.3% Hispanic, virtually 100%, with 92.1% economically disadvantaged.59 Statewide, again only 62 percent of Hispanic high school seniors were college bound in 2002.60 This data indicates a sharp decline in Edgewood in dropout rates prevalent among minorities. Only 31% of Edgewood students were graduating before the school choice program.61 Other actions by Edgewood demonstrated competitive responses to the school choice threat. They tried their own school choice counter-offensive by allowing students from outside the Edgewood district to choose to attend any of the district’s schools.62 They also allowed their employees to choose to enroll their own children in the Edgewood school where the employee worked.63 Edgewood also financed a management study by MGT of America64 of how their schools could become more competitively appealing in response to the school choice threat, and rapidly began implementing the study’s recommendations.65 Whether or not these actions were effective, they show how the competitive threat of school choice can move public schools to take action to improve their performance and competitive appeal. New York City Shapiro and Hassett reported on the effect of school choice reforms under Mayor Bloomberg in New York City. Bloomberg’s reforms granted more discretion and control to local schools and principals and more 15 The Texas Economy & School Choice The gap in passing rates between Edgewood and the rest of the state’s Hispanic population was virturally eliminated. funding in return for more accountability for results, creating a form of competition. The increased funding involved 41 percent increases in average teacher compensation and additional annual spending of nearly $5,000 per student. The reforms also involved closing 160 poorly performing schools, and opening 660 new ones. Bloomberg also increased charter schools from 1,800 students in 16 charter schools in 2002, to 30,000 students in 98 charter schools by 2009, to 60,000 students in 180 charter schools by 2013. Bloomberg’s reforms also implemented school choice freeing public school students citywide to choose among a broad range of schools throughout the city, “from comprehensive high schools to small theme based schools, and from charter schools and college preparatory schools to vocational schools. By 2008, incoming high school freshmen could choose from more than 700 schools, based on the proposition that different students prosper at different kinds of schools.”66 Shapiro and Hassett report that from 2006 to 2012 the average score of New York City students on the state English Language Arts (ELA) test rose 2 percent, twice as fast as the 1 percent gain across New York state.67 The greatest increases were among the most disadvantaged students in the Bronx and Brooklyn. By 2013, ELA scores in four of the City’s five boroughs were on par with the state average.68 Over the same period, the average score for New York City students on the state mathematics test rose 4 percent, compared to 3 percent gains for students at all New York state public schools.69 The gains again were the greatest among the most disadvantaged in the Bronx, followed by those in Brooklyn. Shapiro and Hassett write, “By 2013, the actual gap between the averages for NYC students and students statewide was close to zero.”70 Moreover, from 2006 to 2012, the graduation rate for New York City public schools rose from 49.1 percent to 60.4 percent.71 The gains were again the greatest for African-American students, rising from 42.9 percent to 55 percent, and for Hispanic students, rising from 40.1 percent to 52.7 percent.72 In addition, the passage rates for New York City public high school students on statewide Regents exams rose from 34 percent in 2006 to 58 percent by 2012.73 Choice Works in Other States Finally, among students who began ninth grade from 2007 to 2012, the percentage enrolling in college rose from 40.5 percent to 46.4 percent.74 Green and Winters found that schools subject to school choice competition in Florida achieved higher math scores than public schools not subject to such competition.75 Hoxby found the same for school choice in Milwaukee.76 She found as well higher test scores from public schools in Arizona and Michigan subject to competition from charter schools, than in public schools not subject to charter competition.77 Hanushek and Rivkin find that public schools subject to greater competition exhibit increased teacher quality and other indicators of increased school quality.78 Gottlieb found in a study published by the Milton and Rose D. Friedman Foundation that greater competition from private schools increases graduation rates in public schools.79 Similar beneficial effects of competition on public schools were found by Belfield and Levin (2002)80, West and Peterson (2006)81, and Chakrabarti (2004)82. Hoxby sought to demonstrate the point by showing how other forms of competition can lead public schools to act to try to better serve students and their families.83 She examined the effect of metropolitan areas that have more school competition by having more private schools that students and parents can choose from as an alternative to the public schools, or by having more school districts of more modest size that families can choose from by moving their housing to the geographic areas served by those districts. She found that metropolitan areas with more competition from these sources achieved higher academic performance at lower cost than metropolitan areas with less competition. Hoxby reports that a one standard deviation increase in private school choices in a metro area increases public school test scores by 8 percentage points.84 That increases wages by 12 percent for public school students when they enter the work force.85 Indeed, Hoxby concludes, “If private school students in an area receive sufficient resources to subsidize each student by $1,000, the achievement of public school students rises.”86 Such subsidies increase competition faced by public schools by lowering the effective price of private schools. Hoxby finds that these results are achieved with no significant increase in per capita public school expenditures.87 Hoxby also finds that a one standard deviation increase in the available public school district choices increases public school test scores by 3 percentage points.88 That increases wages by 4 percent for public school students when they enter the work force.89 Hoxby finds that these results were achieved while per capita public school expenditures declined by 17 percent.90 Greene found similar results through his development of an Education Freedom Index for the Manhattan Institute.91 That Index ranked the extent of education choices available to families in each state, including private school choices, charter school choices, homeschooling choices, and public school choices. He found that states that offered more school choices had significantly higher student test scores. Greene explains that this results from greater competition among schools, writing, “When parents have more choices, schools pay greater attention to the needs of students because families may withdraw their children and the accompanying resources.”92 LIBERATING THE SUPPLY SIDE OF EDUCATION: TEACHERS WIN For school choice to produce maximum benefits, the barriers to entry of new school competitors must When parents have choices, schools pay greater attention to student needs because families can withdraw their children and the accompanying resources. The Texas Economy & School Choice 16 be minimized as well. That would maximize the beneficial effects of market competition, and give parents and students more real choices. As Paul Hill writes, Clearly, the ultimate outcomes of any choice program depend on both demand for schools and supply of options….If there are strict limits on supply (for example, if parents are allowed to choose only among schools run by existing public school systems and if those systems are unable to change the mix of schools they offer), demand will have little room to operate.93 He adds, Careful regulation of the demand-side will not make school choice truly equitable and universal and will not provide widespread access to good schools. Those results depend on the supply side, that is on the success of arrangements that provide the creation of a wide variety of school options, expose all schools to performance pressure through competition, and permit constant replacement of weak schools by promising new ones.94 Minimizing barriers to entry means minimizing the costly regulatory burdens imposed on new entrants, and the restrictions and requirements carried over from public schools not working well as a result, to the new entrants competing for parent and student choice. Such costly counterproductive regulations should not apply to those new entrants because decentralized market competition and choice are doing the job to protect students and parents, rather than central planning regulation. Indeed, the new entrants, and competition and choice they represent, could on these same grounds displace much if not most of the regulatory burdens, restrictions and requirements on the public schools as well, reducing costs and expanding education liberation throughout the entire education system. Moreover, minimizing or reducing barriers to entry means some private or public backers of the new entrants need to focus on access to and necessary financing for the physical spaces and buildings for the new schools, which can be a prohibitive barrier to entry. Though as discussed below, rising new technologies and innovations are already reducing or 17 The Texas Economy & School Choice even eliminating that barrier altogether. Local business interests, Chambers of Commerce, churches, community groups, social organizations and clubs, even local as well as state government, should embrace such education liberation, by joining together to sponsor new school entrants. New competition is the best way to help public schools, not rigidly and reflexively promoting education monopoly and continuing to throw good money after bad.95 Staunchly advocating the concentrated power of government education monopoly is not socially progressive. Minorities and the socially disadvantaged currently suffering education achievement gaps have the most to gain from educational liberation, and they increasingly recognize that. Such liberation of the supply side of education as well as the demand side would lead to revolutionary diversity in education, with increasing schooling specialization and variety resulting from the new entrants, and maybe through their competitive effects from the renewed and reinvigorated public schools as well. Some schools and institutions would specialize in assisting and better educating weaker students that are falling behind, ultimately greatly slashing dropout rates. Others would specialize in different subject areas, such as science, the arts, music, technology, literature, history, business, engineering, athletics, even economics, maximizing appeal and effectiveness in education to the broadest spectrum of students. This new diversity in education would include differing education methodologies and philosophies, and sweeping innovation, particularly made possible by modern communication technologies. Students and parents volunteering to participate in such education trailblazing would ultimately determine for themselves in decentralized markets what works and what doesn’t. The new choice, freedom, and opportunities Implementing a decentralized market in education would free diverse students to match up with schools that best meet their needs and preferences. made possible by such reforms would create powerful, revolutionary, market incentives for such pathbreaking innovation. Implementing a decentralized market in education would free diverse students to match up with schools and institutions that best suit their individual needs and preferences. That would involve a whole additional vector of improved educational results and achievement, as students would do much better matching up with schools that better-suit their individual, differing needs and preferences, and the appeal of these diverse opportunities would further slash dropout rates. Particularly intriguing is how educators, parents and students would innovate with new communication and Internet technologies, quite possibly reinventing education. Newt Gingrich writes in his 2013 book Breakout: We are on the edge of a dramatic transformation from bureaucratic education to individualized learning. The technologies of communications, information, and learning are evolving so rapidly that they could soon overpower the prison guards of the past, who have been fighting desperately to sustain the education bureaucracy even as it fails to serve our children’s and our country’s needs.96 The Internet allows videos of lectures by top teachers with first-rate subject matter expertise and/or instructional abilities to be stored and accessed by students anywhere—nationwide and even worldwide. Those video lectures can then be accessed and viewed by students individually anytime on their own schedule, and at their own, individualized pace, and reviewed as many times as necessary for any individual student to understand the material. Hedge fund analyst Salman Khan developed an entire K-12 curriculum in his spare time, resulting in thousands of videos available to students participating in his Khan Academy working individually at their own pace. He included exercise modules for each video, which effectively served as tests of the material taught in the video. As Gingrich explains, “Instead of testing once and moving on regardless of the results, as traditional schools have done, Khan Academy could ensure that each student mastered the important skills before trying to build on them. Once a student got ten questions in a row correct, the academy promoted them to the next lesson.”97 This innovation added to the ability of each student to proceed at his or her own individualized pace, and improved the effectiveness of the education, consequently increasing student achievement. Such innovation can be expanded to enable top professors at the most elite universities around the world to grow their reach worldwide, with students globally able to access their top-flight lectures online at their own pace, not just those admitted to the most elite schools. Such innovations have now graduated into what Gingrich calls “the virtual charter school movement,”98 including schools such as Florida’s Virtual Academies and Pennsylvania’s Agora Cyber Charter School. Students access these online schools daily from home, where they engage in individualized learning at their personal pace, starting with instructional videos analogous to Khan’s. Those videos are available any time of day, providing students with the most flexible schedule and pace. These virtual schools avoid the costs and pressures of physical school buildings and campuses, and of daily transportation to and from a physical location. No more snow days. More than 100,000 students nationwide are already attending such virtual schools, most served by an online education specialty firm, K12, “that produces thousands of hours of high quality content in the K-12 curriculum.”99 School choice greatly advances the development of such innovation and education reinvention by liberating and empowering students and their parents to choose new, innovative schools, and by liberating the supply side to offer such innovation and reinvention. This reinvention offers the prospect of finally leading education out of the Dark Ages, with its still monastic methodologies and organization. All this new freedom of education would liberate teachers as well to gain from decentralized, market competition. Teachers would no longer work for a monopoly employer. Rather, market competitors bidding for their services would result in higher pay and better working conditions. Good, appealing The Texas Economy & School Choice 18 teachers would be a prime factor competing schools would have to attract students. Consequently, schools seeking to attract students with the power to choose in competitive markets would have full market incentives to increase salaries and provide better working conditions for teachers to attract and retain the best and most appealing. Bast, Walberg, and Behrend estimate that universal school choice would result in average pay raises of $12,000 a year or more for Houston teachers through this competitive process.100 More resources would be drawn from bureaucracy and overhead in service of that goal. Bast, et al. report that less than half of public education funds are spent in the classroom, and the number of non-teaching personnel working for the Texas public schools is almost equal to the number of teachers.101 They write, “Schools in a competitive environment cannot afford to waste money on bureaucracy and other things that don’t make their way to classrooms. Administrators have a strong incentive to cut spending on bureaucracy and consultants in order to compete for students and the best teachers.”102 Better working conditions would include improved school discipline and security, increased professionalism for teachers in choosing textbooks and teaching materials, and greater individual teacher control over teaching methods and strategies.103 These are the reasons why “private school teachers consistently report higher levels of satisfaction with their working conditions.”104 Moreover, with broad, universal school choice for students and parents, teachers would have far more choices as well. They would be free to choose among the new diversity of schools to pick the school that is best suited to their skills and preferences. Some would be drawn to and more skilled at serving disadvantaged students who have long been falling woefully behind and dropping out in high numbers. Other teachers would do better to focus on the more gifted and motivated students, helping them to advance more rapidly and maximize achievement. They could choose schools as well that best matched their own subject matter expertise, and the teaching methodologies and philosophy they prefer. The overall result would be much better matching of 19 The Texas Economy & School Choice Professional pay and working conditions mean teachers can choose what kind of school to teach at without sacrificing their financial health. teachers, students and parents, which would result in teachers being most productive, and thus best able to earn higher incomes. The new freedom of education would offer teachers new opportunities for innovative entrepreneurship in starting new school ventures and offering specialized teaching services. They could design and market their own contributions to the reinvention of education based on still grossly underutilized modern technologies, as discussed above. This opens up very substantial new earnings prospects for teachers. THE LAWSUIT FIX On August 28, 2014, Travis County District Court Judge John Dietz declared the Texas school finance system unconstitutional under the Texas Constitution. The Texas Constitution requires the Texas Legislature to establish a public school system that “achieve[s] ‘[a] general diffusion of knowledge …essential to the preservation of liberties and rights of the people.’”105 In his decision, Judge Dietz opined that the Legislature must structure, operate and fund the public school system “so that it can accomplish its purpose for all Texas children.”106 He also repeated the finding of the Texas Supreme Court that the system must be financially efficient, meaning “Children who live in poor districts and children who live in rich districts must be afforded a substantially equal opportunity to have access to educational funds.”107 The Judge found that the current education financing system failed in all of these areas. But the TSG program would improve education and education financing in Texas to help meet all of them. The Taxpayer Savings Grants provide exactly equal opportunity for all. They help to move education financing away from reliance on property taxes and values, which is the root of the concern behind such suits. Moreover, experience with such school choice shows exactly the significantly improved education results and the sharp reduction or even elimination of racial gaps and disparities in education that the Judge in the case is looking for under the rubric of constitutionally mandated “efficiency.” The TSG program consequently advances precisely the “diffusion of knowledge” that the Texas Constitution requires. Taxpayer Savings Grants could consequently be a desirable resolution of the lawsuit. What does the Texas Constitution require of public education? Article 7, Section 1 sets up 4 tests for the public education system in Texas: Efficiency Qualitative Quantitative Do schools produce results with little waste? Are students provided equitable funds? Adequacy Suitability Do schools accomplish a general diffusion of knowledge? Are schools wellstructured, operated, & funded? PAR T III: RESULT S LE A D TO PRO SPE RITY It should come as no surprise that the impressive educational improvements associated with school choice programs in turn lead to improved economic performance. Table 2 summarizes these results. McKinsey and Co. determines that closing the educational achievement gaps between the races, between students from lower income and higher income families, between the states, and between the U.S. and the higher achieving countries in education performance, results and achievement would ultimately increase U.S. GDP by 17% to 30% over The Texas Economy & School Choice 20 twenty-five years.108 The discussion in this study shows that broad, universal, statewide school choice can achieve those results for Texas. That would mean increased GDP for the U.S. of $3.1 trillion to $5.5 trillion, or proportionally for Texas, with state GDP currently close to $1.5 trillion, an ultimate increase in state GDP of between $260 billion and $460 billion.109 That is the equivalent of increasing the standard of living in Texas by 17% to 30%, or adding to Texas the entire state economies of nine other states—Vermont, Wyoming, Montana, South Dakota, North Dakota, Rhode Island, Maine, Alaska, and Idaho. Such increased economic growth in Texas would produce between 560,000 and 985,000 new jobs.110 Such an economic boom would draw population in-migration to Texas from the rest of the country of between 650,000 and 1.1 million people.111 Hanushek also calculates that a systemwide improvement in standardized test scores of 0.25 standard deviations indicates a present value gain in future U.S. GDP of $44 trillion.112 A system-wide improvement of 0.58 standardized deviations, which would rank the U.S. equivalent to the world’s leaders in education, indicates a present value gain in future U.S. GDP of $112 trillion.113 The proportional share of Texas in such gains would be the equivalent of adding present wealth in Texas today of between $4 trillion to $10 trillion114. The discussion in this study again shows that such results can be achieved though broad, universal, statewide school choice. Hanushek further summarizes these results by explaining they would be the equivalent of a long term increase in the annual U.S., or in our case Texas, economic growth rate of 1 percentage point. To demonstrate the significance of this, at a long term rate of real economic growth of 2%, which has more closely represented recent years, GDP would double every 40 years. At a long-term real economic growth rate of 3%, which is close to the slightly higher growth rate of the U.S. over most of the post World War II era, GDP would more than triple every 40 years. At a long-term real economic growth rate of 4%, GDP would multiply by nearly 5 times over 40 years. That would multiply again over the following 40 years by another 5 times, leaving GDP 25 times higher after 80 years than it was at the outset. (During the periods when the U.S. followed the most pro-growth policies, the American economy did grow by 4% a year. So such a sustained long term rate of growth is achievable). As economic historian Brian Domitrovic observed in his classic work, Econoclasts: The Rebels Who Sparked the Supply Side Revolution and Restored American Prosperity, “The unique ability of the United States to maintain a historic rate of economic growth over the long term is what has rendered this nation the world’s lone ‘hyperpower.’”115 Likewise, the faster growth Texas has achieved than the rest of the United States shows that disparate state policies can lead to greatly varied economic results across states.116 10 Year Projection 21 Job Creation Population Increase 560,000 - 985,000 jobs created 650,000 - 1.1 million domestic migrants The Texas Economy & School Choice Table 2: Source Studies for Calculation of Improved Economic Outcomes Due to School Choice Outcome of School Choice Discovered Study Author Laffer Associates GDP & Economic Growth: Lower taxes and spending from TSGP would increase Texas GDP by between $3.6 billion and $14.7 billion. Jobs: TSGP would add 560,000 - 985,000 new jobs to the Texas economy. Property Values would increase by 86.4% on average. Single-family home values Merrifield & Gray would increase by 95.4%; multifamily, by Edgewood 209%; mobile homes, by 96.3%; industrial property, by 227%. Residential & Commercial Development: Single-family home values increase by 7.4%; multifamily, by 25.1%; commercial, by33% Alliance for Excellent Education (2009) Wages & Income: High School graduates earn $6,322 more per year. Tax Revenue: High School graduates pay $1,709 more in taxes per year. Alliance for Excellent Education (2010) Wages & Income: Cutting Texas' Dropout Tax Revenues: Cutting Texas' dropout rate GDP & Economic Growth: Cutting Texas' rate by 50% leads to $500 million more in by 50% leads to $46 million more in tax dropout rate by 50% leads to $653 million personal income annually. more in state GDP annually. revenue annually. Shapiro, Hassett Property Values: By increasing graduation rates 1%, residential property values increase 0.54%. A 1% increase in test scores increases housing values 18%- 20%. Hanushek PV of GDP: Test scores increase by 0.25 GDP & Economic Growth: The TSG s.d., PV of Texas state GDP up $4 trillion; increases the long-term rate of economic Test scores up 0.58 s.d., PV of Texas state growth by one percentage point each year. GDP up $10 trillion. Wages & Income: H.S. diploma increases wages by $10k; college degree by another $21k/yr. Each additional year of education boosts earnings by 11% PV of GDP: Closing the 4 education gaps increases U.S. GDP by 17%, or $3.1 - $5.5 McKinsey and Co. trillion. Texas GDP increases by $260 billion to $460 billion. Deming Crime: School choice reduces a high-risk student's crime rate by 50%, and the social costs of high- and middle-school student crimes by 35% and 63%, respectively. The Texas Economy & School Choice 22 Studies show that reducing dropout rates, as school competition does dramatically, is powerfully pro-growth, resulting in higher wages and incomes for a lifetime. INCREASED PROPERTY VALUES AND DEVELOPMENT The deterioration of central city schools was one major contributing factor to migration of the middle class from central city and inner city neighborhoods to new suburban developments. But emerging literature has already begun to discuss school reform as a promising avenue for urban redevelopment and revival. With school choice, families would be free to begin to return to the cities with the choice of a wide range of options for education of their children, and with competition reviving the public schools. Broad-based, universal school choice policies would appeal to young and growing families to locate to the liberated areas. The resulting new demand for housing would drive up home values, which would promote more residential development. That in turn would result in surging consumer demand from the new families moving in, which promotes business expansion and creation, increasing commercial development. This translates into new shopping malls, grocery stores, drug stores, restaurants, movie theaters, and other retail and recreational outlets serving the booming local population. This developing local economic boom would attract more capital investment to the area, which creates more jobs and raises wages. The new relocating families would also be a source of a new labor supply of adults seeking employment. That surge in new population, development and workers would mean new tax revenues that could lead to pro-growth tax cuts, further promoting economic development and growth. Those new revenues can also be a source of more local funding for education, and higher teacher salaries. 23 The Texas Economy & School Choice This pro-growth process would work even more powerfully with a broad, universal, statewide school choice program, especially in a pro-growth state like Texas, which already pursues many pro-growth policies attracting workers and their families into the state. Serving as a foundation for economic development and growth more generally— beyond urban revival and renewal—statewide, universal school choice policies would open school competition across the whole state, attracting national and even international investment, innovative education entrepreneurs, and cutting edge education reinvention, available to everyone at their own choice, student by student and family by family. That would provide additional advantages of synergy and economies of scale in cutting edge education, making Texas #1 in education. Like Wall Street for finance, Silicon Valley for high tech, and Hollywood for movies, Texas would be synonymous with educational quality and innovation. Such progressive reform would benefit the most the disadvantaged, the poor, blacks, Hispanics, and other minorities who are being left behind the worst by the current, rigid, monastic, monopolistic, education system still rooted in practices and organization stemming from the Middle Ages. It is precisely these most disadvantaged students that the status quo is failing the most. These disadvantaged students are falling farther and farther behind their grade level norms, until they drop out altogether at very catastrophically high rates. What chance of success would you have if born to a poor, single mother in a poor neighborhood dominated by crime, drugs, and gangs, spilling over into the schools themselves, as you fall farther and farther behind other students nationally and even globally in a modern, global, high tech economy? As Gingrich recounts: “[S]tudents in thousands of traditional schools are falling far below grade level and eventually give up. One in four students nationwide does not graduate high school, and in some places the rate is much higher. Nearly 40 percent of students in Chicago drop out of school; among African Americans, that number is over 60 percent. One out of three fourth graders cannot read, scoring ‘below basic’ on literacy tests. One-third of eighth graders and 38 percent of twelfth graders read below grade level.”117 Academic studies show that reducing dropout rates, as school competition does dramatically, is powerfully pro-growth, resulting in higher wages and incomes for a lifetime, aggregating to a powerful boost to GDP over time. Improved education performance resulting in higher student achievement also builds what economists call “human capital,” which means the educated skills that contribute to improved economic performance and increased productivity and output. That further contributes to a lifetime of higher wages and incomes, aggregating into substantially higher economic growth and GDP. Those higher wages and incomes from more new jobs would finance bigger, better, more modern housing, resulting in increased residential development. The growing families moving into those homes with their higher wages and incomes would in turn finance more commercial development through retail purchases of services and materials for themselves and their homes, which would also increase industrial output for cars, furniture, modern electronics and other consumer products. Because of the central importance of human capital in our modern, high tech economy, the overall impact in the highly advanced and productive U.S. economy is potentially quite large. district’s old and decaying stock of small dwellings likely discouraged some in-migration that more attractive areas would have seen as an effect of an EVP-like program.”120 Those increased housing prices in turn did result in an increase in the housing stock in the Edgewood school district. Single family dwelling units grew by 2.1 percent from 1998 to 2001, 4.9 percent from 1998 to 2005, and 7.4 percent from 1998 to 2008.121 The market value for these Edgewood single family homes grew 28.1 percent from 1998 to 2001, 58.8 percent from 1998 to 2005, and 95.4 percent from 1998 to 2008, which was higher than in all the control districts.122 The beginning of this process was evident in the results of the broad-based school choice initiative in the Edgewood Independent School District in San Antonio. Over the 10 year period of that school choice experiment, 1998-2008, property values within the Edgewood school district rose by 86.4 %, though “was not unusual for the districts that were deemed comparable to the EISD.”118 However, in the earlier years of the reform when the ability to enroll in the program was universal and participation was near its peak, property values in Edgewood rose by 56.4 percent, higher than in the control districts chosen by Merrifield and Gray as the most comparable to Edgewood.119 The authors state: “We believe that a typical school district, even one with much better public schools than [Edgewood], will likely see larger economic development effects than we observed in Edgewood. The Edgewood Like Wall Street for finance, Silicon Valley for high tech, and Hollywood for movies, Texas could be #1 in education by enacting universal choice. The Texas Economy & School Choice 24 The number of Edgewood multifamily residential properties grew by 1.5 percent from 1998 to 2001, 17.1 percent from 1998 to 2005, and 25.1 percent from 1998 to 2008.123 The total market value of these multifamily residential properties skyrocketed by 209.1 percent from 1998 to 2008, which was higher than in any of the control districts.124 Growth in Edgewood mobile homes and in mobile home market value also topped all the control districts.125 The market value for Edgewood mobile homes rocketed by 65.9 percent from 2000 to 2001, and 96.3 percent from 2001 to 2002.126 But market values leveled off after that, as the Edgewood school choice program leveled off, and then was phased out. Merrifield and Gray report that, “The Lago Vista Village apartments built in 1998 lured tenants with banners touting access to the Edgewood school choice program, and a market brochure stating, ‘If you rent here, your child will get a scholarship to go to any school you choose.’”127 Similar promotions marketed another 65-unit, single family housing development, Villas de San Antonio. Both were the first major housing projects in Edgewood in 40 years. “Both properties quickly filled and sold out,” Merrifield and Gray reported.128 These trends were followed in turn by substantial new business formation in the Edgewood school district, with a lag of about two years. Commercial properties jumped by 33.2 percent from 1998 to 2005, with most of that growth spurting after 2001 because of the lag.129 This rapid growth topped the growth of all the control districts, just as the market value of commercial property surpassed the growth in the control districts during the rising years of the school choice reform, before the phase out began.130 The surge in commercial property can be seen in the statistics for other types of property that went A large segment of the population wants private school choice badly enough to relocate. Increased business activity follows. 25 The Texas Economy & School Choice commercial. Vacant lots in Edgewood declined by 23 percent from 1998 to 2008. Industrial properties declined by nearly 30 percent, as they were converted to commercial uses. The market value of Edgewood industrial properties consequently boomed by 227 percent, as alternative users bid up their prices, when school choice was booming in the earlier years before the phase-out began.131 This resurgent economic development produced concomitant property tax revenue growth in Edgewood, which redounded to the benefit of public schools, financed at least in part by those revenues.132 Increased revenues also resulted from the increased jobs and earnings from the Edgewood school choice boomlet, bolstered by increased graduation rates, and declining numbers of dropouts which are very costly to state and local governments in lost revenues and increased spending for social programs and law enforcement. These were apparently the reasons that Edgewood was able to pay the third highest rate of teacher salary increases from 1998 to 2008, achieving the third highest salary, among an extended group of control districts.133 Merrifield and Gray conclude, “Regions adopting school choice programs realize immediate economic growth….Identification and measurement of quickly and cheaply realized local economic development effects that could improve the political feasibility of large, low-restriction parental choice programs, and accelerate their spread to additional places, are the most noteworthy of the [Edgewood school choice] assessment. A large segment of the population wants private school choice…badly enough to relocate. Increased business activity follows. A political jurisdiction interested in stimulating economic development while also improving their school system (both public and private) need look no further than [school choice] programs. Such programs would not require new taxes.”134 (emphasis added). HIGHER WAGES AND INCOME The American education system is plagued by high inner city and minority school dropout rates, which are top indicators of failing public schools. Nationally, more than 7,000 students drop out every school day.135 That adds up to almost 1.3 million students dropping out each year. The Edgewood experience shows that school choice is very effective in countering that negative trend. As discussed above, from 1998 to 2004, school dropout rates declined sharply, as graduation rates rocketed up, in choice schools. The resulting competition effects caused an echo in the public schools, where dropout rates declined, and graduation rates rose, as well. The same result was seen in the Milwaukee school choice program. Warren estimates that low income school choice students in Milwaukee were about 18 percent more likely to graduate from high school than students from across the entire economic spectrum in the Milwaukee public schools.136 A 2009 study by the Alliance for Excellent Education found that high school graduates earn an additional $6,322 in annual income on average and pay an additional $1,079 in taxes each year.137 That would add up to an additional $24.9 million in personal income and about $4.2 million in extra tax revenue each year from those additional Milwaukee public school graduates.138 A further 2010 study took the analysis nationally for each of the nation’s 50 largest cities and the 45 metropolitan areas that surround them, separately and combined.139 That study found that reducing the estimated 6,500 students that dropped out of school in the Milwaukee metropolitan area in 2008 by 50% would result in an additional $41 million in earnings from these graduates on average each year.140 That would result in an additional $7 million in state and local income, sales and property taxes paid each year.141 The additional graduates would spend an added $28 million each year, and invest a further $10 million each year.142 That increased spending and investment would support 300 new jobs, and increase regional GDP by $51 million annually, by the midpoint of their careers.143 By that point, these new graduates would purchase homes valued by $100 million more than otherwise, and spend an additional $3 million on vehicle purchases every year.144 Tim Sheehy, President of the Metropolitan Milwaukee Association of Commerce, told the Milwaukee Journal The Texas Economy & School Choice 26 Sentinel, “In the city of Milwaukee, the percentage of people who don’t have a high school diploma – 21% - outnumbers the percentage of people with a college degree or better – 20%.”145 prosperity. If we add up the 5 largest metro areas in Texas combined -- Dallas, Houston, San Antonio, El Paso, and Austin – reducing by half the 77,600 dropouts from those 5 metro areas combined would mean an additional 38,900 high school graduates earning on average almost an additional half a billion dollars each year. They would eventually purchase new homes worth almost three quarters of a billion, and pay an additional $46 million in state and local taxes every year on average. Their higher incomes would finance an additional $351 million in increased consumer spending each year on average, and an additional $127 million in increased investment. That would support nearly 4,000 new jobs, altogether increasing state GDP by an additional $653 million each year on average.146 Shapiro and Hassett provide further important signposts on the total potential economic growth from school choice reforms. They report that: Extrapolating these results statewide for the whole state of Texas, reducing the 130,000 dropouts statewide by half, which is achievable by statewide school choice, would result in an additional 65,000 high school graduates each year. Those graduates would earn an additional $800 million in earnings every year, which they would ultimately use to buy bigger, better, newer homes worth an additional $1.2 billion. They will spend an additional $585 million each year and invest an additional $212 million. That increased economic activity from these new graduates alone would create an additional nearly 6,600 jobs, the equivalent of opening a new, major manufacturing plant. All of this would end up further increasing GDP in the state by an additional $1.1 billion. Needless to say, that adds up altogether to a lot more economic development and growth that could be achieved by expanded school choice in Texas. ECONOMIC GROWTH In the new education world, new education gaps would likely develop, as the rest of the nation struggled to catch up to the new Texas free market education gazelle. Such free market education choice policies would transform American education into a major contributor, rather than a major drag on growth and 27 The Texas Economy & School Choice Total Economic Growth $ The net present value of the additional lifetime income from earning a high school diploma as compared to dropping out of high school is $215,000.147 Using our metric above of an estimated additional 65,000 Texas high school graduates each year due to statewide school choice would mean adding every year additional lifetime income each year for Texas workers of another $14.235 billion. $ The net present value of the additional lifetime income from enrolling in college compared to ending one’s education with a high school diploma is $207,000.148 $ Increasing graduation rates by 1 percentage point in a zip code leads to an increase in residential property prices of 0.54%.149 Using Census Bureau data, Shapiro and Hassett further report that earning a high school diploma increases the median annual income of a full time worker by about $10,000 a year.150 That means that each of the additional 65,000 Texas high school graduates each year would earn an additional $10,000 each year on average. Shapiro and Hassett add that earning a college degree adds another $21,000 a year in median annual income, or an increase of $31,000 a year compared to a high school dropout.151 In summary, they report that each additional year of education boosts median earnings by roughly 11 percent.152 A Lifetime of Differences Shapiro and Hassett further report that these income differences from higher education increase as the worker ages and put his or her human capital to more productive uses. t. A FOR CHILDREN $ Workers with high school diplomas initially earn about 23 percent more than those of the same age who dropped out of high school.153 That means that each of the additional 65,000 Texas high school graduates would earn on average 23 percent more each year when they graduate than high school graduates. $ By age 40, this gap widens to 54 percent.154 That means that by age 40, each of the additional 65,000 Texas high school graduates would be earning on average each year 54 percent more than high school dropouts: $ Similarly, college graduates initially earn nearly 60 percent more than high school graduates.155 $ By age 40, this earnings premium rises to almost double (92.5%).156 Shapiro and Hassett consequently calculate: $ A high school dropout who works full time until age 64 can expect lifetime earnings of $564,000.157 $ A high school graduate who works full time until age 64 can expect lifetime earnings of $782,000, or $218,000 more.158 $ A high school graduate who attends college to get an Associate’s degree and works full time until age 64 can expect lifetime earnings of $931,000, another $149,000 more than the high school graduate, and another $367,000 more than the high school dropout.159 $ A student that completes college earning a bachelor’s degree and works full time until age 64 can expect lifetime earnings of $1,275,000, about half a million ($493,000) more than the high school graduate, and almost three quarters of a million ($711,000) more than the high school dropout.160 Housing Values Shapiro and Hassett also calculate the impact of these higher earnings and income from increased education achievement on housing values: $ A one percent increase in a school district’s 29 The Texas Economy & School Choice average state test scores in Nassau County, New York, on Long Island, increased housing values in the district by nearly 20% (19.9).161 $ A one percent increase in a school district’s average test scores in Westchester County, New York, increased housing values in the district by 18.2%.162 Based on the results from school choice found in the academic literature discussed above regarding improved test scores and increased property values, we estimate that the statewide school choice resulting from the TSG program would increase property values in Texas by 20 percent or more. Hanushek, in trying to demonstrate the economic impact of good teachers, provides the ultimate summary statistics on the potential impact of school choice and economic growth. He finds that, across A Lifetime of Earnings Upon starting work, earnings differ based on level of education: For every $1.00 a high school dropout earns... ...a high school graduate earns $1.25... ...and a college graduate earns $2.00. And these effects last a lifetime - here are the average lifelong earnings based on level of education: High School Dropout $564,000 High School Graduate $782,000 Associate’s Degree $931,000 Bachelor’s Degree $1,275,000 The Economic Impact Property Values 20% or more The TSG would increase property values in Texas by 20% or more. Closing the Gaps If the gap between: Then: the US and Finland was closed... 2008 GDP would have increased by $1.3 - $2.3 trillion. Whites, Blacks, & Hispanics was closed... 2008 GDP would have increased by $310 - $525 billion. Global Race Income low-income students and the rest was closed... 2008 GDP would have increased by $400 - $670 billion. the U.S. as a whole, “the present value of improving [test] scores by 0.25 standard deviations would be $44 trillion.”163 But as the discussion above showed, school choice has already been shown several times to raise test scores by that much, and more. For Texas alone, that would mean a present value increase due to future economic growth of $4 trillion. Hanushek also found that, “The estimates of the growth impacts of bringing U.S. students up to Finland [the current world leader in standardized test scores] imply astounding improvements in the well-being of U.S. citizens. The present value of future increments to GDP in the U.S. would amount to $112 trillion.”164 That would involve an improvement in test scores of 0.58 standard deviations.165 The discussion above showed that such an improvement can be achieved by broad, universal school choice, like the Texas Taxpayer Savings Grant. For Texas alone, that would mean a present value increase in state GDP of $10 trillion.166 That would be the economic equivalent of increasing present wealth in the state of Texas by $10 trillion. Hanushek translates these economic results into the equivalent of a long term increase in the annual U.S., or in our case Texas, economic growth rate of 1 percentage point.167 That compounding year after year, after growth rates in recent years of 2% or less, or longer term U.S. growth rates of a little over 3%, would add up to a major increase in economic growth. A study from the prominent economic consulting firm McKinsey and Co. further aggregates the magnitude of economic growth that can arise from school choice reforms. McKinsey reports, “If the United States had in recent years closed the gap between its educational achievement levels and those of better performing nations such as Finland and Korea, GDP in 2008 could have been $1.3 trillion to $2.3 trillion higher. This represents 9 to 16 percent of GDP.”168 In other words, it would mean an increase in GDP of 9 to 16 percent. For Texas alone, that would mean an increase of $125.76 billion to $224 billion in state GDP. The report adds, “If the gap between black and Latino student performance and white performance had been similarly narrowed, GDP in 2008 would have been between $310 billion and $525 billion higher, or 2 to 4 percent of GDP.”169 With the gaps closed, annual U.S. GDP would increase by 17% to 30%, or $3.8 to $5.5 trillion every year. For Texas, that’s an annual increase of $260 to $460 billion. The Texas Economy & School Choice 30 McKinsey further reports, “If the gap between lowincome students and the rest had been similarly narrowed, GDP in 2008 would have been $400 billion to $670 billion higher, or 3 to 5 percent of GDP.”170 McKinsey also projects, “If the gap between America’s low performing states and the rest had been similarly narrowed, GDP in 2008 would have been $425 billion to $700 billion higher, or another 3 to 5 percent of GDP.”171 McKinsey summarizes: “Put differently, the persistence of these educational achievement gaps imposes on the United States the economic equivalent of a permanent national recession. The recurring annual economic cost of the international achievement gap is substantially larger than the deep recession the United States is currently experiencing [the 2008-2009 financial crisis]. The annual output cost of the racial, income, and regional or systems achievement gap is larger than the U.S. recession of 1981-82.”172 The lessons McKinsey draws from these calculations are: “While the price of the status quo in educational outcomes is remarkably high, the promise implicit in these findings is compelling. In particular, the wide variation in performance among schools and school systems serving similar students suggests that the opportunity and output gains related to today’s achievement gap can be substantially closed. Many teachers and schools across the country are proving that race and poverty are not destiny; many more are demonstrating that middle-class children can be educated to world-class levels of performance.”173 Indeed, if all American students and their parents were free to choose the school they believed would work best for them, there is no reason why all of these education gaps could not be closed forthwith. That would mean nationwide an increase in U.S. GDP of up to 17% to 30%, or $3.1 trillion to $5.5 trillion over twenty-five years, given the current level of U.S. GDP. For Texas alone, that would mean an increase of roughly $260 billion to $460 billion in state GDP. Under such school choice policies, each student and family would be choosing from a full range of 31 The Texas Economy & School Choice alternative schools in a competitive marketplace trying the full possible range of alternative teaching methodologies and discipline specialties. They could change their mind if they decided another alternative than their previous choice would work better. Students would not be subject to one-size-fits-all teaching and schools. They could individually match up with the school subject and teaching methodology that best suited their individual needs and preferences, in a decentralized marketplace. In the new, competitive, education marketplace, schools and their teachers would all be subject to maximum market incentives to perform at the highest levels. Schools and teachers would be subject to market competition and incentives to innovate with new available technologies to possibly reinvent education at different school levels. Teachers would themselves gain from competition from schools competing for their services, with markets bidding up their pay once they were freed from the trap of working for a government monopoly. Schools would be forced by market competition to respect teacher professionalism and discretion to choose teaching materials and methodologies, vastly improving working conditions compared to current public schools. In this new competitive marketplace, teachers would be free to make choices of their own, picking schools to work for that best suited their skills, needs and preferences. Teachers would also enjoy new entrepreneurial opportunities of their own to start new schools, or to market specialty teaching services. THE ECONOMICS OF REDUCED GOVERNMENT SPENDING There is little question that the reduced Texas state budget on account of the Taxpayers’ Savings Grant The size of the Texas economy in ten years would be between $4.3 billion and $14.7 billion larger solely because of the budgetary impacts of TSGP. Table 3: Lowest Tax Burden States vs. Highest Tax Burden States Nine States with Lowest Tax Burden Nonfarm Tax Burden Payroll as a Share of Population Employment Personal Income † Personal Income Gross State Product State & Local Tax Revenue ‡ 10-Year Growth Wyoming 6.90% 15.70% 16.20% 83.40% 113.50% 121.10% Alaska 7.00% 13.40% 12.60% 63.30% 84.70% 232.80% South Dakota 7.10% 10.60% 10.20% 64.00% 63.00% 50.90% Texas 7.50% 20.10% 19.50% 75.40% 81.70% 63.30% Louisiana 7.60% 2.30% 2.40% 60.10% 60.80% 44.00% Tennessee 7.60% 11.10% 3.30% 48.80% 39.20% 50.20% New Hampshire 8.00% 3.40% 3.60% 46.00% 35.00% 54.50% Nevada 8.10% 24.10% 8.00% 46.10% 46.20% 66.70% Alabama 8.30% 7.30% 1.50% 44.40% 42.40% 45.10% 9 State Average* 7.60% 12.00% 8.60% 59.10% 62.90% 80.90% Vermont 10.50% 1.40% 2.30% 44.90% 38.80% 63.50% Rhode Island 10.50% -1.90% -2.80% 35.70% 31.60% 44.40% Maryland 10.60% 7.90% 4.40% 47.90% 48.90% 52.20% Minnesota 10.70% 7.30% 4.40% 44.60% 42.80% 46.50% Wisconsin 11.00% 4.80% 1.60% 41.70% 37.70% 37.80% California 11.40% 8.70% 4.10% 49.20% 43.50% 54.00% Connecticut 11.90% 3.20% 0.60% 43.10% 36.60% 47.90% New Jersey 12.30% 3.50% -1.10% 39.10% 34.60% 57.60% New York 12.60% 2.50% 6.10% 50.60% 45.20% 64.70% 9 State Average* 11.30% 4.20% 2.20% 44.10% 40.00% 52.10% 9.40% 9.10% 5.90% 51.70% 51.00% 56.50% National Average* (tax burden as of 2011, performance metrics are 2003-2013 unless otherwise noted) * Averages are equal-weighted † Tax Burden as a Share of Personal Income is calculated by the Tax Foundation and is currently as of 2011. It is based on data from the Census Bureau’s State & Local Government Finances dataset, but makes several modifications in order to take into account factors, such as taxes paid to other states, that are not accounted for in unadjusted Census figures. ‡ State & Local Tax Revenue is the 10-year growth in state and local tax revenue from the Census Bureau’s State & Local Government Finances survey. Because of data release lag, these data are 2001-2011. Source: Tax Foundation, Laffer Associates, U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis The Texas Economy & School Choice 32 Program would have positive supply-side ramifications throughout the state. As our former colleague Milton Friedman frequently admonished, “Government spending is taxation.” Accordingly, cuts in government spending increase incentives to work, produce and invest. This is particularly true in states, where balanced budget requirements dictate that an increase in spending must be funded via taxation. Each year, the Tax Foundation calculates measures of tax burdens faced by citizens at the state and local level. To make the data comparable from one state to another, the Tax Foundation divides total taxes paid by the state’s total personal income. A simple way to think about the Tax Foundation’s measure is that the figure represents the share of a person’s income that is paid to state and local governments in taxes. Table 3 shows the nine states with the lowest tax burdens as a share of personal income and the nine states with the highest tax burdens as a share of personal income along with various state performance measures. Tax Foundation tax burden data are through 2011—the most recently available numbers.174 (TABLE 3) Table 3 shows that the nine states with the lowest state and local tax burdens have, on average, tax burdens that are 3.7 percentage points (pp) lower than the nine states with the highest state and local tax burdens. To measure performance outcomes in states, we looked at growth in various metrics over 10-year periods. The 10-year performance advantage that the average low tax burden states enjoy over the average high tax burden states is stunning: 7.8pp in population growth, 6.4pp in nonfarm payroll employment growth, 15pp in personal income growth, 23pp in gross state product growth and 28.9pp in state & local tax revenue growth. To provide a rough estimate of the budgetary impacts of TSGP—what amounts to a large cut to Texas’ tax burden—we can relate the change in tax burden to the performance outcomes associated with such a change as shown in Table 3. According to Joseph Bast’s Heartland Institute Policy New savings and investment would flow into underdeveloped and declining urban areas, which most investors and entrepreneurs have now given up on. Who is a high-risk student? What level of education do criminals have? Answer: students in the top 20% of crime risk. These students are dominantly: Answer: 65% of inmates lack a high school diploma. Diploma 18% 35% 33 The Texas Economy & School Choice No Diploma 82% 65% General Population Inmates Brief “Making Texas Public Education More Efficient: Taxpayer Savings Grant Program”, The Taxpayer Savings Grant Program would enable approximately 321,000 students to use savings grants to enroll in private schools in the first year saving taxpayers some $561 million. Savings in the first biennial budget would be $1.3 billion. In subsequent years savings would grow so that over the course of 12 years, using extremely conservative estimates, taxpayers would save $22.8 billion.175 Based upon analysis from the LBB and from Bast’s report, taxpayer savings in Texas from TSGP could be between $476 million and $1.9 billion per year when the program is in full operation.176 According to the Bureau of Economic Analysis, Texas annual personal income as of 2Q-2014 was $1.225 trillion (8.3% of total U.S. personal income).177 As such, implementing TSGP would be analogous to lowering the tax burden faced by Texans by between 0.039 and 0.155 percent. Based upon our research, a one percentage point lower tax burden is associated with 6.19 percent faster gross state product growth over a decade, as incentives to work, produce and invest are higher are lower rates of taxation. TSGP is accordingly estimated to result in between 0.24 percent and 0.96 percent faster GSP growth in Texas over ten years. Applying these percentage point growth rates to the size of Texas’ economy today ($1.53 trillion as of 2013), these projections mean the size of the Texas economy in ten years would be between $3.6 billion and $14.7 billion larger solely because of the budgetary impacts of TSGP. THE ECONOMICS OF CRIME REDUCTION Crime is another drag on economic growth. It is effectively another tax on savings, investment, productivity, and property. To see this more clearly, just imagine the impact on local economies if you could go anywhere in Chicago, Detroit, or Los Angeles with no fear of any assault or other crime against yourself or your property. New savings and investment would flow into the underdeveloped and declining areas of those cities, which most investors and entrepreneurs have now basically given up on. New stores and restaurants would open up without fear of vandalism, theft or burglary. Customers could flock to those stores and restaurants without fear of criminal assault on their persons or property. Housing values would rise, stimulating new housing development, particularly on vacant lots, or to replace abandoned or underutilized How does school choice affect high-risk students? By how much is the social cost of crime reduced? Answer: their crime rate dropped by 50%. Answer: by $3,916 and $7,843 for high- and middle-school students, respectively -50% High School Students Middle School Students $7,272 $4,606 -$3,916 -$7,843 The Texas Economy & School Choice 34 Winning a school choice lottery greatly reduces criminal activity, and the greatest reduction occurs among youth at the highest risk of committing crimes. properties. That would stimulate associated commercial development. School choice is proven to reduce crime over the long run, by reducing school dropout rates and increasing graduation, and by promoting higher educational achievement, all of which increases future earnings ability by students. This was further demonstrated in a recent study by David J. Deming, Assistant Professor of Education at the Harvard Graduate School of Education. Deming summarizes his study by writing, “In this study, I find that winning a lottery for admission to the school of choice [i.e. a local school choice lottery] greatly reduces criminal activity, and that the greatest reduction occurs among youth at the highest risk for committing crimes.”178 Deming investigates: whether the opportunity to attend a school other than a student’s assigned neighborhood school reduces criminal activity, especially among disadvantaged youth. Many of the schools chosen by the students were ‘better’ on traditional indicators, such as student test scores and teacher characteristics. All of them, however, were preferred by the applicant over the default option. The analysis therefore sheds light on whether efforts to expand school choice can be an effective crime-prevention strategy, particularly when disadvantaged students can gain access to ‘better’ schools.179 Deming adds: Criminal activity is concentrated among minority males; it begins in early adolescence and peaks when most youth should still be enrolled in secondary school. The schools these young men would attend 35 The Texas Economy & School Choice are typically in high-poverty urban neighborhoods, have high rates of violence and school dropout, and struggle to retain effective teachers. Such schools may be a particularly fertile environment for the onset of criminal behavior.180 Deming further summarizes his work, I compare the criminal activity of students who won the lottery to attend their first choice school to that of students who lost the lottery. I find consistent evidence that attending a better school reduces crime among those age 16 and older, across various schools, and for both middle and high school students. The effect is largest for African-American males and youth who are at highest risk for criminal involvement. In general, high risk male youth commit about 50 percent less crime as a result of winning the school choice lottery. They are also more likely to remain enrolled in school, and they show modest improvements on measures of behavior such as absences and suspensions.181 Deming’s study finds that winning a lottery for admission to a preferred school at the high school level for high school students in the high risk group (test scores on average one standard deviation below the state average, overwhelmingly male, disproportionately African American, absent and suspended many more days than the average student) reduces felony arrests among these students by 44%, reduces the average social cost of their crimes by more than 35%, and results in the crimes that are still committed with sentences 40% less than among lottery losers. Among high risk middle school students, winning a school choice lottery reduces the average social cost of the crimes committed by middle school students by 63%, and the sentences for crimes that are still committed by 64%. Deming concludes: I find that winning a lottery for admission to the school of choice greatly reduces criminal activity, and that the greatest reduction occurs among youth at the highest risk of committing crimes. The impacts persist beyond the initial years of school enrollment, seven years after the school choice lottery was held. The findings suggest that schools may be an opportune setting for the prevention of future crime.182 PAR T IV: RES HAPIN G E D U C A TIO N Straightforward, neoclassical economic analysis tells us that such broad school choice would have powerful impacts in improving educational achievement and results. The reform would introduce revolutionary market competition into what are now bureaucratically administered education programs. That would create powerful market incentives to improve education performance, results and achievement throughout the entire education system, including in the existing public schools, and for students that remain in their present schools and don’t exercise choice rights to change schools. A growing body of academic research increasingly documents these results. Students who exercise choice to attend private or charter schools demonstrate marked, meaningful improvements on standardized tests, showing increased educational achievement. Moreover, research now shows powerful, positive effects of competition in improving educational performance and achievement for the students that remain in the public schools without exercising choice. Academic research also demonstrates that there is no validity behind any concern over “cream skimming” by private or charter schools due to increased freedom of choice. Rather, the research shows that parents seek to use choice for students who are having trouble in public schools, particularly minority and lower income students from single parent homes. Some of the literature even uses the term “reverse cream skimming” to denote this trend, indicating that it is the more disadvantaged students who utilize school choice to escape failing public schools to seek better education alternatives. Implementing a decentralized market in education would also free students with diverse needs to match up with schools and institutions that best suit their individual needs and preferences. Liberating the supply-side of education as well as the demand side would produce revolutionary diversity in education, with increasing schooling specialization and variety. Some schools and institutions would specialize in assisting and better educating weaker students that are falling behind, ultimately slashing dropout rates. Others would specialize in different subject areas, such as science, the arts, music, technology, literature, history, business, engineering, athletics, or even economics, maximizing appeal and effectiveness in education to the broadest spectrum of students. This new diversity in education would include differing education methodologies, philosophies, and sweeping innovation, particularly made possible by modern communication technologies. Students and The Texas Economy & School Choice 36 parents volunteering to participate in such education trailblazing, would ultimately determine themselves in decentralized markets what works and what doesn’t. The new choice, freedom, and opportunities liberated by such reforms would create powerful, revolutionary, market incentives for path-breaking innovation, quite possibly reinventing education. This new freedom of education would produce revolutionary benefits and gains for teachers and educators as well. Teachers would no longer work for a monopoly employer with a take-it-or-leave-it attitude toward teacher compensation. With school choice and liberated markets, teachers would also enjoy competitive markets working in their favor, with a multiplicity of contending schools competing for their services, accordingly bidding their compensation up. School choice and market competition would also lead to better working conditions, over such matters as classroom and school discipline, and increased professionalism, with more teacher choice and control over teaching methods and materials. In this new, liberated teacher market, teachers too would have many more choices about where to work, and different teaching opportunities. They could choose from a wide range of subject specialties, differing teaching methods and philosophies, and widely differing student abilities and backgrounds, from the struggling and disadvantaged to the gifted and rapidly advancing. Teachers too could then choose what combination of opportunities would best suit their abilities and interests. This new education market would also offer teachers a wide range of possible entrepreneurial opportunities, from opening new schooling ventures, to offering specialty teaching services to the market. Due to all of these benefits, school choice programs have proven to be powerful economic growth magnets. The availability of school choice draws more young families with children, and their working adults, to districts, neighborhoods, and towns offering school choice. That surge in local population drives up the value of residential housing in the district, which promotes more residential development. The resulting surge in consumer demand from the new families 37 The Texas Economy & School Choice moving in promotes business expansion and creation, and commercial development. This translates into new shopping malls, grocery stores, drug stores, restaurants, movie theaters, and other retail and recreational outlets serving the booming local population. This developing local economic boom attracts more capital investment to the area, which creates more jobs and raises wages. The local population surge increases the supply of labor in the affected area, which draws still more business expansion and creation, and commercial development. All the resulting increases in taxpaying businesses and workers increases tax revenues to local governments, which can lead to tax rate cuts, further promoting economic development and growth. It would also lead to more local resources for education and teachers. Over the long run, the improved educational outcomes resulting from school choice also increase the human capital of the population. That increased human capital results from reduced dropout rates and higher graduation rates, as well as increased cognitive skills reflected in higher test scores and other indicators of higher educational achievement. Increased human capital increases production and output, which means more economic growth. It also produces more jobs and higher wages and incomes, resulting from increased productivity, which further reflects higher economic growth. Those higher wages and incomes from more new jobs would finance bigger, better, more modern housing, resulting in increased residential development. The growing families moving into those homes with their higher wages and incomes would in turn finance more commercial development through retail purchases of services and materials for themselves and their homes, which would also increase industrial output for cars, furniture, modern electronics and other consumer products. Because of the central importance of human capital in our modern, high tech economy, the overall potential impact of a revamped education system on the highly advanced and productive Texas economy is quite large. CONCLUSION Students who exercise choice to attend private or charter schools demonstrate marked, meaningful improvements on standardized tests, showing increased educational achievement. Moreover, research now shows powerful, positive effects of competition in improving educational performance and achievement for the students that remain in the public schools without exercising choice. Implementing a decentralized market in education would also free students with diverse needs and preferences to match up with schools and institutions that best suit them. Liberating the supply-side of education as well as the demand side would produce revolutionary diversity in education, with increasing schooling specialization and variety. possibly reinventing education. This new freedom of education, through the TSGP, would produce revolutionary benefits and gains for teachers and educators as well, with the rise of competitive markets for teachers resulting in higher pay and better working conditions. Due to all of these benefits, school choice programs have proven to be powerful economic growth magnets. School choice increases housing values, promoting residential development, which leads to commercial development. That development attracts more capital investment, which creates jobs and increases wages. For statewide school choice policies within the state of Texas, the impact on economic growth would be This new diversity in education would include differing a proportional subset of the estimated impact on the economy as a whole. Such policies nationwide are education methodologies and philosophies, and even estimated ultimately to increase U.S. GDP by up to new innovation and experimentation, with students 17% to 30% over twenty-five years, which would mean and parents volunteering to participate in such increased national GDP of $3.1 trillion to $5.5 trillion. education trailblazing, and ultimately determining themselves in a decentralized and diverse market what Such policies within the state of Texas would similarly works and what doesn’t. Particularly intriguing is how increase state GDP ultimately by 17% to 30%, or by roughly $260 billion to $460 billion. Nationwide, educators, parents and students would experiment the present value of such future economic growth with new communication technologies and quite The Texas Economy & School Choice 38 is estimated to be $44 trillion to $112 trillion. The proportionate share for such policies within the state of Texas would be $4 trillion to $10 trillion. These economic results can be translated into the equivalent of a long-term increase in the annual economic growth rate for Texas of 1 percentage point. That additional growth compounding year after year, compared to national economic growth rates in recent years of 2% or less, or longer term U.S. growth rates of a little over 3%, would add up over time to a major increase in state GDP. At a long-term real rate of economic growth of 4% instead of 3%, the additional economic growth resulting from just that one percentage point of higher growth every year would mean that total Texas state GDP after 40 years would be bigger by a total amount equal to two times the entire current Texas state GDP. Over the long run, the improved educational outcomes resulting from school choice also increase the human capital of the population. That increased human capital results from reduced dropout rates and higher graduation rates, as well as increased cognitive skills reflected in higher test scores and other indicators of higher education achievement. Increased human capital increases production and output, which means more economic growth. It also produces more jobs and higher wages and incomes, resulting from increased productivity, which further reflects higher economic growth. Those higher wages and incomes from more new jobs would finance bigger, better, more modern housing, resulting in increased residential development. The growing families moving into those homes with their 39 The Texas Economy & School Choice higher wages and incomes would in turn finance more commercial development through retail purchases of services and materials for themselves and their homes, which would also increase industrial output for cars, furniture, modern electronics and other consumer products. Because of the central importance of human capital in our modern, high tech economy, the overall impact in the highly advanced and productive U.S. economy is potentially quite large. Reduced crime due to school choice further promotes increased economic growth. By reducing dropout rates, increasing graduation rates, and increasing job and earnings prospects, school choice reduces crime, which further promotes economic growth and higher GDP. Deming finds that school choice reduces felonies committed by high school students by 44%, and reduces the social costs of their crime by 44%. Among middle school students, school choice reduces the social cost of crime by 63%. In addition, implementing TSGP would be analogous to lowering the tax burden faced by Texans which in turn would result in a faster gross state product growth over a decade, meaning the size of the Texas economy in ten years would be between $3.6 billion and $14.7 billion larger solely because of the budgetary impacts of TSGP. Such results and consequences can only be described as a win-win-win for everyone in the state. Citizens across the state will benefit from improved education and stronger economic growth, as the business environment improves due to dramatic increases in human capital. ENDNOTES TO PAGES 1 - 11 1 Laffer Associates calculations based upon McKinsey and Company study. 2 Laffer Associates calculations based on Hanushek study. 3 John Merrifield and Joseph L. Bast, Budget Impact of the Texas Taxpayers’ Savings Grant Program, Heartland Institute Policy Brief, April 2011. The grant is renewable every year until the student 4 Texas Education Agency (TEA), Cost Estimate, Senate Bill 1575 – Campbell, Paxton (Introduced), April 16, 2013, p. 2. 5 Id. 6 Id. 7 Id., p. 3. 8 Legislative Budget Board, Fiscal Note, 83rd Legislative Regular Session, May 18, 2013, p. 2. 9 Id. 10 Id. 11 Merrifield and Bast, p. 6. 12 Id., p. 5. 13 Id. 14 Id., p. 16. 15 B.R. Chiswick and S. Koutroumanes, “An Econometric Analysis of the Demand for Private Schooling,” Research in Labor Economics, Vol. 15, (1996), pp. 209-237. 16 Merrifield and Bast, p. 14. 17 Id., p. 16. 18 Id., p. 15. 19 Id., p. 17. 20 Id., p. 15. 21 Id., p. 17. 22 Id., p. 16. 23 Id., p. 6. 24 Jay P. Greene, “The Surprising Consensus on School Choice,” The Public Interest, Summer, 2001, p. 22. 25 Id., p. 19. 26 Id., p. 22. 27 Id., p. 22. 28 William G. Howell, Patrick J. Wolf, Paul E. Peterson, and David E. Campbell, Test-Score Effects of School Vouchers in Dayton, Ohio, New York City, and Washington, D.C.: Evidence from Randomized Field Trials, The Program on Education Policy and Governance (PEPG), Department of Government, Harvard University, August, 2000, p. 2. 29 Id. 30 Greene, Jay P., Paul E. Peterson, and Jiangtao Du, “School Choice in Milwaukee: A Randomized Experiment,” in Peterson and Hassel, eds., Learning from School Choice (Wash. D.C.: Brookings Press, 1998). 31 Rouse, Cecilia Elena, “Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental Choice Program,” The Quarterly Journal of Economics, Vol. 113, No. 2, (May 2, 1998), pp. 553-602. 32 Id., p. 554. 33 Id. 34 Greene, “The Surprising Consensus on School Choice,” p. 24. 35 Id. 36 Howell, William G., Paul E. Peterson, The Education Gap, Revised edition (Washington, D.C.: Brookings Institution Press, 2002). 37 Metcalf, Kim K., “Evaluation of the Cleveland Scholarship and Tutoring Program, 1996-1999,” Unpublished manuscript, Indiana University. 38 Peterson, Paul E., William G. Howell, and Jay P. Greene, “An Evaluation of the Cleveland Voucher Program after Two Years,” Working Paper, Harvard Program on Education and Governance (1998). 39 Id., p. 129. 40 Id. 41 Diamond, J.W., Should Texas Adopt a School Choice Program: An Evaluation of the Horizon Scholarship Program in San Antonio, Texas Public Policy Foundation, Austin, TX, 2007, p. 16. 42 Dr. John Merrifield, Dr. Nathan Gray, Dr. Yong Bao, and Mr. Hiram Gunasekara, An Evaluation of the CEO Horizon, 1998-2008, Edgewood Tuition Voucher Program, August 31, 2009, p.59. 43 Diamond, Should Texas Adopt a School Choice Program , p.17. 44 Merrifield et al., p. 52. 45 Diamond, J.W., supra, p.19. 46 Merrifield, et al., supra, p.52. 47 Diamond, J.W., supra, p.19. 48 Tienda, M., K. Cortes, and S. Niu, “College Attendance and the Texas Top 10 Percent Law: Permanent Contagion or Transitory Promise,” Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, NJ, The Texas Economy & School Choice 40 ENDNOTES TO PAGES 11 - 17 2003. 49 Greene, “The Surprising Consensus on School Choice,” supra, pp. 25-26. 50 Greene, “The Surprising Consensus on School Choice,” supra, p. 26. 51 Greene, “The Surprising Consensus on School Choice,” supra, p. 27. 52 Though not necessarily on a per capita basis. It is possible to design a school choice program so that the school losing a student does not lose all of the public funds for that student, which means the end result can be an increase in per capita spending per student in the public school for every school choice student that leaves the school. 53 Greene, “The Surprising Consensus on School Choice,” supra, p. 28. 54 Merrifield, et al., supra, p. 33. 55 Greene, J.P., & Forster, G., Rising to the Challenge: The Effect of School Choice on Public Schools in Milwaukee and San Antonio (Civic Bulletin No. 27), New York, N.Y.: Manhattan Institute, 2002). 56 Diamond, J.W., supra, p.13 57 Diamond, J.W., supra, p.17. 58 Id., p. 17. 59 Diamond, J.W., supra, p.7. 60 Tienda, M., K. Cortes, and S. Niu, “College Attendance and the Texas Top 10 Percent Law: Permanent Contagion or Transitory Promise,” Woodrow Wilson School of Public and International Affairs, Princeton University, Princeton, NJ, 2003. 61 Diamond, J.W., supra, p.18. 62 Id., p. 24. 63 Id. 64 MGT of America, Management Study of the Edgewood Independent School District, Austin, TX (1999). 65 Merrifield, et al., supra, p. 24. 66 Id., p. 4. 67 Id., p. 6. 68 Id. 69 Id., p. 7. 70 Id., p. 8. 71 Id. 72 Id., p. 2. 73 Id., p. 8. 74 Id. 75 Greene, Jay P. and Marcus A. Winters, “Competition Passes the Test,” Education Next (Summer 2004) 66-71. 76 Hoxby, Caroline Minter, “The Rising Tide,” Education Next (Winter 2001). 77 Id. 78 Hanushek, E.A. and S.G. Rivkin, “Does Public School Competition Affect Teacher Quality,” in C.M. Hoxby (ed.) The Economics of School Choice (Chicago: University of Chicago Press, 2002). 79 Gottlob, Brian J., “The High Cost of Failing to Reform Public Education in Texas,” School Choice Issues in the State (Milton and Rose D. Foundation, 2007). 80 Belfield, Clive R., and Henry M. Levin, “The Effects of Competition on Educational Outcomes: A Review of U.S. Evidence,” National Center for the Study of Privatization in Education (Mar. 2002). 81 West, Martin R., and Peterson, Paul E., “The Efficacy of Choice Threats within School Accountability Systems: Results from the Legislatively Induced Experiments,” Economic Journal 116, No. 510 (2006) C46–C62. 82 Chakrabarti, Rajashri, “Impact of Voucher Design on Public School Performance: Evidence from Florida and Milwaukee Voucher Programs,” Econometric Society 2004 North American Summer Meetings (2004) 221. 83 Hoxby, Caroline M., “How School Choice Affects the Achievement of Public School Students.” “Analyzing School Choice Reforms that Use America’s Traditional Forms of Parental Choice,” in Peterson and Hassel, eds., Learning from School Choice, Washington, D.C., Brookings Press, 1998, 84 Id., p. 148. 85 Id. 86 Id. 87 Id. 88 Id., p. 144. 89 Id. 90 Id. 91 Greene, “The Surprising Consensus on School Choice,” supra, p. 29. 92 Id. 93 Paul T. Hill, The Supply-Side of School Choice, in Stephen D. Sugarman and Frank R. Kemerer, School Choice and Social Controversy: Politics, Policy and Law, p. 142. 94 Id., pp. 142-143. 41 The Texas Economy & School Choice ENDNOTES TO PAGES 17 - 26 95 Hanushek, Eric A., Throwing Money at Schools, Journal of Policy Analysis and Management, Vol. 1, No. 1, Autumn, 1981, pp. 19-41. 96 Newt Gingrich, Breakout: Pioneers of the Future, Prison Guards of the Past, and the Epic Battle That Will Decide America’s Fate (Washington, D.C.: Regnery Publishing, 2013), p. 26. 97 Id. 98 Id., p. 36. 99 Id., p. 37. 100 Joseph L. Bast, Herbert J. Wahlberg, and Bruno Behrend, How Teachers in Texas Would Benefit from Expanding School Choice, Heartland Institute Policy Brief, April, 2011, p. 5. 101 Id., p. 9. 102 Id., p. 9. 103 Id., pp. 6-8. 104 Id., p. 7; See also Greg Foster and Christine D’Andrea, Free to Teach: What America’s Teachers Say About Teaching in Public and Private Schools (Indianapolis, IN: The Friedman Foundation for Educational Choice, 2009); U.S. Department of Education, National Center for Education Statistics, “Schools and Staffing Survey (SASS),” http://nces. ed.gov/surveys/sass/. 105 The Texas Constitution, Article 7. Education. 106 The Texas Taxpayer & Student Fairness Coalition et al. v. Coleman, et al., No. D-1-GN-11-003130 (Slip Opinion) (200th Judicial District, Travis County, Texas), p. 4. 107 Id. 108 McKinsey and Company, The Economic Impact of the Achievement Gap in America’s Schools, April, 2009, pp. 2-3. 109 Laffer Associates calculations based upon McKinsey and Company study. 110 Laffer Associates calculations 111 Id. 112 Eric A. Hanushek, The Economic Value of Higher Teacher Quality,” National Center for Analysis of Longitudinal Data in Education Research, Working Paper No. 56, December, 2010, p. 21. 113 Id. 114 Laffer Associates calculations based on Hanushek study 115 Brian Domitrovic, Econoclasts: The Rebels Who Sparked the Supply Side Revolution and Restored American Prosperity, Intercollegiate Studies Institute, 2009, p. 6. 116 Arthur B. Laffer, Stephen Moore, Rex Sinquefield and Travis Brown, The Nature and Causes of the Wealth of States, Wiley, 2014. 117 Gingrich, supra, p. 39. 118 Merrifield, John D., and Nathan L. Gray, School Choice and Development: Evidence from the Edgewood Experiment, Cato Journal, Vol. 33, No. 1 (Winter 2013), p.134. 119 Merrifield and Gray, supra, p. 135. 120 Id., p. 136. 121 Id. 122 Id., pp. 136-137. 123 Id., p. 137. 124 Id. 125 Id. 126 Id. 127 Id. 128 Id., p. 138, 129 Id. 130 Id. 131 Id. 132 Id., pp. 138–139. 133 Merrifield, et al., supra, p. 22. 134 Id., p. 140. 135 Alliance for Excellent Education, The Economic Benefits from Halving the Dropout Rate, A Boom to Businesses in the Nation’s Largest Metropolitan Areas, January, 2010, p. 1. 136 Warren, John Robert, Graduation Rates and Public Choice Students in Milwaukee, 2003-2009, School Choice Wisconsin, January, 2011, p. 1. 137 Alliance for Excellent Education, Milwaukee’s Path to Economic Growth—the Economic Benefits of Reducing Milwaukee’s Dropout Rate, November, 2009. 138 Id. 139 Alliance for Excellent Education, The Economic Benefits from Halving the Dropout Rate, A Boom to Businesses in the Nation’s Largest Metropolitan Areas, January, 2010, p. 3. The Texas Economy & School Choice 42 ENDNOTES TO PAGES 26 - 35 140 Id., p.29. 141 Id. 142 Id. 143 Id. 144 Id. 145 Erin Richards, “Dropouts Lose Millions in Pay; Study Also Estimates More Graduates Would Boost Tax Revenue, Too,” Milwaukee Journal Sentinel, December 4, 2009. 146 Alliance for Excellent Education, The Economic Benefits from Halving the Dropout Rate, pp. 6,14,17, 20, 39. 147 Robert J. Shapiro and Kevin A. Hassett, The Economic Benefits of New York City’s Public School Reforms, 2002-2013, December, 2013, p. 3. 148 Id. 149 Id. 150 Id., p. 10. 151 Id. 152 Id.; Orley Ashenfelter and Cecilia Rouse, “Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins.” The Quarterly Journal of Economics 113.1: 253-284 (Feb. 1998); Joshua D. Angrist and Alan B. Krueger, “Does Compulsory School Attendance Affect Schooling and Earnings?” The Quarterly Journal of Economics 106.4: 979-1014 (Nov. 1991). 153 Shapiro and Hasset, supra, p. 13. 154 Id. 155 Id. 156 Id. 157 Id., p. 14. 158 Id. 159 Id. 160 Id. 161 Id., p. 16. 162 Id. 163 Eric A. Hanushek, The Economic Value of Higher Teacher Quality,” National Center for Analysis of Longitudinal Data in Education Research, Working Paper No. 56, December, 2010, p. 21. Current U.S. GDP is about $17 trillion for one year. 164 Id., p. 23. 165 Id., pp. 21-22. 166 Texas represents about 9% of total U.S. GDP. 167 Id., p. 23. 168 McKinsey and Company, , p.5. 169 Id., pp. 5-6. 170 Id., p. 6. 171 Id. 172 Id. 173 Id. 174 Liz Malm and Gerald Prante, “Annual State-Local Tax Burden Ranking FY 2011,” Tax Foundation, April 2014. http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-fy-2011 175 Joseph Bast, “Making Texas Public Education More Efficient: Taxpayer Savings Grant Program,” Heartland Institute Policy Brief, March 2013, p. 25. http://heartland.org/sites/default/files/heartland_tsgp_policy_brief.pdf 176 $1.9 billion per year comes from the Bast study estimating “over the course of 12 years, using extremely conservative estimates, taxpayers would save $22.8 billion.” (Bast, p. 25) $22.8 billion ÷ 12 years = $1.9 billion per year. 177 Source: “State Quarterly Personal Income,” U.S. Department of Commerce: Bureau of Economic Analysis, data extracted December 11, 2014. http://www.bea.gov/regional/index.htm 178 David J. Deming, Does School Choice Reduce Crime? Evidence from North Carolina, adapted from a study published in the November, 2011 Quarterly Journal of Economics. 179 Id., p.1. 180 Id., pp.1-2. 181 Id., p.2. 182 Id., p.10. 43 The Texas Economy & School Choice LAFFER ASSOCIATES Investment Research Laffer Associates is an economic research and consulting firm. It provides investment-research services focusing on the interconnecting macroeconomic, political, and demographic changes affecting global financial markets.