The Texas Economy and School Choice

8/10/2019 The Texas Economy and School Choice

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T h e T e x a s E c o n o m y

a n dS c h o o l C h o i c e

JANUARY 2015

LAFFER ASSOCIATEI n v e s t m e n t R e s e a r c

An analysis of the Taxpayer Savings Grant Programcommissioned by Texas Association of Business

and Texas Public Policy Foundation


2/48

AUHOR | ARHUR LAFFER

BOOK + COVER DESIGN | MICHAEL BARBA

PHOOS COPYRIGH | AMERICAN FEDERAION FOR CHILDREN


3/48

An analysis of the Taxpayer Savings Grant program commissioned byTexas Association of Businessand Texas Public Policy Foundation

The Texas Economyand

School Choice

By Arthur Laffer

LAFFER ASSOCIATESI n v e s t m e n t R e s e a r c h


4/481 Te exas Economy & School Choice

Te exas Association o Business and the exasPublic Policy Foundation jointly commissionedLaffer Associates to perorm an analysis o theaxpayer Savings Grant Program (GSP), which isa statewide universal school choice program under

active consideration by the exas Legislature, in orderto ascertain the effect o such program on the stateseconomy. Tis report is the result o that evaluation.

Te survey o the educational benefits o school choiceacross the nation in this study shows that broad,universal, statewide school choice can achieve similareducational results or exas. For instance, reducingthe 130,000 dropouts statewide by hal is achievable bystatewide school choice. So is closing the educationalachievement gaps between the races, between students

rom lower income and higher income amilies, andbetween the U.S. and the higher achieving countriesin education perormance. Tese results would beurther enhanced by educational innovation, in asector that has so ar ailed grossly to take advantageo modern communication breakthroughs, whichcan greatly increase productivity, education resultsand achievement. Te competitive market created bybroad, nearly universal, statewide school choice wouldaccelerate such badly lagging innovation.

Broad, universal, statewide school choice, asenvisioned in the GSP, would substantially increaseeconomic growth in exas first by increasingresidential and commercial property values, whichwould, in turn, increase residential and commercialdevelopment. More importantly, school choice wouldraise wages and incomes by reducing dropout rates,and increasing graduation rates, and educationalachievement, as measured by standardized test scores,all o which would increase human capital, leading to

increased productivity and output.

Specifically, universal school choice as proposed by theSG program would increase exas state GDP up to anestimated 17% to 30% over twenty-five years, meaningan additional roughly $260 billion to $460 billion orthe people o the state each year. Te improvement instandardized test scores that has already been shownto develop rom broad school choice reorms indicatesa present value net gain o uture GDP increases or

EXECUTIVE SUMMARYWhat impact would reform ha

Texas GDP &standard of liv

would increasby 17% - 30%.

That means$260 - $460

billion more inour economy.

In other wordsTexas would athe economies

nine other stat

x .30

MEVT

RI MT ND

SDWYID

AK


5/482Te exas Economy & School Choice

exas alone o $4 trillion to $10 trillion. And theincreased economic growth in exas would producebetween 560,000 and 985,000 new jobs. Such aneconomic boom would draw population in-migrationto exas rom the rest o the country o between650,000 and 1.1 million people.

Statewide school choice result-ing from the Taxpayer SavingsGrant program would increaseproperty values in Texas by 20percent or more.

Under the axpayer Savings Grant Program, everystudent who attended public school in the state orthe prior year, or who is entering school in exasor the first time, would be eligible or a axpayersSavings Grant. Te grant would be equal to tuitionat a private school o the students choice, subject to amaximum o 60% o the average per-student cost ormaintenance and operations in public school. Te

reorm is estimated to save the state billions, whilesubstantially improving education perormance, resultsand achievement or students in the public schools(through documented effects o competition), as wellas or the students who exercise school choice.

Laffer Associates has determined that by slashingstudent dropout rates, raising graduation rates,expanding education perormance, results, andachievement, and consequently growing humancapital, school choice reorm would substantially

increase economic growth, producing waves o newjobs and propelling up wages and income or workingpeople and their amilies in exas.

Tese benefits rom education reorm would increaseexas state GDP by up to an estimated 17% to 30%over twenty-five years, meaning an additional roughly$260 billion to $460 billion or the people o thestate each year.1 Tat is the equivalent o adding toexas the entire state economies o 9 other statesVermont, Wyoming, Montana, South Dakota, North

INTRODUCTION

The Economic Effect of Reducthe Number of Dropouts

In the 5 largestmetro areas,

77,600 studentsdrop out each year.

If the TSG cut this in half, the new graduates wo

...buy homes

worth almost$750 million.

...pay $4.6 millionmore in state andlocal taxes.

...spend $35million morconsumers.

...invest $127million more.

...create 4,000new jobs.

...and increaseTexas GDP by$653 millionannually.

SOLD

$

yourgovernmen

+$653

mi l l io

For more on these economic effects, see page



Dakota, Rhode Island, Maine, Alaska, and Idaho. Teimprovement in standardized test scores that hasalready been shown to develop rom broad schoolchoice reorms indicates a present value net gain outure GDP increases or exas alone o $4 trillion to$10 trillion.2

Such increased economic growth in exas would

produce between 560,000 and 985,000 new jobs.Such an economic boom would draw population in-migration to exas rom the rest o the country obetween 650,000 and 1.1 million people.

o produce such a massive increase in prosperity,there are a number o contributing actors. All o thisresults, however, because the improved educationaloutcomes resulting rom school choice increase thehuman capital o the population. More human capitalincreases production and output, which means more

economic growth. It also produces more jobs andhigher wages and incomes, resulting rom increasedproductivity, which urther reflects higher economicgrowth. Te majority o these human capital gainswill result rom improved perormance o the exaspublic school system. Market dynamics will result inmeaningul school reorm which the politically drivensystem cannot achieve.

Moreover, reducing the 130,000 annual dropoutsstatewide by hal, which is achievable by statewide

school choice, would result in an additional 65,000high school graduates each year. As part o theincreased GDP effects discussed above, thosegraduates would earn an additional $800 million inearnings every year, or individually an average o anadditional $10,000 a year. Tey would initially eachgain additional income o 23 percent a year when theyfirst graduate, growing to an income gain by age 40 o54 percent a year.

Tese additional graduates would ultimately use their

higher incomes to buy bigger, better, newer homesworth an additional $1.2 billion. Tey will spendan additional $585 million each year, and invest anadditional $212 million. Tat increased economicactivity rom these new graduates alone would createan additional nearly 6,600 jobs, increasing GDP in thestate by an additional $1.1 billion a year.

Furthermore, based on the results rom school choice

Why Teachers Win

The averagesalary of Texasteachers is$48,821.

$215K+That meansTexas spends$215-$325,000per classroom.

Choice woulddrive up wages asschools divertmore funds toclassrooms -where they havehe greatest effect

on students.

But Total Spend-ng per student

was $12,106 in2012-13.

Introducing

greater competi-

tion into the

market for

teachers will raise

teacher salaries.

Report of

Dr. Jacob Vigdor

As a result, teachers could choose whatkind of school to teach at

without sacrificing their financial health.



ound in the academic literature discussed belowregarding improved test scores and increased propertyvalues, we estimate that the statewide school choiceresulting rom SGP would increase property values inexas by 20 percent or more.

Due to all o these benefits, school choice programshave proven to be powerul economic growth magnets.

Te availability o school choice draws more youngamilies with children, and their working adults, todistricts, neighborhoods, and towns offering schoolchoice. Tat surge in local population drives up thevalue o residential housing in the district, whichpromotes more residential development. Te resultingsurge in consumer demand rom the new amiliesmoving in promotes business expansion and creation,

and commercial development. Tis translates intonew shopping malls, grocery stores, drug stores,restaurants, movie theaters, and other retail andrecreational outlets serving the booming localpopulation. Tis developing local economic boomattracts more capital investment to the area, whichcreates more jobs and raises wages.

Over the long run, the improved educational outcomesresulting rom school choice increase the humancapital o the population. While this is a dry, boringeconomic term, the real lie implications o the effectso educational choice are anything but hum drum. Tispaper demonstrates that school choice will provideopportunities to hundreds o thousands o childrenthat they never dreamed were possible.

PART I: THE TAXPAYERS SAVINGS GRANT PROGRAM

Te proposed exas axpayers Savings Grant Programprovides or every school age child who attendedexas public schools or the entire prior year, or whois first entering a new school year in exas, the choiceo an annually renewable axpayers Savings Grant(SG) equal to tuition paid or enrollment in a privateschool o the parents choice. Te grant is subjectto a maximum o 60% o the current average publicschool expenditure per student or operations and

maintenance.3

Tat means the state saves money orevery student that chooses to use the grant to attendprivate school, as the state then has to pay at mostonly 60% o the marginal cost o the student attendingpublic school. Te cost to the state could even belower than 60% o the average public school cost perstudent i the tuition in the private school in which thestudent has enrolled is less, which it would be or manyprivate schools in exas, especially parochial, schools.



Long-Term Impact

The TSGs long-term impact will add$4 - $10 trillion in present value GDP

to our states economy.

$4 - $10

trillion

Te SGP consequently provides or broad, universalschool choice or every student residing in exas.Parents and their children are ree to choose amongevery private school, and every public school opento their enrollment, in the state. Tey are also ree tochoose to supplement the grant with their own undsi they choose a private school costing more thanthe maximum grant amount. Several studies have

evaluated the SGP; well examine them below.

Te exas Education Agency (EA), the state agencyoverseeing primary and secondary education,estimates that the Foundation School Programportion o public school operations and maintenanceexpenditure per student currently averages $7,500.4 Atthis level o unding, the maximum grant per student(60% o $7,500) would currently be $4,500 per year,resulting in a savings to the state o approximately$3,000 or each public school student that chooses touse the SG program to attend private school.

EA estimates the available private school capacity inexas over the past year at 78,870 additional students.5Tat many students switching to private school wouldsave the state nearly a quarter billion dollars ($236million) under the SGP over the first year alone.

EA projects private school capacity increasing 20% ayear through FY 2018, with 163,296 students then ableto participate in SGP.6 Tat many students exercisingthe school choice grants would save the state nearlyhal a billion dollars ($490 million) per year.

EA projects that over the 5 year period, 2014 to 2018,SGP could save taxpayers a gross sum o $1.758billion.7 otal costs over that period to administerthe program would be $758,690, or expenses suchas an I contract to build and maintain a website or

the grant program, wages and benefits or employeepersonnel, and office space, urniture, and equipment.According to EA estimates, that would leave a netsavings to the state over that five-year period o $1.757billion.

Another examination o the SGP was made by, theLegislative Budget Board (LBB), a permanent jointcommittee o the exas Legislature. In a Fiscal Notedated May 18, 2013, the LBB reported that the average

EVALUATING THE TSGP



According to the TEA, the Tax-payer Savings Grant wouldsave $1.76 billion over 5 years.

per student public school expenditure or operationsand maintenance was $8,276 or FY 2012 based on theactual, audited, financial data submitted to the PublicEducation Inormation Management System (PEIMS).8Te maximum grant would consequently be $4,966 (60percent times $8,276). Te LBB determined that underthe GSP the state would save $2,500the differencebetween the average FSP entitlement o $7,500 and the

reimbursement amountor each student in averagedaily attendance who lef the public school system andattended a private school.9

Te Legislative Budget Board assumed that in the firstyear o the program, one hal o one percent o eligiblepublic school students would choose to use the SGto attend private school, rising to one percent in thesecond year, and by an additional percentage point oreach successive year o students afer that. Te Boardconsequently estimated taxpayer savings o $91.4million in the first biennium, rising to $476.2 millionby the fifh year o the reorm, and $1.1 billion incumulative savings over 5 years.10

Another review o the SGP was conducted by JohnMerrifield and Joseph L. Bast, in their paper, BudgetImpact o the exas axpayers Savings Grant Program.Based on official state data, Merrifield and Bastestimated per-student operations and maintenancespending in exas o $8,572.11 Tey consequentlyestimate the maximum SGP grant to be $5,143,resulting in savings or the state o exas o at least$3,429 or every student choosing to use the grant toattend private school.12

Te study shows that the maximum SGP grant wouldbe more than enough to cover the average tuitionat parochial elementary schools in exas.13 Abouttwo-thirds o students in exas attending privateelementary schools attend such religiously affiliatedschools,14which are particularly popular among theHispanic population.

Based on academic research regarding demand orprivate schools,15Merrifield and Bast estimate thatunder the SGP, 6% o public school students wouldchoose private schools over public schools in the firsttwo years.16 Tat would result in taxpayer savings o atleast $2.01 billion.17 Based on the experience with theschool choice program in the Edgewood school districtin San Antonio, Merrifield and Bast alternatively

Taxpayer Savings Grant

FAQ

What is the Taxpayer Savings Grant?It is a school choice program administereby the Comptroller of Public Accounts.

Who exactly would qualify?School-age children who:(1) are entering kindergarten or 1st grade, o(2) attended a public school for all of the yeapreceding 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 Maintenaand Operations spending per student. ($5,1

Has this been tried in other states?Yes and no. ere are 22 other grant pro-grams in the United States, but each is tailorto a specific group of students. e TSG wogive choice to a much wider group of studen

Do Texans support school choice?

2014: 87% ofTexans say school

choice would

reduce poverty.

2012: 84% ofRepublican votersstatewide support

the TSG.

2014: 80%Texas Hisp

support the

87% 84% 80%



estimate that 6.8% o exas public school studentswould choose private schools over public schools inthe first two years,18resulting in a savings to taxpayerso at least $2.18 billion.19 I exas parents exercisethe school choice grants at the same rate as parentsdid under the school choice program in Milwaukee,Merrifield and Bast alternatively estimate that 7.6%o exas public school students would choose private

schools over the first two years,20saving exastaxpayers at least $2.3 billion.21

Merrifield and Bast argue that the savings to taxpayersrom the grants would likely be substantially higherbecause their analysis did not consider that many,i not most, students would be getting less than themaximum grant amount, as tuition or the privateschool they have chosen would be less than the

maximum grant. wo-thirds o private elementaryschool students in exas attend parochial schools,where the average tuition is about 22% less than themaximum grant amount. So the savings to taxpayerswould be 22% more than estimated above or studentsthat choose to attend those private schools.22

Moreover, Merrifield and Bast indicate the actual

savings to taxpayers would likely be at least 35% morethan the estimated savings based on public school costsor operations and maintenance alone, more accuratelyreflecting the total costs o attending public schools.23In addition, the estimated net taxpayer savings do notconsider the revenue increases that would result romincreased economic growth due to the statewide schoolchoice program.

Enrollment in private school choice programs nationwide is increasing. In Texas, demand for choice in theform 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 programs creation,

allowing another 25,000-300,000 students to enroll in the school of their choice.

source: American Federation for Children

308,560

245,854

210,524190,811

182,608171,478158,725

126,519

108,70596,52890,613

81,524

55,373

29,003

Enrollment Growth inPrivate School Choice Programs

2000-01 2005-06 2010-11 2013-14



Te economic theory is clearthe increased choiceand competition associated with school choicepropels improved educational outcomes. Te researchliterature bears this out time and again. able 1 belowsummarizes the documented positive educationalimprovements associated with school choice programs.

Published, academic, school choice studies consistentlyshow that students who are empowered to chooseschools they preer gain in educational achievementas measured by standardized tests and other criticalmeasures.

Jay Greene points out that several o these studies

involved school choice programs where there werear more applicants than school choice scholarshipsavailable.24 As a result, the students who received oneo the available school choice scholarships were chosenby lottery. Greene explains that, due to this lotteryassignment methodology, the research on schoolchoice includes several random-assignment studies,the gold standard o research design, where subjectsare randomly assigned to treatment and control

groups as in a medical study.25 Te control group wasrandomly assigned as well, as they were those who lostthe lottery or the available school choice scholarships.

Trough this means, there have been at least sevenstudies involving random-assignment school choice

experiments, covering five different programsin different cities, conducted by several differentresearchers.26 Green summarizes, Every one othose analyses finds statistically significant benefitsrom school choice or those who are provided withopportunities to choose a private school.27

Te Harvard Program on Education Policy andGovernance (PEPG) reported on the results rom the

PART II: CHOICE LEADS TO ACHIEVEMENT

The maximum TSGP grantwould cover most of theaverage tuition at privateschools in Texas.

HIGHER TEST SCORES WITH CHOICE

Harvard



AuthorChoice Program

Location(s)

Test Score

Improvements

Standard

Deviation

Gains

Graduation Rate

William Howell, Harvard

Program on Education Policy &Governance

New York, NY;

Washington

DC; Dayton,

OH

6.3 national

percentile points

0.33 s.d.

1.0 s.d.

Math: 11 percentile

points0.5 s.d.

Reading: 6

percentile points0.25 s.d.

Cecilia Rouse, Quarterly Journalof Economics

Milwaukee, WI Math: 68percentile points

Math: 6.5

percentile points

Reading: 5.9

percentile points

Howell & Peterson, Brookings

Institution

Dayton, OH6.5 percentile

pointsReading: up 12.5%

Science: up 11%

Math: 15.6

percentile points

Reading: 7.5

percentile points

JW Diamond, Texas PublicPolicy Foundation

San Antonio,TX

Hispanic: 18.2percentile points

0.75 s.d. Hispanic: Up 50%

Reading: up 2%Total: Up 11.4

percentage points

Math: up 4%Blacks: Up 12.1

percentage points

Hispanics: Up 12.

percentage points

Table 1: Educational Improvements Documented as a Result of School Choice

Greene, Peterson, & Du,

published book

Greene, Howell, & Peterson,

published book

Kim Metcalfe, Indiana

University

Paul Peterson, Harvard Program

on Education Policy &

Governance

Shapiro & Hassett, e

Heartland Institute

Cleveland, OH

New York, NY

Cleveland, OH 0.5 s.d.

Milwaukee, WI

Charlotte, NC



privately unded school choice programs in New YorkCity, Washington, D.C., and Dayton, Ohio. Teirreport ound, In the three cities taken together, theaverage, overall test-score perormance o Arican-American students who switched rom public toprivate schools was, afer one year, 3.3 NPR (nationalpercentile ranking) points higher, and afer two years,6.3 NPR points higher than the perormance o the

control group remaining in public schools.28 TeHarvard researchers put these results in context,

A difference o 6.3 NPR points in overall testperormance is 0.33 standard deviations, generallythought to be a moderately large effect. Nationwide,differences between black and white test scores are,on average, approximately one standard deviation.Te school voucher intervention, afer two years,erases, on average, about one-third o that difference.I the trend line observed over the first two yearscontinues in subsequent years, the black-white testgap could be eliminated in subsequent years oeducation or black students who use a voucher toswitch rom public to private school.29

Te same analysis would apply to the similar gapbetween Hispanic and white test scores, whichalso would be eliminated over time through broad,universal, school choice.

Another randomized study o the publicly undedschool choice program in Milwaukee ound thatstudents who won the lottery to receive a school choicescholarship gained 11 points on standardized mathtests and 6 points on standardized reading tests, 3 to 4years afer exercising their school choice, as comparedto the control group composed o students who lostthe school choice lottery.30 Tis is equivalent to onehal o a standard deviation in math and one-quarter o

a standard deviation in reading. Tat gain would applyto all students, not only blacks and Hispanics.

Princeton economist Cecilia Rouse, who ormerlyserved on President Clintons Council o EconomicAdvisors, conducted another study o the Milwaukee

school choice program and ound standardizedtest score gains o 6 to 8 percentage points in mathafer our years o participating in school choice.31Moreover, Rouse reports that the students applyingor the school choice scholarships were considerablymore disadvantaged than the average student in theMilwaukee public schools.32 Teir average amilyincome was only about $12,300, about hal the averagein Milwaukee public schools. Tey were more likely

to be minority and had lower math and reading scoresthan the average student in the Milwaukee publicschools.33

Another random assignment study involved theprivately unded school choice program in Charlotte.It ound as well that students who won the lotteryto receive a school choice scholarship gained 6.5

percentage points on standardized tests in math and5.9 percentage points in reading, afer one year, ascompared to the control group who lost the schoolchoice lottery.34 More than three-ourths o the choicestudents in the Charlotte program were Arican-American.35 A study o the school choice program inDayton, Ohio ound that Arican-American studentsgained 6.5 percentage points on standardized tests afertwo years.36

Te studies regarding the publicly unded schoolchoice program in Cleveland did not involverandom assignments, so they were not as rigorous.Nevertheless, one study ound that students withschool choice scholarships scored 12.5% higheron standardized tests involving language skills and11% higher on standardized tests involving science,compared to public school students with no choice

Every random-assignmentanalysis nds signicant

benets from school choicefor those who are allowed tochoose a private school.

Greene, Peterson, and Du

Quarterly Journal of Economics

Greene, Howell, & Peterson

Indiana University



scholarships.37 In other words, reading skills or allstudents exercising choice improved by roughly onehal standard deviation as well. Another study oundthat students who had exercised school choice toattend private schools gained 15.6 percentile pointsin math, and 7.5 percentile points in reading over twoyears, compared to their scores when they entered theprivate schools.38 Te authors noted that the school

choice students in Cleveland were among the mostdisadvantaged students in the city.39 Tey concludedthat the demographic realities made the test scoregains particularly impressive because nationwide overtime inner-city students tend to have declining testscores relative to national norms.40

Private sources unded a school choice program, theEdgewood Voucher Program (EVP) or the EdgewoodSchool District (EISD) in San Antonio, exas rom1998 to 2008. Tis successul experiment provideda wealth o data and experience demonstrating thesuccess o the concept o school choice.

Te EVP was a universal school choice program, whichmeans that it applied to all students in the EdgewoodSchool District, not limited only to lower income ortroubled schools or students. Moreover, the school

choice scholarships could be used at any private orpublic school that would accept the scholarship undsin partial or ull payment o required tuition and costs.School choice scholarship use peaked at nearly 12.8%o all EISD students in 2003-2004.41

Just as with the Milwaukee and Cleveland schoolchoice programs, those who used EVP scholarshipsto transer to private schools experienced academicgains.42 Moreover, as Diamond states, students whoparticipate in [school choice] programs are more likelyto graduate and go to college; this is especially trueor low-income students and minorities.43 Indeed,the three private schools in San Antonio with grades9-12 that educated most o the school choice usersmaintained graduation rates and college educationrates near 100%.44 Diamond confirms that 91% oEdgewood school choice students graduating in 2005,and 93% o those graduating in 2006, went on tocollege.45 Yet, only 60% o Edgewood students overall

even took college admissions tests in 1999.46

Diamond adds that the vast majority o these collegebound students were Hispanic, with average amilyincomes less than $25,000, 22 percent less than theaverage Edgewood amily income.47 Statewide, only62% o Hispanic high school seniors were collegebound in 2002.48

Greene concludes, []he U.S. Department oEducation estimates that 59 percent o studentscurrently attend chosen schools. But many o theremaining 41 percent lack the financial resources tomove to a desired public district or pay private schooltuition.49 Te exas SG school choice reorms wouldmerely extend to everyone the same reedom o choice

in education now reserved primarily or the more well-off.

Public Schools, the deenders o status quo governmentmonopolization in education, argue that allowingreedom o school choice to all would only cream thebest students rom the public schools, draining talent

and resources rom the public system.50 But it canrightly be asked, isnt that what happens under thecurrent, ailing, restrictive system, with the affluent,and more gifed and higher achieving, fleeing thelowest common denominator public schools to themore elite private or public schools serving the moreprosperous?

Moreover, experience shows that it is primarily lowincome parents o students suffering the most difficultyand trouble in current public schools who are themost interested in school choice that would liberatethem to choose better opportunities. Greene recounts:Te average income o amilies participating in theMilwaukee program was $10,860. In Cleveland,the mean amily income was $18,750; in New York,$10,540; in Washington, D.C., $17,774; and in Dayton,

Texas Public Policy Foundation &The Heartland Institute

Conclusion

HOW COMPETITION AFFECTSPUBLIC SCHOOLS

Milwaukee



$17,681. In Milwaukee, 76 percent o choice studentswere rom single, emale headed households. InCleveland, the figure was 70 percent. In Washington itwas 77 percent, and in Dayton it was 76 percent. Testandardized test scores o choice students beore theybegan private school averaged below the 31stpercentilein Milwaukee, below the 27thpercentile in New York,below the 33rdpercentile in D.C., and below the 26thpercentile in Dayton. In other words, choice studentswere generally perorming in the bottom thirdacademically.51

Another argument against school choice raised bydeenders o the status quo is that they are interestedin reorms that can benefit all students, not just

those who choose to leave the public schools byusing school choice scholarships. But based onundamental principles o economics, school choicewould unambiguously improve education perormanceand achievement or all students, not just thosewho exercise school choice to leave their currentlyassigned public school. Tat is because school choiceintroduces competition to the public schools. Anexodus o students rom a public school brings theloss o some public unds, which generally ollow thestudent.52 But students fleeing a particular school

is also a proessional embarrassment or the school.Consequently, public schools coming under suchcompetitive threat would be expected to ocus onimproving their education perormance and increaseeducation results and achievement or students.

And real world experience with school choice confirmsprecisely those results. For example, in response tothe Milwaukee school choice program, the Milwaukee

public schools introduced broader reedom o choiceor students within the public school system. Tey alsoguaranteed parents that students would be reading atgrade level by at least the third grade, or the studentwould receive individual tutoring. Tat guarantee wasproclaimed very publicly, with extensive advertising topromote it, on billboards, and the sides o buses.

Similarly, under the A-Plus school choice programin Florida, the public schools guaranteed studentsthat i their school received two ailing grades romthe state, the school would offer students a voucherto help finance a switch to a public or private schoolo the students choice. Greene reports that the testscore gains o schools acing the imminent prospecto vouchers were more than twice as large as the gains

realized by the other schools. When Florida schoolshad to compete to retain their students under a choicesystem, they made substantial progress.53

In San Antonio, the effect o competition shows up inthe Edgewood school district test scores. Edgewoodis predominantly Hispanic, with only 1% whitestudents. Economically disadvantaged students

comprise 94% o the Edgewood student body. Eventhough those demographics indicate Edgewood has aschool population more challenging to educate thanthe control districts, Merrifield et al. ound that rom1998 to 2004, when the school choice effects weremost powerul, the number o Edgewood studentspassing state standardized tests increased by 38%.54Te passage rate or the second highest control districtwas only 22%. Te average increase or all the controldistricts was only 9.6%. Greene and Forster similarlyound that Edgewood test score improvements rankedin the 85thpercentile compared to control districtsrated across the entire state.55

Diamond urther analyzed these state standardizedtest scores and ound that, during the first 5 years othe school choice program, when the competitiveeffects were most powerul because the program wasnot limited and subject to being phased out, the gap inpassage rates between Edgewood and the rest o the

School choice wouldunambiguously improveeducation performance andachievement for all students,not just those who exercise

school choice to leave theircurrently assigned publicschool.

Florida

San Antonio



Coreana Carson (standing, second row, second rom lef) is the third child in her amilyto use a private school grant in Milwaukee.In 2014, she graduated validictorian andenrolled at Marquette University.



Edgewood ISD is a

school district in

Southwest SanAntonio.

What happened

in Edgewood

ISD?

FAQWhy was school choice established i

Edgewood?

The Childrens Educational OpportunFoundation wanted to open private

school options to public school stud

To qualify, students had to reside in Eboundaries and meet the income testhe federal free/reduced price lunch.

Up to $3,600 for grades Pre K - 8 and$4,000 for grades 9 - 12.

At its height in 2003-04, enrollment 2,144 students, or 16 percent of all E

students.

Who qualified for the choice program

How much money did the grant give

How many students enrolled in the

program?

1 99 3- 94 1 99 4- 95 1 99 5- 96 1 99 6- 97 1 99 7- 98 1 99 8- 99 1 99 9- 00 2 00 0- 01 2 00 1- 02

0%

20%

40%

60%

80%

100%

50%

60%

70%

80%

90%

Class of 99 Class of 04 Class of 05Class of 00 Class of 01 Class of 02 Class of 03

State Hispanic

State Average

Edgewood ISD

92% 97%

Edgewood ISD is:

EconomicallyDisadvantaged

Hispanic

Before it was ended, the choice program

began to close the achievement gap on

tests...

...and the gap in graduation rates:

State

Average

Edgewood ISD

andardized

st Passing

tes

aduation

tes

Program

Began



states Hispanic population was virtually eliminated.Moreover, the gap between Edgewood, with itsoverwhelmingly Hispanic student population, andthe entire rest o the state was reduced rom 23.7percentage points in 1994 to 5.5 in 2002, a reductiono over 80 percent.56

In addition, as Diamond states, increasedcompetition rom school [choice] will tend to increasegraduation rates in the public school system.57Diamond reports that rom 1999 to 2005, thegraduation rate or all Edgewood students increasedby 25%.58 Yet, the graduation rate or all state studentsincreased by only 5.7%, less than one-ourth as much.

Tese graduation and college attendance ratesare especially significant given that the studentpopulation o the Edgewood school district was 97.3%Hispanic, virtually 100%, with 92.1% economically

disadvantaged.59

Statewide, again only 62 percento Hispanic high school seniors were college boundin 2002.60 Tis data indicates a sharp declinein Edgewood in dropout rates prevalent amongminorities. Only 31% o Edgewood students weregraduating beore the school choice program.61

Other actions by Edgewood demonstratedcompetitive responses to the school choice threat.Tey tried their own school choice counter-offensiveby allowing students rom outside the Edgewood

district to choose to attend any o the districtsschools.62 Tey also allowed their employees tochoose to enroll their own children in the Edgewoodschool where the employee worked.63 Edgewoodalso financed a management study by MG oAmerica64o how their schools could become morecompetitively appealing in response to the schoolchoice threat, and rapidly began implementing thestudys recommendations.65 Whether or not theseactions were effective, they show how the competitivethreat o school choice can move public schools

to take action to improve their perormance andcompetitive appeal.

Shapiro and Hassett reported on the effect o schoolchoice reorms under Mayor Bloomberg in New YorkCity. Bloombergs reorms granted more discretionand control to local schools and principals and more

unding in return or more accountability or results,creating a orm o competition. Te increased undinginvolved 41 percent increases in average teachercompensation and additional annual spending o nearl$5,000 per student. Te reorms also involved closing160 poorly perorming schools, and opening 660 newones. Bloomberg also increased charter schools rom1,800 students in 16 charter schools in 2002, to 30,000students in 98 charter schools by 2009, to 60,000students in 180 charter schools by 2013.

Bloombergs reorms also implemented school choicereeing public school students citywide to chooseamong a broad range o schools throughout the city,rom comprehensive high schools to small themebased schools, and rom charter schools and collegepreparatory schools to vocational schools. By 2008,incoming high school reshmen could choose rommore than 700 schools, based on the proposition thatdifferent students prosper at different kinds o schools.

Shapiro and Hassett report that rom 2006 to 2012 theaverage score o New York City students on the stateEnglish Language Arts (ELA) test rose 2 percent, twiceas ast as the 1 percent gain across New York state.67 Tgreatest increases were among the most disadvantagedstudents in the Bronx and Brooklyn. By 2013, ELAscores in our o the Citys five boroughs were on parwith the state average.68

Over the same period, the average score or New YorkCity students on the state mathematics test rose 4

percent, compared to 3 percent gains or students atall New York state public schools.69 Te gains againwere the greatest among the most disadvantaged in theBronx, ollowed by those in Brooklyn. Shapiro andHassett write, By 2013, the actual gap between theaverages or NYC students and students statewide wasclose to zero.70

Moreover, rom 2006 to 2012, the graduation rate orNew York City public schools rose rom 49.1 percent to

New York City

The gap in passing ratesbetween Edgewood and therest of the states Hispanicpopulation was virturallyeliminated.



60.4 percent.71 Te gains were again the greatest orArican-American students, rising rom 42.9 percentto 55 percent, and or Hispanic students, rising rom40.1 percent to 52.7 percent.72 In addition, the passagerates or New York City public high school students onstatewide Regents exams rose rom 34 percent in 2006to 58 percent by 2012.73

Finally, among students who began ninth grade rom2007 to 2012, the percentage enrolling in college roserom 40.5 percent to 46.4 percent.74

Green and Winters ound that schools subject toschool choice competition in Florida achieved highermath scores than public schools not subject to suchcompetition.75Hoxby ound the same or school

choice in Milwaukee.76

She ound as well higher testscores rom public schools in Arizona and Michigansubject to competition rom charter schools, than inpublic schools not subject to charter competition.77Hanushek and Rivkin find that public schools subjectto greater competition exhibit increased teacherquality and other indicators o increased schoolquality.78 Gottlieb ound in a study published by theMilton and Rose D. Friedman Foundation that greatercompetition rom private schools increases graduationrates in public schools.79 Similar beneficial effects o

competition on public schools were ound by Belfieldand Levin (2002)80, West and Peterson (2006)81, andChakrabarti (2004)82.

Hoxby sought to demonstrate the point by showinghow other orms o competition can lead publicschools to act to try to better serve students and theiramilies.83 She examined the effect o metropolitanareas that have more school competition by havingmore private schools that students and parents canchoose rom as an alternative to the public schools, or

by having more school districts o more modest sizethat amilies can choose rom by moving their housingto the geographic areas served by those districts. Sheound that metropolitan areas with more competitionrom these sources achieved higher academicperormance at lower cost than metropolitan areaswith less competition.

Hoxby reports that a one standard deviation increase

in private school choices in a metro area increasespublic school test scores by 8 percentage points.84Tat increases wages by 12 percent or public schoolstudents when they enter the work orce.85 Indeed,Hoxby concludes, I private school students in an areareceive sufficient resources to subsidize each studentby $1,000, the achievement o public school studentsrises.86Such subsidies increase competition aced by

public schools by lowering the effective price o privateschools. Hoxby finds that these results are achievedwith no significant increase in per capita public schoolexpenditures.87

Hoxby also finds that a one standard deviation increasein the available public school district choices increasespublic school test scores by 3 percentage points.88 Tatincreases wages by 4 percent or public school studentswhen they enter the work orce.89 Hoxby finds thatthese results were achieved while per capita publicschool expenditures declined by 17 percent.90

Greene ound similar results through his developmento an Education Freedom Index or the ManhattanInstitute.91 Tat Index ranked the extent o educationchoices available to amilies in each state, includingprivate school choices, charter school choices,homeschooling choices, and public school choices.He ound that states that offered more school choiceshad significantly higher student test scores. Greeneexplains that this results rom greater competitionamong schools, writing, When parents have morechoices, schools pay greater attention to the needs ostudents because amilies may withdraw their childrenand the accompanying resources.92

For school choice to produce maximum benefits,the barriers to entry o new school competitors must

Choice Works in Other States

When parents have choices,schools pay greater attentionto student needs becausefamilies can withdraw theirchildren and the accompanyingresources.

LIBERATING THE SUPPLY SIDE OFEDUCATION: TEACHERS WIN


20/48



made possible by such reorms would create powerul,revolutionary, market incentives or such path-breaking innovation.

Implementing a decentralized market in educationwould ree diverse students to match up with schoolsand institutions that best suit their individualneeds and preerences. Tat would involve a whole

additional vector o improved educational resultsand achievement, as students would do much bettermatching up with schools that better-suit theirindividual, differing needs and preerences, and theappeal o these diverse opportunities would urtherslash dropout rates.

Particularly intriguing is how educators, parents andstudents would innovate with new communicationand Internet technologies, quite possibly reinventingeducation. Newt Gingrich writes in his 2013 book

Breakout:

We are on the edge o a dramatic transormationrom bureaucratic education to individualizedlearning. Te technologies o communications,inormation, and learning are evolving so rapidlythat they could soon overpower the prison guardso the past, who have been fighting desperately tosustain the education bureaucracy even as it ails toserve our childrens and our countrys needs.96

Te Internet allows videos o lectures by top teacherswith first-rate subject matter expertise and/orinstructional abilities to be stored and accessed bystudents anywherenationwide and even worldwide.Tose video lectures can then be accessed andviewed by students individually anytime on theirown schedule, and at their own, individualized pace,and reviewed as many times as necessary or anyindividual student to understand the material.

Hedge und analyst Salman Khan developed an

entire K-12 curriculum in his spare time, resulting inthousands o videos available to students participatingin his Khan Academy working individually attheir own pace. He included exercise modules oreach video, which effectively served as tests o thematerial taught in the video. As Gingrich explains,Instead o testing once and moving on regardless othe results, as traditional schools have done, KhanAcademy could ensure that each student mastered

the important skills beore trying to build on them.Once a student got ten questions in a row correct,the academy promoted them to the next lesson.97Tis innovation added to the ability o each studentto proceed at his or her own individualized pace,and improved the effectiveness o the education,consequently increasing student achievement.

Such innovation can be expanded to enable topproessors at the most elite universities around theworld to grow their reach worldwide, with studentsglobally able to access their top-flight lectures onlineat their own pace, not just those admitted to the mostelite schools.

Such innovations have now graduated intowhat Gingrich calls the virtual charter schoolmovement,98including schools such as FloridasVirtual Academies and Pennsylvanias Agora Cyber

Charter School. Students access these online schoolsdaily rom home, where they engage in individualizedlearning at their personal pace, starting withinstructional videos analogous to Khans. Tosevideos are available any time o day, providingstudents with the most flexible schedule and pace.

Tese virtual schools avoid the costs and pressureso physical school buildings and campuses, and odaily transportation to and rom 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 o hours o highquality content in the K-12 curriculum.99

School choice greatly advances the developmento such innovation and education reinvention byliberating and empowering students and theirparents to choose new, innovative schools, and byliberating the supply side to offer such innovation andreinvention. Tis reinvention offers the prospect o

finally leading education out o the Dark Ages, withits still monastic methodologies and organization.

All this new reedom o education would liberateteachers as well to gain rom decentralized, marketcompetition. eachers would no longer work or amonopoly employer. Rather, market competitorsbidding or their services would result in higher payand better working conditions. Good, appealing



teachers, students and parents, which would result inteachers being most productive, and thus best able toearn higher incomes.

Te new reedom o education would offer teachersnew opportunities or innovative entrepreneurshipin starting new school ventures and offeringspecialized teaching services. Tey could design andmarket their own contributions to the reinvention

o education based on still grossly underutilizedmodern technologies, as discussed above. Tisopens up very substantial new earnings prospects orteachers.

On August 28, 2014, ravis County DistrictCourt Judge John Dietz declared the exas schoolfinance system unconstitutional under the exas

Constitution. Te exas Constitution requires theexas Legislature to establish a public school systemthat achieve[s] [a] general diffusion o knowledgeessential to the preservation o liberties andrights o the people.105 In his decision, Judge Dietzopined that the Legislature must structure, operateand und the public school system so that it canaccomplish its purpose or all exas children.106He also repeated the finding o the exas SupremeCourt that the system must be financially efficient,meaning Children who live in poor districts andchildren who live in rich districts must be affordeda substantially equal opportunity to have accessto educational unds.107 Te Judge ound that thecurrent education financing system ailed in all othese areas.

But the SG program would improve educationand education financing in exas to help meet allo them. Te axpayer Savings Grants provide

teachers would be a prime actor competing schoolswould have to attract students. Consequently,schools seeking to attract students with the powerto choose in competitive markets would have ullmarket incentives to increase salaries and providebetter working conditions or teachers to attract andretain the best and most appealing.

Bast, Walberg, and Behrend estimate that universalschool choice would result in average pay raises o$12,000 a year or more or Houston teachers throughthis competitive process.100 More resources wouldbe drawn rom bureaucracy and overhead in serviceo that goal. Bast, et al. report that less than hal opublic education unds are spent in the classroom,and the number o non-teaching personnel workingor the exas public schools is almost equal to thenumber o teachers.101 Tey write, Schools in acompetitive environment cannot afford to wastemoney on bureaucracy and other things that dontmake their way to classrooms. Administrators havea strong incentive to cut spending on bureaucracyand consultants in order to compete or students andthe best teachers.102

Better working conditions would includeimproved school discipline and security, increasedproessionalism or teachers in choosing textbooksand teaching materials, and greater individualteacher control over teaching methods andstrategies.103 Tese are the reasons why privateschool teachers consistently report higher levels osatisaction with their working conditions.104

Moreover, with broad, universal school choice orstudents and parents, teachers would have ar morechoices as well. Tey would be ree to choose amongthe new diversity o schools to pick the school thatis best suited to their skills and preerences. Somewould be drawn to and more skilled at servingdisadvantaged students who have long been allingwoeully behind and dropping out in high numbers.Other teachers would do better to ocus on the moregifed and motivated students, helping them toadvance more rapidly and maximize achievement.Tey could choose schools as well that best matchedtheir own subject matter expertise, and the teachingmethodologies and philosophy they preer. Teoverall result would be much better matching o

THE LAWSUIT FIX

Professional pay and workingconditions mean teachers canchoose what kind of school toteach at without sacricingtheir nancial health.



exactly equal opportunity or all. Tey help to moveeducation financing away rom reliance on propertytaxes and values, which is the root o the concernbehind such suits. Moreover, experience withsuch school choice shows exactly the significantlyimproved education results and the sharp reductionor even elimination o racial gaps and disparitiesin education that the Judge in the case is looking

or under the rubric o constitutionally mandatedefficiency. Te SG program consequentlyadvances precisely the diffusion o knowledge thatthe exas Constitution requires. axpayer SavingsGrants could consequently be a desirable resolutiono the lawsuit.

PART III: RESULTS LEAD TO PROSPERITY

It should come as no surprise that the impressiveeducational improvements associated with schoolchoice programs in turn lead to improved economicperormance. able 2 summarizes these results.

McKinsey and Co. determines that closing the

educational achievement gaps between the races,between students rom lower income and higherincome amilies, between the states, and between theU.S. and the higher achieving countries in educationperormance, results and achievement wouldultimately increase U.S. GDP by 17% to 30% over

What does the Texas Constitutionrequire of public education?

Article 7, Section 1 sets up 4 tests for the public educatsystem in Texas:

Qualitative Quantitative

SuitabAdequacy

Efficiency

Are studentsprovided

equitable funds?

Do schoolsproduce results

with littlewaste?

Are schwell

structuoperate

funde

Do schoolsaccomplish ageneral diffu-sion of knowl-

edge?



twenty-five years.108 Te discussion in this study showsthat broad, universal, statewide school choice canachieve those results or exas.

Tat would mean increased GDP or the U.S. o $3.1trillion to $5.5 trillion, or proportionally or exas,with state GDP currently close to $1.5 trillion, anultimate increase in state GDP o between $260

billion and $460 billion.109 Tat is the equivalent oincreasing the standard o living in exas by 17% to30%, or adding to exas the entire state economieso nine other statesVermont, Wyoming, Montana,South Dakota, North Dakota, Rhode Island, Maine,Alaska, and Idaho. Such increased economic growthin exas would produce between 560,000 and 985,000new jobs.110 Such an economic boom would drawpopulation in-migration to exas rom the rest othe country o between 650,000 and 1.1 millionpeople.111Hanushek also calculates that a system-wide improvement in standardized test scores o 0.25standard deviations indicates a present value gainin uture U.S. GDP o $44 trillion.112 A system-wideimprovement o 0.58 standardized deviations, whichwould rank the U.S. equivalent to the worlds leadersin education, indicates a present value gain in utureU.S. GDP o $112 trillion.113 Te proportional share oexas in such gains would be the equivalent o addingpresent wealth in exas today o between $4 trillionto $10 trillion114. Te discussion in this study again

shows that such results can be achieved though broad,universal, statewide school choice.

Hanushek urther summarizes these results byexplaining they would be the equivalent o a longterm increase in the annual U.S., or in our case exas,economic growth rate o 1 percentage point. odemonstrate the significance o this, at a long term rateo real economic growth o 2%, which has more closelyrepresented recent years, GDP would double every 40years. At a long-term real economic growth rate o

3%, which is close to the slightly higher growth rate othe U.S. over most o the post World War II era, GDPwould more than triple every 40 years.

At a long-term real economic growth rate o 4%, GDPwould multiply by nearly 5 times over 40 years. Tatwould multiply again over the ollowing 40 years byanother 5 times, leaving GDP 25 times higher afer 80years than it was at the outset. (During the periodswhen the U.S. ollowed the most pro-growth policies,the American economy did grow by 4% a year. So sucha sustained long term rate o growth is achievable). Aseconomic historian Brian Domitrovicobserved in hisclassic work, Econoclasts: Te Rebels Who Sparkedthe Supply Side Revolution and Restored AmericanProsperity, Te unique ability o the United States tomaintain a historic rate o economic growth over thelong term is what has rendered this nation the worldslone hyperpower.115Likewise, the aster growth exashas achieved than the rest o the United States showsthat disparate state policies can lead to greatly varied

economic results across states.116

10 Year Projection

Job Creation Population Increase

560,000 - 985,000jobs created

650,000 - 1.1 milliondomestic migrants



Study Author

Laffer Associates

GDP & Economic Growth: Lower taxes

and spending from TSGP would increaseTexas GDP by between $3.6 billion and

$14.7 billion.

Jobs: TSGP would add 560,000 - 985,000new jobs to the Texas economy.

Merrifield & Gray -

Edgewood

Property Valueswould increase by 86.4%

on average. Single-family home values

would increase by 95.4%; multifamily, by

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 graduatesearn $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

rate by 50% leads to $500 million more in

personal income annually.

Tax Revenues: Cutting Texas' dropout rate

by 50% leads to $46 million more in tax

revenue annually.

GDP & Economic Growth: Cutting Texa

dropout rate by 50% leads to $653 million

more in state GDP 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%.

Wages & Income: H.S. diploma increases

wages by $10k; college degree by another

$21k/yr. Each additional year of education

boosts earnings by 11%

Hanushek

GDP & Economic Growth: e TSG

increases the long-term rate of economic

growth by one percentage point each year.

PV of GDP: Test scores increase by 0.25

s.d., PV of Texas state GDP up $4 trillion;

Test scores up 0.58 s.d., PV of Texas state

GDP up $10 trillion.

McKinsey and Co.

PV of GDP: Closing the 4 education gaps

increases U.S. GDP by 17%, or $3.1 - $5.5

trillion. Texas GDP increases by $260billion 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.

Outcome of School Choice Discovered

Table 2: Source Studies for Calculation of Improved Economic Outcomes Due to School Choice



Te deterioration o central city schools was onemajor contributing actor to migration o the middleclass rom central city and inner city neighborhoodsto new suburban developments. But emerging

literature has already begun to discuss school reormas a promising avenue or urban redevelopment andrevival. With school choice, amilies would be reeto begin to return to the cities with the choice o awide range o options or education o their children,and with competition reviving the public schools.

Broad-based, universal school choice policies wouldappeal to young and growing amilies to locate tothe liberated areas. Te resulting new demand orhousing would drive up home values, which would

promote more residential development. Tat in turnwould result in surging consumer demand rom thenew amilies moving in, which promotes businessexpansion and creation, increasing commercialdevelopment. Tis translates into new shoppingmalls, grocery stores, drug stores, restaurants,movie theaters, and other retail and recreationaloutlets serving the booming local population. Tisdeveloping local economic boom would attract morecapital investment to the area, which creates morejobs and raises wages.

Te new relocating amilies would also be a sourceo a new labor supply o adults seeking employment.Tat surge in new population, development andworkers would mean new tax revenues that couldlead to pro-growth tax cuts, urther promotingeconomic development and growth. Tose newrevenues can also be a source o more local undingor education, and higher teacher salaries.

Tis pro-growth process would work even morepowerully with a broad, universal, statewide schoolchoice program, especially in a pro-growth statelike exas, which already pursues many pro-growthpolicies attracting workers and their amilies intothe state. Serving as a oundation or economicdevelopment and growth more generallybeyond urban revival and renewalstatewide,universal school choice policies would open schoolcompetition across the whole state, attractingnational and even international investment,innovative education entrepreneurs, and cuttingedge education reinvention, available to everyone attheir own choice, student by student and amily byamily. Tat would provide additional advantageso synergy and economies o scale in cutting edgeeducation, making exas #1 in education. Like WallStreet or finance, Silicon Valley or high tech, and

Hollywood or movies, exas would be synonymouswith educational quality and innovation. Suchprogressive reorm would benefit the most thedisadvantaged, the poor, blacks, Hispanics, and otherminorities who are being lef behind the worst bythe current, rigid, monastic, monopolistic, educationsystem still rooted in practices and organizationstemming rom the Middle Ages. It is precisely thesemost disadvantaged students that the status quois ailing the most. Tese disadvantaged studentsare alling arther and arther behind their grade

level norms, until they drop out altogether at verycatastrophically high rates. What chance o successwould you have i born to a poor, single mother ina poor neighborhood dominated by crime, drugs,and gangs, spilling over into the schools themselves,as you all arther and arther behind other studentsnationally and even globally in a modern, global,high tech economy?

As Gingrich recounts:

[S]tudents in thousands o traditional schools arealling ar below grade level and eventually give up.One in our students nationwide does not graduatehigh school, and in some places the rate is muchhigher. Nearly 40 percent o students in Chicagodrop out o school; among Arican Americans,that number is over 60 percent. One out o threeourth graders cannot read, scoring below basic onliteracy tests. One-third o eighth graders and 38

Studies show that reducingdropout rates, as schoolcompetition does dramatically,is powerfully pro-growth,resulting in higher wages and

incomes for a lifetime.

INCREASED PROPERTY VALUESAND DEVELOPMENT



districts old and decaying stock o small dwellingslikely discouraged some in-migration that moreattractive areas would have seen as an effect o anEVP-like program.120

Tose increased housing prices in turn did result inan increase in the housing stock in the Edgewood

school district. Single amily dwelling units grewby 2.1 percent rom 1998 to 2001, 4.9 percent rom1998 to 2005, and 7.4 percent rom 1998 to 2008.121Te market value or these Edgewood single amilyhomes grew 28.1 percent rom 1998 to 2001, 58.8percent rom 1998 to 2005, and 95.4 percent rom1998 to 2008, which was higher than in all the controldistricts.122

percent o twelfh graders read below grade level.117

Academic studies show that reducing dropout rates,as school competition does dramatically, is powerullypro-growth, resulting in higher wages and incomesor a lietime, aggregating to a powerul boost to GDPover time. Improved education perormance resulting

in higher student achievement also builds whateconomists call human capital, which means theeducated skills that contribute to improved economicperormance and increased productivity and output.Tat urther contributes to a lietime o higher wagesand incomes, aggregating into substantially highereconomic growth and GDP.

Tose higher wages and incomes rom more new jobswould finance bigger, better, more modern housing,resulting in increased residential development. Te

growing amilies moving into those homes with theirhigher wages and incomes would in turn finance morecommercial development through retail purchases oservices and materials or themselves and their homes,which would also increase industrial output or cars,urniture, modern electronics and other consumerproducts. Because o the central importance ohuman capital in our modern, high tech economy, theoverall impact in the highly advanced and productiveU.S. economy is potentially quite large.

Te beginning o this process was evident in theresults o the broad-based school choice initiativein the Edgewood Independent School District inSan Antonio. Over the 10 year period o that schoolchoice experiment, 1998-2008, property values withinthe Edgewood school district rose by 86.4 %, thoughwas not unusual or the districts that were deemedcomparable to the EISD.118

However, in the earlier years o the reorm when theability to enroll in the program was universal and

participation was near its peak, property values inEdgewood rose by 56.4 percent, higher than in thecontrol districts chosen by Merrifield and Gray as themost comparable to Edgewood.119 Te authors state:

We believe that a typical school district, even onewith much better public schools than [Edgewood],will likely see larger economic development effectsthan we observed in Edgewood. Te Edgewood

Like Wall Street for nance,Silicon Valley for hightech, and Hollywood for

movies, Texas could be #1in education by enacting

universal choice.



Te number o Edgewood multiamily residentialproperties grew by 1.5 percent rom 1998 to 2001,17.1 percent rom 1998 to 2005, and 25.1 percentrom 1998 to 2008.123 Te total market value o thesemultiamily residential properties skyrocketed by 209.1percent rom 1998 to 2008, which was higher than inany o the control districts.124 Growth in Edgewoodmobile homes and in mobile home market value also

topped all the control districts.125 Te market valueor Edgewood mobile homes rocketed by 65.9 percentrom 2000 to 2001, and 96.3 percent rom 2001 to2002.126 But market values leveled off afer that, as theEdgewood school choice program leveled off, and thenwas phased out.

Merrifield and Gray report that, Te Lago VistaVillage apartments built in 1998 lured tenants withbanners touting access to the Edgewood school choiceprogram, and a market brochure stating, I you renthere, your child will get a scholarship to go to anyschool you choose.127 Similar promotions marketedanother 65-unit, single amily housing development,Villas de San Antonio. Both were the first majorhousing projects in Edgewood in 40 years. Bothproperties quickly filled and sold out, Merrifield andGray reported.128

Tese trends were ollowed in turn by substantial newbusiness ormation in the Edgewood school district,with a lag o about two years. Commercial propertiesjumped by 33.2 percent rom 1998 to 2005, with mosto that growth spurting afer 2001 because o the lag.129

Tis rapid growth topped the growth o all the controldistricts, just as the market value o commercialproperty surpassed the growth in the control districtsduring the rising years o the school choice reorm,beore the phase out began.130

Te surge in commercial property can be seen inthe statistics or other types o property that went

A large segment of thepopulation wants privateschool choice badly enough torelocate. Increased businessactivity follows.



commercial. Vacant lots in Edgewood declined by23 percent rom 1998 to 2008. Industrial propertiesdeclined by nearly 30 percent, as they were convertedto commercial uses. Te market value o Edgewoodindustrial properties consequently boomed by 227percent, as alternative users bid up their prices, whenschool choice was booming in the earlier years beorethe phase-out began.131

Tis resurgent economic development producedconcomitant property tax revenue growth inEdgewood, which redounded to the benefit o publicschools, financed at least in part by those revenues.132Increased revenues also resulted rom the increasedjobs and earnings rom the Edgewood school choiceboomlet, bolstered by increased graduation rates,and declining numbers o dropouts which are verycostly to state and local governments in lost revenuesand increased spending or social programs and lawenorcement. Tese were apparently the reasons thatEdgewood was able to pay the third highest rate oteacher salary increases rom 1998 to 2008, achievingthe third highest salary, among an extended group ocontrol districts.133

Merrifield and Gray conclude,

Regions adopting school choice programs realizeimmediate economic growth.Identification andmeasurement o quickly and cheaply realized local

economic development effects that could improvethe political easibility o large, low-restrictionparental choice programs, and accelerate theirspread to additional places, are the most noteworthyo the [Edgewood school choice] assessment. Alarge segment o the population wants privateschool choicebadly enough to relocate. Increasedbusiness activity ollows. A political jurisdictioninterested in stimulating economic developmentwhile also improving their school system (bothpublic and private) need look no urther than[school choice] programs. Such programs would notrequire new taxes.134(emphasis added).

Te American education system is plagued by highinner city and minority school dropout rates, whichare top indicators o ailing public schools. Nationally,

HIGHER WAGES AND INCOME

more than 7,000 students drop out every school day.135Tat adds up to almost 1.3 million students droppingout each year.

Te Edgewood experience shows that school choiceis very effective in countering that negative trend. Asdiscussed above, rom 1998 to 2004, school dropoutrates declined sharply, as graduation rates rocketed up,

in choice schools. Te resulting competition effectscaused an echo in the public schools, where dropoutrates declined, and graduation rates rose, as well.

Te same result was seen in the Milwaukee schoolchoice program. Warren estimates that low incomeschool choice students in Milwaukee were about 18percent more likely to graduate rom high school thanstudents rom across the entire economic spectrum inthe Milwaukee public schools.136

A 2009 study by the Alliance or Excellent Educationound that high school graduates earn an additional$6,322 in annual income on average and pay anadditional $1,079 in taxes each year.137 Tat would addup to an additional $24.9 million in personal incomeand about $4.2 million in extra tax revenue eachyear rom those additional Milwaukee public schoolgraduates.138

A urther 2010 study took the analysis nationallyor each o the nations 50 largest cities and the 45

metropolitan areas that surround them, separatelyand combined.139 Tat study ound that reducing theestimated 6,500 students that dropped out o schoolin the Milwaukee metropolitan area in 2008 by 50%would result in an additional $41 million in earningsrom these graduates on average each year.140 Tatwould result in an additional $7 million in state andlocal income, sales and property taxes paid each year.14

Te additional graduates would spend an added $28million each year, and invest a urther $10 million

each year.142

Tat increased spending and investmentwould support 300 new jobs, and increase regionalGDP by $51 million annually, by the midpoint o theircareers.143 By that point, these new graduates wouldpurchase homes valued by $100 million more thanotherwise, and spend an additional $3 million onvehicle purchases every year.144

im Sheehy, President o the Metropolitan MilwaukeeAssociation o Commerce, told the Milwaukee Journal


30/48



$ Workers with high school diplomas initially earnabout 23 percent more than those o the sameage who dropped out o high school.153 Tatmeans that each o the additional 65,000 exashigh school graduates would earn on average 23percent more each year when they graduate thanhigh school graduates.

$ By age 40, this gap widens to 54 percent.154 Tatmeans that by age 40, each o the additional65,000 exas high school graduates would beearning on average each year 54 percent morethan high school dropouts:

$ Similarly, college graduates initially earn nearly 60percent more than high school graduates.155

$ By age 40, this earnings premium rises to almostdouble (92.5%).156

Shapiro and Hassett consequently calculate:

$ A high school dropout who works ull time untilage 64 can expect lietime earnings o $564,000.157

$ A high school graduate who works ull time untilage 64 can expect lietime earnings o $782,000,or $218,000 more.158

$ A high school graduate who attends college to getan Associates degree and works ull time until

age 64 can expect lietime earnings o $931,000,another $149,000 more than the high schoolgraduate, and another $367,000 more than thehigh school dropout.159

$ A student that completes college earning abachelors degree and works ull time until age64 can expect lietime earnings o $1,275,000,about hal a million ($493,000) more than thehigh school graduate, and almost three quarterso a million ($711,000) more than the high school

dropout.160

Shapiro and Hassett also calculate the impact o thesehigher earnings and income rom increased educationachievement on housing values:

$ A one percent increase in a school districts

average state test scores in Nassau County, NewYork, on Long Island, increased housing values inthe district by nearly 20% (19.9).161

$ A one percent increase in a school districtsaverage test scores in Westchester County, NewYork, increased housing values in the district by18.2%.162

Based on the results rom school choice ound inthe academic literature discussed above regardingimproved test scores and increased property values,we estimate that the statewide school choice resultingrom the SG program would increase property valuesin exas by 20 percent or more.

Hanushek, in trying to demonstrate the economicimpact o good teachers, provides the ultimatesummary statistics on the potential impact o school

choice and economic growth. He finds that, across

A Lifetime of Earnings

Upon starting work, earnings differbased on level of education:

And these effects last a lifetime - here are the averalifelong earnings based on level of education:

For every $1.00 ahigh school

dropout earns...

...a high schoolgraduate earns

$1.25...

...and a colgraduate e

$2.00.

$564,000

$782,000

$931,000

$1,275,000Bachelors

Degree

AssociatesDegree

High SchoolGraduate

High School

Dropout

Housing Values



the U.S. as a whole, the present value o improving[test] scores by 0.25 standard deviations would be $44trillion.163 But as the discussion above showed, schoolchoice has already been shown several times to raisetest scores by that much, and more. For exas alone,that would mean a present value increase due to utureeconomic growth o $4 trillion.

Hanushek also ound that, Te estimates o thegrowth impacts o bringing U.S. students up to Finland[the current world leader in standardized test scores]imply astounding improvements in the well-being oU.S. citizens. Te present value o uture incrementsto GDP in the U.S. would amount to $112 trillion.164Tat would involve an improvement in test scoreso 0.58 standard deviations.165 Te discussion aboveshowed that such an improvement can be achieved bybroad, universal school choice, like the exas axpayerSavings Grant. For exas alone, that would mean apresent value increase in state GDP o $10 trillion.166Tat would be the economic equivalent o increasingpresent wealth in the state o exas by $10 trillion.

Hanushek translates these economic results intothe equivalent o a long term increase in the annualU.S., or in our case exas, economic growth rate o1 percentage point.167 Tat compounding year aferyear, afer growth rates in recent years o 2% or less, orlonger term U.S. growth rates o a little over 3%, wouldadd up to a major increase in economic growth.

A study rom the prominent economic consulting firmMcKinsey and Co. urther aggregates the magnitudeo economic growth that can arise rom school choicereorms. McKinsey reports, I the United States hadin recent years closed the gap between its educationalachievement levels and those o better perormingnations such as Finland and Korea, GDP in 2008 couldhave been $1.3 trillion to $2.3 trillion higher. Tisrepresents 9 to 16 percent o GDP.168 In other words,it would mean an increase in GDP o 9 to 16 percent.For exas alone, that would mean an increase o$125.76 billion to $224 billion in state GDP.

Te report adds, I the gap between black and Latinostudent perormance and white perormance had beensimilarly narrowed, GDP in 2008 would have beenbetween $310 billion and $525 billion higher, or 2 to 4percent o GDP.169

Property Values

The Economic Impact

e TSG would increase property valuesin Texas by 20% or more.

20% or more

With the gaps closed, annual U.S. GDPwould increase by 17% to 30%, or $3.8 to $5.5

trillion every year. For Texas,thats an annual increase of $260 to $460 billion.

Closing the Gaps

Global

Race

Income

2008 GDP wouldhave increased by

$1.3 - $2.3trillion.


$310 - $525billion.

the US andFinland was

closed...

Whites,Blacks, &

Hispanics wasclosed...


$400 - $670billion.

low-incomestudents andthe rest was

closed...

If the gap

between:

en:



McKinsey urther reports, I the gap between low-income students and the rest had been similarlynarrowed, GDP in 2008 would have been $400 billionto $670 billion higher, or 3 to 5 percent o GDP.170

McKinsey also projects, I the gap between Americaslow perorming states and the rest had been similarlynarrowed, GDP in 2008 would have been $425 billion

to $700 billion higher, or another 3 to 5 percent oGDP.171

McKinsey summarizes:

Put differently, the persistence o these educationalachievement gaps imposes on the United Statesthe economic equivalent o a permanent nationalrecession. Te recurring annual economic cost othe international achievement gap is substantiallylarger than the deep recession the United States is

currently experiencing [the 2008-2009 financialcrisis]. Te annual output cost o the racial, income,and regional or systems achievement gap is largerthan the U.S. recession o 1981-82.172

Te lessons McKinsey draws rom these calculationsare:

While the price o the status quo in educationaloutcomes is remarkably high, the promise implicitin these findings is compelling. In particular, thewide variation in perormance among schools andschool systems serving similar students suggests thatthe opportunity and output gains related to todaysachievement gap can be substantially closed. Manyteachers and schools across the country are provingthat race and poverty are not destiny; many moreare demonstrating that middle-class children can beeducated to world-class levels o perormance.173

Indeed, i all American students and their parentswere ree to choose the school they believed would

work best or them, there is no reason why all o theseeducation gaps could not be closed orthwith. Tatwould mean nationwide an increase in U.S. GDPo up to 17% to 30%, or $3.1 trillion to $5.5 trillionover twenty-five years, given the current level o U.S.GDP. For exas alone, that would mean an increase oroughly $260 billion to $460 billion in state GDP.

Under such school choice policies, each studentand amily would be choosing rom a ull range o

alternative schools in a competitive marketplacetrying the ull possible range o alternative teachingmethodologies and discipline specialties. Tey couldchange their mind i they decided another alternativethan their previous choice would work better.

Students would not be subject to one-size-fits-allteaching and schools. Tey could individually match

up with the school subject and teaching methodologythat best suited their individual needs and preerences,in a decentralized marketplace.

In the new, competitive, education marketplace,schools and their teachers would all be subject tomaximum market incentives to perorm at thehighest levels. Schools and teachers would be subjectto market competition and incentives to innovatewith new available technologies to possibly reinventeducation at different school levels.

eachers would themselves gain rom competitionrom schools competing or their services, withmarkets bidding up their pay once they were reedrom the trap o working or a government monopoly.Schools would be orced by market competition torespect teacher proessionalism and discretion tochoose teaching materials and methodologies, vastlyimproving working conditions compared to currentpublic schools. In this new competitive marketplace,teachers would be ree to make choices o their own,

picking schools to work or that best suited their skills,needs and preerences. eachers would also enjoy newentrepreneurial opportunities o their own to start newschools, or to market specialty teaching services.

Tere is little question that the reduced exas statebudget on account o the axpayers Savings Grant

The size of the Texas economyin ten years would be between$4.3 billion and $14.7 billionlarger solelybecause of the

budgetary impacts of TSGP.

THE ECONOMICS OF REDUCED GOV-ERNMENT SPENDING



Population

Nonfarm

Payroll

Employment

Personal

Income

Gross State

Product

State & Lo

Tax

Revenue

Wyoming 6.90% 15.70% 16.20% 83.40% 113.50% 121.10Alaska 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

NewYork 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

National Average* 9.40% 9.10% 5.90% 51.70% 51.00% 56.50

Source: Tax Foundation, Laffer Associates, U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis

State & Local Tax Revenue is the 10-year growth in state and local tax revenue from the Census Bureaus State & Local Governme

Finances survey. Because of data release lag, these data are 2001-2011.

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 Bureaus 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.

* Averages are equal-weighted

Table 3: Lowest Tax Burden States vs. Highest Tax Burden States

(tax burden as of 2011, performance metrics are 2003-2013 unless otherwise noted)

Tax Burden

as a Share of

Personal

Income

Nine States with

Lowest Tax Burden

10-Year Growth



Program would have positive supply-side ramificationsthroughout the state. As our ormer colleague MiltonFriedman requently admonished, Governmentspending is taxation. Accordingly, cuts in governmentspending increase incentives to work, produce andinvest. Tis is particularly true in states, wherebalanced budget requirements dictate that an increasein spending must be unded via taxation.

Each year, the ax Foundation calculates measureso tax burdens aced by citizens at the state and locallevel. o make the data comparable rom one state toanother, the ax Foundation divides total taxes paid bythe states total personal income. A simple way to thinkabout the ax Foundations measure is that the figurerepresents the share o a persons income that is paidto state and local governments in taxes. able 3 showsthe nine

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