NEWS ANALYSIS : Savings Could Exceed Cost of School Voucher Program : Education: At least 500,000 students would have to switch to private institutions. Critics say they won't.

By DANIEL M. WEINTRAUB

July 22, 1993 12 AM PT

TIMES STAFF WRITER

SACRAMENTO —

The school voucher proposal on the November ballot would cost the state government more than $1 billion at first but could save taxpayers more than that amount over the long run--if it works as intended.

If passed by voters, the initiative’s success or failure as a policy would depend largely on the ability of the private sector to embark on a massive, unprecedented expansion of low-cost private schools--and the willingness of parents to send their children to the new academies.

The controversial measure, which would give parents tax-supported scholarships to help pay their children’s private school tuition, raises profound questions about the future of public education in California.

But from a purely fiscal perspective, the school choice initiative has a twist that might make it unique among government programs: The more people use it, the less it would cost the taxpayers.

This is because the value of the voucher is expected to be less than the amount the state is spending to educate a child in the public schools.

Initially, the measure would cost money because the scholarships would go to students currently attending private schools at their own expense. But every time a child left a public school for a private one, the government would save money.

If enough children left, sufficient money would be generated to recoup the start-up costs and possibly bolster per-pupil spending on the students who stayed in public schools.

The potential for those savings is expected to be the subject of fierce debate this fall as the measure’s supporters campaign for a revolutionary change in education policy. The public school teachers unions will spearhead the opposition.

“This is a godsend,” said David Barulich, a private economist and one of the authors of the voucher measure. “It happens at a propitious moment. The tax base is declining and the school-age population is going up. The only way you can increase per-pupil funding for the kids in the public schools is to pass our initiative.”

Opponents, however, say the opposite is true. They note that the measure’s sizable upfront costs would hit just as the state is trying to scratch its way out of repeated budget deficits. They contend that the program never would generate savings to eclipse the new subsidy that would go to children already in private schools. And even if there were savings to the state, the critics say, there is no guarantee that the money would be plowed back into public education.

Indeed, both sides agree that the measure would all but make irrelevant the minimum public school funding guarantee that voters put in the state Constitution when they passed Proposition 98 five years ago. In practice, it would return discretion to the Legislature and the governor that they had until 1988 to set education funding at whatever level they wish.

“The proponents of this initiative want the state to gamble billions of dollars on a theoretical issue that has not been tested,” said Paul Goldfinger, who lobbies for public schools in Sacramento.

As the campaign unfolds, the initiative’s supporters will face a formidable political hurdle, because the only thing certain about the proposal is that it would provide annual scholarships of about $2,600 to 500,000 students already attending private schools.

That translates into a $1.3-billion drain on the state’s estimated $40-billion general fund budget at a time when the government already is carrying a deficit on the books and a stagnant economy threatens to further depress tax revenues.

The initiative would phase in these private school payments over three years, with the full impact hitting in the 1995-96 fiscal year. The authors say the effective dates of the measure, which originally was intended for the 1992 ballot, could be pushed back a year for a smoother start. But that question, in all likelihood, would be left to the courts and only addressed if the voters passed the ballot measure.

At any rate, both sides of the voucher debate and several experts interviewed for this article agree that the annual cost of serving currently enrolled private school students would begin at about $265 million and reach at least $1.3 billion when the measure was fully implemented.

Two major fiscal questions remain: How much would the taxpayers save each time a public school student transferred to a private school? And how many students might do so?

The potential savings are figured by subtracting the cost of the private school voucher from the amount the taxpayers are paying to educate each child in the public schools.

The initiative states that the voucher must be at least half of the total per-pupil spending in public schools. With spending from all state, local and federal sources of about $5,200 a year per student, the voucher would be at least $2,600.

On average, an analysis of the measure by The Times shows, each public school student who took the voucher would generate an immediate savings of at least $600. That is the difference between the amount of the voucher and $3,200 per pupil, which is the portion of education funding that goes to pay for the basic education of every student in the public schools.

Another $1,000 per student in operating costs also might be saved, depending on which students took advantage of the program and how the Legislature decided to implement the initiative. The $1,000 represents money that is going for special programs targeted at the disadvantaged, the disabled and others.

Finally, over the long term, any exodus of public school students would produce another $1,000-per-pupil in construction cost savings, because fewer new schools would be needed.

That figure represents the annual cost of building schools, including taxpayer funds and local developer fees, according to the Department of General Services. But the construction cost savings from the voucher program would be uneven because they would not be realized every time a public school student transferred out--only when a student left an overcrowded school.

Counting only the potential savings in school operating budgets, the savings would begin to outweigh the cost of the vouchers if about 800,000 public school students, or 16% of the current enrollment, transferred to the private schools. If potential savings in construction costs also are included, the break-even point would be reached if 500,000 students, or about 10%, transferred.

The measure’s opponents say substantial savings never will be attained because most private schools are at or near capacity, and any schools that start up in response to the voucher program will not be good enough to attract students from the public schools. If the opponents are correct, then the measure would do little more than give costly subsidies to currently enrolled private school students.

“I don’t see any scenario under which more than a fraction of the students ever transfer out of the public schools,” said Rick Manter, the lead political consultant for the opposition campaign. “Taxpayers are about as likely to see savings from this initiative as they are to see a UFO land in their back yard tomorrow night.”

The initiative’s supporters argue that many private schools would expand to handle the new demand. And they believe that schools would spring up quickly in leased space, setting their tuition at whatever level the Legislature established for the voucher.

“The biggest impediment to there being a quick entry of schools into the market would be the need for them to establish a reputation and attract customers,” said Barulich, who serves as research director for the initiative campaign. “In the inner city, that’s not going to be a problem because almost anything is better than what they’ve got now. In the suburbs, brand name might be more of a factor.”

Barulich said he believes that private schools could, within a decade, capture 40% of school enrollment--up from about 10% today. Under the voucher program, that level of private school enrollment would generate more than $3 billion in annual net savings to taxpayers in operating costs alone. Some or all of that money could be put back into the public schools.

“We think this can happen very quickly,” he said. “As long as the demand is there, the supply is going to come in to fill it.”

That demand, Barulich says, would be driven not only by the creation of a $2,600 voucher but also by the increasingly difficult conditions in public schools, where a flood of new students is expected in this decade with few spare resources to pay for them.

The state’s latest projections show enrollment in primary and secondary schools climbing from about 5.2 million now to 6.6 million by the turn of the century, a 27% increase.

Simply to keep pace with that enrollment growth at today’s rate of spending--with no allowance for inflation or higher per-pupil spending--the state and local contribution to the schools would have to increase from the current $21.8 billion a year to about $27.7 billion in 2000.

At an average of 30 students per class, that growth also is expected to generate demand for 1,600 new schools and 41,900 classrooms--19 new classrooms each day for the next seven years--at a cost to taxpayers of $18 billion, according to the state Department of Education.

“There is a tidal wave of children coming into the schools,” Barulich said. “There is no money, no facilities, no space for those kids. Our view is that the school-choice initiative is the only thing that will keep the public schools from disaster.”

The measure’s opponents counter that the real disaster would be in making the public schools vulnerable to taking all or part of the blow if all the voucher program succeeds in doing is creating a $1-billion-plus subsidy for the private schools.

“In the short run, all this does is add $1 billion in expenses to pay for kids who are already getting a private education,” Manter said. “That does not help public school kids.”

Voucher Savings

The school voucher proposal on the November ballot would carry upfront costs of about $1.3 billion for annual scholarships of at least $2,600 to students already in the private schools. But a Times analysis shows that as students leave the public schools for private ones, the state could save money. This chart compares the cost of a voucher system to the potential savings, based on how many students might leave the public school system.

If 5% of students leave public schools:

Cost of the vouchers: $1.95 billion

Potential savings: $500 million

Guaranteed savings: $800 million

Total savings: $1.3 billion

If 10% of students leave public schools:

Cost of vouchers: $2.6 billion

Potential savings: $1 billion

Guaranteed savings: $1.6 billion

Total savings: $2.6 billion

If 15% of students leave public schools:

Cost of vouchers: $3.3 billion