Issue Analysis: The Economics of Building a Voucher or ESA Program in Georgia

The economics of vouchers and educational savings accounts (ESAs, also known as educational scholarship accounts) are central to their political success because attracting sufficient political support for such educational choice programs depends at least partially on persuading opponents that these programs will not deprive schools of needed funding for the remaining students.The economic concept at the heart of this dispute is marginal cost. Marginal cost, in the education context, is the additional cost incurred from educating one more student (or the amount expenditures can be reduced if educating one fewer student). If vouchers or ESAs remove funding from a school’s budget at a rate less than the marginal cost, the school district is in a stronger financial position, able to spend more money on the average remaining student.

To examine the financial feasibility of vouchers and education savings accounts in Georgia, a cost function is estimated using data on Georgia’s 159 county school districts.[1] The resulting estimated model allows computation of the marginal cost of educating a student for each district. The resulting marginal-cost estimates are quite high, ranging from a low of $6,241 to a high of $11,851.

These values are then compared to easier-to-compute, and widely reported, figures such as the average variable cost per student and the state funding per pupil by district. Importantly, the marginal cost is higher than both average variable cost and state funding per pupil in almost every district. That finding suggests two easy ways to construct financially viable voucher and ESA programs in Georgia.

This report’s most important finding is, thus, that voucher and ESA programs that provide funding in amounts equal to a district’s state funding per pupil actually raise the district’s financial capacity to educate its remaining students because the programs would remove less money than the district saves by having fewer students to educate. In addition, this report reveals that in all except the smallest districts, vouchers or ESAs could be funded up to the level of average variable cost and leave more than enough money to educate the remaining students at the same expenditure level as before.

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