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09/27/93

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What effect will Prop. 174 have on state, local education funding? No one knows for sure, says new PACE report

STANFORD -- How will Proposition 174, California's school voucher initiative, affect local school districts, should it pass? How about the state's budget - will the proposed measure save money or cost a bundle?

Despite what the measure's proponents and foes argue, nobody knows what fiscal impact the proposed legislation will have, according to a new report issued by Policy Analysis for California Education (PACE), a non- partisan think tank based at the University of California- Berkeley and Stanford University.

In fact, so many issues about the proposed legislation, which goes before voters Nov. 2, are unresolved that subsequent decisions in Sacramento will have as much financial impact as the number of students who may transfer out of the public school system should the measure pass.

"The overall picture is one of uncertainty. There are no clear predictions of what's going to happen. Each camp has plotted out a plausible scenario, but the real outlook is unknown and unknowable," Stanford education Professor Michael Kirst, co- director of PACE, told a press conference at San Francisco's Park Hyatt Hotel Monday, Sept. 27.

While some uncertainty is inherent in every new legislative proposal, said Kirst, "The range here is huge, with some predicting a savings of $6 billion annually, others foreseeing costs increasing by $1.35 billion - with no real scientific basis to predict either way.

"This is an initiative for radical change. If you want radical change, you have to go into the unknown. If you want incremental change, you can hedge your uncertainties a bit.

"Nowhere in the United States have we tried anything of the scale or nature of this initiative - ever. There is no precedent. If I gave everyone [in California] $2,500 to buy a car - no one would know what would happen to the car industry, but we all know something would happen."

Proposition 174, which the report called "the most important education decision since the state's formation," would provide a voucher ("scholarship") to parents of school- aged children. The vouchers could be used at any "scholarship- redeeming" school, whether public, private or parochial. The dollar amount would be at least 50 percent of the public school per pupil expenditures - or about $2,500.

But, the report pointed out, many questions remain unanswered: For example, what happens to the money that might be saved (half the per pupil cost for each child) if students are siphoned from public schools into private schools? It could be used to reinvest in public education. On the other hand, it could be diverted from education altogether and spent elsewhere. It could be returned to voters in a form of tax relief. "It could even be turned into business tax relief - which was a budget priority this year," noted Kirst.

If the funds are not returned to education, vouchers could further erode the education budget - and therefore decrease the amount of the voucher itself in subsequent years.

"Vouchers are tied to public school funding, which would form an interesting lobby" between public and private schools to maintain the former, according to Kirst.

School inequities may worsen

Despite uncertainties, the report said that several fiscal effects are inescapable: The measure will cost the state $1.35 billion over the first two years to cover the 540,000 students already in private schools and currently paying for their own educations who would receive vouchers.

According to the report, this cost could be offset by public school students transferring to private schools in a 2- to-1 ratio - that is, two public school students transferring to private, "voucher redeeming" schools would offset the cost of one private school student immediately benefiting from the voucher. PACE estimates that if 80 percent of current private school students (432,000) attend schools that qualify as "scholarship" schools, about 17 percent of public school students (864,000) would have to transfer to private schools to offset the costs. That would mean tripling private school enrollments over the next two years.

"A million students is a lot of students. Is that outlook likely? I don't know. We've never had subsidized private education before," said Kirst.

Although the measure could save school construction costs - a real boon in California, which has exhausted resources for building new schools despite a burgeoning population - other problems remain: It will magnify existing inequities in school funding by increasing the reliance on property tax. Wealthy districts - such as Malibu, Santa Monica, Woodside, Portola Valley and Palo Alto - could offset financial losses by virtue of their wealthy tax base. Indeed, these "Basic Aid" districts are already independent of the tyranny of state budget cuts. Property-poor districts, however, would suffer disproportionately.

According to the report, Proposition 174 "dilutes the public school minimum per pupil guarantee voted by the electorate in 1989 [i.e., Proposition 98]." Proposition 174 specifies that the voucher amount will be credited against the Proposition 98 spending minimum. As each student uses his $2,500 scholarship from the state and leaves the public school system, $5,200 is removed from the state school funding pool.

"It does not take long to see that, under such an arrangement, the revenue amount provided by Proposition 98 would soon reduce the state obligation to fund public schools," said the report. "The larger the number of transfers to 'scholarship' schools, the faster this Proposition 98 obligation to public school funding declines."

Other questions remain

The PACE study also noted that it was unclear whether the IRS would tax vouchers as "non-traditional income." In any case, said Kirst, they are unlikely to be classified as traditional scholarships.

Although the proposition guarantees that vouchers will not be subject to California taxes, "you cannot amend the IRS code with the California constitution," Kirst quipped.

Will private schools raise their tuition to price out newly eligible students? Will there be a shake-out among private schools, now that families who were struggling to be able to place their children in a private school have more income available? All these questions are among the many variables that may drastically alter the future of California's schoolchildren.

Overall, said Kirst, three major factors will determine how vouchers influence California education:

1) How many students will redeem the vouchers?

2) How many schools will be "scholarship redeeming"?

3) What decisions will the state legislature and governor make to flesh out and implement the ambiguous legislation?

"Will they hold public schools harmless and cushion the blow? Will they authorize more local taxes? Will they raise state taxes themselves?" Kirst asked.

Among the undisputed effects of the legislation is that "more important education decisions than ever before will flow to the state legislature and the governor," said Kirst, thus enhancing the trend for state control of education.

For many, the biggest unanswered question is the one asked at the press conference: Will California's voucher plan help the at-risk kids it was ostensibly designed to assist? Will they begin to have the same educational opportunities as rich kids?

According to Kirst, "That question goes back to uncertainty. Will there be a significant expansion of private schools where these kids live? Or is there a lot of unused capacity in the existing private schools there now?

"Once you subsidize private education, how many entrepreneurs come into the market? Will they open schools in South Central L.A.? You can't just say that there are very few private schools in East Oakland. If the parents there have $2,500, more may open. Nobody knows."

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