Fiscal Policy

The Real Drain on Education Spending

Teachers picket at Sullivan High School on the second day of a strike in Chicago, Ill., October 18, 2019. (John Gress/Reuters)
Employee benefits — not school-choice programs — are consuming an increasingly larger share of the education-funding pie in every state.

As public-school battles over masks, vaccinations, and critical race theory continue, one thing is for certain this year: The demand for school choice will be stronger than ever. Yet misconceptions about school-choice programs draining funding from public schools still abound. As students head back to the classroom and state legislators get back to session this fall, it’s critical we understand where education dollars are really going.

The reality is that spending on school-choice programs pales in comparison to recent increases in employee- and retiree-benefit costs for education systems across the country. Today, state spending on school-choice programs such as vouchers, education savings accounts, and tax-credit scholarships accounts for less than 0.4 percent of total U.S. K–12 public-education expenditures.

To put this in perspective, if school choice were defunded in, say, Maryland, Utah, and Mississippi, the states’ savings could boost public-school funding by less than $10 per student in each state — and that’s before accounting for the costs of absorbing private-school students back into district schools. Even Florida, the nation’s school-choice bellwether, could save only an extra $405 per student if choice programs were cut — a small fraction of what it spends on public schools each year.

The rampant fearmongering about school-choice programs operating at the expense of public education is entirely baseless. If anything, these programs are underfunded, considering their track record of improving educational attainment, parent satisfaction, and test scores.

According to inflation-adjusted U.S. Census Bureau data, per-pupil K–12 revenue nationwide increased by nearly 24 percent between 2002 and 2019, with all but two states growing their education budgets. Some states with choice programs — such as New Hampshire, Pennsylvania, and Illinois — saw spending bumps of around 50 percent as the U.S. per-pupil average rose to $15,656.

So, if school choice isn’t draining education dollars — and public-school spending was at record levels even before a federal windfall of nearly $200 billion for COVID-19 relief — where exactly is all of the money going?

A big culprit is employee-benefit costs, which are consuming an increasingly larger share of the funding pie in every state. Between 2002 and 2019 real spending on benefits for instructional employees increased by more than 75 percent per pupil on average. This category includes health insurance and other expenditures but is driven primarily by unfunded teacher-pension liabilities. That cost growth ranged from a low of 3 percent in Wisconsin to over 170 percent in Hawaii, Pennsylvania, and Illinois.

Thus, one-third of the per-pupil spending increase that we’ve witnessed over the last two decades is now being consumed by a single line item that does little to close achievement gaps or reward teachers. Spending on instructional benefits now totals $2,206 per pupil — or about 14 cents of every education dollar spent in the U.S.

It’s obvious that state policy-makers must act with urgency to shore up teacher pension plans with growing unfunded pension liabilities, which are commonly referred to as pension debt. Unfunded pension liabilities are caused by several factors such governments forgoing yearly pension payments, stock-market fluctuations, and bad pension-plan assumptions. But pension benefits are constitutionally protected, and the bill for these benefits will be due someday. Like all debt with high interest rates, the larger these unfunded liabilities grow, the more expensive the price tag for teacher benefits gets. School-choice advocates ought to be concerned, too, given that their programs are often used as a scapegoat to mask this fiscal crisis. A closer examination of the facts could help them make the case to state legislators.

The reality is that the increases in benefits have dramatically outpaced spending on school-choice programs in all but three of 27 states with modern school-choice programs.

Take Illinois, which has increased benefits spending from $1,318 per pupil to $3,622 per student yet spends only a paltry $27 per student on school choice. Similarly, Louisiana increased benefits spending by about $931 per student, with school choice now consuming only $77 per student. In Arizona, benefits grew by $393 per student, while it spends about $276 per student on school choice.

But here’s the big takeaway: If school-choice states had maintained benefits at inflation-adjusted 2002 per-pupil levels, they would now be spending an estimated $17.8 billion less. Total U.S. spending on school choice is only about $2.6 billion annually — six times less than the increase in benefits expenditures.

The elephant in the room is that spending on benefits, not school choice, is draining funds from America’s classrooms. State legislators need to do more to address ballooning pension debt and to give families more options.

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Colin Powell, R.I.P.

Colin Powell, R.I.P.

We had substantial disagreements but recognize that he will be remembered for a long, consequential career of service to a country that he loved.