Funding Education

Professor Jane Leuthold

Department of Economics

University of Illinois

Agenda for today ...

Education in Illinois State vs local responsibilities for funding

education School vouchers What do you think?

School funding in Illinois

Educationspending

Illinois US Average

Per capita $928 $1,063

Per $1,000 $53.01 $65.11

Rank 39

Source: Facts and Figures on Government Finance, TaxFoundation, 1992.

Problems in Illinois school funding

Illinois relies heavily on the property tax to fund its schools– unpopular tax– results in wide disparities in school spending

across districts

Governor Edgar’s proposal

Governor Edgar unsuccessfully proposed more State support for education in return for lower property taxes. Can the theory of positive externalities help us decidethe correct balance between state andlocal support of education?

Geographical spillovers from primary and secondary education in Urbana

URBANAUrbanaIllinoisUSWorld

Education in Chicago

Chicago’s schools are ranked lowest in student achievement among the country’s 47 largest school district.

The dropout rate exceeds 65% in some high schools.

More than half of Chicago high school graduates read only at a grade school level.

Mayor Daley’s plan In May, 1995, the State Legislature gave Mayor

Daley managerial control over the city’s schools, their unions and their $3 billion budget.

Mayor’s actions– took over management of the schools– abolished 1,700 staff positions to give teachers a 4%

raise and bring budget into balance– initiated a capital spending plan– has until 1999 to make it work. Is it working?

Education vouchers

Government creates vouchers with a given value and distributes (or sells) them to parents.

Parents can use the voucher toward the payment of tuition at the school of their choice.

Tuition Voucher $3,000

Effect of voucher

MSBMSC

MSC=SMPB=D

MSB=D+Voucher

Voucher=Spillover benefit

Q Q* Enrollment

P

P*

Role playing

Select one of the following interest groups and argue either for or against a voucher plan for funding elementary and secondary education in Illinois:

ParentsTeachersStudents

EmployersSchool administrators

Some benefits of vouchers

Competition would provide an incentive to improve the quality of schools

Parents would become more involved in their child’s education

Vouchers might help to equalize education resources across jurisdictions

Some of the problems

Low income families might not be able to afford the extra tuition or transportation costs not covered by the vouchers

Vouchers won’t increase choice in communities with only one school

Schools may choose to locate in the richer communities

Vouchers for college?

Vouchers are most often proposed for funding elementary and secondary education. Would you support a plan for funding college education with a voucher system? How would it work? What would be the benefits and costs?

Vouchers for college?

MSBMSC

MSC=SMPB=D

MSB=D+Voucher

Voucher=$2,000

Q* College enrollment

$3,000

$5,000

Issue in the news

Besides asking how much education should be provided and how it should be funded, we might also ask for whom should education be provided. This is a central question in the issue being discussed in Champaign: controlled choice. Under this plan, students will be able to choose which public school to attend, with controls on the proportion of minorities at each school. What are the economic issues?

Next time ...

Theory of Public GoodsText, Ch 5 (117-126)