Monday, June 22, 2009

Flawed Research: Friedman Tax-Credit Reports

Friedman Tax-Credit Reports Inaccurate and Unsubstantiated

Reports’ conclusions highly suspect, according to new review

EAST LANSING, Mi., June 22, 2009. – A recent series of reports focused on Georgia, Indiana and Montana conclude that programs awarding tax credits to donors funding private school vouchers will reduce government expenditures and make the finance system more efficient. A new review of the reports finds their conclusions highly suspect and sharply criticizes them for presenting unsubstantiated claims and failing to adequately consider short- and long-term costs of such tax-credit programs.

The reports are The Fiscal Impact of Tax-Credit Scholarships in Montana and The Fiscal Impact of Tax-Credit Scholarships in Georgia, and The Fiscal Impact of a Corporate & Individual Tax-Credit Scholarship Program on the State of Indiana. All three are published by the Friedman Foundation, a think tank which advocates free-market approaches to education. The three reports were reviewed for the Think Twice project by Luis Huerta of Teachers College, Columbia University.

Tax-credit voucher programs – sometimes dubbed neovouchers – provide a non-refundable tax credit to individuals or corporations contributing to non-profit corporations, which then distribute the money to students attending private schools. These neovouchers (often called “scholarships” in the state laws) now exist in six states—Arizona, Pennsylvania, Florida, Rhode Island, Iowa, and Georgia—and others, including Indiana and Montana, are considering them.

The three Friedman reports claim that implementing such programs would result in a net financial saving to the states. They base their conclusions, Huerta observes, on assumptions about the sensitivity of public school revenues and expenditures to enrollment declines, as well as assumptions about a pent-up demand for publicly funded private school choice and the nature and degree of supply and demand pressures. Huerta tests all these assumptions and finds them to be largely groundless and frequently at odds with established research.

In fact, Huerta notes that the reports’ use of research is largely confined to work from advocacy groups like the Friedman Foundation itself. He observes that this “insular approach further calls into question the validity of the new reports’ conclusions.” While the report on Indiana offers a “more thoughtful” approach to research, Huerta continues, the literature it cites is poorly used and doesn’t clearly support the report’s estimates and conclusions.

Huerta’s review hits particularly hard on the reports’ failure to consider key factors concerning private school supply and demand if neovoucher programs were to be implemented. Specifically, these factors are crucial to the reports’ analyses, and the review shows them to be highly problematic. Similarly, the reports fail to adequately account for the additional expenditures of a tax-credit program when it subsidizes families who were going to choose a private school anyway, making their expenditure calculations almost worthless.

“Policymakers should be cautioned to look beyond the seductive promises of increased fiscal savings and efficiency, which are unsubstantiated and inaccurately estimated in these reports,” Huerta concludes. “Instead, policymakers should seek more balanced and empirically robust assessments that would allow them to make informed decisions about how to proceed with effective school reform polices.”

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