1. Funding Education Professor Jane Leuthold Department of Economics University of Illinois

2. Agenda for today... u Education in Illinois u State vs local responsibilities for funding education u School vouchers u What do you think?

3. School funding in Illinois Source: Facts and Figures on Government Finance, Tax Foundation, 1992.

4. Problems in Illinois school funding u Illinois relies heavily on the property tax to fund its schools –unpopular tax – results in wide disparities in school spending across districts

5. 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 decide the correct balance between state and local support of education?

6. Geographical spillovers from primary and secondary education in Urbana URBANA

7. Education in Chicago u Chicago’s schools are ranked lowest in student achievement among the country’s 47 largest school district. u The dropout rate exceeds 65% in some high schools. u More than half of Chicago high school graduates read only at a grade school level.

8. Mayor Daley’s plan u In May, 1995, the State Legislature gave Mayor Daley managerial control over the city’s schools, their unions and their $3 billion budget. u 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?

9. Education vouchers u Government creates vouchers with a given value and distributes (or sells) them to parents. u Parents can use the voucher toward the payment of tuition at the school of their choice. Tuition Voucher $3,000

10. Effect of voucher MSB MSC MSC=S MPB=D MSB=D+Voucher Voucher=Spillover benefit Q Q* Enrollment P P*

11. 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: Parents Teachers Students Employers School administrators

12. Some benefits of vouchers u Competition would provide an incentive to improve the quality of schools u Parents would become more involved in their child’s education u Vouchers might help to equalize education resources across jurisdictions

13. Some of the problems u Low income families might not be able to afford the extra tuition or transportation costs not covered by the vouchers u Vouchers won’t increase choice in communities with only one school u Schools may choose to locate in the richer communities

14. 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?

15. Vouchers for college? MSB MSC MSC=S MPB=D MSB=D+Voucher Voucher=$2,000 Q* College enrollment $3,000 $5,000

16. 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?

17. Next time... Theory of Public Goods Text, Ch 5 (117-126)