Methodology for Estimating Fiscal Effects of ESA Programs

ESA programs create a direct cost for taxpayers because taxpayers pay for ESAs. There also is a direct fiscal benefit from students who choose to not enroll in public schools because of the receipt of an ESA.
The net fiscal effect of an ESA program is the difference between savings from switchers and the program’s costs:
Short-Run Variable Cost Savings
Total Cost for ESA Program:

Net Fiscal Effect
Two main factors determine the estimates of the fiscal effects of educational choice programs:
  • 1. The number of students who would have attended public schools without the financial assistance from the educational choice program (switchers), and
  • 2. The education costs directly associated with the switching student that will no longer be spent by the school district (variable costs).

Estimating Short-Run and Long-Run Variable Costs

We use short-run variable cost estimates to generate estimates for short-run fiscal effects. Our approach for estimating short-run variable costs employs school finance data from the National Center for Education Statistics and uses the same accounting methods from Lueken (2018).1 Short-run variable cost estimates comprise three categorical expenditures: Instruction, Instructional Support Services, and Student Support Services. The analysis assumes all other categorical expenditures as fixed. This approach is also more cautious than methods used by other economists.2 In addition, the SCC applies an adjustment to variable cost estimates for students with special needs, discussed in more detail below.
Because a fundamental economic principle maintains that all costs are variable in the long run, the analysis uses the average total per-student cost for public schools to generate estimates for long-run fiscal effects.

Estimating Switcher Rates

Switchers are students who would enroll in a public school without financial assistance from an educational choice program and offset all or part of the ESA program cost. A student who switches from a public school, only because they received an ESA, will generate savings overall if the short-run variable cost exceeds the program cost for that student. Non-switchers are students who would have enrolled in a nonpublic educational setting anyway even without a choice program in place. They represent a fiscal cost equal to the program cost, without any savings.
The overall (effective) switcher rate for a choice program is:
[Number of students in ESA program who are switchers]
÷ [Total number of ESA students]

Effective Switcher Rate
The calculator uses two inputs to determine the program’s effective switcher rate:
  • 1. The user may set the take-up rate for public school students who would participate in the program (all of these students would be considered switchers), and
  • 2. The user may set the take-up rate for nonpublic school students who participate in the program (all of these students would be considered non-switchers).

Short-Run Net Fiscal Effect

The analysis uses estimates of short-run variable costs to evaluate the short-term net fiscal effect of educational choice programs. It is a savings to state taxpayers from no longer having an obligation to support the education of ESA students in public school systems minus the total cost of a choice program (a cost to the state).
The net fiscal impact on local taxpayers and public schools is the estimated reduction in short-run variable costs minus the reduction in revenue for the school district when students leave via the ESA program.
Combined, the overall net fiscal impact for state and local taxpayers equals the short-run variable cost savings from switchers minus the total ESA program cost.
[Short-Run Variable Savings from Switchers]
[Cost of the Choice Program]

Short-Run Net Fiscal Effect on State and Local Taxpayers Combined

Long-Run Net Fiscal Effect

A fundamental economic principle maintains that in the long run, all costs are variable. The long-run fiscal effect of choice programs is estimated by comparing the total per-student cost of educating students in the public school system with the public cost of supporting those students in educational choice programs. That is, the estimated long-run net fiscal effect is the difference between the total cost to educate students in the choice program who would have enrolled in the public school system without financial assistance from the ESA program and the total cost of the choice program.
[Long-Run Variable Savings from Switchers]
[Cost of the Choice Program]

Long-Run Net Fiscal Effect on State and Local Taxpayers Combined
Several years after the creation of a new school choice program, once enrollment patterns steady and local public school district leaders have time to adjust, savings will approach these long-run estimates. Long run estimates reflect all costs such as capital and maintenance costs. These savings could be achieved in the context of a choice program for at least two reasons. First, students who leave public schools via choice programs would reduce the need for school building expansions or creation of new school buildings. Second, choice programs may help avoid some private school closures, therefore avoiding a scenario where the public school system would need additional capital to absorb students from closed schools. Even if these scenarios do not play out in full, the long run fiscal effects will likely be close to the upper bound estimates because the majority of educational costs are operational.

Students with Special Needs

Relative to the general student body, the costs for serving students with special needs can vary dramatically depending on the severity of their disabilities. This creates a unique challenge to estimate fiscal effects for programs that serve special needs students.
To estimate average total per-pupil costs for students with special needs, the analysis applies a factor of 1.91 to the per-pupil current expenditures for all students in the public K–12 school system. This factor is based on a study of educational costs for students with special needs, funded by the U.S. Department of Education. The study was mandated in the 1997 reauthorization of the Individuals with Disabilities Education Act (IDEA).3
The SCC assumes that all students with special needs are switchers.

Educational Costs

Concerns about the fiscal impacts of educational choice programs are usually focused on short-run costs facing public school districts. In the short term, some costs vary completely or partially with enrollment while in the long run all costs are variable. Long run may be used as a time-based concept. When a school gains or loses students, its options are somewhat limited in the immediate term. For example, because school budgets are usually set on an annual basis, they may be limited in how they can respond to enrollment changes midyear. Over time, however, public schools and districts will have more options for them to adapt, such as finding more cost-effective ways to deliver a curriculum or program.
Even over a long period of time, however, options to reduce costs may be limited or unrealistic. In most cases, it doesn’t make sense to hire an additional fulltime teacher when one additional student enrolls. Therefore, long run costs may also relate to the size of changes in student enrollment. The larger an enrollment change, the more opportunities districts will have to adjust costs. For example, a school may open, close, or merge classrooms, or a district may build new buildings or consolidate schools.
One line often used to express concern about the fiscal effects of choice programs is that schools “need to keep the lights on.” That is, because of high fixed costs, educational choice programs will render districts unable to cover their fixed costs without harm to students. If this were true, then it follows that there would be little to no added costs when enrollment increases. Of course, this is not the case. To be sure, some public school officials that levy these arguments against choice programs will also request more funding because they anticipate enrollment growth—thus, they either believe that they have high fixed costs or high variable costs. Both cannot be true.

Data Sources

  • Public school enrollment: U.S. Department of Education, National Center for Education Statistics, Common Core of Data (CCD), "State Nonfiscal Public Elementary/Secondary Education Survey", 2021-22 v.1a.
  • Public school finance data: U.S. Department of Education, National Center for Education Statistics, Common Core of Data (CCD), "National Public Education Financial Survey (State Fiscal)", 2019-20 (FY 2020) v.1a; "School District Finance Survey (F-33)", 2019-20 (FY 2020) v.1a; "State Nonfiscal Public Elementary/Secondary Education Survey", 2021-22 v.1a.
  • Special education enrollment: U.S. Department of Education, IDEA Section 618 State Part B Child Count and Educational Environments, 2021-22,
  • Private school enrollment: U.S. Department of Education, National Center for Education Statistics, Private School Universe Survey (PSS), 2019–20.
  • Household income by presence of children: U.S. Census Bureau, 2021 American Community Survey 1-Year Estimates
  • Homeschool counts: data provided by Angela Watson at John Hopkins University

1 Martin F. Lueken (2018), The Fiscal Effects of TaxCredit Scholarship Programs in the United States, Journal of School Choice, 12(2), pp.181–215,
2 Benjamin Scafidi, The Fiscal Effects of School Choice Programs on Public School Districts, Friedman Foundation for Educational Choice, retrieved from EdChoice website:; Robert Bifulco and Randall Reback (2014), Fiscal Impacts of Charter Schools: Lessons from New York, Education Finance and Policy 9(1), pp. 86–107,; Corey A. DeAngelis and Julie R. Trivitt (2016). Squeezing the Public School Districts: The Fiscal Effects of Eliminating the Louisiana Scholarship Program (EDRE Working Paper 2016- 10). Retrieved from University of Arkansas Department of Education Reform website:
3 Jay G. Chambers, Jamie Shkolnik, and Maria Perez (2003), Total Expenditures for Students with Disabilities, 1999- 2000: Spending Variation by Disability [Special Education Expenditure Project (SEEP), Report 5]: retrieved from American Institutes for Research website: https://www.air. org/sites/default/files/SEEP5-Total-Expenditures.pdf