Panel Paper: The Fiscal Impact of the Milwaukee Parental Choice Program, 1993-2011

Friday, November 9, 2012 : 2:00 PM
Hanover A (Radisson Plaza Lord Baltimore Hotel)

*Names in bold indicate Presenter

Robert Costrell and Anna Jacob, University of Arkansas

This paper examines the fiscal impact of the Milwaukee Parental Choice Program (MPCP) on taxpayers in Milwaukee and the state of Wisconsin, 1993-2011.  It addresses two distinct questions:  1. What is the net impact of the MPCP on state and local public funds?  2. How is the fiscal impact distributed among: a. Milwaukee property taxpayers; b. property taxpayers outside of Milwaukee; c. Wisconsin state taxpayers; d. Milwaukee Public Schools (MPS)

The methodology centers on close examination of the MPCP funding formula and its interaction with the state's two intertwined funding formulas for district schools -- the revenue limit and equalization aid formulas.  The two main findings are:


  1. The net fiscal impact of the MPCP is somewhat sensitive to assumptions, but for most likely scenarios the net impact is positive taxpayer savings.  This is because the size of the voucher is considerably smaller than the per pupil revenues allocated to MPS under the revenue limit formula.   
  2. The distribution of the fiscal impact is highly uneven.  Despite likely net benefits for taxpayers as a whole, Milwaukee property taxpayers have been adversely affected, due to the specific nature of the funding formula adopted for the MPCP. 

The reason benefits are distributed so unevenly is that early in the evolution of the MPCP funding formula, funds for state aid ceased flowing to Milwaukee for voucher students, but about half the voucher expenses continued to be deducted from Milwaukee's aid allotment.  These features, taken alone, reduce the per pupil allocation to MPS.  However, Milwaukee is allowed to offset the voucher deduction from state aid by raising property taxes -- the "choice levy."  Milwaukee almost always exercises this option, to maintain per pupil revenues.  As a result, the MPCP program has had an adverse impact on Milwaukee property taxpayers, despite net benefits to the state's other taxpayers. 

During the recent period of adverse state budgets, the size of the MPCP voucher was cut for the first time and the funding formula for MPCP was modified to address the "funding flaw."  The former measure resulted in higher net fiscal benefits of the MPCP (estimated to exceed $50 million by FY11), but the latter measure fell short of fully addressing the adverse impact on Milwaukee property taxpayers.

The paper presents two methods by which the funding mechanism could be revamped to eliminate the "funding flaw" so that all groups of taxpayers could benefit from the program:  (i) adding MPCP enrollments to the MPS student counts for the funding formulas and fully funding the voucher out of MPS aid, but eliminating the "choice levy;" or (ii) funding the program entirely out of the general fund.  Details on how these reforms could be implemented, as well as pros and cons, are presented.