Providing Comprehensive Educational Opportunity to Low-Income Students. Part 4: What Are the Social and Economic Returns?

Abstract

Approximately half of all New York City public school students who live in families with incomes less than 185% of the federal poverty level (FPL) do not graduate from high school. These dropouts are much less likely to achieve economic self-sufficiency in adulthood. This creates both a fiscal and social burden. Rothstein, Wilder and Allgood (2011) propose a set of publicly funded comprehensive services to supplement academic services that could effectively raise the educational attainment levels of low income children to levels associated with middle class children. This report, the fourth in a five part feries, calculates the fiscal and social impact of raising the attainment levels of these students in order to assess whether the costs of such services are justified by the benefits. Specifically, the report estimates the economic costs and benefits attributable to a single cohort of 37,000 12th grade students from families with incomes below 185% FPL who are currently finishing up in New York City public schools. It calculates the net fiscal contributions by education level per individual. These contributions are tax revenues, minus government expenditures on healthcare, the criminal justice system, welfare programs, and school/college. The report finds that New York City and State combined spend $82,000 (in lifetime present value terms) on each high school dropout on healthcare, criminal justice, welfare, and education while receiving only$45,000 in tax revenues. This results in a deficit of $37,000 for each dropout. In contrast, for students earning a BA or higher degree, the city and state expenditures amount to$55,000 while tax revenues are $143,000, resulting in a balance of$88,000 in favor of the government. The impact for the federal government is also substantial with high school dropouts costing $1,360 when federal expenditures are netted against federal tax revenues, while students earning a BA or higher degree contribute$347,460 in lifetime present value terms. Evidently dropouts create a greater fiscal burden for the state and city than for the federal government, but the federal government gains dramatically more as education levels increase. The economic analysis provided in this report indicates that provision of all support programs in the comprehensive approach outlined by Rothstein, Wilder, and Allgood (2011) would require a significant outlay by state and local governments above and beyond what is currently expended. However, the resulting estimated 9% rate of return on investment compares favorably with existing forms of government debt, suggesting that a feasible strategy would be to finance the costs of a comprehensive support program for low-income children through the issuance of long-term municipal bonds. Philanthropic foundations could also help fund these social investments by providing grants to service providers that would be replaced by public funds if target outcomes were met