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Routing 
Historically, elementary and secondary edu-cation has been the largest item in state budgets.During the past three decades, state spending onpublic education has grown both in terms of rev-enues spent per pupil and as a percentage of totalpersonal income. Spending on K–12 education isexpected to continue to rise during the next few years, mainly because of the increased number of teachers and other school personnel that will beneeded to meet increased enrollment.In view of the large share of state budgetsdevoted to public education and the cost increas-es expected in the future, it is appropriate to askhow state policymakers might reduce the rate of growth of local and state spending on education.One of the most promising means for doing so isschool choice. To demonstrate the potentialimpact of school choice on state budgets, thispaper draws from legislative and independentevaluations of the fiscal effects of such programsin the states that have enacted or are contem-plating enacting them.Results from existing programs in Arizona,Milwaukee, Cleveland, Florida, Pennsylvania,Maine, and Vermont indicate that school choicemakes fiscal sense. In addition, analyses of pro-posed school choice programs in Utah, SouthCarolina, New Hampshire, Baltimore, and Virginia conclude that those programs wouldsave money and give an idea of the savings thatcould result from similar programs in otherstates.Thus far, much of the debate over schoolchoice has focused on the educational benefits itcould bring. It can bring significant fiscal bene-fits as well.
Saving Money and Improving Education
 How School Choice Can Help States Reduce Education Costs
by David Salisbury 
_____________________________________________________________________________________________________
 David Salisbury is director of the Center for Educational Freedom at the Cato Institute and coeditor of 
What America Can Learn from School Choice in Other Countries
.
Executive Summary 
No. 551October 4, 2005
 
Education and StateBudgets
Historically, spending on elementary andsecondary education has consumed the largestshare of state budgets. In 2004 spending on K-12 education accounted for nearly 22 percentof state budgets, and some states spend 25 per-cent or more on education (Table 1).
1
Employ-ment in public education is by far the largestcomponent of state and local government; itaccounts for nearly three in five jobs at the locallevel and close to half (45 percent) at the statelevel.
2
The large portion of taxpayer dollars andemployment allocated to education suggeststhat the area deserves intense scrutiny as statelegislatures address the challenges in balancingtheir budgets.
3
In spite of rhetoric to the contrary, spendingon education has continually increased both interms of revenues spent per pupil and as a per-centage of total personal income. Figure 1shows the growth in average expenditures perpupil between 1965 and 2001. Between 1985and 1990 expenditures per pupil grew by 14percent. After a brief leveling off, they contin-ued to grow through the 1990s. Between 1995and 2001 per pupil expenditures rose 15 per-cent to $8,992.
4
 Another indicator of the rising cost of educa-tion is the ratio of local and state spending oneducation to total personal income. Between
2
The large portionof taxpayerdollars allocatedto educationdeserves intensescrutiny as statelegislaturesaddress thechallenges inbalancing theirbudgets.
Table 1Percentage of State Budgets Spent on K-12 Education, 2003
10%
–15.9%16%–20.9%21%–25.9%26%–30.9%31%–40%West Virginia12.5Rhode Island16.0Oklahoma21.8Minnesota26.4Michigan31.5Connecticut13.8Nebraska16.1Illinois22.3Idaho26.6Vermont38.0Wyoming14.4Tennessee16.4New Mexico22.7Georgia26.9Oregon15.1Virginia16.9New Jersey22.7N. Hampshire27.5Alaska15.5Arkansas17.3Alabama23.1Texas28.8South Dakota15.5North Dakota17.5Colorado23.4Utah30.5Maine17.7N. Carolina23.4Maryland18.1Washington23.6Pennsylvania18.1California24.0South Carolina18.2Delaware24.7Iowa18.3Indiana24.8Wisconsin18.3Kansas24.9Massachusetts18.4Missouri25.0Nevada18.6Arizona18.8Ohio19.0Montana19.1Kentucky19.2Mississippi19.8Louisiana20.0Hawaii20.2New York20.3Florida20.4
Source: National Association of State Budget Officers,
2003 State Expenditure Report 
(Washington: NationalAssociation of State Budget Officers, 2004), Table 8, http://www.nasbo.org/Publications/PDFs/2003ExpendReport.pdf.
 
1950 and 1999 public revenue spent on elemen-tary and secondary education as a percentage of personal income grew from about 2.3 percent to4.5 percent. Except for a period in the early andmid-1970s, when the percentage of total per-sonal income going to education peaked atabout 5 percent, parents and other taxpayershave been spending a larger share of theirincome on public education than they used to.
5
Interestingly, the sources of public schoolrevenue have shifted since 1970. Federal fund-ing rose from 8 percent to nearly 10 percent in1978 and since has declined to just slightly more than 7 percent. As shown in Figure 2, dur-ing the same period state government replacedlocal government as the principal fundingsource for schools. In 1970 local sources pro- vided 52 percent of school funding while thestate provided 40 percent. In 2001–02 the fig-ures were almost reversed.
6
That shift hasplaced increased fiscal stress on state budgets.
Reasons for the RisingCost of Education
Explanations for the cost increases in pub-lic education generally relate to three factors:increase in the number of employees in rela-tion to student enrollment, artificially highlabor costs, and patterns of teacher retention.
Increase in Number of Employees inRelation to Student Enrollment
Public education has undergone explosiveemployment growth, making it America’sthird-largest growth industry throughout the1990s. During the 10-year period between1988 and 1998, public education expandedthe number of its employees by 23.7 percent,exceeding the 20.7 percent growth rate for theoverall private economy. During the sameperiod, only employment in health servicesand business services grew more than employ-ment in public education.
7
During the past 20 years, the rate of employment growth in public education hasbeen more than twice the rate of growth inthe number of students.
8
 As shown in Figure3, between 1979 and 2000 student enroll-ment grew by 13 percent. During the sameperiod the total number of school employeesgrew by 61 percent, and the number of teach-ers grew by 35 percent. Nationally, publicschools now have about 1 employee for every 8.1 students,
9
and teachers make up only 40
3
During the past20 years, the rateof employmentgrowth in publiceducation hasbeen more thantwice the rate of growth in thenumber of students.
$3,000$4,000$5,000$6,000$7,000$8,000$9,000$10,0001965196919731977198119851989199319972001$8,992
Figure 1Average Expenditures perPupil (forfall enrollment)
Source:
 Digest of Education Statistics 2003
, Table 166.
School Year
ConstantDollars
of 00

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