Sliding scale fees for pre-k

An expanded pre-k program may provide both greater benefits for a state’s economy, and be more politically sustainable, if this expanded program provides services not only to the poor but to the middle class. On the other hand, free preschool for children from upper income families may have lower economic development benefits, as many of these children are already in high-quality preschool programs paid for by their parents. Free preschool for children from upper income families may also have political costs, as some voters may resent such subsidies.

One compromise solution is to expand pre-k as a universal program, but to charge some fees to parents from upper income families. This will reduce the net taxpayer cost of the universal pre-k program, and will reduce subsidies to upper income families that may be politically damaging.

I should mention that this issue of “fees” is separate from the issue of whether pre-k is best delivered by public schools or by private preschools. Both a “free universal” program and a “fee-charging universal” program could have varying combinations of public versus private delivery.

Charging fees faces some issues. First, any fee system will have some additional administrative costs. A fee that varies with family income will have even more administrative costs. The extent of these extra administrative costs depends upon whether the program insists that the fee always reflect an accurate measure of the family’s current economic status.  For example, how is family income verified? How often must family income be re-verified?

Fees may also have some stigma costs.  Depending upon how fees are administered, some families may feel that the sliding scale fees identify the program as being only for disadvantaged families.  This might reduce enrollment by some disadvantaged and middle class families, even if these families do not pay any fees. If these fees reduce enrollment by disadvantaged and middle class families, then the fees will reduce the net benefits of the expanded preschool program for a state’s economy.

In chapter 8 of Investing in Kids, I did some simulations of the effects of charging some fees for a universal pre-k program. The fees are assumed to be charged only to children from families in the top 40% of the U.S. income distribution, in households with over $62,000 in income. The assumed fee is half the average costs per child of the preschool program, which still makes the program quite competitive with typical preschool and child care costs.

Compared to a free universal pre-k program, this sliding scale fee universal pre-k program reduces overall program costs by about 10%. The fees cause some upper class families to not use the universal program. The fees also reduce costs to taxpayers of the program by about one-fourth compared to a free universal pre-k program.

On the other hand, the fees do have significant administrative costs.  Overall, the net economic development benefits for a state economy from a sliding scale fee universal pre-k program, versus a free universal pre-k program, are about the same.

The main effect of sliding scale fees is to redistribute the net benefits of a universal pre-k program within the top 40% of the U.S. income distribution. Upper income households without children benefit more from a sliding scale fee vs. free universal program, because of the lower taxpayer costs of the sliding scale fee program.  Upper income households with children benefit more from a free universal pre-k program than from a sliding scale fee program.

Overall, it seems unclear whether sliding-scale fees make a universal pre-k program easier to enact and sustain. Whether sliding scale fees are a political plus depend on political attitudes among both pre-k users and non-users in upper-class income groups.  Fees are not an obvious magical solution to making universal pre-k more politically feasible. But sliding scale fees may be politically helpful in some circumstances. From an economic perspective, charging sliding-scale fees for the upper class is unlikely to have big enough net effects in reducing costs, once one accounts for administrative costs, for there to be big economic gains from charging fees.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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