A newly published study by three well known researchers at Duke (Clara Muschkin, Helen Ladd, and Ken Dodge) finds that North Carolina’s early childhood programs significantly reduce special education placements at grade 3.

The programs examined are More at Four, which funded preschool at age 4, and Smart Start, which funded a variety of child care services and early education quality improvements from birth to age 5. The Duke study found that at typical funding levels, More at Four reduces special education placements at third grade by about one-third, and Smart Start reduces third grade special education placements by about 10%. These effects are large because special education placements are so expensive.

The study builds on previous work by Duke researchers examining the effects of North Carolina’s early education programs on student test scores. This research relies on a natural experiment: North Carolina’s early childhood education programs were rolled out to different North Carolina counties at different times and with different per-child funding levels and trends over time.

The research essentially examines how differential county trends in per-child funding are associated with different county trends in test scores and special education placements.  The rationale is that it seems plausible that such correlations reflect true causal effects. Why would test scores increase in a county, and special education placements decline, the appropriate number of years after early education funding increased, other than a true causal effect of the funding increase? Perhaps there are some other unobserved changes in the county that are responsible, but this seems less likely than the hypothesis that the early education funding is driving the improvements.

Of particular interest is how the program costs compare with the likely special education cost savings. This is of interest because one political problem with early childhood programs is how to get political support for funding these programs when many of the benefits, such as increased adult earnings, and reduced adult crime, are very long-term, and many of these long-term benefits do not necessarily accrue to government budgets. From a narrow government finance standpoint, and from the perspective of politicians facing short-term budget issues, early childhood education investments would be more attractive if they could offer shorter-term budget savings.

If one assumes that the special education cost savings found at third grade persist throughout K-12, then these results imply that the present value of special education cost savings exceed the present value of program costs, for both More at Four and Smart Start. For More at Four, the special education cost savings are 346% of the program costs. For Smart Start, the special education cost savings are 102% of the program costs.

(Note on methodology: I assumed the dollar cost savings estimated in Muschkin et al were the same for all 13 years from kindergarten through 12^th grade, and used their dollar figures for annual costs of the two programs. All figures were discounted using a 3% real discount rate to a present value as of age 5 (kindergarten). )

These results should be encouraging to efforts around the country, most notably in Utah, to set up innovative financing plans under which special education cost savings are used to finance preschool programs. The previous research on the magnitude of special education cost savings versus preschool program costs is mixed, with some studies suggesting that special education cost savings will be more than double program costs, while other studies suggest special education cost savings will be about half of program costs.

The results should also be encouraging to advocates of comprehensive programs to improve child care birth to age 5. Child care is expensive, so it is hard for child care policies to show quite as high a benefit-cost ratio as less intense interventions such as pre-K. But the latest results from Smart Start suggest that even if child care improvements are expensive, they may cover their fiscal costs within the child’s K-12 educational career.

A final note on this study. The researchers found that Smart Start had much greater benefits for more disadvantaged children, from families with less maternal education, whereas the benefits of the More at Four program did not vary significantly with maternal education.  This is consistent with other research that finds that preschool tends to have more universal benefits, whereas child care and parenting initiatives tend to have more income-focused benefits. On the one hand, this makes preschool more politically attractive to more voters. On the other hand, if we want to make dramatic differences to the problems the U.S. faces with increased income inequality, addressing child care and parenting should be an important part of our national economic strategy.