Dollars and Sense - Part II by J.M. Holland

What are the financial benefits of Voluntary Pre-K to society?    

In my last post I discussed the cost of high quality pre-k and creative ways states have found to meet those costs. In this post I look at the financial benefits of VPK to society, especially in terms of return on investment. Many policy makers understand the benefit of pre-k to society in economic terms, but it is important to remember that for every statistic, there is a person, whether that person is graduating from college or being arrested, lives are at stake.

Investments in preschool far out pace its cost, although most societal benefits would not begin until preschoolers become young adults. The estimates for the cost benefit to a state for the return on investment for each $1 spent on preschool ranges from $3 for every dollar to $12 for every dollar. Belfield, Nores, Barnett, and Schweinhart (2006) found in a study of the Perry Preschool study of Head Start students after 40 years:

The treatment group obtains significantly higher earnings. For the general public, higher tax revenues, lower criminal justice system expenditures, and lower welfare payments easily outweigh program costs; they repay $12.90 for every $1 invested. However, program gains come mainly from reduced crime by males. (p. 162)

Currently, Virginia has a targeted approach to preschool. The Virginia Preschool Initiative was established to provide access to high quality preschool for at-risk students around the state. While providing at-risk students high quality preschool services seems constitutionally necessary (Boylan, 2007), there doesn’t seem to be as much convincing evidence for public support of voluntary universal pre-k. However, the state does have a financial obligation to provide access to high quality preschool education to all students. Rob Grunewald, economic analyst at the Federal Reserve Bank of Minneapolis, has proposed that “rather than using financial incentives to lure companies or expensive projects such as government subsidized ball parks, the Minneapolis Fed has pushed early childhood development as a state economic development tool.” He went on to say, “The future productivity of the economy is going to depend on experiences young children have today,” (Nash, 2005)

Funding voluntary universal pre-k is an investment that does not pay off immediately. In 2001 Janet Currie did a cost-benefit analysis for 1000 children in a part-day, part-year Head Start program for a period of two years.  Head Start is not a universal approach, which could realize savings due to expansion to scale. A Head Start classroom is also more expensive than a VUP classroom because of the comprehensive services Head Start provides such as medical tracking, family supports, and transportation.  This study provides some insight into how funding preschool can pay off in short term, mid-term, and long-term benefits.

Human benefit	Financial Benefit
Short-term benefit “Improved health and nutrition, prevention of abuse and neglect, benefits to other members of family including parents and siblings" (Curie, 2001)	$1,435 per child per year ($2.11 X 20 hours per cost of "mediocre" child care) week X 34 weeks per year). Total benefit for 1000 children = $2,801,667
Mid-term benefits Special education – Rate of special education is 12% and reduced by approximately 24% 120 children x .24 = 28 children	28 fewer children in special education system Special education costs $8000 year more than regular education. Total cost savings $224,0000. Then multiply that times 13 years.
Grade retention – Rate of grade retention is 20% which is reduced by approximately 28% 200 children x .28 = 56 children	56 fewer children repeat a grade which saves the state = $336,000
Long-term benefits These benefits include graduating high school, higher wages, reduced teen pregnancy, less crime	It is impossible to get close enough to a financial number for these benefits for it to be meaningful. The Perry Preschool has attempted to do this with skewed data due to participant selection and long-term reporting difficulties (drop out of study). Currently plans are in place to track the long-term benefits of Head Start by the Department of Health and Human Services (Currie, 2001)

Source: J. Currie, p.21, Journal of Economic Perspectives, Spring 2001.

 

The key is human capital. While investments in luring businesses can create large financial gains for a state in the short term, these benefits are likely to plateau after several years (Bartik, 2006). However, after an initial short-term increase in jobs by creating preschool classrooms, a time release earnings boom begins to tick when a state invests in VUP. Bartik also suggested that the return to the state may be less than the return to the nation because 2/3 of state program participants are likely to leave the state in the 12 years that it would take to realize the return on investment. But this benefit to the nation, in terms of higher income and less stress on social services also suggests a stronger federal role in funding preschool initiatives.

What does this all mean?

Voluntary Pre-K makes financial and common sense.