The High Cost of Maryland's Dropout Rate

Economic & Fiscal Policy, Education

by Justin P. Hauke


SEPTEMBER 30, 2008 pdf PDF VERSION Bookmark and Share

The state of Maryland loses about $193 million in tax revenues each year as a result of the state's growing number of high school dropouts, according to a study released today by the Friedman Foundation for Educational Choice and the Maryland Public Policy Institute.

The study documents the public costs of high school dropouts in Maryland, examining how the state's decreasing graduation rates are materially affecting the state's finances through reduced tax revenues and increased public expenditures. The study was undertaken by Friedman Fellow Justin P. Hauke, a Chicago securities analyst and former economic research analyst at the Federal Reserve Bank at St. Louis.

"The individual consequences of not completing high school, through lower wages and higher unemployment rates are well known," said Robert Enlow, Executive Director of the Friedman Foundation. "This study documents the true costs to society and places a dollar amount, on such costs as increased Medicaid and incarceration costs. The report documents the heavy toll dropouts extract from both state revenues and taxpayers."

"Maryland residents are paying dearly for the state's dropout crisis," said Christopher B. Summers, president of the Maryland Public Policy Institute. "Each year's class of drop outs is costing state taxpayers about $42 million per year, each and every year in increased governmental expenditures and reduced taxes. We really need to begin to get this under control."

"The consequences of our drop out numbers affect all Maryland residents, depressing overall wage and job growth and imposing a fiscal drag on state expenditures associated with increased spending on social programs," he said.

Key findings of the study include:

The study noted that divide between urban and suburban graduation rates in Maryland is the highest in the nation. Although the state's high school graduation rate is above the national average, its urban school districts have suffered from years of decline. In 2007, the Baltimore city school district's graduation rate was only 35 percent, compared to 81.5 percent in Baltimore's suburbs and 76 percent statewide. Among the nation's 100 largest school districts, Baltimore has the 98th lowest graduation rate.

These study's cost estimates include only lost revenue from state taxes, increased Medicaid costs and increased incarceration costs. Because high school dropouts incur many other public costs, the true costs of Maryland's high school dropouts are much higher.

The study also examines how increased competition from private schools could raise public school graduation rates and save Maryland taxpayers millions of dollars each year.

The beneficial effect of private school competition on public schools is large enough that even a modest school choice program could save Maryland taxpayers millions of dollars each year. For example, a 6 percent increase in Maryland's statewide graduation rate would save Maryland taxpayers more than $5 million a year.

To read the full report, click here pdf

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