[US Patriot]

Errors in Rand's cost-benefit analysis caused severe over-estimation of preschool benefits

Los Angeles (May 31, 2006) - A Rand Corporation study that claims universal preschool will deliver $2.62 in benefits for every dollar spent by California taxpayers has been thoroughly discredited by two San Jose State University economics professors who show the Rand preschool study "cherry-picked"data, based its claims on " unbelievable assumptions that bias the results," and omitted numerous costs and other factors that significantly lower the alleged benefits of universal preschool.

The review of the Rand report, published by the Reason Foundation, uses Rand's own data and methodology and finds that California would actually lose 25 to 30 cents for every dollar spent on universal preschool when just a few of the Rand report's most glaring mistakes are corrected. And the Reason study concludes those losses would be even greater if many of the proposed preschool program's costs, wrongly excluded from Rand's calculations, were included in the analysis.

"On the surface the Rand study looks like a credible, thoroughly research document," said Chris Cardiff, who teaches economics at San Jose State University and is co-author of the analysis of Rand's universal preschool study. "But upon review we found the Rand study fails to pass even the basic benchmarks of what can be considered a reasonable economic analysis."

"Nearly every time there is a choice on how to calculate the benefits of preschool, Rand chooses the rosiest - and most unlikely - scenario," stated Edward Stringham, Ph.D., assistant professor of economics at San Jose State and co-author of the review. "When it comes to the costs of universal preschool, Rand completely ignores some costs and dramatically underestimates others. Frankly, if one of my students turned in Rand's cost-benefit analysis on preschool it would get an 'F.'"

Reason's examination of the Rand report discovers that Rand offers no real evidence showing how or why upper- and middle-income children who already attend preschool would benefit simply by moving from their current private preschools to government-run preschools under the universal preschool program. The Rand study actually cites evidence to the contrary, showing that middle- and upper-income kids get no long-term gain from preschool participation. And yet, despite this evidence, when conducting its cost-benefit analysis Rand curiously, and wrongly, assumes the opposite - projecting that middle- and upper-income students would in fact somehow benefit from California's proposed universal preschool program.

The Reason study shows that by using all of Rand's calculations and assumptions, ignoring how overly optimistic many are, and simply eliminating upper- and middle-class children from Rand's societal benefits forecast, the alleged benefits of universal preschool plummet from $2.62 for every dollar spent to $1.95 for every dollar spent.

Likewise, the Rand study claims that low-income students who already attend government-run preschools will suddenly receive an extraordinary boost in the quality of their education when they are in the same government-run preschools under the universal preschool plan, presumably because the teachers would be required to have bachelor's degrees. However, the Reason Foundation study finds that if we take a much more realistic approach and assume that government-run preschools under the universal preschool program would produce results similar to those of today's government-run preschools, the supposed benefits nose-dive even further.

When the benefits to low-income children who already attend government-run preschools are sensibly reduced while using the rest of Rand's analysis, the benefits fall to 82 cents for every dollar invested - meaning Californian taxpayers actually lose 18 cents on every dollar they invest in universal preschool.

The benefits plunge even more when the San Jose State professors remove Rand's "fudged" numbers from the cost-benefit projections. At one point, Rand acknowledges some kids would go on to earn more money and pay more taxes even if they never attended preschool. Thus, in a credible cost-benefit analysis, 25 percent of the earnings and taxes paid are not due to preschool. However, after specifically noting this fact, Rand concludes that some mysterious unquantified benefits should cancel out this recommended 25 percent reduction. And so, Rand actually throws an extra 25 percent worth of unquantified benefits into its calculations.

If this "fudged" 25 percent is removed, the benefits of universal preschool - using RAND's own approach - would fall to 71 cents for every dollar invested in preschool - a loss of 29 cents on every dollar for California taxpayers.

The Reason study finds several other major problems and faulty assumptions in the Rand report as well. The Rand study:

• Unreliably speculates about universal preschool benefits based on very small-scale studies;
• Ignores strong evidence from major studies that bring their conclusions into doubt;
• Underestimates the costs of creating a whole new state preschool bureaucracy;
• Significantly underestimates the economic consequences of increasing taxes in California;
• Fails to consider the existing K-12 teacher shortage;
• Fails to consider the impact a new statewide preschool program would have on teacher salaries;
• And ignores many intangible or difficult to measure costs related to universal preschool.

"It turns out the emperor has no clothes," said Lisa Snell, director of education at Reason Foundation and the review's project director. "The oft-cited Rand study doesn't stand up to basic scrutiny and universal preschool can't deliver on the overly optimistic promises that Rand and others have made. Instead of spending billions each year and naively hoping universal preschool will deliver a miracle, we need to fix our state's broken educational system."

Full Report Online

The full study, An Assessment of Rand Corporation's Analysis and Proposals for California. is a compilation of Reason's universal preschool resources, including op-eds published by The Wall Street Journal, San Francisco Chronicle, and others.

About Reason

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason produces respected public policy research on a variety of issues and publishes the critically acclaimed monthly magazine, Reason. For more information, please visit www.reason.org.

Contacts

Edward Stringham, Ph.D., San Jose State University, (408) 924-5419
Chris Cardiff, San Jose State University, (408) 924-1369
Lisa Snell, Director of Education, Reason Foundation, (951) 218-1171
Chris Mitchell, Media Relations, Reason Foundation, (310) 367-6109