by (in alphabetical order) John Garrett Clawson, Cassie Davis, Reynaldo De La Garza, Katie Floyd , Sarah Pollock

Supervisor: Paul von Hippel

Started: September 6, 2016. Last updated: November 8, 2016

Definition

Education Savings Accounts (ESAs) are a /wiki/spaces/edpolicy/pages/27033626 mechanism that puts state funding for education expenses in the hands of parents. Funds are calculated based on the amount the state would have spent on a given student in their public school. That money is placed in a debit account, from which parents can access and use the funds for a variety of public and private education services.

In the 2015 Texas legislative session, SB 1178 outlined a proposed ESA program that failed to pass in the House Committee on Public Education.  In 2016, the 85th Texas Senate was tasked with investigating the academic success and fiscal impact of similar programs in other states, including Arizona, Mississippi, Nevada, Florida and Tennessee (Patrick, 2016). While these programs have different names from state to state, the fundamental features are essentially the same.

ESAs share several programmatic characteristics with school voucher program. The primary distinction is that vouchers can only be used for tuition, while ESAs can be used for a variety of educational expenses. Another distinction is that vouchers transfer tuition from the government to the student's chosen school, while ESA funds are controlled by parents through a government-funded debit card. Consequently, many of those that support the school voucher concept support ESA initiatives as well. Those that oppose such voucher proposals are also likely to reject ESA programs. 

How ESAs Work

While no ESA program currently exists in Texas, the 2015 bill SB 1178 describes several program features that may be included in later bills.

Parents who register for the proposed program would receive a debit card with funds that may be applied to educational expenses. The office of the Texas Commissioner would be in charge of establishing and managing funds to be distributed for approved educational-related expenses for eligible students. The debit card would be funded with 80% of the amount that would have been allocated to the student in the school district he/she would have otherwise attended. Students with disabilities or “educational disadvantages” would receive the full amount (100%) that would have been allocated to the school district that they would have otherwise attended. A third party would assess applications to determine the level of funding for which each student was eligible. The amount allocated per student is similar to the amount allocated by ESA programs in other states. For example, Arizona allocates 90% of the amount that would have gone to a public school for a given student (FN SB 1363, 2013), Nevada allocates up to 90% (SB 302, 2015), Tennessee allocates 100% (SB 431, 2015), and Florida and Mississippi allocate fixed amounts ($9,000 and $6,500) that are comparable to those states' per student public education spending (Florida SB 850, 2014; Mississippi SB 2695, 2015; the Mississippi amount is legislated to increase with per pupil public school spending).

To sign up for the program proposed in Texas, parents would agree (SB 1178, 2015):

• to participate in a curriculum that covers reading, grammar, health, social studies, and science;
• to spend funds on qualified education expenses;
• to participate in annually administered assessment instruments (i.e. state testing, AP exams, etc.);
• to notify TEA if their child enrolls in public school district or an open enrollment charter school;
• and to inform TEA once their child has graduated

Any unused funds would roll over and could be applied to higher education expenses the child may incur after completing a K-12 curriculum.

Currently, Arizona, Mississippi, Florida, Oklahoma and Tennessee limit eligibility to students with special needs, students from low-income families, and/or students in low performing school districts. But the Nevada program is universal, and the Texas program outlined in SB 1178 would allow all students to participate provided they are between ages 5 and 21 and are either entering first grade or were enrolled in a public school the previous year (SB 1178, 2015).

Once a student is eligible, it is at the discretion of the parent/guardian to decide how the funds will be applied in order to meet the agreed requirements of the program. Eligible expenses include

• Private or charter school tuition
• Textbooks
• Curricula
• Tutoring
• Private tuition or specialized therapy for children with disabilities

However, consumables (e.g., pens and paper), transportation, and technological equipment would NOT be eligible expenses under SB 1178.

Program Size and Fiscal Impact

While no fiscal note was prepared for SB 1178 in the 2015 Texas legislative session, the budget implications in other states with ESA programs can, to some extent, be used as proxies. To date, just two ESA programs - Arizona and Nevada - permit students without disabilities or an IEP to participate. These programs have the capacity to become much larger than other state programs and best resemble the proposed Texas program.

Arizona’s ESA program, known as the Empowerment Scholarship Program, did not produce any long-term savings for the state in 2014 (SB 1363 Fiscal Note, 2013) and may produce budget deficits similar to those seen in other voucher states if lawmakers continue to expand eligibility for the program (O'Dell and Sanchez, 2016). Despite awarding voucher amounts worth as little as half of the state subsidy sent to local school districts, some states are experiencing program budget deficits due to an substantial number of private school students enrolling in their choice programs.  Because Nevada’s ESA program was temporarily halted due to concerns about the program’s constitutionality, no historical budget data currently exists. However, the fiscal note attached to the original legislation suggests the state may need to find an additional $85 million to guarantee true universal access if 75 percent of existing private school parents participate during the first school year (SB 302 Fiscal Note, 2015).

Like the Arizona program, the version of SB 1178 introduced in 2015 would have created enrollment caps, limiting the growth of the program over time. If enacted, the number of new students allowed into the program each year would have been capped at “one-half of one percent of the total number of students in average daily attendance in grades 1 through 12 in the state during the previous year (SB 1178, 2015).” If more students applied to participate than allotted under this provision, the Texas Education Agency would give first priority to children with disabilities or “education disadvantages” (SB 1178, 2015).

Because universal ESAs resemble vouchers, evidence on the fiscal impacts of voucher programs can help policymakers to anticipate the fiscal impacts of ESAs. A review of the fiscal impact of vouchers is forthcoming on a separate Wiki page.

Eligibility Standards, Participation Rates, and State Expenditure Estimates

During the 2014-15 school year, 5,232,065 students were enrolled in Texas public schools (TEA 2016). Approximately 6.6 percent of school-aged children in Texas currently attend some kind of private school. However, this figure varies substantially depending on the metro area examined. While San Antonio has a private school enrollment rate similar to that of the state at large, nearly one in ten (9.5 percent) of children in Dallas attend a private school. TEA does not actively track private school enrollment and relies on private schools to report accurate numbers (McDonald 2015). Using McDonald’s 6.6% figure, we estimate that 345,316 students attend private schools statewide. The Children's Defense Fund estimates that between 150,034 and 200,045 Texas students were homeschooled in 2013. In the calculations below, the average of these two numbers is utilized, a figure equal to 175,040 (Coalition for Responsible Home Education 2013).

An estimated 26,160 students would be eligible if using the same one-half of one percent cap outlined in SB 1178. Many states with ESA/school voucher programs have loosened their eligibility requirements over time, allowing a greater number of students from a greater number of backgrounds to access state funds for private education expenditures. As mentioned above, Nevada’s program allows any student eligible to attend a public school to receive an ESA allotment.

This can exacerbate the expenses associated with the program as the state must increasingly bear new education costs associated with children whose parents never intended to send them to public school in the first place. Today, taxpayers are not liable to pay for the private education of students electing to leave the public system, but an ESA program could compel the state to award them public funds as well. SB 1178 stipulated that participants in the hypothetical ESA program would have to be enrolled in a public school the year prior or eligible to enter first grade for the first time in the upcoming school year. Initially, this would suppress the number of existing private school parents eligible for state dollars. However, this “safeguard” would only be temporary in nature as all students in Texas would have access to eligibility within 12 years of the law’s passage (as most students in the education system at that time would have entered first grade after implementation). In fact, all students could obtain eligibility two years after program implementation if all current private school students and homeschool students enrolled in public schools for one year then requested an ESA to return to his/her non-public education.

TALK ABOUT EFFECTS ON LOCAL GOVERNMENTS - MAY BE SIMILAR TO HOUSTON SITUATION AND FORCE DISTRICTS INTO RECAPTURE

A variety of scenarios can be analyzed to better understand the fiscal impacts of different eligibility requirements and take-up rates. While levels of per-student spending vary between Independent School Districts, the estimates below utilize the anticipated 2017 state average of $10,371 (Villanueva, 2016). This figure is comprised of both state and local spending per student; the proportion of the total per-student spending coming from the state also varies between districts as poorer ISDs receive a greater fraction of their funds from state disbursements.The state would expect to save 20% of this total for each public school student that left the system with an ESA (given that they do not participate in special education, in which case the state saves no money). However, the state would lose money for every student that participated that would have never enrolled in a public school without the presence of the program. The figures below are produced by multiplying the number of non-public school students by $8,296 (80 percent of the average per-student expenditure). The estimates assume that the hypothetical Texas program is similar to the Nevada program and has no enrollment cap.

Legal Issues

States that have passed legislation adopting ESAs include Arizona, Florida, Mississippi, Nevada and Tennessee (EdChoice, 2016). Legislation is typically challenged on a constitutional basis; 40 states have constitutional amendments or provisions that prohibit public funding of "religious worship, exercise or instruction" (DeForrest, 2003). Referred to collectively as "Blaine Amendments," in reference to the original failed amendment to the United States Constitution, these state laws are part of the legal landscape in all states that currently have ESAs, with the exception of Tennessee. Plaintiffs argue that because money diverted from public schools to fund ESAs can be spent on tuition at religious private schools, such laws are unconstitutional in states with a Blaine Amendment. Similar forms of school choice, such as vouchers, have also been challenged on this basis in a larger number of states (Burke & Butcher, 2016; Healy & Rich, 2015).

The Heritage Foundation, a conservative think-tank, has been a proponent of ESAs with the specific understanding that they provide a way to work around state Blaine Amendments. As noted in a recent Heritage report (Burke & Butcher, 2016),

"The defining feature of ESAs—that parents can make multiple choices for their children’s education—helped them survive a Blaine-based legal challenge in Arizona where the state supreme court had deemed a voucher program unconstitutional. In the 2013 Arizona Court of Appeals’ unanimous opinion, Judge Jon Thompson wrote that '[t]he ESA does not result in an appropriation of public money to encourage the preference of one religion over another, or religion per se over no religion. Any aid to religious schools would be a result of the genuine and independent private choices of the parents.'"

At the present time, legislation passed in Arizona, Florida, Mississippi, and Tennessee has been been upheld by each of those states' supreme courts (EdChoice, 2016). However, in September 2016, the Nevada Supreme Court struck down the state’s education savings account law, ruling that while the premise of using taxpayer money for private education is constitutional, the method used to fund the ESA program is not. The court held that the legislature’s discretion to encourage other methods of education is not limited by the state constitution (Rindels 2016; Chereb 2016). Moreover, the Court indicated that funds placed in education savings accounts belong to parents and are not “public funds”; therefore, ESAs are not in violation of the Constitution’s prohibition against using public money for sectarian purposes (ibid). This has been hailed as a victory by proponents of the legislation. However, the Nevada decision also stated that the legislature cannot divert money specifically authorized for public schools to private educational programs (like tuition at parochial schools). Thus, the Court held that the use of the Distributive School Account funding for ESAs undermines the Nevada Constitution’s mandate to fund public education (ibid). Proponents believe that this constitutional issue can be resolved through legislation revising the flow of money into ESAs. In light of this, the state’s Republican governor has indicated that he will prioritize the issue of ESA funding in the 2017 Legislature when it convenes in February (Chereb 2016). 

Evidence

ESAs are a new reform, and little direct evaluation of their effects currently exists. Indirect evidence, however, can be gleaned from evaluations of voucher programs. While ESAs often have fewer restrictions on eligible expenditures than do voucher programs (which are typically limited exclusively to tuition), early evidence from Arizona's Empowerment Scholarship Program has found that two-thirds of ESA disbursements are being spent on tuition (Burke, 2013). In a universal ESA program like the one proposed in Texas, it seems likely that an even larger share of Texas ESA funds would be spent on tuition, so that the effects of ESAs would be similar to those of tuition-only vouchers.

A summary of the evidence on vouchers will be given on a forthcoming page.

References

Burke, Lindsay. "The Education Debit Card: What Arizona Parents Purchase With Education Savings Accounts." EdChoice. August, 2013. Accessed November 11, 2016. https://www.edchoice.org/research/the-education-debit-card/

Burke, Lindsay, and Jonathan Butcher. "Education Savings Accounts: Advancing Choice in States with Blaine Amendments." The Heritage Foundation. October 3, 2016. Accessed November 8, 2016. http://www.heritage.org/research/reports/2016/10/education-savings-accounts-advancing-choice-in-states-with-blaine-amendments.

DeForrest, Mark Edward. "An Overview and Evaluation of State Blaine Amendments: Origins, Scope, and First Amendment Concerns." Harvard Journal of Law & Public Policy 26.2 (2003): 551-626.

“Fast Facts on School Choice,” EdChoice, last modified Oct. 27, 2016, http://www.edchoice.org/our-resources/fast-facts.

Healy, Jack and Motoko Rich. 2015. "Colorado Court Rules Use Of Public Funds For Private Schools Unconstitutional". The New York Times. http://www.nytimes.com/2015/06/30/us/colorado-court-rules-use-of-public-funds-for-private-schools-is-unconstitutional.html.

Lutz, Lauren. "Arizona Court Unanimously Upholds Education Savings Accounts as Constitutional." American Legislative Exchange Council. October 17, 2013. Accessed November 08, 2016. https://www.alec.org/article/education-savings-accounts-upheld/.

Nevada. Senate. 2015 reg. sess. SB 302 Fiscal Note. Carson City. 2015.

O'Dell, Rob, and Yvonne W. Sanchez. "State Money Helping Wealthier Arizona Kids Go to Private Schools." The Arizona Republic. Last modified July 7, 2016. http://www.azcentral.com/story/news/arizona/politics/education/2016/02/23/state-money-helping-wealthier-arizona-kids-go-private-schools/80303730/.

Michelle Rindels. “Nevada High Court Blocks Funding for School Choice Program.” The Las Vegas Sun. September 29, 2016.

Sandra Chereb. “Nevada Supreme Court Strikes Down School Choice Funding Method.” Las Vegas Review-Journal. September 29, 2016.

S.B. 1178, Texas 84th Cong. (2015).

S.B. 1363 Fiscal Note, Arizona 51st Cong. Schimpp, Steve. (2013).

S.B. 2695, Mississippi 114th Cong. (2015).

S.B. 302, Nevada 302nd Cong. (2015).

S.B. 431, Tennessee 431st Cong. (2015).

S.N. 850, Florida 116th Cong. (2014).

Villanueva, Chandra. "It's Time to Renovate our School Finance System." Center for Public Policy Priorities. 18 October 2016, University of Texas-Austin, TX. 

McDonald, Christian. "Private School Data Suggest Vouchers Could Have Big Effect In..." Statesman.com. The Austin Stateman, 30 May 2015. Web. 21 Nov. 2016.

Texas Education Agency. "Enrollment in Texas Public Schools 2014-15." Tea.texas.gov. Texas Education Agency, 12 May 2016. Web. 21 Nov. 2016.

Coalition for Responsible Home Education. "Homeschooling Numbers." Responsiblehomeschooling.org. Coalition for Responsible Home Education, n.d. Web. 21 Nov. 2016.