Examining the impacts of education reform legislation proposed in Kansas
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Examining the impacts of education reform legislation proposed in Kansas

The tax credit scholarships, education savings accounts, and utilizing a more accurate method of counting students would improve education outcomes.

In the 2023 legislative session, Kansas lawmakers have a historic opportunity to pass vital school choice legislation and reform the state’s K-12 education finance system. By expanding its modest tax credit scholarship program and enacting an education savings account program, the state could improve from one of the worst states for school choice to one of the best. These changes, and updating how students are counted for funding purposes, could provide better educational opportunities for students and families and financial savings to the state.

House Bill 2048: Improving Kansas’ Tax Credit Scholarship for Low-Income Students

In 2014, the state legislature passed a small tax credit scholarship program. Under this law, Kansas students in grades K-8 eligible for free or reduced-priced lunch (FRL) can apply for a scholarship to a private school. To fund these scholarships, the state allowed taxpayers to donate up to $500,000 to a scholarship-granting organization and deduct 70% of that total from their state income tax liability. But the total contributions were capped at $10 million per year. Consequently, only 2,478 students have been granted eligibility since the program’s inception, making it one of the most restrictive in the country in terms of student eligibility. Most tax credit programs have exceptions built in for students with disabilities, those enrolling for the first time, and highly mobile populations such as students in foster care and those in military families–but Kansas’s program currently has none of these exceptions, significantly limiting which students can participate.

HB 2048 improves the tax credit scholarship program in several ways beneficial to students. The bill lifts the family income requirement to 250% of the federal poverty line (FPL), allows donations to be fully tax deductible (up from the 70% deduction), doubles the limit on the total amount of scholarships granted to $20 million per year, and exempts the populations listed above from the requirement that the student had to be previously enrolled in a public school in Kansas.

The Kansas Department of Revenue (KDOR) estimates the reforms would reduce revenue by $5 million annually. This estimate is reasonable, as the state granted $3.8 million in scholarship funds in the last full year of data (2020-2021). However, over time, HB 2048 changes should generate significant savings for taxpayers that should be accounted for in this estimate. The average scholarship amount granted to students in 2021-2022 was $3,442, less than the budgeted Base Aid for Student Excellence (BASE) of $4,706. As more eligible students switch from public to private schools, savings would accrue in future years because scholarship amounts are cheaper than what the state would be spending on those students in public schools.

HB 2218: The Sunflower Education Equity Act

The legislature is also considering an education savings account (ESA) program, which would allow students who exit the public school system] and a capped number of economically disadvantaged students currently in private schools to receive 95% of the BASE to pay for private school tuition, textbooks, and tutoring, and other educational services. In the first year of implementation, all existing public and private school students from families at 300% or less of the federal poverty line would be eligible. In the second year, that would increase to 400% of FPL. In future years, there would be no income limit.

There is no current cost estimate of the bill as amended, but KDOR previously used implausible assumptions to calculate a high price tag of nearly $152 million. First, even from the version with no prior enrollment requirement, they estimated that only 1% of students in public schools would use the program. The national average for education savings account programs is closer to 2%. Kansas also does not have a robust charter school system, possibly making the ESA a more popular option for families wanting more choices.

The state also estimates that only 15% of students using the program would be switchers (i.e., those who switch from public to private schools). But estimates from other programs put the switcher rate closer to 85%, which calls into question KDOR’s assumption that every student currently in a private school would receive an ESA. In comparison, only 33% of families with college students use 529 plans, tax-advantaged investment accounts to save and prepare for postsecondary education expenses. This example shows that even when provided a potential benefit, sometimes relatively few families take advantage of it.

Using more realistic assumptions, the ESA program could create significant savings. Conservatively, say 1.5% of public school students in Kansas access education savings accounts, which would rank 12th among the 31 states with private choice programs. This would equate to $37 million in ESA funding going to 7,260 students. If these students remained in public schools, the state would pay $53,459,946 to school districts, or 44% more than the ESA funding. The difference is the student weights, about $2,085 per student—money that does not follow the student leaving public schools under the proposed ESA program.

School Choice Could Save Kansas Taxpayers Money

House Bill 2218, in its current form, would place a hard cap on the number of private school students who could access education savings accounts. In the first year, the cap would be 2,000 and then double until the cap is removed in the fourth year of the program. This provision mitigates the effect of a hold harmless provision in Kansas’s funding formula, insulating school districts from declining enrollment costs by calculating their enrollment based on the greater number of students over the previous two years. From the calculations above, the state would still be responsible for BASE payments for every student who left the district, which is the approximately $37 million figure from above.

Assuming all 2,000 allowed private school students use the ESA program, Kansas would pay an additional $10.2 million in ESA funds. The savings would be the difference between the reduction in weightings, about $16.4 million, and the additional ESA funding given to existing private school students, about $10.2 million, for a net savings of $6.2 million. Future savings would depend on the number of public school students who leave for an ESA-funded education. Kansas would break even when the amount saved in weightings equals the additional spending on students who have always enrolled in private schools and could now access ESA funds. In terms of students, this requires 69% of students participating in the ESA program to be switchers, well within the range of ESA programs in other states. This is the case no matter how many non-switchers access ESAs.

To ensure savings and reflect where students enroll, Kansas should change to counting enrolled students in the current year for funding purposes. School districts currently count their students once each fall, and the simplest reform would be to use the current fall count for current state aid calculations. Coupled with expanded school choice, this simple reform would save over $2,000 per student, $37 million per year total. This reform would not be a new burden on school districts or the state because the state already uses current year counts to calculate enrollment with student weightings.

The three policy reforms mentioned above—expanding tax credit scholarships, enacting education savings accounts, and utilizing a more accurate method of counting students hold significant promise to improve education outcomes and save Kansas taxpayers money. Current demand in the tax credit scholarship program shows many families would take advantage of expanded school choice if the state provides it. Kansas should respond by expanding school choice for more families.