Funding Education Opportunity: Estimating costs for universal school choice, new choice programs, and more
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Funding Education Opportunity Newsletter

Funding Education Opportunity: Estimating costs for universal school choice, new choice programs, and more

The argument that private school choice programs save taxpayer money has been compelling and straightforward for decades.

The argument that private school choice programs save taxpayer money has been compelling and straightforward for decades. Most private school vouchers, tax credit scholarships, and education savings account (ESA) programs have had income-based or other eligibility limits that ensured most school choice program participants—usually between 85 and 90 percent—were previously public school students.

This high “switcher” rate—the share of school choice program participants who were previously enrolled or would have enrolled in public schools—saves taxpayer money because choice scholarships are cheaper than public schools. That’s why proponents have been able to argue that both participating families and taxpayers benefit from private school choice.

But in today’s policy environment, where states are adopting universal school choice programs—like Arizona, Arkansas, West Virginia, and Florida have recently—the taxpayer savings argument becomes more complicated.

By definition, universal school choice is available to all students. This makes it a far more impactful and widespread choice program but complicates the key variable responsible for fiscal savings—switcher rates. When fully implemented and assuming there are no cost caps, universal school choice programs are open to entire populations of students already attending private schools or being homeschooled, and these students weren’t previously receiving taxpayer support.

This is new territory for school choice proponents since past programs were primarily designed to target low-income families or students with disabilities who were likely to be enrolled in public schools. By making choice scholarships quickly available to non-public school student populations with little incentive not to take the taxpayer funds, universal school choice programs have lower up-front switcher rates and higher up-front costs for governments and, thus, taxpayers.

To be sure, it’s far too soon to know how much lower (if at all) public-school switcher rates will be under universal school choice programs in the long run. Some critics responded to early Arizona data showing that most initial ESA applicants were already non-public-school students by worrying the program would cost the state a lot while primarily benefiting families who could already afford private school. But those responses were rebuffed by subsequent data showing that many more students who had been in public schools had signed up and accounted for half of the state’s ESA participants. This share will likely climb as more parents become familiar with the program and available options.

The mechanics of state K-12 funding formulas are also related to the costs of choice programs. If large shares of education dollars don’t follow students to their schools, that can increase costs for taxpayers. Ultimately, whether the high up-front costs of universal school choice is a down payment toward future savings is yet to be determined. At the very least, the growing costs suggest a strong appetite for education choices.

From the states

In South Carolina, Gov. Henry McMaster recently signed S. 39, a law creating an Education Scholarship Trust Fund to fund ESAs for students who are eligible for Medicaid. Participating students will receive up to $6,000 in scholarship funds that can be used for instructional services, materials, private school tuition, and other purposes. The legislation limits the total number of scholarships that can be granted to 5,000, 10,000, and 15,000 from 2024 to 2026.

In Oklahoma, state legislators sent House Bill (HB) 1934 to Gov. Kevin Stitt last week. If signed, as expected, the bill would create a refundable tax credit program where families can receive up to $5,000 or $7,500 per child to pay for private school tuition, depending on their household income. The bill would also establish a $1,000 per child income tax credit for homeschooling families to pay for qualifying expenses such as tutoring or instructional materials. For the tax credits, the legislation caps the total value of credits that can be claimed at annual amounts of $150, $200, and $250 million per year from 2024 to 2026. For homeschool tax credits, the bill caps the total credits at $5 million per year.

Indiana lawmakers passed HB 1001 on April 28, a two-year budget bill that expands the state’s multiple school choice programs to near universality. The state’s voucher, tax credit scholarship, and ESA programs are now available to families below 400% of free and reduced lunch eligibility.

Montana lawmakers sent HB 393 to Gov. Greg Gianforte. The legislation would create an ESA for Montana students with disabilities. The ESA amount of roughly $7,000 per student includes state and local funds from a participating student’s school district of residence. Gov. Gianforte already signed HB 203, which standardizes and strengthens the state’s public school open enrollment policy. 

In North Carolina, legislators are considering three significant pieces of school choice legislation: House Bill 219, which would provide more funding to charter schools; HB 823, which would expand the state’s ESA program to be universal; and HB 793, which would create a cross-district public school open enrollment law. Due to Rep. Tricia Cotham switching from the Democratic to Republican Party, the Republican-controlled General Assembly appears to have the votes to override potential vetoes from Gov. Roy Cooper.

Nebraska lawmakers passed Legislative Bill 753, which would create a tax credit scholarship program for students previously enrolled in public schools or entering kindergarten or ninth grade. The bill still awaits a final reading and vote in the legislature.  

In Alabama, Senate Bill 202, a bill to create universal ESAs, was voted out of committee on May 10. The bill is slated for a vote on the Senate floor.

What to watch

Texas Gov. Greg Abbott threatens to veto watered-down school choice legislation. Texas Gov. Greg Abbott said he would veto a proposed pared-down version of Senate Bill 8–which would create universal ESAs. Abbot claimed a “failure to expand the scope of school choice to something close to the Senate version of the original House version of the Senate bill will necessitate special sessions.” If Texas Republicans can garner enough support in the House to send an expansive choice bill to the governor, it would likely be the country’s most extensive school choice program.

How the federal debt ceiling fight could affect federal K-12 spending. President Joe Biden and House Speaker Kevin McCarthy continue negotiating a bill to raise the federal debt ceiling. House Republicans passed a bill in April that would cut discretionary spending, including the Individuals with Disabilities Education Act and Title I, the two largest federal K-12 programs. The House bill would restore federal discretionary spending to where it was in the 2022 fiscal year, but the cuts to these K-12 programs are unlikely to make it into a final debt ceiling deal approved by the Senate. The debt ceiling debate exemplifies the difficulty of reducing federal involvement in K-12 education.

Recommended reading 

What is an education savings account, and why does it matter?
by Rick Hess at EdWeek

“The distinction between ESAs and school vouchers (or charter schools) is clear in theory. In practice? Not as much. Eleven states now have ESA programs on the books, and, given that, it’s natural to think that these are, you know, full-blown ESAs. In truth, though, the ESAs created by these laws frequently work a lot like lump-sum voucher programs, with families quite limited in their ability to mix-and-match.”

Suburban charter schools, open enrollment pushing over the first domino
by Matt Ladner at reimaginED

“It’s best to turn the choice knob all the way to ‘11.’”

Listening to educational entrepreneurs
by Mike McShane at Forbes

“Access to capital, help navigating regulations, and support for educators who want to become businesspeople is a short but simple summary of what entrepreneurs say that they need. If we want to see more educational entrepreneurs, we need to figure out how to support them with information, resources, and training so they can thrive in an evolving K-12 education ecosystem.”