New Report: The Fiscal Impact of the Arkansas EFA Program

Total Cost is Not the Same as Net Cost

Last week, the Arkansas Democrat-Gazette ran a story warning that the state’s Education Freedom Account (EFA) program could cost the state “more than $326 million” in the upcoming school year.

That eye‐catching figure is worth examining closely, however, as news outlets tend to report only the price tag of school choice programs. It’s important to distinguish total cost from net cost, and to place the cost in context of state spending and school funding — two things the Democrat-Gazette article did not do.

To its credit, the Democrat-Gazette then ran another story summarizing findings from a new report released by the Arkansas Department of Education and authored by a team of researchers from the University of Arkansas, which analyzed mountains of data from the EFA program’s first two years. That report includes a fiscal analysis that estimates the program’s net cost and puts the estimates in context, and the recent Democrat-Gazette article includes those figures.

The idea that “the EFA program could cost more than $326 million” is a classic example of a headline that cites gross expenditure without reference to the offsets.

These kinds of stories resonate because they imply a hefty cost to taxpayers.

But the more important and relevant metric is net cost, or how much new burden the program puts the state budget, after subtracting savings from students who would otherwise attend public schools (known as “switchers”).

As the authors of the EFA report explain, every participating student who leaves the public system produces a “savings” — the state no longer has to fund that student in the public school system. The net cost, then, is:

Net cost = Total EFA cost – Savings from switchers

If you ignore the second term, you overstate the burden.

What the EFA Fiscal Analysis Finds

The analysis estimates the fiscal impact of the EFA program on the state budget by weighing both the program’s costs and potential savings from switchers during the 2023-24 and 2024-25 school years.

During the 2023-24 school year, the program cost $37.3 million while the authors estimate state savings worth between $2.0 million and $4.2 million. This implies a net cost of between $33.1 million and $35.3 million.

During the 2024-25 school year, the program cost $93.8 million while the authors estimate state savings worth between $12.2 million and $22.0 million. This implies a net cost of between $71.8 million and $81.6 million.

The authors note that “potential savings were larger in the program’s second year because more students who would have otherwise attended a public school were eligible and participated in the EFA program.”

This increasing switcher rate follows the pattern of Arizona’s universal ESA program, where data from the Arizona Department of Education show that the share of ESA students who previously attended public schools rose from 21% in the first year of universal expansion to 57% by the third year. Notably, these switcher rates for Arizona’s ESA program dramatically understate the true switcher rate because thousands of students transferred into the ESA program from other choice programs which had prior public school enrollment requirements, but the report does not count them as switching from public schools.

The magnitude of the net costs may sound large, but fortunately the authors provide helpful context.

Even if we ignore potential savings, the gross cost for the EFA program represents 1.1% of $3.5 billion in state funding for public schools during 2023-24 and 2.6% for 2024-25.

Thus, during 2024-25, the state “devoted only 2.6% of its K-12 education budget to serve 3% of the state’s students through the EFA program.”

Looking ahead to 2025-26

While the first two years of the EFA program have participation and eligibility limits, the state will open the program and remove any participation caps for the 2025-26 school year.

That is, next year will be the first year that every K-12 student in Arkansas will be eligible for the program.

Based on currently approved applications for the EFA program in 2025-26, the authors of the EFA report project that program costs will reach around $277 million.

This $277 million cost sounds like a hefty number — it’s about three times what the program cost during its second year.

Critics might even claim this may create a “budget meltdown,” as one headline characterized Arizona’s universal ESA program.

Again though, it’s important to remember that this estimate represents a gross cost and is not the same as the net cost of the EFA program. As data on participation becomes final and data on switchers becomes available, analysts will be able to estimate the net fiscal impact for the EFA program’s third year.

Even considering the projected program cost without accounting for potential savings from switchers, the $277 million price tag “would account for only 7.4% of the roughly $3.7 billion allocated to fund the state’s students, while serving just under 10% of Arkansas students.”

Meanwhile, compared to the $34.5 billion in total state expenditures on all public services, this $277 million represents 0.8%.

Hardly catastrophic for a program that is helping thousands of Arkansas families and students.

Numbers without context can mislead.

Even before accounting for savings, the EFA program represents less than one percent of total state spending and a small share of K-12 funding. As participation broadens and more public-school students join, the state’s net cost will likely shrink — and the fiscal narrative should adjust accordingly.