ESAs in Missouri: Designing What Works For Parents and the State Budget

This is the third in a three-part series that looks at education savings accounts in Missouri and how they could empower every family and improve student outcomes.

As previously written, Missouri would do well to provide an education savings account to every child in the Show-Me State to make sure parents have the ability to find the best fit for their kids and to increase attainment and achievement among Missouri students.

Policymakers considering crafting ESA options for Missouri families should keep several critical program design and implementation issues in mind.

1. Strive for universality. Nevada has demonstrated that it is entirely feasible to craft a near-universal education savings account option. With some 453,000 children eligible for an ESA in the Silver State, Nevada has sent a clear signal that it is possible for state policymakers to begin with universality, instead of carving out specific categories of eligibility, limiting which families can benefit from choice. Universal ESAs would ensure every family has the opportunity to access learning options that work well for their children, and that all families have a vested interest in maintaining the program’s success. Universality grows the pool of families with funding available to pay for private and boutique options such as tutoring, fostering demand and enabling growth of the supply side. A universal ESA option also creates the scale necessary to put adequate pressure on the public system to improve—or risk losing students and dollars—in a fashion that would improve outcomes for all students, both those exercising use of an ESA and those choosing to stay in the traditional public system. Although poor children have historically been the most underserved by government-run school systems and limited ability to choose something different, flat-lining academic performance among all students suggests children from low-income families are not the only students who would benefit from choice.

2. Build it into your state formula. If the ESA option is funded through state appropriations (as opposed to a tax-credit funded option), funding should be appropriated through a state funding formula instead of through a line item appropriation in the state budget, which requires financing to be reauthorized annually, leading to funding uncertainty. That uncertainty can make it difficult for families to plan for their children’s education from year-to-year, and for schools and providers to anticipate enrollment, impacting their budgets.

3. Do as much online as possible and have a dedicated account contact. Families should be able to do as many ESA-related transactions as possible online, such as applying for an account, reporting their expenditures and communicating with the appropriate state agencies. Moreover, as the Goldwater Institute’s Jonathan Butcher suggests, families should have a customer-friendly experience when they have questions about their ESA account. In order to foster such experiences, families should have a dedicated staff member acting as an ESA program liaison in the event they have questions about their account. The ability to conduct transactions online makes it especially convenient for the many parents who choose to customize their child’s education with their ESA. As Jonathan Butcher and Lindsey Burke have documented, 28 percent of Arizona parents use their ESAs for multiple education services, products, and providers, such as paying for private school tuition, hiring private tutors, and taking online courses. It’s the type of customization that has led to high levels of satisfaction among participating families. As Butcher and Jason Bedrick have found, 71 percent of Arizona parents report being “very satisfied” with their ESA accounts, and another 19 percent are “satisfied.” Not a single parent reported being even somewhat dissatisfied or neutral with respect to the ESA program.

4. Carefully consider the effects of regulations on the supply of private schools. Evidence from Louisiana suggests that the fear of overregulation will dissuade private schools and education providers from participating in a school choice option such as an ESA. As such, accountability provisions should be structured in a way so that there is strong transparency for taxpayer dollars through state reporting requirements, while vesting accountability for educational outcomes with families who know their children’s needs best and have the greatest incentive to find educational options that work well for them. Families using an ESA should provide receipts for educational expenditures quarterly, and any misuse of funds should be rectified by withholding the subsequent quarter’s distribution to correct the erroneous expenditure. Academic accountability should be fostered by having parents using ESAs sign an agreement certifying they will provide their children at a minimum an education in core subjects. If a testing requirement is included, the option to choose from among an array of nationally norm-referenced tests, such as the Iowa Test of Basic Skills, the SAT, or the Terra Nova, among others, can guard against tests driving school curriculum in participating private schools.

5. Allow the market to work: “Whitelist” providers and enable parents to drive who can be a provider. Missouri policymakers can replicate the framework for becoming an eligible provider in existing ESA programs such as Arizona’s, where prospective providers can ask to be approved and then included on a “white list” maintained by the state department of education. Parents can also request to have services or products to be added to the list of approved expenditures. “White-listing” providers as opposed to “blacklisting” providers can allow a wide variety of schools, tutors, service providers and education products to become part of the approved options available in the state’s ESA program. Conversely, “blacklisting” generic categories of products or services, such as disallowing ESA funds to cover language software, can inadvertently limit the utility of the ESA option and the flexibility of parents to craft customized learning plans that work well for their children. Service providers, schools, products producers, etc., can request the administering state agency to add them to the list, encouraging innovation and engagement. The “whitelist” option also saves those who manage the program thousands of hours of phone calls while preventing headaches for families. Displaying such a list on a state or non-profit website can make the universe of available options transparent for families.

6. Allow funds to roll over from year to year. Parents should be able to roll over unused ESA funds from year to year. This roll over provision is a key feature of ESA options. Parents can save for anticipated future education-related expenses, and as a result, have an incentive to shop for quality educational services and products that also come at a good price. It is one reason that ESAs hold the ability to put downward pressure on prices, unlike traditional voucher models that must be spent in their entirety.

7. Allow funds to roll into a college savings account to pay for college tuition. In addition to being able to roll over unused ESA funds from year to year, parents should also be able to roll ESA funds into a college savings account, such as a 530 college savings plan. If their children decide not to attend college, unused funds can revert back to the state after the child reaches a certain age, as is the case in Arizona.

8. House ESA management with a non-profit. Although state agencies can be good stewards of ESA programs, they are also tasked with managing many other aspects of a state’s education system, limiting an agency’s ability to dedicate all of its time and energy to fostering the growth of the ESA option. By contrast, a non-profit dedicated to the management, implementation and growth of school choice has the ability to focus narrowly on the success of ESAs. The makeup of state agencies, by their nature, changes over time to reflect state political leadership, which can also effect the management of school choice programs. State agencies once friendly to school choice can change over time to be less open to providing alternatives to the traditional public school system.

As Missourians look around at their neighboring states, it quickly becomes evident that ESAs are taking root as a worthwhile means of providing choice in education. Tennessee adopted ESAs (known as IEAs in that state) in 2015, and Oklahoma and Texas are likely to consider the option in upcoming legislative sessions. Looking beyond neighboring states, Arizona, Nevada, Florida and Mississippi have all established ESAs, with Nevada breaking new ground in 2015 by becoming the first state to do a near-universal option. Missouri has the opportunity to be a part of the vanguard of ESA adopters, and in so doing, ensure every child can tailor an education to their needs that is as unique as they are.

Projected Fiscal Impact of a Tax Credit-Funded Education Savings Account in Missouri

EdChoice’s Director of Fiscal Policy and Analysis Martin Lueken, Ph.D.—and University of Missouri alumnus—examined the fiscal impact of such a system of tax credit-financed education savings accounts, which is one option Missouri could consider for financing an ESA program. Lueken found that, assuming maximum participation on the part of donors (assuming taxpayers contribute $50 million to non-profit scholarship-granting organizations), that the maximum potential fiscal impact under the scenario would yield a $50 million state tax liability reduction. Lueken’s analysis concludes:

“For 92 percent of all school districts in Missouri, the average variable cost for each student diverted from public schools exceeds per-student state aid…This final element is positive for 478 school districts and negative for 41 school district, indicating that even for most of those districts that receive most funding from the state, the ESA Program will have a positive fiscal impact. Of the 41 districts that may incur a negative fiscal impact, 13 are considered small hold harmless districts and three are considered large hold harmless districts. Thus, they would not be affected by the ESA program in the first year.”¹

The Water is Warm: Time for Missouri to Establish ESAs for Every Child

Missouri is in the enviable position of not only having the opportunity to establish education savings accounts, but also pulling from the best practices and lessons learned from the five states that have already done so. Universality, funding stability and light regulations are key ingredients in a successful ESA recipe. It’s time for the Show-Me state to get cooking.

To read the first in this three-part series, visit “ESAs in Missouri: A “Barren” School Choice Landscape.”

To read the second in this series, visit “ESAs in Missouri: Why Things Need To Change.”

*Opinions expressed by our guest bloggers are their own and do not necessarily reflect those of EdChoice.

—

1. Martin F. Lueken, Ph.D, Fiscal Impact Statement: Missouri Empowerment Scholarship Accounts Program, Friedman Foundation for Educational Choice. Forthcoming February 2016.