January 2016
OKLAHOMA COUNCIL OF PUBLIC AFFAIRS
Education Savings Accounts:
A Blueprint for 21st Century Parental Choice
In Case You Missed It OCPA’s Trent England recently testified at a legislative study on revising Oklahoma’s system of judicial selection.
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According to The Oklahoman, the McAlester school superintendent and her husband reportedly used school money “for everything from Hillary Clinton campaign materials to a $129 hourglass to a $2,048 treadmill.” ocpa.us/1QEoXNo
A new Vanderbilt study casts doubt on the benefits of staterun pre-K programs.
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OCPA’s Michael Carnuccio says our state’s political leaders should responsibly phase out the income tax over several years and replace it with nothing.
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More than one in four Democrats favor prosecuting global-warming doubters.
William Kristol is alarmed at the self-destruction of the American university.
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Some state lawmakers are highly critical of the university system for spending millions of dollars on “diversity programming.”
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OCPA’s Jonathan Small recently testified at a legislative study on giving the governor more control over the executive branch of government.
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There’s a high cost to massive expansion of federal regulation, says OCPA’s Trent England—a cost that can’t be measured in dollars.
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PERSPECTIVE OCPA Staff
OCPA Trustees
Brandon Dutcher ...........................................Editor
Blake Arnold • Oklahoma City
David McLaughlin • Enid
Glenn Ashmore • Oklahoma City
Lew Meibergen • Enid
Robert D. Avery • Pawhuska
Ronald L. Mercer • Bethany
Alex Jones .............................................Art Director
OCPA Researchers
Lee J. Baxter • Lawton
Lloyd Noble II • Tulsa
Sarah Andrews .......................Content Marketing Specialist
Steve W. Beebe • Duncan
Mike O’Neal • Edmond
Brandon Dutcher .................................Senior Vice President
John A. Brock • Tulsa
Bill Price • Oklahoma City
David R. Brown, M.D. • Oklahoma City
Patrick T. Rooney • Oklahoma City
Paul A. Cox • Oklahoma City
Melissa Sandefer • Norman
Trent England ..........Vice President for Strategic Initiatives Dacia Harris .........................Development Projects Manager
William Flanagan • Claremore
Thomas Schroedter • Tulsa
Rachel Hays .........................................Development Director
Josephine Freede • Oklahoma City
Greg Slavonic • Oklahoma City
Alex Jones ......................................Communications Director
Ann Felton Gilliland • Oklahoma City
Charles M. Sublett • Tulsa
John T. Hanes • Oklahoma City
Robert Sullivan • Tulsa
Ralph Harvey • Oklahoma City
Lew Ward • Enid
John A. Henry III • Oklahoma City
William E. Warnock, Jr. • Tulsa
Jonathan Small ..........................................................President
Henry F. Kane • Bartlesville
Dana Weber • Tulsa
Hannah Wallis ............................Communications Associate
Robert Kane • Tulsa
Daryl Woodard • Tulsa
Gene Love • Lawton
Daniel J. Zaloudek • Tulsa
Trey Malone ....................................... Research Assistant Renae Page ................................................Executive Assistant
Kenny Yoder ......................................... Financial Analyst Teresa Yoder ........................................Director of Operations
Steven J. Anderson, MBA, CPA Research Fellow Tina Dzurisin Research Associate Trent England, J.D. Dr. David and Ann Brown Distinguished Fellow for the Advancement of Liberty Adam Luck, MPP Research Fellow Jayson Lusk, Ph.D. Samuel Roberts Noble Distinguished Fellow J. Scott Moody, M.A. Research Fellow Andrew C. Spiropoulos, J.D. Milton Friedman Distinguished Fellow Wendy P. Warcholik, Ph.D. Research Fellow
Tom H. McCasland III • Duncan
Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc., an independent public policy organization. OCPA formulates and promotes public policy research and analysis consistent with the principles of free enterprise and limited government. The views expressed in Perspective are those of the author, and should not be construed as representing any official position of OCPA or its trustees, researchers, or employees.
Larry Arnn
Arthur Brooks
William F. Buckley
George W. Bush
Dana Perino
Jeb Bush
Dick Cheney
May 12 • Oklahoma City
For more information, contact Rachel Hays at 405.602.1667 or rachel@ocpathink.org
Dinesh D’Souza
Artur Davis
Jim DeMint
David Horowitz Mike Huckabee
J. Rufus Fears
Steve Forbes
Tommy Franks
Mitch Daniels
John Fund
Newt Gingrich
Charles Krauthammer
Brit Hume
Laura Ingraham Frank Keating Jeane Kirkpatrick
Russell Moore Stephen Moore Peggy Noonan Marvin Olasky
Art Laffer
Rich Lowry
Ed Meese
Sarah Palin
Star Parker
Michael Reagan
Paul Ryan
Joe Sobran
Thomas Stafford
John Stossel
Cal Thomas
Clarence Thomas
Scott Walker
John Walton
J.C.Watts
Allen West
Walter Williams
Past OCPA speakers are pictured above.
Personalized Account Has Made All the Difference By William Mattox
Seven years ago, when Katie Swingle’s son was only 18 months old, a doctor reported that her boy’s autism would probably prevent him from ever being able to speak. Today, Katie’s son is not only communicating orally, but he’s also writing—in cursive! And Katie says the Florida Legislature is partly to thank. That’s because Florida legislators adopted an innovative policy several years ago that enables parents of children with unique abilities to “customize” their child’s education. Under this new policy, parents can elect to have the per-pupil funds for their child deposited into a personal learning account that the parents can then use on a wide array of instructional materials, classroom programs, tutorial services, and learning therapies tailored to their child’s unique needs. Personal Learning Scholarship Accounts (PLSAs) have proved so popular with parents of special-needs children that the Florida Legislature passed a major expansion in 2015— tripling the size of the program and extending eligibility to cover a broader range of student disabilities, including muscular dystrophy, cystic fibrosis, dyslexia, ADHD, multiple sclerosis, and blindness. One of the reasons PLSAs (in other states they’re known as ESAs, or education savings accounts) have generated so much enthusiasm is that they fill several gaps not covered by Florida’s long-standing scholarship program for special-needs students. For example, PLSAs are available to students who haven’t completed a year at public school. This proved very important to Katie and her husband since their son’s public school experience was extremely short-lived. “We started with kindergarten, and within a week I knew we were in trouble,” Katie told a Florida legislative committee in 2015. “It wasn’t the school’s fault—they did everything they could to help me.” But since her child’s unique needs were “impossible” for the local public school to address, Katie withdrew him (and in so doing lost the opportunity to qualify for a special-needs scholarship after a year). Thanks to the Personal Learning Scholarship Account program, the Swingles weren’t left out in the cold. Instead, they were able to deposit into a PLSA the per-pupil tax dollars that would have otherwise been spent for their son to attend public school. With the PLSA, the Swingles were able to pay for a
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PERSPECTIVE • January 2015
variety of educational programs that collectively meet their son’s learning needs. Like the Swingles, more than 1,700 Florida families have benefited from the freedom and flexibility PLSAs offer. And many more would like to do so. In the year after the law passed, more than 5,000 Florida families applied to the program—and interest in the program shows no signs of slowing down. Another reason PLSAs have become so popular is because Personal Learning Scholarship Accounts can be used to buy “unbundled” educational services from multiple providers— including instructional materials, curriculum, speech therapy, hearing aids, tuition, tutoring, and assessment fees. As one might imagine, having the flexibility to obtain “unbundled” services is particularly important to students with unique abilities since many schools aren’t equipped to meet certain needs. Yet, many “regular” students, particularly at the high school level, could also benefit from the kind of “unbundled” flexibility
Katie Swingle tells members of the Florida Senate Education Appropriations Committee how much the education savings account program has helped her family.
ESA Student Living Life as a Great Adventure Climb Mt. Kilimanjaro. Hike the Grand Canyon rim-to-rim. Swim to Alcatraz. Earn a scholarship to college. If you checked these off of your bucket list, you’ve had a life well lived. Max Ashton accomplished these things before graduating high school and with a degenerative eye condition known as Leber hereditary optic neuropathy that has left him blind. In 2013 Max was a part of the first team of blind swimmers to cross the San Francisco Bay—after becoming the youngest blind hiker to summit Kilimanjaro. Max also earned a $25,000 scholarship to attend Loyola Marymount University in California. National School Choice Week (January 24-30, 2016) celebrates students like Max and their accomplishments and, in Max’s case, his access to a high-quality high school in Arizona using an education savings account. Through this program, Arizona deposited public funds in a private account that Max’s parents used to pay private school tuition and purchase braille materials for Max’s studies. Families can use education savings accounts to pay for online classes, education therapy services such as speech therapy, textbooks, and even college expenses. The accounts allow students to have a unique learning experience that matches their needs. “The best part about school choice is that it works,” says Max’s father, Marc. “I have seen it work for students from Spanishspeaking homes, students that couldn’t walk or talk, for deaf students, and for low-income students. These students attend the best schools for their needs and are succeeding.” Max and his family realized that an education savings account would allow Max to buy materials to assist him with his classes
PLSAs provide—especially since it is simply unfair to expect any school to be able to meet all the learning needs of every single student. To make it easier for regular students to take advantage of special learning opportunities (such as online courses not offered in the classroom), Nevada recently became the first state to adopt “universal” education savings accounts for all interested K-12 students. And a number of other states, including Oklahoma, are now considering similar policies that would allow all students to eventually benefit from these flexible learning accounts. Matt Ladner, a research expert with the Foundation for Excellence in Education, believes that education savings accounts are “the way of the future.” Not only do these policies give parents the opportunity to customize learning for their children, but they protect the taxpayer’s interest in getting “bang for the buck” in education.
Max Ashton speaks at an Arizona state Senate hearing.
in addition to helping pay private school tuition. Thanks to the different choices available to Arizona parents, Max received an excellent education and is living his life as though it is a great adventure. “I always wondered why it’s OK to choose where we live, we choose where we work, we choose where we pray, we even choose who our elected representatives are, yet some of those same representatives don’t want us to choose where our child goes to school,” Marc says. —Jonathan Butcher, education director at the Goldwater Institute
That’s because education savings accounts allow parents to roll over any unused dollars from one year to the next—and/or to put unused dollars into a college savings fund. As such, these innovative policies give parents an incentive to do in education what they already do when shopping for food, clothes, or other necessities for their children—find the highest possible quality at the lowest possible price Adopting personal learning accounts is a great way for legislators to assist dedicated moms like Katie Swingle. Even more, enacting policies of this kind is a great way to help all children reach their full potential. William Mattox is the director of the Marshall Center for Educational Options at the James Madison Institute in Florida. His articles have appeared in The Wall Street Journal, The Washington Post, USA Today, and numerous other publications.
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Education Savings Accounts:
A Blueprint for 21st Century Parental Choice 6
PERSPECTIVE • January 2015
A schooling system that largely rations education based on where children’s parents can afford to live is a relic of a bygone era that cannot provide the customized preparation students need to succeed in a rapidly changing, increasingly competitive world, Vicki Alger writes. ESAs are popular, easy to use, fiscally responsible, and constitutional. Best of all, they empower parents to choose how, not just where, their children are educated, which customizes learning to degrees no one-size-fits-all system could ever match—no matter how lavishly funded.
ixty years ago the late Nobel Prize-winning economist Milton Friedman published a radical idea: just because we fund schools through government doesn’t mean politicians know how to run schools or what education is best for other people’s children. To improve American education for all students, Friedman argued that parents should decide what schools are best for their children, schools and teachers should be free to innovate, and public funding should follow students to schools of their parents’ choice.1 “Education spending will be most effective,” Friedman explained, “if it relies on parental choice and private initiative—the building blocks of success throughout our society.”2 Similar to Adam Smith, Thomas
Paine, and John Stuart Mill, Friedman advocated a system of publicly funded vouchers because it would free parents to choose the schools they thought were best for their children, and schools would have to compete for students and their associated funding. Today, parental choice in education not only includes publicly funded voucher scholarship programs but also privately funded tax-credit scholarship programs—as well as personal-use tax credits and deductions to help offset out-of-pocket costs of private schooling and other education expenses. Altogether these programs are helping more than 1.2 million students.3 Education savings accounts (ESAs) are the latest advance in educational choice, fostering an unprecedented level of personalized learning opportunities
Private and Home School Parental Choice by the Numbers Nearly 149,000 students participate in 24 voucher scholarship programs in 13 states and the District of Columbia. Fully 212,000 students are helped through 20 tax-credit scholarship programs in 15 states. Nine personal use tax credit and deduction programs in eight states assist close to 865,000 families offset out-of-pocket educational expenses. Another 1.8 million students are currently homeschooled, and their numbers are growing by as much as 8 percent annually. Sources: Friedman Foundation for Educational Choice; National Home Education Research Institute; U.S. Department of Education
for students customized by those who know and love them best: their parents. Unfortunately, Oklahoma failed to enact its own ESA program during the 2015 legislative session, a failure The Oklahoman’s editorial board decried as “one of the major black marks of this year’s legislative session.”4 Rather than halting parental choice progress, the state should add to its five-year-old momentum (starting with the Lindsey Nicole Henry Scholarship Program and the Equal Opportunity Education Scholarship Program) by implementing ESAs. The concept behind ESAs is simple. Parents who do not prefer a public school for their child simply withdraw him or her, and the state deposits most or all of what it would have spent into that child’s ESA. Parents receive a type of dedicated-use debit card to pay for authorized expenses including private school tuition, online courses, testing fees, tutoring, and special education therapies. Any leftover funds remain in the child’s ESA for future education expenses, including college. ESAs are also fiscally responsible. ESA funds are disbursed quarterly, but only after parents submit expense reports with receipts for verification. Regular audits also help prevent misspending. If parents misuse funds they forfeit their child’s ESA and must repay misused funds or face legal
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prosecution. Today ESAs are helping nearly 3,000 Arizona and Florida students, and so far this year ESA programs have been enacted in Mississippi, Tennessee, and Nevada. Operational and recently enacted ESA programs offer important lessons for state policymakers, including: 1. Make ESAs universal 2. Fully fund ESAs 3. Blow the lid off program caps 4. Beware of pilots 5. Let all education providers compete 6. Private administration is best ESAs empower parents to customize their children’s learning to degrees no one-size-fits-all system could ever match—no matter how lavishly funded. Rather than debating the future of parental choice through ESAs, Oklahoma policymakers should be enacting them. Personalized Learning Using public dollars for private education providers is not an earthshattering idea. Currently, nearly 9 million college students nationwide are using more than $32 billion in federal Pell Grants to attend the colleges and universities of their choice, public and private, nonsectarian and religious alike. In fact, more than 102,000 Oklahoma undergraduate students are using $363 million in federal Pell Grants to attend postsecondary institutions, including 26,000 students who are using almost $92 million in public funds to attend private and proprietary postsecondary institutions.5 In just a few years most of those students will likely graduate and become parents themselves; however, they will largely be restricted from using public dollars to send their own children to the elementary, middle, and high school programs of their choice— until, of course, those children turn 18 when they too will be allowed to use public funds for their personal higher
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PERSPECTIVE • January 2015
education choices. Education savings accounts expand the kind of personalized learning that has long been available for higher education students but not for school-age children—like Austin Fox, who has Asperger’s syndrome. Before 2011, when Arizona enacted the country’s first ESA program, Austin was a sophomore on the verge of dropping out of his public high school. “He wasn’t receiving an education,” explained Austin’s mother Crystal. “He was just being moved on.” All that changed once Arizona enacted ESAs.6 ESAs are akin to dedicated-use education debit cards. Parents who do not prefer a district or charter public school for their child simply withdraw him or her, and the state instead deposits most or all of the funds it would have spent into an ESA designated for that child. With those funds parents can pay for authorized education expenses including private school tuition, online courses, testing fees, homeschooling curricula, tutoring, and special education therapies. What’s more, any leftover funds remain in the child’s ESA and can be used for future education expenses, including eventually college. When Crystal told Austin that he could choose any school he wanted thanks to his ESA, Austin says he was “overjoyed.” After touring a number of schools, Austin and his mother found one that he describes as “the perfect fit.”
Austin’s teachers report that he came “out of his shell” and began thriving socially and academically. In fact, within just two years Austin’s grades soared from a C average to straight A’s, he earned high ACT and SAT scores, and upon graduation he had multiple college offers. Crystal credits the ESA program with “saving Austin’s life.”7 There is no good reason Oklahoma schoolchildren should be denied the educational opportunities a growing number of students like Austin now have. Oklahoma’s Educational Options Oklahoma enacted its first private school parental choice program in 2010, the Lindsey Nicole Henry Scholarships for Students with Disabilities. Through this voucher program nearly 400 students with disabilities (or children of active-duty members of the armed forces who have been stationed in Oklahoma) are enrolled in almost 40 private schools of their parents’ choice using scholarships worth an average of $7,600. From 2012 through 2015 alone participation has nearly tripled, up from 135 students.8 The following year the Equal Opportunity Education Scholarship program was enacted. It is one of the most generous programs around, with regular education student scholarships worth up to $5,000 or 80 percent of per-pupil public school spending, and up to $25,000 for special education
students. Students from low- to moderateincome families ($134,589 for a family of four in 2015-16) or those who attend or live in the attendance zone of a public school deemed “in need of improvement” are eligible. Oklahoma district schools earned an overall statewide performance grade of D+ (68 percent) in 2014, and 499 schools (28 percent) earned grades of D or F.9 More than 700 students are using tax-credit scholarships worth an average of $566 to attend 33 private schools of their parents’ choice. From 2013 through 2015 program participation has increased almost 20-fold, up from 38 students.10 Despite the growth of these programs, combined enrollment barely exceeds 1,000 students statewide—even though 15 percent of Oklahoma students meet the eligibility requirements for the Lindsey Nicole Henry Scholarship Program, while 94 percent of families meet the Equal Opportunity Education Scholarship Program income-eligibility requirements. It appears Oklahoma parents want more freedom not just over where their children are educated, but how they are educated. Education Savings Accounts Offer Unlimited Choices ESAs turn the prevailing one-size-fits-all wisdom of the schooling establishment on its head by personalizing learning to unprecedented levels.11 Not only are parents more satisfied having greater options, students are thriving academically and socially for less than what it costs in a typical public school setting. The rapid expansion of ESA programs also shows that there is tremendous demand for more customization in education—not less. Since 2011 Arizona has annually expanded its ESA program to include more students, such as those who would otherwise attend failing public schools, students in or adopted from the foster care system, children of
active duty military parents who reside in-state or who were killed in the line of duty, eligible kindergarteners, siblings of current and former ESA students, and children who reside within Indian reservation boundaries.12 The program is so popular that participation has roughly doubled each year, growing from around 130 students in 2011 to more than 1,300 today.13 The freedom to choose not simply where but how their children are educated results in high parental satisfaction with ESAs. Fully 100 percent of participating Arizona parents report being satisfied with the program, with 71 percent reporting they are “very satisfied.” In contrast, just 43 percent of parents reported any level of satisfaction with their children’s previous public schools.14 ESAs are also expanding to students well beyond the Grand Canyon State. Florida was the second state to adopt ESAs for special-needs students in 2014, and 1,700 students participated.15 The 2014-15 school year had barely finished when it was reported that close to 2,000 ESA applications had already been submitted for the upcoming school year.16 Meanwhile, in June 2015 funding for the program was tripled from $18 million to $54 million, and student eligibility was expanded to include a greater number of diagnosed disabilities.17 This is great news for Florida parents of special-needs children like Stacey, who reports that the freedom to use her young son’s education funding for the tailored services he needs has sparked dramatic improvements in his learning. “Liam … is reading on grade level, which is huge. … It’s helping his speech … and his overall communication has improved. …This program is just such a game-changer for parents.”18 These results are especially impressive since under existing programs ESAs are funded at just 90 percent of what states would have otherwise spent to educate students. They also undermine another common
refrain that more spending—rather than more efficient spending—is what schools need to achieve better results. In 2015 Mississippi,19 Tennessee,20 and Nevada also enacted ESAs. Nevada’s program stands out for making all public school students eligible, not just those with special educational needs or circumstances.21 If recent public opinion survey results are any indication, several more states will likely adopt ESAs as well. ESAs Are a Popular Form of Parental Choice A national poll released by the Democratic polling firm Beck Research in early 2015 found that close to seven out of 10 likely voters support greater parental choice in education and believe competition improves public schools.22 A subsequent nationally representative poll released in June indicates that ESAs are the most popular form of parental choice among Americans. Fully 62 percent of respondents favored ESAs compared to favorable ratings of 61 percent for voucher scholarships, 60 percent for tax-credit scholarships, and 53 percent for charter schools.23 Support for ESAs is also strong across nearly all demographics, especially adults ages 18 to 34 (75 percent). Importantly, support for ESAs was strong across the political spectrum, at 60 percent or higher for both Democratic and Democratic-leaning respondents as well as Republican and Republican-leaning respondents, and nearly two-thirds (65 percent) of Independents.24 In fact, respondents who favor ESAs indicate that they are far more likely to vote for pro-ESA political candidates, ranging from 25 percent more likely among middleincome voters up to 40 percent more likely among voters ages 18 to 34.25 Finally, contrary to prevailing political wisdom that holds parental choice programs should be limited to certain groups of students, two out of three respondents believe that all students should be eligible for ESAs, not just select populations.26
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Support for ESAs among likely Oklahoma voters is similarly strong with approval ratings of 56 percent.27 Similar to results from the national survey, nearly 60 percent of Oklahoma respondents (58 percent) also prefer parental choice programs that are open to all students.28 Parental choice in education is both popular and has a proven track record of success. Parental Choice Works Oklahoma parents clearly want more educational options, and research backs them up. Today, significant numbers of children with special needs and circumstances struggle academically, including students with disabilities, from military families, the foster care system, and those who are in or assigned to failing public schools.29 Students in or assigned to schools plagued by violence and chaotic classrooms also suffer academically.30 Research consistently shows that parental choice improves academic outcomes of participating students, most of whom are disadvantaged.31 In fact, 13 of 14 “gold standard” random assignment studies to date find that disadvantaged students, including low-income and minority children, who use scholarships to attend the schools their parents think are best perform better in reading and math and have higher high school graduation rates, college attendance rates, and college graduation rates than their peers who do not use scholarships. No study to date has ever demonstrated negative impacts on students’ academic outcomes. Moreover, the sole study finding no impact was subsequently discredited for its unscientific methodology. Upon re-analysis using scientifically sound methodologies, researchers from Harvard University documented statistically significant improvements in student achievement.32 Parental choice programs also introduce competition for students and their associated funding, putting powerful pressure on public schools
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PERSPECTIVE • January 2015
to improve, thereby benefiting public school students as well. In fact, 22 out of 23 empirical studies show positive impacts from school competition, including improved reading and math achievement, and none found negative effects.33 Researchers from Columbia University’s Teachers College also reviewed more than 200 scientific analyses and concluded that competition benefits public schools “across all outcomes,” including higher student achievement, graduation rates, efficiency, teacher salaries, and smaller class sizes.34 Likewise, evaluations of the country’s largest scholarship program for special needs students, Florida’s McKay Scholarship Program, show that parental satisfaction rates with their children’s chosen private schools are nearly three times greater than with their previous public schools (93 percent compared to 33 percent). Participating private schools were also more responsive to children’s unique needs, and scholarship students had fewer behavioral problems, were victimized less, and enjoyed smaller class sizes.35 Competition for students from the McKay Program also had positive effects on public school student math and reading performance.36 By expanding the realm of parents’ educational choices beyond where their children are educated to how they are educated, ESAs maximize the positive effects of existing voucher and tax-credit scholarship programs, since a greater number and variety of education providers can compete to meet children’s unique educational needs. Additionally, ESAs have several program advantages state policymakers should consider as they work to expand education options. ESAs Are Easy to Use Though all ESAs operate similarly, each state’s program is unique—from which students are eligible, to funding levels, to certain mechanics. These elements are detailed in the Summary
A student-centered funding approach would serve children far better and streamline Oklahoma’s byzantine and bureaucratic publicschool financing scheme. Appendix Table at ocpathink.org/esa. In general, parents of eligible students who do not prefer a public school education for their child simply inform their state education agency. They sign a contract promising not to enroll their child in a public school as long as they are using an ESA, and the state deposits 90 percent of what it would have spent into a designated ESA for that child instead. ESA programs in Tennessee and Nevada stand out for depositing 100 percent of that funding into students’ ESAs. Under ESA programs in Arizona, Tennessee, and Nevada quarterly deposits are made, and parents make education-related purchases with dedicated-use debit cards. Florida parents of special education students apply to one of the two non-profit scholarship funding organizations authorized to oversee the ESA program and inform their local public school that their child will be participating in the ESA program instead. The non-profit then deposits an amount worth 90 percent of what the state would have spent into the child’s ESA.37 The two Florida non-profits overseeing the ESA program have similar procedures for participating families. One issues unique
The New Frontier for School Choice Nevada’s new school choice program is getting national attention because it’s the first in the nation to provide universal school choice. However, that’s not all that’s new about it. It’s also an Education Savings Account (ESA) program, which is the new frontier in school choice programs. Five states have adopted this improved model so far. If Oklahoma is looking for a way to improve education without spending any extra money in the midst of a looming budget shortfall, it couldn’t do better than creating ESAs. At first, all school choice programs— and even all school choice proposals— were vouchers. These programs provide parents with a voucher they can redeem for tuition at a private school, up to a fixed maximum amount. Maine and Vermont have had this system in small towns since the late 19th century; they’re called “town tuitioning” programs but they’re identical in design with what we call “vouchers” today. Proposals for school choice systems in the works of John Stuart Mill and Thomas Paine are also recognizably vouchers. Mill defended his voucher proposal in On Liberty on these grounds: “A general state education is a mere contrivance for molding people to be exactly like one another: and as the mold in which it casts them is that which pleases the predominant power in the government . . . it establishes a despotism over the mind.” Paine, by contrast, saw vouchers as a way of righting the historic injustices of aristocracy, giving the lower classes more opportunity to rise and better themselves. The first modern school choice programs, enacted in Milwaukee and Cleveland, were also school vouchers. Vouchers in their modern form were designed by Milton Friedman, whom I was honored to work for in the last couple years of his life. He proposed school vouchers in a 1955 article and was a leader in the modern school choice movement as they began to be enacted. But vouchers have a hitch. They create
a perverse incentive for private schools to jack up tuition to the maximum voucher amount. While they create a marketplace for education, they take out half the equation of any good marketplace. With vouchers, schools compete to attract students, but they compete only on quality, not on price. That may sound good if you have romantic notions about money having no place in education. But, as Milton Friedman would be the first to tell you, prices are a critical source of information that we need to be good stewards of our resources. They tell us about the scarcity of things relative to the demand for them. High prices cry out to providers, “devote more resources to providing this service!” Low prices say, “this isn’t needed as much.” Removing the price system from the allocation of any economic good or service always leads to bad stewardship. In private schools, vouchers encourage wasteful bureaucratic bloat. Money that could have been spent on valuable educational services, or something else, goes to buy things students don’t need. Of course, the schools still aren’t nearly as wasteful as the government education monopoly—but that’s a pretty low standard to set. The recent invention of ESAs proves that there’s a better way to let families spend their school funding, so they get the most educational bang for their buck. ESAs don’t give parents a voucher that they can redeem only once—creating a perverse incentive to spend all the money on that one thing. They put the money in a savings account, from which parents can spend on any educational services. After paying for tuition they can use leftover funds to pay for tutoring, supplemental curricula, or special education services. Money left over after graduating high school can be applied to college. Like vouchers, ESAs don’t cost extra money; they only redirect funding that the state was going to spend on education anyway. That’s always good to
know, but with Oklahoma’s 2016 budget troubles it’s especially relevant. Funding levels on an ESA can be set in such a way that the program is revenue neutral or even saves state money. And local schools benefit financially; because the state funding they lose is not all of their funding (it’s only 49% in Oklahoma), their reduced costs from not having to educate the students who leave are greater than their reduced revenues. It’s not every day someone outsmarts Milton Friedman; indeed, people tangled with his brains at their peril. When he argued against mandatory peacetime military service in a public hearing, he was confronted by a general who said, “I don’t want to command an army of mercenaries.” Quick as a wink, Milton replied, “Would you prefer to command an army of slaves?” That general’s experience was not unique—in fact, it was the opposite experience that was literally unique. When Milton’s wife, Rose Friedman, died, we at the Friedman Foundation included the following sentence in our list of her accomplishments: “She is the only person ever known to have won an argument with Milton Friedman.” Rose was a formidable economist in her own right, but we all considered this her most impressive achievement. Milton was even smart enough to invent one of the worst features of modern political life. Working for the U.S. Treasury Department during World War II, he was on the team of economists who first devised income tax withholding. We have paid the price in liberty ever since. Let’s give thanks that it wasn’t long before he turned his intellect toward expanding freedom rather than contracting it! Nevertheless, he was also smart enough to insist that he didn’t have all the answers. I think he would have been the first to admit that Education Savings Accounts are a big improvement over the school vouchers he designed. —Greg Forster, a senior fellow with the Friedman Foundation for Educational Choice
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identification cards for parents to access their child’s ESA account and submit quarterly preauthorized payments and expense claims.38 The other authorizes debit transfers for pre-approved purchases.39 Mississippi’s ESA program also transfers reimbursements for authorized education purchases. With such approaches, it is important to have policies in place, as one Florida non-profit does, to assist low- and moderate-income families who cannot afford upfront, out-of-pocket expenses. ESAs Are Fiscally Responsible As Friedman noted decades ago, we make better choices when we’re spending our own hard-earned money. Thus the more we avoid third-party payer schemes, the more sensitive we are to prices, costs, and most important, value. ESAs go a long way toward achieving that goal by putting parents directly in charge of their children’s education funding and accounting for every expenditure—down to the last penny each quarter before additional funds are disbursed. By design most ESAs are funded at 90 percent of state per-pupil public school amounts. Thus, even if parents spent all of their children’s ESAs each year, the state would still realize a savings. For example, one analysis of Arizona’s ESA program estimates that the state saves approximately $2.5 million for every 1,000 students who use ESAs, increasing to more than $12 million for every 5,000 students.40 Savings estimates for Oklahoma ESAs are even higher at approximately $1,000 to $3,000, even if they were funded at 100 percent, because expenses not funded by state aid, such as employee health and pension benefits and transportation, would not be covered.41 Additionally, ESA programs have built-in transparency and accountability requirements that most public school finance systems would struggle to meet, starting with providing current-year, quarterly reporting that is actually comprehensible. Today, most states’
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public school finance systems make sense to almost no one except a relative handful of seasoned experts capable of navigating the complexities of prioryear budgeting and byzantine formulas. Thus the simplicity and transparency of ESAs alone are a significant advantage, especially since K-12 education spending typically represents the largest share of states’ general fund budgets, averaging 35 percent nationally.42 There is growing recognition that a student-centered funding approach would serve children far better and streamline Oklahoma’s byzantine and bureaucratic public school financing scheme.43 Because ESAs are a student-centered finance approach instead of a system-centered one, reporting requirements are about as challenging as balancing the family checkbook. Participating parents must submit quarterly expense reports, with supporting documentation, to the agencies or organizations overseeing the programs, typically state education departments and/or treasury departments. They are also required to abide by clearly defined parent responsibilities. Administering agencies are also required to conduct quarterly, annual, and/or random account audits themselves or hire independent, licensed public accounting agencies. Arizona also has established anonymous toll-free telephone and online fraud reporting, and Tennessee plans to follow suit. Administering agencies must also ensure that all prior quarter ESA expenses are legitimate before disbursing subsequent quarterly funds. Parents who do not comply forfeit their child’s ESA. Arizona’s program, for example, has a zerotolerance policy for misspending. ESA accounts are immediately frozen if there is any suspicion of misspending. If misspending is substantiated, parents are removed from the program, and they must repay misspent funds or face legal prosecution.44 Programs in other states have similar sanctions for ESA
misspending or fraud. In addition to their structural program accountability, ESAs incentivize responsible stewardship and fiscal discipline. Unlike many government agency accounting schemes that encourage use-it-or-lose-it spending sprees near the end of each fiscal year, all existing ESA programs allow parents to roll over unused funds from one year to the next. This policy gives parents powerful motivation to find the best quality programs at the best prices and conserve leftover funds. For example, more than $670,000 in total Arizona ESA funds were left over at the end of the program’s first fiscal year alone.45 Programs in Arizona, Florida, and Tennessee maximize this value proposition by allowing parents in those states to save unused funds for even more distant education expenses, such as college tuition. ESAs Pass Constitutional Muster Regardless of how effective or popular parental choice programs are, opponents have tried to litigate them to death for more than two decades, insisting they violate bedrock constitutional principles. ESAs are no exception. The ink was barely dry on the enabling legislation when lawsuits to kill newly enacted ESA programs in Arizona46 and Florida47 were filed by teachers, school boards, and public school employee union members, among others. Courts in those states, however, have consistently ruled that ESAs pass constitutional muster for several reasons, summarized in the Appendix Table at ocpathink.org/esa. First, ESAs are neutral with regard to religion because they make a variety of educational options available to parents, and they—not government—do the choosing. Second, ESAs do not run afoul of constitutional religious aid bans or Blaine Amendments because funds are for the benefit of students, not schools, and no ESA funds are ever directed by government to any particular education provider. Third,
state courts have made clear that ESA students do not forfeit their rights to a free public education because they can re-enroll in public schools if they leave an ESA program. Finally, the courts have rejected out of hand the notion that parental choice through ESAs harms public schools, students, and teachers by draining money. In fact, if that were the case no family would ever be allowed to move away from their current neighborhood, much less out of state, since local public schools would lose students’ associated funding in a subsequent budget year. These state court rulings regarding ESAs reflect recent U.S. Supreme Court decisions upholding publicly funded voucher scholarships (Zelman v. Simmons-Harris, 2002) and privately funded tax-credit scholarships (Arizona Christian School Tuition Organization v. Winn, 2011).48 They also bode ill for the pending lawsuit brought by the American Civil Liberties Union (ACLU) of Nevada on August 27, 2015, against the state’s ESA program. The claim alleges that because the Nevada’s ESA program allows parents to choose religious educational options for their children, it furthers a religious and sectarian purpose. The Institute for Justice successfully defended Arizona’s ESA program, which served as a model for Nevada’s program, and it is now helping defend Nevada’s ESA. According to Institute for Justice senior attorney Tim Keller, “The ACLU claims the ESA program unconstitutionally furthers a religious or sectarian purpose because it allows parents to choose religious educational options for their children … But it is precisely the independent decisionmaking by parents that severs any link between church and state. As with all constitutional educational choice programs, parents—and not the government—decide the best educational setting for their child. … The Supreme Court of the United States, as well as numerous state supreme courts, have already held
that educational choice programs, like Nevada’s ESA Program, are constitutional … We expect the same from Nevada courts.”49 Regardless of the pending Oklahoma Supreme Court ruling concerning the Lindsey Nicole Henry Scholarship Program,50 empowering parents over their children’s education through ESAs is consistent with fundamental constitutional principles. Conclusions and Recommendations: The Time Is Now for ESAs in Oklahoma Oklahomans know that a schooling system that largely rations education based on where children’s parents can afford to live is a relic of a bygone era that cannot provide the customized preparation students need to succeed in a rapidly changing, increasingly competitive world. ESAs are popular, easy to use, fiscally responsible, and constitutional. Best of all, they empower parents to choose how, not just where, their children are educated, which customizes learning to degrees no one-size-fits-all system could ever match—no matter how lavishly funded. Operational and recently enacted ESA programs offer important models for state policymakers interested in expanding such learning opportunities. Lessons from these programs include: 1. Make ESAs universal. Of the five enacted programs, Nevada’s ESA makes the most students eligible, both disadvantaged students as well as general education public school students. Although Arizona’s ESA makes several targeted populations of students eligible, and will likely include more groups in the future, this approach involves practical and principled problems. Annually re-writing and promulgating new regulations, not to mention expansive handbooks and applications, adds hefty administrative burdens to regular ESA program management. As a matter of principle, every student has unique academic needs and deserves
a personalized education their parents can customize for them. An Oklahoma ESA program should be truly universal by making all school children eligible, including those who currently attend private schools or are educated at home. After all, these children’s parents pay taxes, too, and should not be discriminated against because they prefer non-public education providers. ESA eligibility should also be extended to preschool-aged children, especially since Oklahoma is one of the few states where the overwhelming majority of four-year-olds attend public and government-run preschool programs, 76 percent, compared to the national average of 23 percent.51 2. Fully fund ESAs. Advancing parental choice programs is politically challenging enough for state lawmakers. That is why so many programs are designed to achieve positive fiscal notes. Though understandable, it’s worth recalling that taxpayer funding for education is supposed to be for the benefit of students, not a single provider. Tennessee and Nevada fully fund ESAs for special needs and low-income students; however, this practice should be the rule for all students as a matter of fundamental fairness. Furthermore, even at 90 percent funding, as is the case with the remaining ESA programs and regular education students under Nevada’s program, it will be interesting to see just how much education funding remains at the end of each school year with parents in charge of purchasing decisions. For instance, altogether Arizona parents currently have hundreds of thousands of dollars left over at the end of each year for future education expenses. This reality is even more striking given that participating students are disadvantaged and likely require more expensive educational services than general education students. Such results challenge claims that public education is under-funded. State policymakers should keep this
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lesson in mind because ESA results to date certainly appear to show that it is indeed possible to do more with less once we stop subsidizing costly overhead and administration along with various bells and whistles that have little to do with actual student learning. 3. Blow the lid off program caps. At best program caps are unnecessary, and at worst they are unjust. Limiting participation in parental choice programs is a common strategy state lawmakers use to pacify opposition just enough to enact or advance programs. For example, Mississippi caps the number of ESAs at 500 for the first year, increasing by 500 each subsequent year. Yet it is important to recognize—and counter—the illogic of calls for capping parental choice programs, including ESAs. If parents are indeed satisfied with existing education options under the status quo, as parental choice program opponents often insist, then it makes no sense to cap non-existent demand. It is probably more accurate to say that what opponents fear most is unleashing pent-up parent demand for more personalized education options— even in states like Arizona that have had a variety of expansive parental choice programs for nearly two decades. As part of its ESA expansion in 2013, Arizona capped the number of ESAs at no more than 0.5 percent of total prior-year public school enrollment (approximately 5,400 ESAs) until 2020. The official bill analysis at the time concluded that the cap would likely not be reached based on prevailing growth projections.52 Yet program growth has far exceeded expectations, roughly doubling each year. With more than 1,300 ESAs as of the 2014-15 school year, the cap could be reached as early as the 2016-17 school year if the empirical growth trend is any indication, potentially leaving thousands of students languishing on waiting lists for years. 4. Beware of pilots. Similar to
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program caps, enacting pilot programs rather than full-scale programs is a common political compromise. Currently, only Mississippi has enacted its ESA as a five-year pilot program. State lawmakers, however, should be wary of pilots for several reasons. Knowing a program may not last can discourage parents from enrolling their children. Pilot programs also often limit the types of students and education providers who can participate. These consequences have several negative ripple effects. Diminished enrollment makes it easier for political opponents to claim the program is unnecessary, unwanted, or ineffective. Also, in spite of well-intentioned efforts to phase in programs that are pilottested to improve program awareness, pilots are rarely meaningful tests of full-scale parental choice programs. From a practical standpoint, with few exceptions (notably, Florida’s McKay Scholarship Program), historically parental choice opponents have successfully directed substantial resources toward killing smaller pilot programs or preventing their expansion.53 5. Let all education providers compete. Government should not be in the business of cherry-picking service providers. Parents know and love their children best, so they should be in charge of choosing their children’s education service providers. If parents are not satisfied, ESAs make it easy for them to choose better providers. Such freedom introduces immediate rewards for success and consequences for failure. This approach better ensures program accountability and efficiency than top-down mandates, which are expensive and can take years to enforce. Similarly, government is simply not well situated to pick winners and losers, particularly given the break-neck speed of technological and other advances that can benefit students. To maximize personalized learning opportunities for students, state lawmakers should
foster diversity and competition among all education providers and be open to including future kinds of providers as well. 6. Private administration is best. Ensuring taxpayer dollars are used as intended is a core government responsibility. Most ESA program oversight and administration are handled by state education agencies and/or treasury departments. Administrative fees for existing ESA programs range from 3 percent (Florida) to 6 percent (Mississippi). Those fees are needed to cover the labor and overhead costs associated with processing applications, quarterly expense reviews, ongoing ESA audits, and other tasks. Administration costs must be accounted for in any parental choice program to ensure program continuity. However, good government oversight does not require government administration. In fact, this structure is far from ideal because no matter how supportive government agencies may be of ESAs and parental choice in general now, there is no guarantee that the political tides will not turn after the next election. Moreover, customer service is not exactly a hallmark of government bureaucracies—even ones that perform well by public-sector standards. For example, Arizona’s ESA is administered by the state education department, and the program garnered a 100 percent parental satisfaction rate. Participating parents even ranked the department as the most helpful of several available information resources. Nevertheless, it rejected close to half of the 2,300 ESA applicants for the 2014-15 school year.54 The department claimed those applicants simply were not eligible, but it was criticized for failing to answer applicants’ phone calls and conducting informational workshops during regular working hours when most parents are at their jobs. Thus, even as supportive as Arizona’s education department is to ESAs and other parental choice programs,
Oklahoma’s Premise: Private Schools at Public Expense The “Oklahoma’s Promise” scholarship program helps pay tuition for qualifying students at Oklahoma’s public colleges and universities. But it also helps pay tuition at private colleges and universities. In other words, Oklahoma’s Promise is, among other things, a private-school voucher program. As it should be. Restricting higher-education subsidies “to schooling obtained at a stateadministered institution cannot be justified on any grounds,” Nobel Prizewinning economist Milton Friedman once said. “Any subsidy should be granted to individuals to be spent at institutions of their own choosing.” It’s not just Oklahoma’s Promise. Consider also the Oklahoma Tuition
Equalization Grant (OTEG), which helps kids attend private schools at public expense. It was created in 2003 by a Democratic legislature and Democratic Governor Brad Henry. Indeed, “for many years, students have been assisted by a variety of state-funded scholarship programs that provide funding for students to attend private, religious institutions of higher education,” Oklahoma Independent Colleges and Universities points out. “These programs include the state’s Oklahoma Tuition Aid Grant program (OTAG), the Academic Scholars program, and the Oklahoma’s Promise scholarship program. These aid programs differ somewhat from OTEG in that they can be used at both public
and private institutions, but the principle behind all the programs is the same—the state has created and funded a program for the public purpose of benefiting individual students. The institutions that provide the services that benefit these students are compensated by the state for the valuable consideration they have provided the students and the state.” To their great credit, Oklahoma’s political leaders provide public funds for 18-year-olds to attend private schools throughout the state. Now it’s time to provide public funds for 17-year-olds (and 7-year-olds) to attend private schools throughout the state. —Brandon Dutcher
commonsense practices that are standard for the private sector are still exceptional in government, including hiring personnel to staff 24-hour information hotlines and online Web chats, conducting live interactive online workshops that can be recorded and archived for viewing later by parents who could not attend in person, providing Web-based ESA applications, and having personnel available to help non-native English speakers with ESA application questions. In contrast, non-profit scholarship organizations handle ESA administration in Florida, which helps overcome the innate inertia and inflexibility of government bureaucracy and minimizes the potential for program politicization.55 Other private-sector administration models exist as well. Private financial institutions already have the infrastructure in place for defined-use debit or credit cards and detailed expense reports, not to mention highly trained staff and streamlined processes to answer cardholders’ questions and process paperwork. For example, the military uses pre-programmed travel cards that allow authorized purchases, flag
questionable purchases that may have to be refunded unless subsequently approved, or decline if a charge is obviously not travel-related. Moreover, travel cards can be automatically de-activated during non-travel periods to prevent fraudulent purchases. Online banking also provides realtime transparency, the tools to scan transaction receipts, and the ability to generate reliable expense reports. Additionally, categorized annual spending reports can be generated automatically, like the ones most credit card companies already provide to customers. Using existing private-sector capacity would help provide necessary ESA program oversight at a fraction of the government-sector overhead and labor cost. Every student, regardless of his or her circumstances, should have the opportunity for personalized learning. Parents empowered over their children’s education funding in a growing number of states are now free to seek a variety of education service providers. And, because education providers are not constrained to work within a rigid, bureaucratic public school system, more providers can enter
the education marketplace where they have the freedom to innovate and tailor their services to the needs of individual students. This situation increases competition for students and introduces powerful pressure on all providers to offer effective, high quality programs at reasonable prices, or lose students to other providers. ESAs are a studentcentered funding mechanism that can personalize learning for all students by putting their parents in charge. This policy approach is a win-win for students, families, and taxpayers. Vicki Alger (Ph.D., University of Dallas) is a research fellow at the Independent Institute in Oakland, California, with a forthcoming book on the history of the U.S. Department of Education. Alger holds senior fellowships at the Fraser Institute in Vancouver, British Columbia, and the Independent Women’s Forum in Washington, D.C.
To view an informational chart on the ESA programs across the nation, and to view the endnotes for this article, please visit ocpathink.org/esa.
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QUOTE UNQUOTE “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
“Do Oklahomans really need to pay $615 million in additional taxes to provide $378 million in additional teacher pay?” The Oklahoman editorial board, in a November 18 editorial
F.A. Hayek
“15 percent” The percentage of Oklahoma’s black teenagers who reach age 17 in a family with both their biological parents married, according to research from Dr. Patrick Fagan
“As the higher education bubble bursts, I think academia may want to reflect on the unwisdom of turning itself into an arm of the Democratic Party while treating Republicans with open contempt—---particularly as Republicans take over more and more state governments.” Law professor Glenn Reynolds
“The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.” Adam Smith