Jonathan Butcher

A New Day for School Choice: Education Savings Accounts Turn 3 Years Old

Posted on January 16, 2014 | Type: Policy Report | Author: Jonathan Butcher
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Tim and Lynn McMurray are not afraid of a challenge. And they don’t want their adopted children, Alicia, Uriah, and Valerie, to be afraid either. The McMurrays adopted the three children shortly after the kids were born. Tim and Lynn recognized each child had unique needs due to their biological parents’ substance abuse and neglect.
  
After enrolling the children at several public schools in Arizona and even a private school, the McMurrays were not satisfied with the care their children were receiving. Alicia, who struggles with the effects of fetal alcohol syndrome, was enrolled in a school that provided little more than “glorified babysitting,” Lynn says. Uriah and Valerie were bullied in class because they didn’t fit in.
 
“Their self-esteem was going low and I could see their future and they would turn to drugs and alcohol in a minute if I left them in a public school,” Lynn says. “They weren’t learning anything.” 
 
In the 2013-14 school year, the McMurrays applied for education savings accounts for all three children. Alicia is eligible because of her special needs, while Uriah and Valerie are eligible because they were adopted from the state foster care system. 
 
For three years, eligible Arizona families have had access to the accounts, which transfer public money to private bank accounts so parents can pay for educational services, including private school tuition. The accounts can also be used to pay for online classes, educational therapy, textbooks, and homeschool materials. Extra funds can be saved for college.
 
The accounts have changed the McMurrays’ lives. Lynn says that in the first three months, Alicia “learned more at home with us than in her prior school.” She adds that Uriah and Valerie “are so excited about learning now because the kids aren’t making fun of them.”
 
“We’re stepping up academically for these kids. It’s a huge challenge,” she notes. 
 
This policy brief reviews the accounts’ first years of operation. Legislative changes since lawmakers enacted the accounts have given more children access, and in 2013, researchers conducted the first studies of how families are using the accounts. This brief will cover the new legislation and research, along with developments in a lawsuit that an Arizona teachers’ union and school boards’ association filed against the accounts. Finally, this report will offer three recommendations for education savings account expansion, fraud prevention, and academic transparency.

 

 

Introduction

 
Alicia, Uriah, and Valerie are three of the 761 children using education savings accounts in the 2013-14 school year (see Figure 1). Data from the Arizona Department of Education indicate that participation has grown steadily since 2011.
  Figure 1: Education Savings Account Participation in Arizona, 2011-12 to 2014-15 (Projected)
 
 
*Each school year, the number of new education savings accounts that the Arizona Department of Education approves may not exceed 0.5 percent of the total number of public school students in the state. In the 2014-15 school year, the total number of available new accounts is approximately 5,500. 
 
Source: Arizona Department of Education, “ESA Parent Handbook: Chapter II: Program History & Authority,” http://www.azed.gov/esa/files/2013/08/chapter-2.pdf.
 
Though student enrollment was small in the program’s first year, more students are using savings accounts today than the number of students using scholarships or vouchers in Rhode Island, Utah, Oklahoma, and Mississippi (Mississippi is the only state from this list with a program that was enacted after education savings accounts became law in Arizona).
 
Arizona Gov. Jan Brewer signed education savings accounts (officially called “Empowerment Scholarship Accounts”) into law on April 12, 2011. A critical feature of the accounts is that they enable parents to purchase a variety of educational products and services. In recent superior and appellate court rulings, judges cited flexibility and variety as key features that make the accounts constitutional (see “Education Savings Account Lawsuit” below). 
 
The high degree of flexibility that education savings accounts offer set them apart from other school choice reforms like vouchers or scholarship tax credits. A school voucher is a coupon or certificate awarded to parents or to a private school on behalf of a parent so that a child can attend a private school. A tax credit scholarship is a private school scholarship funded by individual or corporate contributions to scholarship-granting organizations. Vouchers, and most tax-credit scholarships, allow parents to choose between schools, a valuable alternative for families unsatisfied with their child’s assigned public school.
 
But education savings accounts were designed to be different from vouchers or scholarships and allow parents to do more than choose where their child is educated—they can choose how their child is educated. 
 
With a savings account, parents can choose from a wide variety of online classes, personal tutors, educational therapies, textbooks, and private schools. In fact, parents do not have to send their children to private school at all. For example, They can use a combination of homeschool lessons, virtual school classes, and individual public school classes. As explained below in “Education Savings Account Research,” the first studies performed using data from education savings accounts found that parents are taking advantage of their freedom to choose from different options.
 
Kimber Cartwright helped start the message board for savings account families on Yahoo.com, and says the accounts’ flexibility has helped her son, David. “We’ve been able to choose what schools he goes to, what therapies, and even add extra curriculum to the private school that he’s in,” Kimber says.
 
 

Education Savings Accounts: Legislative History

 
When Gov. Brewer signed the savings accounts into law, Arizona’s 125,000 special needs children were made eligible to apply. Children were required to have an Individualized Education Program, Multidisciplinary Education Team report, or 504 plan in order to participate. These documents define a child’s special needs and outline the interventions needed to address their needs. In addition, children must have attended a public school in the prior school year. 
 
Each account was worth 90 percent of a child’s portion of the Arizona school funding formula. The state department of education awarded the funds from a designated funding source for special needs children. In Arizona, special needs children are funded using a weighted system. The department multiplies 90 percent of the base funding amount, approximately $3,800, by a number assigned to a diagnosis. For example, the department has assigned children with a hearing impairment a funding weight of 4.771. The base amount, $3,800, is multiplied by the weight, 4.771, and the child receives approximately $16,000 in his education savings account. Account awards are distributed quarterly, so the department would deposit $4,000 in this hypothetical child’s account every three months. 
 
In 2012, Arizona lawmakers changed the funding source from this designated account to the state general fund. This adjustment did not change the amount that students receive, but the adjustment did make it possible to expand the program to include children from public schools that earned a “D” or “F” on the state report card system, children adopted from Arizona’s foster care system, or children of parents who are active-duty members of the U.S. military. These students’ accounts are now funded through the school funding formula used for all public school students. This expansion increased the number of eligible students to over 200,000, or more than 1 in 5 Arizona public school children.
 
Figure 2: Education Savings Account Eligibility Expansion
Source: Jonathan Butcher, “Education Savings Accounts: Questions and Answers,” Goldwater Institute, March 12, 2012, http://goldwaterinstitute.org/article/education-savings-accounts-questions-and-answers; Arizona Department of Education, “Special Education,” http://www.azed.gov/special-education/funding/data-management/2012-2013/; Fiftieth Arizona Legislature, First Regular Session, SB 1553, http://www.azleg.gov/DocumentsForBill.asp?Bill_Number=1553&Session_Id=102&image.x=-919&image.y=-34; Fiftieth Arizona Legislature, Second Regular Session, HB 2622, http://www.azleg.gov/DocumentsForBill.asp?Bill_Number=2622&Session_Id=107&image.x=-919&image.y=-34; Fifty-First Arizona Legislature, First Regular Session, SB 1363, http://www.azleg.gov/DocumentsForBill.asp?Bill_Number=1363&Session_Id=110&image.x=-919&image.y=-34.  
As the program grew both in the numbers of children who were eligible and participating, the Goldwater Institute designed solutions to protect families and taxpayers from fraudulent activity. Arizona lawmakers passed HB2458 in 2013, which gave the Arizona Department of Education additional authority to protect the accounts’ integrity. The bill directs the department to conduct regular audits and gives the agency the ability to create a fraud-reporting system online and over the phone. In addition, the bill allows the department to employ surety bonds with account holders. With a surety bond, parents buy a policy using account funds (typically around $25), and the department can use the policy fees to pay for any investigations into fraudulent activity or to recoup lost account funds if parents make ineligible purchases.
 
In 2013, lawmakers also increased the base funding amount for the accounts. SB1363 increased the base awards from approximately $3,800 to $5,300. For students with special needs, this amount will still be multiplied by the weight assigned to their diagnosis. In addition, SB1363 extended student eligibility to include incoming kindergarten students who meet the existing eligibility requirements (special-needs children, children attending to a “D” or “F”-rated public school, adopted children, and children in military families).
 

Arizona Empowerment Scholarship Account Legislative History

 

SB1553: Education, Arizona Empowerment Accounts

 
Passage: 2011
 
Summary: This bill authorized education savings accounts in Arizona. Special needs students were eligible to apply in the 2011-2012 school year. The accounts were funded using a specific source of funds at the Arizona Department of Education for students with special needs.
 

 

HB2622: School Rankings; Display; Time Period

 
Passage: 2012
 
Summary: This bill expanded student eligibility to include children attending schools that earned a “D” or “F” on the state report card, children in active-duty military families, and children adopted from the state foster care system. The bill also funded all accounts using the general fund, the primary source of Arizona state education funding.
 

 

HB2458 Empowerment Scholarship Accounts; Fraud Prevention

 
Passage: 2013
 
Summary: This bill required the Arizona Department of Education to conduct annual audits in addition to the quarterly reviews of the accounts. The bill also gave the department the authority to outsource auditing responsibilities and to create fraud-reporting resources such as a 1-800 phone number and a website dedicated to fraud reporting. The bill also gave the department the authority to create a surety bond arrangement with families to help recover any misspent funds.
 

 

SB1363: Empowerment Scholarship Accounts; Expansion; Funding

 
Passage: 2013
 
Summary: This bill expanded student eligibility to include incoming kindergarten students that meet the existing eligibility requirements for the savings accounts. The bill also adjusted the funding formula so that the basic amount of account awards was increased to approximately $5,300.
 
 
 
 

Education Savings Account Lawsuit

 
In what should come as no surprise to supporters of quality choices in education, the Arizona Education Association, a teachers’ union, and the Arizona School Boards Association (ASBA) filed suit shortly after Governor Brewer signed the accounts into law. In 2009, the union, school boards association, and the American Civil Liberties Union (ACLU) sued and took school vouchers away from Arizona children with special needs and children in the foster care system with a victory in Cain v. Horne. Teachers’ unions have also sued K-12 scholarship programs in states such as Florida, Ohio, and Wisconsin. Unions and other associations such as the ACLU are established opponents to student access to educational choices.
 
In the current lawsuit against education savings accounts, Niehaus v. Huppenthal, the teachers’ union and school boards association contend that the accounts violate state constitutional provisions prohibiting public money from being used for private or religious purposes. This reasoning is similar to opponents’ position in Cain v. Horne.
 
As described above, education savings accounts are distinctly different from vouchers because parents can use the accounts for various educational products and services. Parents are not compelled to use their funds for any specific service. The Goldwater Institute is defending the accounts alongside Arizona school superintendent John Huppenthal and the Institute for Justice. In January 2012, Maricopa County Superior Court Judge Maria Del Mar Verdin ruled that education savings accounts did not violate the state constitution. “The exercise of parental choice among education options makes the program constitutional,” Judge Del Mar Verdin wrote in her opinion.
 
The teachers’ union and ASBA appealed, and the Arizona Court of Appeals ruled in favor of the accounts on October 1, 2013. In a unanimous decision, Judge Jon W. Thompson wrote, “The specified object of the ESA is the beneficiary families, not private or sectarian schools. Parents can use the funds deposited in the empowerment account to customize an education that meets their children’s unique educational needs.” The union and school boards association are now asking the Arizona Supreme Court to take up the case. 
 

 

Education Savings Account Research

 
In 2013, three studies provided the first research on Arizona’s accounts. In May, the Goldwater Institute conducted the first focus group study of families using education savings accounts. Eighteen parents participated. The purpose of the session was to learn more about how parents were using the accounts, what practices they found to be the most beneficial for their children, and what changes they thought would make the accounts more effective at helping their children.
 
Over the past 10 years, The School Choice Demonstration Project, based at the University of Arkansas, conducted similar focus groups of parents using school vouchers for their children in Milwaukee, Wisconsin, and Washington, DC. The focus groups found high levels of parent satisfaction and parent engagement with their children’s schooling.
 
Likewise, the Goldwater Institute’s focus group found that parents were satisfied with their choice to use an education savings account for their children. Ninety-four percent of participants were “very satisfied” with the accounts, and six percent were “somewhat satisfied.” 
 
One focus group participant said, “I am, by and large, extremely happy with the fact that we have the account. I’m amazed that this is even possible, and every day I wake up and just pinch myself that this is a possibility.”
 
Parents reported that the Arizona Department of Education was the most helpful source of information about the accounts, but they also said that they found traditional public school officials and teachers were not informed about the accounts.
  Figure 4: What Were the Most Helpful Sources of Information When Choosing How to Use Your Education Savings Account?
 
  Source: Jonathan Butcher, “Dollars, Flexibility, and an Effective Education: Parent Voices on Arizona’s Education Savings Accounts,” Goldwater Institute Policy Report No. 263, October 3, 2013, p. 10,  http://goldwaterinstitute.org/sites/default/files/GWI_Policy%20Report_ESA_final.pdf. No respondents selected the other available options of a school fair, family, friends, church, or doctors/physicians.
 
Parents report that public school officials had little or no information on the accounts:
 
“The school officials knew nothing about the scholarship at all. They were asking me questions about the scholarship...and put me in a corner about the scholarship. They were not familiar with it at all.” 
 
“I was recently having my son’s [Multidisciplinary Evaluation Team report], and I was talking to the psychiatrist, and she had no idea what the scholarship was. She was asking questions about it. She thought it was really great. She thought it was great that he was able to use this scholarship. But she had never heard of it before.”
 
Another study using data on parent purchases found that parents are taking advantage of the accounts’ flexibility. Writing for The Friedman Foundation for Educational Choice, Lindsey M. Burke found that 34.5 percent of education savings account funds were used for multiple education services. Approximately 65.5 percent of funds were used only for a single educational option.
 
Burke found that more than $670,000 in account funds were unspent at the end of FY2012, and $338,000 were unspent in the first quarter of 2013. Burke writes, “This suggests families are saving and rolling over a significant portion of the ESA funds, in anticipation of either near-term or long-term future education-related expenses.” Note that education savings account students only use 90 percent of the state’s portion of funds set aside for them in the public school funding formula, resulting in significant taxpayer savings. A Goldwater Institute analysis estimates that for every 5,000 children using savings accounts, the state saves $12.3 million.
 

Figure 5: Percentage of Empowerment Scholarship Account Funds Used for Single vs. Multiple Educational Options, September 2011 to March 2013

 
 
Source: Lindsey M. Burke, “The Education Debit Card: What Arizona Parents Purchase with Education Savings Accounts,” The Friedman Foundation for Educational Choice, August 28, 2013, 
http://www.edchoice.org/Research/Reports/The-Education-Debit-Card--What-Arizona-Parents-Purchase-with-Education-Savings-Accounts.aspx. 
 
In a survey of savings account families conducted in 2013, Jonathan Butcher and Jason Bedrick found that 65 percent of parents reported using their child’s account for private school tuition. Twenty-seven percent of families did not spend any of their account funds on private school tuition. Similar to the two other studies conducted in 2013, the authors found that parents used the accounts for multiple purposes (Figure 6). According to the survey, 65 percent of parents used the accounts for private school tuition, 41 percent accessed education therapy, and more than one-third of respondents used the accounts for a tutor for their child. 
 
 

Figure 6: Different Uses of Education Savings Accounts

 
  Source: Jonathan Butcher and Jason Bedrick, “Schooling Satisfaction: Arizona Parents’ Opinions on Using Education Savings Accounts,” The Friedman Foundation for Educational Choice, October 10, 2013, p. 11.
 
The survey also found that some parents were spending their own funds on their child’s education in addition to education savings account monies: “Most parents reported using personal funds to pay for their children’s education in addition to education savings account funds. Though 24 percent reported not spending any additional funds, 29 percent of respondents spent $101–$500 in personal funds; 15 percent spent $501–$1,000; 12 percent spent $1,001–$2,500; 5 percent spent $2,501–$5,000; and 11 percent of respondents spent more than $5,000.”   
 

 

Education Savings Account Legislation in Other States

 
In 2012 and 2013, lawmakers in Florida, Iowa, Montana, and Utah introduced legislation to create education savings accounts. 
 
Montana legislators introduced two bills, HB357 and HB288. Under HB357, all Montana students, except virtual school students in the Montana school for the deaf and blind would be eligible to apply, while HB288 is specifically designed for special needs children.
 
Utah students in grades 9-12 would be eligible for accounts under HB123, introduced in 2012. Under this legislation, money in the accounts would earn interest, a distinction from Arizona’s law. 
 
In Iowa, SF323 would have allowed private school students to access the accounts. The legislation also would have allowed parents to buy computer hardware once every three years, a provision not included in Arizona’s law. In the Arizona focus group, parent feedback indicated that the freedom to buy computers or tablet devices would help parents and students.
 
In Florida, HB1251 would have allowed all public school students to access accounts (with exceptions similar to the Montana bill cited earlier). Students in state-funded virtual schools and students already attending private schools using tax-credit scholarships would not be eligible. Families would be able to use the funds for private school tuition, online classes, personal tutors, and college savings plans, as well as pre-paid college tuition services. The bill also specified that a student could return to a public school at any time during the year. This is an important provision because the teachers’ union that is suing to stop Arizona’s program claims that parents forfeit their right to return to a public school.
 
The recent Arizona Court of Appeals’ decision says this complaint is not valid: “The ESA does not require a permanent or irrevocable forfeiture of the right to a free public education,” Judge Thompson writes. “All the ESA requires is that students not simultaneously enroll in a public school while receiving ESA funds.”  Florida’s language states directly that parents have the right to return their child to a public school.
 

 

The Future of Education Savings Accounts

 
Over the past three years, Arizona lawmakers have made more children eligible for education   savings accounts, enacted provisions to protect children and taxpayers from fraud, and increased the amount of each award. However, in order to give every child the chance at an excellent education, the accounts must be further expanded and revised in three areas:
 
Eligibility: Every child should have access to education savings accounts, just as every child can attend a public school. The four-fifths of Arizona students still not eligible for the accounts must be included in future expansions of the law.
 
Financial Transparency: Lawmakers gave the Arizona Department of Education more discretion to implement protections against fraudulent activities with the accounts, and the department must follow-through.  Parents have unique flexibility with the accounts to buy different services to meet their children’s needs, and the department should implement surety bonds and other fraud-protection measures to make sure that account funds are being used for the benefit of students.
 
Academic Transparency:  Lawmakers and taxpayers should know how well students are performing using the accounts. Student achievement information is evidence of the accounts’ effectiveness, and this information can be used to demonstrate the accounts’ value, especially if financial fraud is discovered. That way, taxpayers know the accounts benefit students and the program will be protected in the process of prosecuting individuals that misuse the funds.  
 

 

Conclusion

 
Lynn McMurray, the mother of education savings account students Alicia, Uriah, and Valerie, knows that her choices with her children’s education savings accounts will help to define their futures. “They need to survive in the world,” Lynn says. “They need to get jobs when they grow up and get back into the community.” 
 
Holland Hines, who helped launch the Yahoo! Group for account families along with Kimber Cartwright, says, “We’re talking about taking care of these children for years if we don’t get them the proper education now.” Hundreds of Arizona families are taking advantage of the accounts with the same vision for the future.
 
Because education savings accounts give parents many different choices, lawmakers in Arizona and around the country should monitor both the spending flexibility and the academic outcomes to make sure children have access to the tools and services they need, and that they are, in fact, learning. 
 
Some Goldwater Institute focus group respondents said they struggle to keep track of which expenses are eligible and which are not. “The expenditures that are covered can be very ambiguous,” said one participant. Another parent said, “I had no idea what would be covered or not, so I was just googling private schools.” 
 
State lawmakers must keep track of parent feedback like this to make sure students have broad access to multiple services while also taking steps to prevent fraud. Education savings accounts have the potential to give every child the chance at a great education and will need careful legislative adjustment, a sustained legal defense, and more research on student outcomes in the coming years to live up to the potential.
 

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