School Choice & Charters

Do Vouchers and ESAs Take Money From Public Schools? How States Fund School Choice

By Mark Lieberman — May 08, 2023 7 min read
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Republican state lawmakers in recent months have ramped up programs that make public funds available for parents to spend on their children’s private education.

This year alone, Arkansas, Florida, Iowa, and Utah have passed bills that establish or lay the groundwork for universally accessible education savings accounts—public funds that parents can use on a wide variety of private education-related expenses, including tuition, classroom supplies, transportation to private education providers, and homeschooling expenses.

South Carolina last week became the 12th state to offer education savings accounts.

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Kansas lawmakers just approved an expansion of the state’s existing tax-credit scholarship program, making all students whose families’ income falls below 250 percent of the poverty line eligible for scholarships to private schools funded by individual and corporate taxpayer donations.

Lawmakers in several other states, including Alabama, Mississippi, and Texas, are still debating school choice initiatives that would similarly devote public funds to private education.

And for years, more than a dozen states have had voucher programs that allow families to use public funds to pay tuition to a private school of their choice.

The cost of these programs is almost certain to multiply over time as more families opt in, state projections show.

In Arizona, the education savings account program grew from roughly 10,000 recipients in mid-2022 to nearly 54,000 as of May 1 after the state opened eligibility to all students last year, according to the state education department.

That means more than 4.5 percent of the state’s K-12 students are receiving ESA funds, with the recent expansion costing the state $200 million in as-yet-unbudgeted costs, according to the state’s Joint Legislative Budget Committee.

That trend in Arizona and elsewhere is sounding alarm bells for critics of the school choice movement, who argue that publicly funded school choice initiatives redirect money from struggling public schools and disproportionately benefit families who already have the means to pay for private school or homeschool.

(So far, data from states like Arizona and New Hampshire show that most recipients of education savings accounts weren’t previously attending public school prior to signing up.)

The growing costs of these programs are well documented. In 2019 alone, seven states spent $2.3 billion on vouchers, ESAs, and other forms of school choice, according to an analysis of state data by two researchers from Columbia University Teachers College. By comparison, those seven states invested $54.6 billion in public K-12 schools that year, according to Census data.

But do funds for vouchers necessarily come at public schools’ expense? The sources of funds for these programs have gone underexplored, school choice experts say.

Here’s a look at where funds for school choice come from—a mix of state tax revenue, local district budgets, and private donations:

The state’s traditional K-12 funding source

Some states have specific accounts dedicated to K-12 and higher education that now serve as the funding source for vouchers, ESAs, and the like. And many states allocate school choice funds from the same source as the base formula for sending state aid to school districts.

Arizona, Indiana, and Arkansas fund ESAs by devoting 90 percent of the state’s base funding amount per public school student to families enrolled in the choice programs, said Christian Barnard, senior policy analyst for the Reason Foundation, a libertarian think tank. Iowa, Mississippi, and New Hampshire spend the same amount in state dollars per ESA as for each public school student, he said.

Florida and Tennessee are among the states that subtract the cost of vouchers from the state aid allocations for the districts where students taking advantage of vouchers live, said Jessica Levin, director of Public Funds Public Schools, a national nonprofit that advocates for states to meet their constitutional obligations around education for all students.

In Alabama, a proposed education savings account program would draw from the state’s Education Trust Fund, the largest pot of funds in the state’s coffers. According to the state Department of Finance, that fund draws from taxes on sales, income, and utilities to fuel investments in “support, maintenance, and development of public education in Alabama” as well as “other functions related to educating the state’s citizens.”

School district budgets

It’s less common for school districts themselves to directly bear the costs for local children entering private school or switching to homeschooling through one of these programs. But it does happen.

In Wisconsin, families can sign up for a voucher that covers $8,000 to $9,000 in private school tuition costs for a student exiting the public school system. Their home district then sees a cut in state aid equivalent to the cost of the student’s private school voucher. State law also prohibits districts from levying taxpayers to cover those losses.

And in Montana, both houses of the state legislature last month passed a bill that establishes a new education savings account opportunity for students with disabilities. Each time a student enrolls, the student’s home school district will send roughly $7,000 in local tax revenue and state aid to the state’s education department, which will put that money in an education savings account for the student’s family to use on a wide variety of allowable expenses.

Disability rights groups and associations that represent public schools in the state criticized the bill, arguing it could impose steep costs on districts if even a fraction of the state’s students with disabilities sign on.

Montana’s approach to funding ESAs looks different from most, Barnard said.

“It looks like they’re trying to treat districts as ‘pass-throughs’ for ESA funding, the same way some states fund charter schools through traditional district budgets,” Barnard said. “This is not typical.”

State general funds or separate appropriations

At least three states—North Carolina, South Carolina, and Utah—fund vouchers and ESAs with state appropriations distinct from the state’s public education funding formula, Barnard said.

Even if the general fund isn’t the specific funding source for a school choice program, some argue that the general fund can take a hit from the cost of expanding choice. Arizona Attorney General Kris Mayes wrote to Gov. Katie Hobbs last weekend, warning her that early projections for the state’s budget show the swelling costs of universal ESAs crowding out needed investments in other state initiatives like consumer protection and crackdowns on fentanyl dealers. Mayes calls Arizona’s precedent-setting investment in school choice a “catastrophic drain on state resources.”

Levin’s organization believes that vouchers can be damaging to public schools regardless of where the funds originate.

“They might think that funding vouchers through general revenue will protect a voucher law, or allow them to spin it as not taking money from public schools,” Levin said.

She’s concerned that students with disabilities and students from low-income families will be less likely to be able to qualify for admission to private school or afford the steep tuition costs, which often far exceed what the state’s vouchers and tax credits cover. That would leave districts with larger concentrations of students who cost more to educate, even as they lose per-pupil funding to declining enrollment.

Barnard sees voucher funding as comparable to the enrollment fluctuations districts routinely endure.

“The mechanism whereby dollars leave a school district is the same it would be if a student moved or left the district,” he said.

Most research has failed to show a connection between voucher programs and improved academic outcomes, though some studies show students who use vouchers are more likely to persist from high school to college.

Some scholars also believe school choice exacerbates racial segregation in schools.

Private donations

Some states offer tax credits to individuals and corporations that donate to organizations that provide scholarships for high-need K-12 students to attend private school—in a sense, converting state tax revenue into funding for private education providers.

More than 20 states have a tax-credit scholarship program on the books, according to EdChoice, a nonprofit advocacy organization that tracks and promotes school choice policies. These initiatives have been controversial in some places—in December, for instance, Kentucky’s Supreme Court struck down the state’s K-12 tax credit initiative.

A significant majority of tax credits doled out by Arizona, Louisiana, and Virginia go to wealthy families, according to data from the mid-2010s published in a report this March by the Institute on Taxation and Economic Policy. Many taxpayers have taken advantage of obscure loopholes in state and federal tax codes to personally profit from these donations, the report found.

Nine states also set aside tax revenue for credits to parents who pay out of pocket for private school and other related expenses for their children.

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