Education and Workforce Director Testifies in Missouri about Education Savings Accounts

Testimony before the House Committee on Elementary and Secondary Education, State of Missouri, Chairwoman Rep. Kathryn Swan 

February 15, 2016

 Inez Feltscher

Director, Education and Workforce Development
American Legislative Exchange Council

2900 Crystal Dr., Suite 600
Arlington, VA 22202

My name is Inez Feltscher and I am the Director of the Education and Workforce Development task force at the American Legislative Exchange Council. Thank you, Chairwoman Swan, for the opportunity to testify today about education savings accounts and the opportunities they can provide for Missouri students.
What are ESAs?

Education savings accounts (ESAs) are the new frontier in educational choice, and hopefully of education as a whole. When a parent chooses to participate in an ESA program, he or she receives all, or most, of the funds the state would otherwise have directed to the geographically-assigned school district. The funds are instead deposited into a restricted-use savings account for parents to use on educational expenses. Putting parents back in charge of the direction of their children’s educations allows parents not only to send their students to the schools – public or private – that work best for them, but to actually design customized and flexible education experiences, including tuition, online classes, curricula, textbooks and workbooks, tutoring, and special education therapies, that are as varied as the children themselves. Instead of feeding a child into a system that must, necessarily, be designed around the “average” student, through an ESA program, parents can and have constructed individualized education pathways for their children which capitalize on their unique strengths and shore up their particular weaknesses.

But although they are cutting-edge, ESAs are not brand-new or unstudied. As of today, five states – Arizona, Florida, Tennessee, Mississippi, and Nevada – have passed education savings account programs. If 2011 was labeled the “Year of School Choice”[i] by the Wall Street Journal, 2016 is likely to be the “Year of Education Savings Accounts.” There are ESA proposals in Midwestern states such as Iowa, Indiana, Illinois, and Minnesota.  Next door in Oklahoma, Governor Fallin gave her “100 percent” support to ESAs in her State of the State address.[ii] Additionally, ESAs have been introduced in Alabama, Delaware, Georgia, North Carolina, New Hampshire, New Jersey, South Carolina, Virginia, and more.

ESA Student Success

The first ESA program was passed in Arizona five years ago, in 2011. While initially the program made only children with special needs eligible, in 2012 the program expanded to allow children in underperforming schools graded as D or F by the state, children of active duty military members and those killed in the line of duty, and children adopted out of the foster care system. Later expansions included Native American children living on reservations, otherwise-qualifying entering Kindergarteners, and siblings of those already in the program. While 2,500 students are enrolled in the program this school year, the program has grown between 75 and 150 percent in size each year, and almost a fifth of Arizona students are eligible.[iii]

With these expansions, Arizona’s program is both the largest and longest-operating ESA program in the country, and as such holds many lessons for other states. Because Nevada’s universal program was passed just this year, Arizona’s program still represents the best data-mining opportunity for researchers among the states.

In Arizona, just under one-third of families are using ESAs to customize educational experiences by using multiple providers, while the other two thirds are using the ESA account to write the tuition checks to the school of their choice.[iv] The schools chosen by ESA parents themselves demonstrate a panoply of educational foci and styles, from school specializing in a particular type of disability, to parochial schools from varying religious traditions, to Montessori and Waldorf academies.

Parents enrolled in the ESA program in Arizona have rated their satisfaction with the program extremely highly. Ninety percent of parents surveyed reported either being “satisfied” (19 percent) or “very satisfied” (71 percent), while a further ten percent were “somewhat satisfied.” Not a single parent surveyed indicated that they were even neutral towards their experience, let alone dissatisfied. These results are even more remarkable when contrasted with those same parents’ opinions of their children’s previous public school experiences: nearly half were somewhat unsatisfied, unsatisfied, or very unsatisfied with their experiences there. Among low-income families, the change in satisfaction was even more dramatic. The majority – 56 percent – of low-income families were “very unsatisfied” with their public school options, and those same families were the most satisfied with their ESAs, with 89 percent reporting that they were “very satisfied.” Remember, not a single parent surveyed reported being unsatisfied, even a little bit, with the ESA program.[v] In the history of government programs, this may well be a first!

In other states with programs too new to have been studied in depth, anecdotal evidence suggests that this can be a lifesaver for many parents, especially those whose children have special needs. Floridian parent Julie Kleffel’s daughter, Faith, has Down syndrome, and has already had to face many challenges in her young life. With her ESA, Julie has created a customized educational program with one-on-one tutoring and therapy for her daughter that has helped Faith become a “bubbly seven-year-old,” one which as a widow, Julie would have had difficulty paying for without the program. Before the program was enacted, Julie has even had to forgo additional services and therapies she believes would have helped. Thanks to Florida’s ESA program, Julie will be able to avoid the tough choices in the past that have limited Faith’s therapies. Julie has called the program life-changing for her family.

Impact on public schools

It is revealing that those who argue against school choice programs admit that education spending is, to a large degree, decoupled from the number of students the public education system serves. Theoretically, school choice programs, including ESAs, will leave the public school system with fewer students to teach, and thus lower expenses. Additionally, education underfunding is largely a myth in the United States, where education is a $600 billion enterprise and test scores have been stagnant or declining for the last 60 years despite massive increases in both state and federal spending. Over that period, while student population has increased by 96 percent, the number of non-teaching staff increased a whopping 702 percent.[vi] In Illinois, a recent report found that 89 cents of every new dollar spent on education in the state since 2009 went to pensions rather than classrooms.[vii] While the OECD ranks the United States as one of the highest-spending countries in the world, our middling performance on the PISA is well-known.[viii] Overall, the constant call for more money as a solution to performance disappointments in the public school system has little basis in the data.

But the data do show that, far from being negatively impacted by school choice programs, public schools actually improve academically when they must compete for dollars based on parent choice. Of the 23 empirical studies done on outcomes in public schools with choice programs in their geographical region, 22 found improved academic incomes in the public schools as a result of choice.[ix] The final study found no impact, but was conducted in a region where the public school system was shielded from the financial impact of parent choice.

The public schools should have to compete with other options and be incentivized to provide parents with the highest-quality education possible. And the available data show that public schools, whether they like it or not, actually improve the quality of the education they deliver when choice programs allow parents of previously-trapped students to take their money to other providers if those providers offer a better experience.

Why Missouri?

Today, over 900,000 students in Missouri are served by the public school system. Demographically, almost half of the students in this state are eligible for free and reduced-price lunch, and three-quarters of schools are eligible for Title I funding from the federal government. While in the past, Missouri students have outperformed their national peers, more recently, they have struggled, and even fallen behind by some measures.

And absolute proficiency rates remain shockingly low. According to NAEP, the so-called “nation’s report card,” just 31 percent of Missouri eighth-graders are proficient in math, lower than the proficiency level here in 2009. Similarly, only 36 percent of those eighth-graders score as proficient in reading.[x]

Additionally, achievement gaps exist and continue in Missouri between children from lower- and higher-income families, and between different racial groups. A fourth-grader who does not qualify for free and reduced-price lunch is almost twice as likely to be proficient in mathematics in this state than a fourth-grader who does.[xi] Just 11 percent of black eighth graders were proficient in math when the test was last administered in 2015, compared with 22 percent of Hispanic and 36 percent of white eighth graders. Unfortunately, these achievement gaps are not closing, they’re widening. Both racial and socio-economic math achievement gaps in Missouri have widened between 2000 and the present day, while reading gaps merely persist.[xii]

Like other states, Missouri will be looking at another education problem in the coming years: too many students for a school infrastructure funded by too few workers. A recently-released paper by education researcher Matthew Ladner warns states about the impending demographic changes as the Baby Boomers retire. According to the paper, Missouri can expect an increase of over 700,000 school-age children while its population of residents older than 65 will swell by 58%.[xiii] When combined with other budgetary pressures related to an aging population, the “throw more money at it” solution – a solution which has failed to produce increases in education quality over the past 60 years – will no longer be fiscally tenable.

Both the academic and fiscal realities of Missouri’s education system show that this is a state much in need of innovative reform ideas. When polled in 2014,[xiv] Missouri residents have shown well-placed skepticism about the current system, with 57 percent rating the public school system “fair” or “poor” and just 37 percent reporting that they believe education in the state is going in the “right direction.” And education reform is important to Missouri voters: after jobs and the economy, education was chosen as the highest priority. Fortunately, the solutions are as popular as the system is unpopular; a full 60 percent of Missouri residents supported the idea of ESAs when the mechanics of the program were explained to them.[xv]

Design Recommendations and Pitfalls

Universality – Choice for Every Child

Last year, in a tremendous leap forward for the school choice movement, a near-universal ESA program was passed in Nevada, excluding only those who did not attend public school for 100 days. Nevada’s example shows that it is absolutely possible to create transformative change in a way that does not divide children into groups, but rather strives to offer each and every child the best educational opportunities.

ESAs are not just a “ticket out” for families with children in failing public schools, although they function as that ticket for many who are worst-served by the public school system. ESAs have the potential to completely rearrange the education system so that it serves each child at his individual level. Even students in “good” schools may find a better fit elsewhere. As we all know from our own life experiences, a great educational environment for one child may be a bad one even for his own sibling, let alone every other student in his neighborhood! Every family should have the opportunity to demand an individually-tailored educational experience from the system. An ESA system merely recognizes the fact that each and every one of us knows to be true – that a one-size-fits-all system is not the best way to deliver education when students are so diverse.

Additionally, as the market of education providers grows to meet newfound demand from ESA students, tools of evaluation and navigation will be increasingly available to parents. In Arizona, parents have already started an online message community to share experiences and evaluate providers. As the program matures, parents will likely find help sorting through options from consumer reports, evaluations, and even education counselors.

As education researcher Jason Bedrick at the CATO institute has pointed out, today’s cheap, prepaid phones at Walmart outstrip the capacity of the first iPhone, and the current exciting new educational inventions may seem last-generation in a few years.[xvi] Creating a true market in education, where innovators with great ideas vie with one another to deliver the best educational options to parents and students, requires more than merely an “escape route” for those currently least well-served by the current system. The more families take advantage of their education purchasing power – which currently goes without their consent and without competition to the traditional public school system –  the more incentive there is for entrepreneurs to create higher-quality, groundbreaking educational options for parents in order to earn their dollars. The difference between a specialized program and a universal one is the difference between extending a lifeline to those most impacted by a bad system, and creating a 21^st-century system that works to provide better educational opportunities for every student, no matter his or her background.

 “Accountability” vs. Transparency

Analysis of the recent negative results from the Louisiana voucher program suggests that overregulating parents’ choices can have a negative impact on the quality of the options to which they have access.[xvii] Highly-regulated programs may actually drive away providers in a position to leave money on the table because their services are high-quality and already have sufficient private demand.

For example, while some states do not require that students be tested in a particular way at all, like Arizona, others have required that ESA students take their parents’ choice of any national norm-referenced tests, in order to measure their academic success. Together with a signed agreement from parents assuring a basic level of instruction in core academic subjects, a choice of nationally norm-referenced tests provides a balance between gathering academic data and not limiting parent options.

Restricting assessment to the state test may have backfired in Louisiana, where only one-third of the private schools in the state participate in their school choice programs,[xviii] and the schools that are incentivized to take on the burden of administering the state test and other stringent regulations are those which are more likely to have declining enrollment prior to entering the program. Ironically, there is some evidence that super-stringent regulation on school choice programs can actually harm the quality of educational options available to parents because it drives out many of the best providers, which sometimes do not see the need to jump through hoops when they are already doing well.[xix]

Many regulatory measures are borrowed from the public school system, and sound reasonable on first examination. However, a key point that often gets lost in the discussion is that, while in the public school system students are trapped in their assigned schools, in a school choice environment such as an ESA program, parents act as the ultimate accountability measure by taking their dollars elsewhere when an educational product or school does not work for their child. Parents can provide better accountability than any government regulation, as the lack of real accountability for results in the traditional public school system can attest.

This is not at all to say that there should be no oversight over ESA program funds. Accountability provisions should be structured with the goal of providing transparency to taxpayers rather than second-guessing parents’ choices and educational values; ensuring that ESA taxpayer dollars are going towards legitimate education expenses rather than fraudulent purposes. Here too, lawmakers must be careful not to create too much red tape that is hard for parents, especially lower-income parents with multiple jobs or caretaking roles, to cut through in order to use the program.

Arizona has been a leader in this respect, by allowing educational providers to be “white-listed” with the state department of education, and automatically approving ESA purchases with those pre-screened providers. This saves the state potentially thousands of man-hours checking the same legitimate education providers over and over again, and provides parents with a seamless experience at many of their most commonly-used providers.

The “Savings” Part of ESAs

Milton Friedman famously divided spending into four categories.[xx] The worst category, maximizing neither value nor quality, is spending someone else’s money on someone else. This worst category characterizes most education spending, and most government spending in general, in the U.S. today. Other school choice programs, like opportunity scholarships or tax credit scholarships, fit into Friedman’s second category – someone else’s money spent on oneself –  because by allowing the parents to spend education dollars on their own children’s educations, choice programs incentivize shopping for the highest-quality options. ESAs, though, take a step towards Friedman’s final, and most efficient category of spending, incentivizing the search for both quality and value.

Because we all agree education is a public good, education spending will never be wholly in Friedman’s final category – spending one’s own money on oneself. But ESAs, unlike other school choice options, should allow money to roll over year to year, and ultimately into a college savings account, such as a 530 college savings plan, or even into career path-building post-secondary apprenticeships or credentials. This incentive to care about value for cost not only allows parents to save up for the more-expensive high school years, it creates pressure on providers to offer the best education for the dollar. In the higher education market, we’ve seen tuition rates rise well above inflation due to the government’s subsidizing cost through generous loan programs; ESAs have the potential to stave off any similar scenario in K-12 education.

Potential Blaine Amendment Challenges

While the U.S. Supreme Court has upheld school choice programs, like vouchers, under the First Amendment to the U.S. Constitution, such programs nevertheless usually face scrutiny under state provisions called “Blaine Amendments” – legacies of anti-Catholic nativism that Justice Clarence Thomas condemned in the Mitchell v. Helms decision, writing “this doctrine, born of bigotry, should be buried now.”[xxi] Indeed, as many of you know, the U.S. Supreme Court has recently granted cert to a case originating in this state, Trinity Lutheran Church v. Pauley, in order to review the constitutionality of the Blaine Amendments themselves. So it is possible that an ESA program in Missouri would not end up facing a challenge.

Missouri has among the stronger Blaine Amendments in the country. However, ESA programs have been upheld in states with Blaine Amendments, even where other school choice programs, such as vouchers, have been struck down. For example, in Arizona, the state Supreme Court struck down a voucher program under the state’s Blaine Amendment, but upheld the state’s ESA program a few years later. The key distinction the court drew was between funds that are “set aside to allow students to attend private schools,” the vast majority of which are parochial, and ESAs, where the funds are not “pre-ordained for a particular destination” and used to “purchase a wide range of services.”

Furthermore, while ESAs already make it clearer that money is going to parents, not directly to religious institutions, an additional layer of separation is possible when the program is designed as a tax credit scholarship, and therefore funded with private money that never passes through the hands of the government. The program would work in the same way from the family’s perspective, but instead of being appropriated, the funds would be donated by individuals and corporations to scholarship-granting organizations which would distribute them to parents’ accounts. This added layer of separation may make the program less vulnerable to challenge under Blaine and compelled support clauses.[xxii]

However, it also has its downsides, including potential restriction of scale. There is some evidence that, at close to four percent of the student population, the Florida tax credit scholarship program is pushing the outer boundaries of the scale possible for this type.[xxiii] However ESAs are constructed, they remain the best and most innovative school choice option for families, and they have been upheld[xxiv] in other states with Blaine Amendments.

Conclusion

Education savings accounts provide the potential to take education into the 21^st century and provide a fully-customized education for every child – an opportunity that no other school choice program provides. The data show ESAs will provide this opportunity, not at the expense of the public schools, but rather in conjunction with quality improvement within the public system. Universal education savings accounts will improve education for every student, because no Missouri child is like any other, and parents, not policymakers from afar, are best-placed to judge what makes their children excel and love learning. With five programs – one universal – already enacted to learn from, Missouri is well-placed to pick and choose from what has worked best in other states. Education savings accounts are popular in Missouri, the opportunities they provide to students are needed in Missouri, and they are the future of American education.

Thank you very much for allowing me to come speak before the committee about the exciting possibilities of education savings accounts.

[i]The Year of School Choice, The Wall Street Journal, July 5, 2011, http://www.wsj.com/articles/SB10001424052702304450604576420330972531442.

[ii] Inez Feltscher, Feltscher: Oklahoma students deserve education savings accounts, The Journal Record, February 5, 2016, http://journalrecord.com/2016/02/05/feltscher-oklahoma-students-deserve-education-savings-accounts-opiinion/.

[iii] Arizona – Empowerment Scholarship Accounts, Friedman Foundation for Educational Choice, http://www.edchoice.org/school-choice/programs/arizona-empowerment-scholarship-accounts/.

[iv] Lindsey M. Burke, The Education Debit Card: What Arizona Parents Purchase with Education Savings Accounts, (Indianapolis: Friedman Foundation for Educational Choice, 2013), p. 2, http://www.edchoice.org/wp-content/uploads/2013/08/2013-8-Education-Debit-Card-WEB-NEW.pdf.

[v] Jason Bedrick, M.P.P. and Jonathan Butcher, Schooling Satisfaction: Arizona Families’ Opinions on Using Education Savings Accounts, (Indianapolis: Friedman Foundation for Educational Choice, 2013), http://www.edchoice.org/wp-content/uploads/2013/10/SCHOOLING-SATISFACTION-Arizona-Parents-Opinions-on-Using-Education-Savings-Accounts-NEW.pdf

[vi] Inez Feltscher, Feltscher: Oklahoma students deserve education savings accounts, The Journal Record, February 5, 2016, http://journalrecord.com/2016/02/05/feltscher-oklahoma-students-deserve-education-savings-accounts-opiinion/.

[vii] Ted Dabrowski and John Klingner, Pensions vs. Schools , Illinois Policy Institute, January 2016, https://d2dv7hze646xr.cloudfront.net/wp-content/uploads/2016/01/PensionsvsSchools.pdf.

[viii] Education at a Glance 2014: OECD Indicators, OECD Publishing, September 2014, http://www.keepeek.com/Digital-Asset-Management/oecd/education/education-at-a-glance-2014_eag-2014-en#page1.

[ix] Greg Forster, Ph.D., A Win-Win Solution: The Empirical Evidence of School Choice, The Friedman Foundation for Educational Choice, http://www.edchoice.org/wp-content/uploads/2015/07/2013-4-A-Win-Win-Solution-WEB.pdf.

[x] State Profiles: Missouri, National Assessment of Educational Progress, U.S. Department of Education, http://nces.ed.gov.nationsreportcard/states/.

[xi] Ibid.

[xii] Ibid.

[xiii] Matthew Ladner, Turn and Face the Strain: Age Demographic Change and the Near Future of American Public Education, Friedman Foundation for Educational Choice, 2015, http://www.edchoice.org/wp-content/uploads/2015/07/Turn-and-face-the-strain-age-demographic-change-and-the-near-future-of-american-education.pdf.

[xiv] Paul DiPerna, Missouri: K-12 & School Choice Survey, Braun Research, Inc., May 2014 http://www.edchoice.org/wp-content/uploads/2015/07/Missouri-K-12-and-School-Choice-Survey1.pdf.

[xv] Ibid.

[xvi] Jason Bedrick, Will Nevada’s Education Savings Account Benefit the Poor?, CATO Institute, December 1, 2015, http://www.cato.org/blog/will-nevadas-education-savings-account-benefit-poor.

[xvii] Jason Bedrick, The Folly of Overregulating School Choice, EducationNext, January 5, 2015, http://educationnext.org/the-folly-of-overregulating-school-choice/.

[xviii] Andrew D. Catt, Public Rules on Private Schools: Measuring the Regulatory Impact of State Statutes and School Choice Programs, The Friedman Foundation for Educational Choice, May 2014, http://www.edchoice.org/wp-content/uploads/2015/07/Public-Rules-on-Private-Schools-Measuring-the-Regulatory-Impact-of-State-Statutes-and-School-Choice-Programs.pdf.

[xix] Ibid.

[xx] Ron Ross, Friedman’s Four Ways, The American Spectator, October 5, 2011, http://spectator.org/articles/36815/friedmans-four-ways.

[xxi] Mitchell v. Helms, 2000, 120 S. Ct. 2530, 2552.

[xxii] http://www.cato.org/publications/policy-analysis/taking-credit-education-how-fund-education-savings-accounts-through-tax

[xxiii] Matthew Ladner, Ph.D., The Three Bees Release New Study on Tax Credit Funded ESAs, Jay P. Greene’s Blog, January 21, 2016, http://jaypgreene.com/2016/01/21/the-three-bees-release-new-study-on-tax-credit-funded-esas/.

[xxiv] Note that the injunction currently in place against the Nevada ESA program has to do with funding under unique provisions of Nevada’s constitution, not with the Blaine Amendment. There is a challenge under the state’s Blaine Amendment, but that challenge has not yet reached the merits.