Part four in a multi-part series about education savings accounts.

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 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 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’ public school finance systems make sense to almost no one except a relative handful of seasoned experts capable of navigating the complexities of prior-year 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 zero-tolerance 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 decision-making 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.

Read the entire article here.

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.