(Guest Post by Matthew Ladner)
A local Arizona political news service, the Yellow Sheet Report just happened to stumble across an obscure spreadsheet and discovered that parents have not spent all the money in the ESA program. Tim Ogle, executive director of the Arizona School Boards Association, told the Yellow Sheet “Now we have these individuals whose education is not being accounted for by the state, and also you’ve got over $2 million of public money unaccounted for, so both educational lack of oversight and financial lack of oversight [exist], and that’s why the empowerment account idea is so flawed philosophically.”
The Yellow Sheet did note that parents have a number of options in how to spend ESA funds, including rolling funds over from year to year. The blurb even noted that in the end if you graduate from high-school and fail to spend the funds in a timely fashion on higher education expenses, that the funds revert back to the state. Why they persisted to write about this story at this point might have something to do with an admiration for Mr. Ogle, or his point of view, or might have something to do with the fact that there are only a few days left in the session with some ESA bills still under consideration. Or some combination thereof. I’m just not sure. In any case, these funds are hardly “unaccounted for” in any sense. They simply have not been spent yet.
Rather than some sort of deep, dark secret uncovered by a sleuthing alphabet souper, Lindsey Burke openly discussed the use of funds in a Friedman Foundation study in August of 2013. Alphanauts don’t read FF stuff as much as they should, so I’ll try to help out. The study linked to above has a section called Do Parents Consider Opportunity Costs with ESA Funds? on Page 13. Burke wrote:
Enabling families to save unspent Empowerment Scholarship Account funds provides a powerful financial accountability feature. Whereas traditional school vouchers must be spent in their entirety, ESAs foster demand-side pressure for education providers to offer more cost-efficient educational services by creating an incentive for parents to shop for education services based in part on cost. During the first quarter of Fiscal Year 2013 (the 2012-13 school year), 244 students were awarded ESAs. Of those, 115 students were active ESA participants from the 2011-12 school year, and 187 were active during the first quarter of Fiscal Year 2013, bringing total student ESA enrollment to 302 during the first quarter of the 2012-13 school year. Arizona awarded $1,302,863 to ESA recipients during the first quarter of 2013, of which parents spent $964,991 and saved $337,871. The ADE notes that $1,239,057 will be distributed to participating families during the second quarter of 2013, and estimates total ESA spending to be just short of $5.2 million for the year.
During Fiscal Year 2012, $671,012 in ESA funds remained unspent; during the first quarter of Fiscal Year 2013, approximately $337,871 in ESA funds was unspent. 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.
The law allows parents to save funds in two different ways- first by making a contribution to a Coverdell Savings Account, which can be invested and earn interest under federal guidelines. Second, parents can roll unused funds over, and use them for the child’s K-12 or higher education expenses. All the allowable uses of ESA funds relate to either K-12 or higher education, all funds are accessed through a use-restricted debit card, and all receipts have been monitored and approved by the Arizona Department of Education officials. If a parent makes an inappropriate purchase with funds, they can be required to refund the money, find themselves kicked out of the program, or referred to the authorities for criminal prosecution. As mentioned earlier, unused funds eventually revert back to the state. The program had technical challenges to allowing parents to invest funds in a college savings account program in the first year, but those were eventually overcome, and the amount rolled over from year to year declined.
So if parents “saving” in their “Education Savings Account” is some sort of faux pas, then the fund balances run by Arizona school districts represent an epic level crime against humanity. The AZ Superintendent of Public Instruction puts out a handy financial report every year, and if you are really nerdy and find the second volume online you’ll find hundreds of millions of dollars of unspent funds in school district accounts. It appears for instance that the Tucson Unified District received $522 m in the year covered, only spent $507m, and had $80m or so sitting in the bank.
Tucson received $522m in revenue and only spent $126m on teacher salaries. Plus the reading scores down there deserve to be put on trial in the Hague. Now that I think about it, the state’s preschool program famously had piled up $400 million in the bank before they started furiously buying billboards to tell everyone how great they were when state lawmakers proposed using the money to keep the state’s lights turned on during the housing meltdown. Hmmm, but wait must stay focused could….write….about…this…for…hours!
Policymakers designed the ESA program to allow parents to save money for future education expenses, whether K-12 or higher education related. It’s silly to cry foul when they do so.