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ESAs:THE NEXT GENERATION OF SCHOOL CHOICEOCTOBER 2015

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ESAs: The Next Generation Of School Choice 1 Foundation for Excellence in Education

Contents

Introduction ....................................................................................... 2

Fundamental Principles ........................................................................ 3

Creating an Education Savings Account Policy ............................................. 5

Part 1: Major Bill Design Considerations ............................................................. 5

Part 2: Program Administration........................................................................ 9

Part 3: Financial Accountability Standards ......................................................... 12

Part 4: Academic Accountability Standards ......................................................... 14

Part 5: Private Schools ................................................................................. 15

Three Types of Choice ......................................................................... 16

Major ESA Policies by State ................................................................... 18

Model Legislation ............................................................................... 19


Introduction

Education savings accounts (ESA) are an innovative way to bring customization to K-12

education. Through an ESA, parents are able to direct their child’s education funding to the

schools, courses, programs and services of their choice. Parents are also able to save unused

funds for future K-12 and higher education expenses – creating an incentive for parents to

judge all K-12 expenses not only on quality but also on cost. By allowing parents to plan for

their child’s unique needs, ESAs create a personal approach to education, where the ultimate

goal is maximizing each child’s natural learning abilities.

In 2015, Nevada made history when it became the first state to offer nearly-universal ESA

eligibility to all K-12 public school students in the state. This is not only a momentous event

for ESA supporters; it is a groundbreaking moment for school choice and education reform

advocates broadly. Soon, parents of all 450,000+ public school students in the state will have

the ability to direct their children’s state education funds to the schools, programs, courses

and services of their choice. Along with Arizona, Florida, Mississippi and Tennessee, nearly

one million students will be eligible for an ESA in 2016.

As these programs grow and spread across the country, it is important to get the policy right.

We now have four years of best practices to tap into, and states would be wise to learn from

the states that have blazed the path for them.

Bill design is only half of the battle. The other half – implementation – is often helped or

hindered by the contents of the bill.

This document is a resource for individuals as they contemplate the important decisions that

must be made when creating an Education Savings Account program. The contents are as

follows:

A topic-by-topic discussion of the major policy decisions that must be made when crafting

an ESA policy, along with the rationales behind the various decisions.

An explanation of the differences between vouchers, tax-credit scholarships and ESAs.

A look at how current state programs approach major policy decisions.

The Foundation for Excellence in Education’s model bill.

ESAs: The Next Generation Of School Choice 3

Foundation for Excellence in Education

Fundamental Principles

With so many options, you may be asking, “where do I start?” and “what are the important

things to get right?” While each state needs to design the program that is right for them,

there are five fundamental principles states must get right when creating education savings

account (ESA) program:

1. Allow ESA funds to be used for multiple, restricted educational

purposes.

A key feature of an ESA is the ability to customize a child’s education. Therefore, allowing

ESA funds to be used on multiple, yet restricted, educational purposes is a fundamental

principle. Most proposals have the following uses:

Tuition and fees at an eligible private school;

Specialized services such as occupational, behavioral, physical and speech-language

therapies;

College savings, such as contributions to a 529 college plan or a state prepaid college

program;

Private tutoring;

Instructional materials and curriculum;

Virtual programs or online courses;

Exam fees (norm-referenced assessments, Advanced Placement, industry certification,

etc.); and

Contract services from a public school or district, including individual classes.

2. Allow unused funds to be saved for future K-12 and higher

education expenses.

Another key feature of an ESA is the ability for parents to plan for their child’s future.

Whether they are allowed to rollover unused funds, contribute to a college savings

account or participate in a state’s prepaid college program, parents must be able to use

ESA funds to invest in their child’s future.

This is not just important for future planning. Because parents can save a portion of their

child’s ESA for future expenses, this approach creates a system where parents have an

incentive to judge service providers on both quality and cost.



3. Parents – not school officials – decide whether eligible students

participate.

Once the state has created eligibility requirements for students, parents – not school

district officials – should be the ones to decide whether or not their eligible students

should participate. Giving parents this ability is a fundamental principle for all areas of

school choice, not just ESAs.

4. Include financial oversights to ensure funds are being used

properly.

It is fundamental that all ESA programs include financial accountability mechanisms to

ensure funds are being used properly and to maintain the integrity of the program.

Oversights can include any combination of random audits, account monitoring, purchase

authorization, etc.

5. Create a parent-friendly program.

From the application process to making purchases, ESA programs must be administered in

a parent-friendly manner. For instance, the use of electronic payment systems (i.e. debit

cards or an online system) should be implemented instead of a complicated and

inequitable reimbursement system.



Creating an Education Savings Account Policy

Part 1: Major Bill Design Considerations

Topic Discussion

Student Eligibility

Student eligibility is up to each state. In an ideal world, all students would be made eligible, but political realities differ between some states. Some popular eligibility options include:

Universal Eligibility – This option would allow all students in a state to become eligible for an ESA. Alternatively, a state could open eligibility to all entering kindergarteners, middle schoolers, high schoolers, etc. Another option is to cap the number of students who can participate each year, with the number of new opening automatically increasing each year.

Students with Disabilities – There is not a student group that needs a customized education more than students with disabilities, which can be determined through a child’s state Individual Education Plan, 504 accommodation plan or a doctor’s diagnosis. It is no surprise that this is the most-pursued path for ESA bills across the country.

Family Income – Income can be determined through a student’s Free or Reduced Price Lunch eligibility or a family’s income compared to the federal poverty level. States can also choose to use a sliding scale based on income, so that students receive fewer funds as family income increases.

“Unique Situation” Students – Students in foster care, military families, students in the juvenile justice system, etc.

Students losing admission lotteries and/or denied open enrollment requests. States are moving to create more public school options for parents. In many states, parents are able to choose their preferred schools and assignment is based on lottery. Some states have proposed awarding ESA eligibility to students who are not admitted into one of their top public school choices.

Siblings – To make it convenient for parents and to keep families in the same setting, lawmakers may also extend participating to siblings of participating students.

States must decide if public school attendance in the prior year is a prerequisite for entering a program. Requiring prior public attendance ensures a lower fiscal note, but will prohibit many private and homeschool students from attending – which could result in a one-year spike in public school enrollment, followed by an exodus to the ESA program.


Topic Discussion

Funding Source A major decision that must be made in each state deals with the funding mechanism for the ESA. There are many options:

It could be funded through the state education funding formula, wherestudents are eligible for the amount of funds they would be entitled to in apublic school.

It could be funded through a tax-credit mechanism, similar to tax-creditscholarship programs.

It could be funded as a line-item appropriation in the budget, which thelegislature would have to annually fund.

For formula funding, a participating student would be counted in the enrollment figures for his or her resident school district for the purposes of calculating state aid to the district. The funds needed for an ESA would be subtracted from the state aid payable to the student’s resident district. This process is easier administratively and often allows an easier path to achieving adequate per-student funding.

A tax-credit funded ESA would likely be the strongest legally. It essential takes the state out of the equation, relying on private funds and private decisions. However, a tax-credit scholarship program has its own set of downsides – including the difficulties attracting quality non-profit administrators, raising enough funds, ensuring high scholarship amounts, and other challenges.

A line-item appropriation is the worst option, requiring an annual legislative fight when choice opponents call for funding cuts or when other state funding streams fight over funds.

ESA Amount The amount deposited into an ESA will vary by state and student. Ideally, a student would be awarded at or close to the amount that they would have received in their local public school. Some options include:

The amount of state and local funding the students would have received in theirpublic school, or a percentage of that amount. For example, many statespropose awarding 90% of the funds a student would have received.

If awarding scholarships based on income, a sliding scale can be used todetermine funding. For example:1

o Family income below 185% of poverty and special needs: 100% of state aido Families between 185-250% of poverty: 90% of their state aido Families above 250% of poverty: 80% of their aido Free or reduced lunch student students: 100% of state aid

Some states choose to award a flat amount for all students or a flat amountbased on the student type (general, special needs, low-income, etc.).

States are also free to experiment with other options, such as only awarding students their share of state dollars – not local – and allow for partial tax credit scholarships ($2 – 3,000) to fill the gap between state and local dollars.

1 The difference between what a higher income student would cost to educate in a public school and the amount of the ESA

(80-90%) generates savings that make it possible to fund low-income and special ed. students, along with the cost of

program administration.


Topic Discussion

Eligible Use of Funds

A non-negotiable aspect of an ESA is the ability to use funds for multiple uses. While each state must come up with their own combination of uses, here are the most common examples:

Tuition, fees, and textbooks at eligible private schools and colleges;

Specialized services such as occupational, behavioral, physical and speech-language therapies for students with special needs;

Savings for college or future K-12 expenses2;

Private tutoring from a state-certified teacher or a tutor with state, regional ornationally accreditation;

Instructional materials and curriculum (including digital devices and assistivetechnology);

Online courses or programs;

Exam fees (norm-referenced assessments, Advanced Placement, SAT/ACT,industry certification, etc.);

Contract services from a public school or district, including individual classes;and

Fees for management of the account by financial firms.

Many states may be wary of including computer hardware and technological devices, but these can be vital for certain students: a blind student, for example, may rely on devices to accomplish basic educational tasks, like reading. We suggest language that allows “computer hardware or other technological devices that are used solely for a student’s educational needs and approved by the [administrator] or a physician.”

A continuous concern with choice programs is how parents (especially those that are low-income) will transport their kids to the choice school. States are free to experiment with this issue and can create provisions allowing private schools to include a transportation cost in their fees. For example, some states have authorized the use of transportation spending up to a certain amount, like $750 per year. The rise of ride sharing systems will likely make school transportation an expense that is more-easily consumed and monitored in years to come. There are two other options that are frequently included, though they may be more trouble than benefit:

Many bills are open to requiring certain parents to buy a surety bond insuredfor the amount of ESA funds. This can be tricky, since parents are unfamiliarwith the process and since the market for individually-purchased surety bondsfor students in choice programs likely does not exist. Additionally, we advocatequarterly ESA deposits, meaning the exposure to risk is likely to be no greaterthan a few thousand dollars at any given time.

Bills frequently allow parents to buy school supplies with ESA funds, oftenlimiting this to $50 annually. While this may be something to investigate in thefuture, the possibilities of fraud and difficulty in monitoring and authorizingmake the costs associated with allowing this far outweigh the small monetarybenefits.

2 College savings is approached differently among states. Some include deposits into Coverdell accounts, 529 accounts, state-prepaid programs, and other alternatives. Some states have had concerns over parents investing too many ESA funds into higher education savings at the expense of a child’s K-12 education. There should be two goals: allowing parents to plan for future expenses but also ensuring that “hoarding” does not occur, where parents do nothing with funds for extended periods of time. Some states have banned higher education savings, but a practical alternative may be to limit the amount of money that can roll over from year to year or limiting the amount of funds that can be deposited into higher education savings accounts.


Topic Discussion

Administrative Body

Each state must determine what entity(s) is best suited to administer the program. In some cases, this will be the state’s Department of Education. In other cases, states may choose to place the program with another agency (such as the State Treasurer), create a new state agency to oversee the program or contract with qualified non-profit organizations. Many states with existing tax-credit scholarship funding organizations find that these are the best organizations to handle the bulk of administrative duties.

The best-suited agency will be different in each state. The important thing is to select an administrator with the capacity, drive and desire to properly implement the program for the long term – meaning an administrator that is open to trying new, innovative approaches to implementation.

If a government body is selected to administer the program, language should be added that allows the administrator to contract with qualified non-profits to implement some or all parts of the program. This will give the administrator the flexibility to outsource parts of the program to third parties who may be better equipped for that part of the program.

In most cases, qualified private financial management firms will need to be utilized to manage the actual education savings accounts.

Administrative Fee

States must determine what resources are required to ensure proper program implementation. In all cases, a fee should be deducted from ESA funds to cover the costs of overseeing the accounts and administering the program. Most often, the fee represents a percentage of the total ESA funds (3% to 6% are most common). States may also choose to create lump sums that are used for implementation.

ESA programs require extensive amounts of administrative work, particularly in early years. Another approach is to create administrative fees that are substantial in early years, but scale down in later years.

Startup Costs It is important to give the administrator startup funds to cover the costs of implementing these programs before their administrative fees begin to come in. The administrator will have to create an application process, seek financial institutions, create documents detailing how the program will work for eligible parents, conduct the rulemaking process, and many other early tasks. Indeed, a great deal of the program’s infrastructure will need to be in place before the first student enrolls.

Adequate startup funds will ensure an effective implementation, which will likely end up saving the state time and money in the long run. While this may be a challenge for fiscal-conscious lawmakers, it is important to remember the administrative costs associated with an ESA program pale in comparison to the administration needed for traditional educational programs.



Part 2: Program Administration

Topic Discussion Informing Parents

Programs are only effective if parents are aware that they exist. Most states include language requiring the administrator, district, or an organization chosen by the state to annually inform eligible parents of their eligibility to participate in the program by a specified date, preferably in the early summer. Interested parents should also be provided with a written explanation of the allowable uses of account funds, the responsibilities of parents, and administrator duties.

Application Timeline

A standard, year-round application system should be developed. Ideally, an open, rolling process that allows parents to enter the program at multiple points throughout the year. A quarterly enrollment system, for example, allows parents to apply to enter at the beginning of a quarter, coinciding with a state’s quarterly ESA deposit schedule.

Application Approval Process

A determination must be made regarding how the application approval process will work. Ideally, there will be no cap on participant enrollments. In that case, a first-come, first-served approach is appropriate and will allow applications to be processed in the order in which they were submitted. However, if there are limits on participant (i.e., monetary cap, enrollment cap, etc.) then a lottery process is a fairer option. Alternatively, some states prefer to reserve some portion of spots for a first-come, first-served process and the rest filled through a lottery.

Priority Renewal

A “once in, always in” policy should be adopted to ensure continuity of a participating student’s education. Students should be able to remain in the program even if their initial eligibility is based on a factor that may change (i.e., income or disability).

Multiple Choice Programs

In most cases, students should not be able to participate in additional choice programs offered by the state, including vouchers, tax credits, charter schools, etc. However, in some cases, “stacking” programs may be appropriate. For instance, if an ESA amount is set far below what a child would receive in their public school, a state may allow for partial tax-credit scholarships or vouchers to supplement the low ESA amount.

If this approach is taken, a student should not receive more funding than they would have in a traditional public school. This will keep the legislative fiscal note down and ensure that the state is not allocating more funds than they would have.



Topic Discussion

Parent Agreement

Upon acceptance into the program, the parent or guardian of the eligible child must sign an agreement with the state to:

Provide, at a minimum, an education that includes reading, grammar, mathematics, social studies, and science.

Not enroll their child in a district or charter school for the following year.

Honor the requirements of the program.

Release the school district from any obligation to educate the participating child. Specifically, the agreement should note that participation in the program shall have the same effect as a parental refusal to consent to the receipt of services under 20 U.S.C. § 1414 of the Individuals with Disabilities Education Act (IDEA).

Account Structure

An important aspect of program design and administration is the structure of the actual account. There are many ways to approach this, which is why it is often best to select a competent administrator and allow them to implement the most commercially viable, cost-effective, and parent-friendly option available. However, it should be made clear in legislation that the administrator must develop a system that allows parents to pay for services directly through electronic funds transfer, such as debit cards, online payment systems, and other parent-friendly, easy-to-use approaches. Additionally, the use of reimbursement systems should be explicitly forbidden in statute. These systems require parents to pay for services out-of-pocket and wait for reimbursement from the state. At scale, this approach is impossible to implement without massive staffing costs, is burdensome on all parties, and is unfair to lower-income parents who may not have the ability to pay for services and

wait for a refund.

Deposit Schedule

A determination must be made regarding how often funds are deposited into an account: annually, quarterly, monthly, etc. Annual deposits are the easiest and allows parents to pay many costs in their full, such as tuition (which must often be paid in full up-front). However, one annual deposit also causes administrative problems if a parent decides to return to the public school system mid-year or if a large bulk of those funds are used in a non-approved manner. Monthly payments would make this easier, but would also be a larger burden to administer and difficult for parents to make payments. A quarterly deposit seems to strike the right balance: not turning over all the funds up front, but also ensuring that parents have enough of the funds at one time to be able to make payments to schools and service providers.

Student Return to Public System

A participating student should be allowed to return to their district school at any time after enrolling in the program, in compliance with regulations adopted by the administrator, providing for the least disruptive process possible. A state may find it wise to allow students to re-enroll in a public school between quarterly ESA deposits, to avoid instances of double-dipping.



Topic Discussion

Saving Account Funds from Year-to-Year

A key aspect of an ESA is the ability for parents to save funds for the future. However, funds should only be saved from school years in which the student remained enrolled in the program for the entire school year. For instance, if a student received four quarterly payments over the course of an entire school year, any unused funds should be allowed to roll-over. However, if a student enrolled in quarter four, any remaining funds from that year should not be carried over, because it does not represent actual savings within an entire school year. This will avoid instances of “double dipping,” where a parent might enroll a student in the program, draw down the quarterly ESA deposit, and then immediately move the child into a public school. True “savings” only occur over the entirety of a school year.

Saved Funds Once a Student Leaves the Program

States will have to determine what is done with saved funds once a child is no longer enrolled in the program. Ideally, funds that are true “savings” – as discussed above – should be available to students even when they leave the program, unless they meet one of the three scenarios below. Intuitively, this should make sense. Imagine you a parent whose child is zoned for a terrific elementary public school but a subpar middle school. It may make sense that your child should enroll in the ESA program for the middle school years, but then transition back to a public high school. If that student saved $1,000 over the course of their middle school experience, shouldn’t they have access to that money for tutoring, college savings or any other eligible use during their high school experience? Savings are savings, and as long as the student remains within the confines of the scenarios listed below, they should have access to them.

When an Inactive Account Reverts to the State

ESA funds should revert to the administrative body if they meet any of the following scenarios:

Graduation from postsecondary institution or after four consecutive years after high school graduation in which a student is not enrolled in a postsecondary option.

After four consecutive quarters of account inactivity, with parents warned in advance.

The account is closed for violation of program restrictions.

Approving Providers

Though it may not need to be detailed in legislation, the administrator should approve schools and providers through a whitelisting process, not blacklisting. In other words, schools and providers wishing to participate must apply to the administrator. Once approved, all participating schools and providers should be listed on the program website.



Part 3: Financial Accountability Standards

Topic Discussion

Financial Accountability Rulemaking

The state will be tasked with adopting rules and policies necessary for the administration of the ESA program. Each state will have its own needs, but at a minimum, states should create policies for:

Conducting or contracting for examinations of the use of account funds.

Conducting/contracting for random, quarterly, and/or annual reviews of accounts.

Creating/contracting an online anonymous fraud reporting service.

Establishing an anonymous telephone hotline for fraud reporting.

Audits

The administrator must be given the authority to monitor accounts to ensure funds are being used properly. At a minimum, each account should be audited annually. The ease of this will be determined by the account structure, which is why an online payment system that tracks purchases may be preferred. In addition to annual audits, the administrator would also be wise to conduct random audits throughout the year.

Financial Regulations for Schools and Providers

It is important that schools and providers are held accountable for taxpayer funds. Schools and providers that receive a certain amount of annual ESA funds – often ranging from $20,000 to $50,000 –should be required to provide one of the following:

A surety bond in an amount equal to the amount of the funds from ESAs expected to be paid during the school year from students participating in the program.

Financial information that demonstrates the ability to pay the amount of funds from ESAs expected to be paid during the school year from participating students.

No Refunds, Rebates or Sharing

A participating student, parent, or anyone on behalf of a student or parent shall not receive cash or cash-equivalent items, such as gift cards or store credit, from any refunds or rebates from any provider of services or products in this program. Any refunds or rebates shall be credited directly to the participating student's ESA. The funds in an ESA may only be used for education-related purposes.

Notifying Law Enforcement of Fraud

The administrator should be required to report cases of substantial misuse of funds to law enforcement agencies, including the district and/or state attorney, if evidence of fraudulent use of an account is obtained.

Taxable Income

Funds received through the program should not constitute taxable income for parents



Topic Discussion

Participant and Provider Removal

The administrator may remove any parent or student from program if they:

Fail to comply with the terms of the agreement, applicable laws, rules, or orders;

Knowingly misuse monies (sometimes defined as “with intent to defraud”). In any of these cases, the administrator should suspend the account and notify the parent with the reason for suspension and that no new transactions will be allowed. The parent should be given a set amount of time to reply and take corrective action. Beyond that, the parent should be removed from participation. If a school is suspended or withdraws from the program, participating students should remain eligible to participate in the program



Part 4: Academic Accountability Standards

Topic Discussion

Academic Regulations for Private Schools

The goal should be to provide valuable information on student learning without infringing on a private school, family, or provider’s autonomy and academic mission. On one hand, not imposing any testing requirement does not provide information to parents, the public, or lawmakers who may use lack of testing as a reason to attack the program. On the other hand, strict testing requirements – such as requiring a school to take the state test – goes too far and will keep many quality private schools, providers, and families from participating to maintain their autonomy. Requiring participating student to take a nationally norm-referenced test (like the Iowa Basic Skills Test or Stanford Achievement Test) strikes the right balance between accountability and autonomy. Since the vast majority of private schools are already administering these tests, this represents a light touch that still provides information on student progress but does not require a single test or curriculum.

Annual Report – Study Topics

In compliance with all student privacy laws, the administrator or an organization chosen by the administrator shall produce an annual report that is accessible via a state website. Student results should be aggregated by grade level, gender, family income level, number of years of participation in the program, and race. The report should access:

Student performance on state achievement tests or nationally norm-referenced tests, including learning gains;

High school graduation rates;

Parental satisfaction via a survey that shall ask parents of students receiving education savings accounts to express their satisfaction with the program and opinions on other topics, items or issues that the state finds would elicit information about the effectiveness of education savings accounts program and the number of years their child has participated in the program;

The percentage of funds used for each qualifying expense (i.e. this percent of funds was spent on tuition, this percent on tutoring, etc.); and

The fiscal impact to the state and resident school districts of the program, which must consider both the impact on revenue and the impact on expenses. Furthermore, the fiscal savings associated with students departing public schools must be explicitly quantified, even if the public school losing the student(s) does not reduce its spending accordingly.

Annual Report – Study Design

The report should apply appropriate analytical behavioral science methodologies to ensure public confidence in the study and protect the identity of participating students and schools by, among other things, keeping anonymous all disaggregated data.



Part 5: Private Schools

Topic Discussion

Safety Regulations for Private Schools

Schools must comply with these basic safety regulations for private schools, including:

Health and safety codes;

Nondiscrimination, including race, color, natural origin, etc.;

Conduct criminal background checks on employees and exclude from employment those not allowed to teach in a private school or who may reasonably pose a threat to student safety.

Private School Independence

This chapter does not permit any government agency to exercise control or supervision over any nonpublic school or homeschool.

A qualified school that accepts a payment from a parent pursuant to this chapter is not an agent of the state or federal government.

A qualified school shall not be required to alter its creed, practices, admissions policy or curriculum in order to accept students whose parents pay tuition or fees from an account pursuant to this chapter in order to participate as a qualified school.

In any legal proceeding challenging the application of this chapter to a qualified school, the state bears the burden of establishing that the law is necessary and does not impose any undue burden on qualified schools.

Student Records

In compliance with all state and federal student privacy laws, a district shall provide a participating school that has admitted an eligible student with a complete copy of the student’s school records in the possession of the district.



There are three main vehicles for private school choice: vouchers, tax-credit scholarships and

education savings accounts. This document will briefly go over their differences.

Vouchers Vouchers were the first form of private school choice,

enacted originally in 1990 in Milwaukee, Wisconsin. The

concept is simple: take money that otherwise would have

been spent in a public school, attach that funding to a child,

and let them take the funds to any eligible school of their

choice.

There are currently 21 voucher programs in 12 states. Each

program has different student eligibility requirements:

11 programs have been created for special needs

students.

8 for income-based students.

1 for students in failing schools.

1 for low-income students in failing schools.

1 district program (Douglas County, CO).

Tax-Credit Scholarships Around a decade later, tax-credit scholarships were

created as an alternative to voucher programs. While the

end result is the same – a student enrolling in the school of

their choice – tax-credit scholarships created an innovation

in how school choice programs are funded. Instead of using

public funds, these programs incentivize individuals and

businesses to donate private funds to a non-profit

organization that provides tuition scholarships to eligible

students. In exchange for their donations, donors receive a

tax credit from the state. The amount of the credit can

range anywhere from 50 percent of the donation all the

way to a 100 percent, dollar-for-dollar credit. Through this

process, tax-credit scholarship programs use entirely public funds and have consistently held

up against lawsuits claiming they use public dollars.

There are currently 19 tax-credit scholarship programs in 16 states. The vast majority of

these programs are targeted toward low-income students:

Three Types of Choice

Vouchers, Tax-Credit Scholarships and Education Savings Accounts



11 are income-based.

3 for low-income students in failing schools.

1 for special needs students.

1 for special needs and foster children.

3 are universal.

Education Savings Accounts Another decade later, the first education savings account

(ESA) program was enacted in Arizona in 2011. An ESA is an

education program using an account controlled by parents

with multiple educational uses, including saving for future

K-12 and higher education expenses. ESAs create a system

of education that is truly customized for each child. Under

a robust system of oversight and accountability (monitoring

and auditing), parents can direct ESA funds to any

combination of educational uses, including:

Private school tuition

Tutoring

Therapy for students with disabilities

Instructional materials/curriculum

Online programs/courses

Contracted public school courses and services

Exam fees

Savings for future college costs

The key here is customization. Parents are no longer relegated to School A or School B. A

child can attend a private school and receive speech therapy, or learn math and science

online, English and history at home, be tutored twice a week, and deposit remaining funds

into a college savings account. Through an ESA, education is no longer “use it or lose it.”

Parents decide where the best values are; they have the ability to direct their child’s funds in

the most efficient way.

Vouchers and tax-credit scholarships are like the rotary phone: great at making phone calls,

but that is all they can do. ESAs are like smartphones: they can make phone calls, but you can

use them to do your banking, shopping, search for businesses, and much more.

There are currently five state ESA programs, including Nevada’s universal ESA which is the

most expansive private school choice program in the country. All programs are funded like

vouchers, though there is no reason why an ESA could not be funded through tax credits.

3 for special needs students (Florida, Mississippi and Tennessee)

1 universal program (Nevada)

1 for a variety of student needs, including disability, failing school, military family, etc.

(Arizona)


Major ESA Policies by State

Arizona Florida Mississippi Tennessee Nevada

Student Eligibility Special needs

Failing schools

Military families

Foster care

Native Americanreservation

Siblings

Certain disabilities

Special needs (IEP)

500 new slots each year.

Certain disabilities

Universal

Prior Public Yes (military exempt)

No Yes Yes Yes

Funding Source Formula Appropriation Appropriation Formula Formula

Per-Student Amount

90% of charter school base funding with weights

90% of state/local with weights

$6,500 100% of state (avg. $6,628)

90% of state 100% for IEP or <185% FPL

Eligible Expenditures not Included

Digital devices

Transportation

Supplies

INCLUDES: Parent surety bond

ManagementFees

Transportation

College savings(just tuition)

Managementfees

INCLUDES: Parent Surety bond $50 in supplies

None Collegesavings andtuition (onlydual enroll.)

Contractpublicschoolservice

Digitaldevices notspecified

Main Administrator

Dept. of Education Non-profits Dept. of Education Dept. of Education

Treasury

Administrative Fee

3% 3% (line-item) 6% 4% 3%

Account Structure Debit card Reimbursement Reimbursement TBD TBD

Testing None State or NRT None Parent can request

State or NRT State or NRT

Public Reports None None High qualityanalysis ofsatisfaction, testscores, fiscalimpact, use offunds, etc.

None Aggregated test and grad rate results posted"

Excellent Satisfactory Needs Improvement



Model Legislation

The following is the Education Savings Account Act Model Legislation designed by the

Foundation for Excellence in Education.

Education Savings Account Act

Summary

The Education Savings Account Act allows parents of students with disabilities to use the funds that would have been allocated to their child at their resident school district for an education program of the parents’ choosing. Model Legislation Section 1. {Title} The Education Savings Account Act Section 2. {Definitions.} (A) “Program” means The Education Savings Account program created in this subchapter. (B) “Eligible student” means any elementary or secondary student who {CHOOSE FROM

OPTIONS BELOW}:

Prior-Public Requirement

Attended a district elementary or secondary school in the prior school year.

Universal

Special Needs Is the subject of an Individual Education Plan (IEP).

Is the subject of a 504 accommodation plan that has been issued under Section 504 of the Rehabilitation Act of 1973.

Disability includes, but is not limited to, students who are mentally handicapped, speech and language impaired, deaf or hard of hearing, visually impaired, dual sensory impaired, physically impaired, emotionally handicapped, specific learning disabled, autistic, or hospitalized or homebound because of illness or disability.

Received special education services as a preschooler during the previous semester.

Family Income A member of a household whose total annual income does not exceed an amount equal to {#} times the income standard used to qualify for a free or reduced-price lunch under the national free or reduced-price lunch program established under 42 USC Section 1751 et seq.

Unique Needs A child of a parent who is a member of the armed forces of the United States and who is on active duty or was killed in the line of duty. A child who meets the requirements of this item is not subject to prior public attendance requirements.

A child who is a ward of the juvenile court and who is residing with a prospective permanent placement pursuant to state law and the case plan is adoption or permanent guardianship.

A child who was a ward of the juvenile court and who achieved permanency through adoption or permanent guardianship.

Failing Schools

Siblings A child who is the sibling of a current program participant.


(C) “Parent” means a resident of this state who is a parent, guardian, custodian, or otherperson with the authority to act on behalf of the child.

(D) “Authority” means the government agency or non-profit organization(s) chosen toimplement this program.

(E) “Resident school district” means the public school district in which the student resides.

(F) “Participating school” means any private school that provides education to elementaryand/or secondary students and has notified AUTHORITY of its intention to participate inthe program and comply with the program’s requirements.

(G) “Private tutoring” means tutoring services provided by teachers certified in the state ortutors accredited by a state, regional, or national accrediting organization.

(H) “Eligible postsecondary institution” means a state or accredited community college,technical college, university, or private postsecondary institution.

Section 3. {Basic Elements of the Education Savings Account Act.}

(A) Any parent of an eligible student shall qualify for the state to make a grant to their child’seducation savings account if the parents sign an agreement promising to:

(1) Provide, at a minimum, an education for the eligible student in at least the subjects ofreading, grammar, mathematics, social studies, and science;

(2) Use program funds only for authorized purposes;

(3) Not enroll their eligible student in a district or charter school;

(4) Not enroll their eligible student in {LIST AND CROSS REF ANY ADDITIONAL STATEVOUCHER PROGRAMS};

(5) Release the school district of residence from any obligation to educate the eligiblestudent. Participation in the program shall have the same effect as a parental refusalto consent to the receipt of services under 20 U.S.C. § 1414 of the Individuals withDisabilities Education Act (IDEA); and

(6) Comply with the rules and requirements of this program.

(B) Parents participating in the Education Savings Account Program shall agree to only use thefunds deposited in their eligible student’s accounts for the following qualifying expensesto educate the eligible student:

(1) Tuition and fees at a participating school.

(2) Textbooks required by a participating school.

(3) Payment to an authorized private tutor.


(4) Payment for purchase of curriculum or instructional materials.

(5) Computer hardware or other technological devices that are used solely for a student’seducational needs and approved by the AUTHORITY or licensed physician.

(6) Tuition or fees for an approved non-public online learning program.

(7) Fees for national norm-referenced examinations, Advanced Placement examinations orsimilar courses, fees associated with state-recognized industry certification exams,and any examinations related to college or university admission.

(8) Contributions to a Coverdell education savings account established pursuant to 26United States Code Section 530 for the benefit of the qualified student, except thatmoney used for elementary or secondary education expenses must be for expensesotherwise allowed under this section.

(9) Educational services and therapies for pupils with disabilities from a licensed oraccredited practitioner or provider, including but not limited to occupational,behavioral, physical, and speech-language therapies.

(10) Tuition and fees at an eligible postsecondary institution.

(11) Textbooks required for college or university courses.

(12) Contracted services from a public school district, including individual classes.

(13) Fees for transportation paid to a fee-for-service transportation provider for theeligible student to travel to and from an eligible provider as defined in this section,but not to exceed $750 per school year; or

(14) Fees for management of the account by authorized financial firms.

(C) The amount the state shall deposit into an Education Savings Account for a participatingstudent shall be equivalent to 90 percent of the calculated amount the student wouldhave received in the district school to which he or she would have been assigned. Thisequals the base student allocation in the state funding formula multiplied by theappropriate weights provided for the student.

(D) A participating student shall be counted in the enrollment figures for his or her residentschool district for the purposes of calculating state aid to the resident school district. Thefunds needed for a grant to an Education Savings Account shall be subtracted from thestate school aid payable to the student’s resident school district.

(E) A participating school, private tutor, eligible postsecondary institution or othereducational provider may not refund, rebate, or share a student’s grant with a parent orthe student in any manner. The funds in an Education Saving Account may only be used foreducational purposes.


(F) Parents will be allowed to make payments for the costs of educational programs andservices not covered by the funds in their accounts. However, personal deposits into anEducation Savings Account are not permitted.

(G) Funds received pursuant to this section do not constitute taxable income to the parent ofthe eligible student.

Section 4. {Responsibilities of the North Carolina State Education Assistance Authority.}

(A) The AUTHORITY shall ensure that eligible students and their parents are informedannually of which schools will be participating in the Education Savings AccountProgram. Special attention shall be paid to ensuring that lower-income families aremade aware of the program and their options.

(B) The AUTHORITY shall create a standard application process for parents of eligiblestudents to establish their student’s eligibility for the Education Savings AccountProgram. The AUTHORITY shall ensure that the application is readily available tointerested families through various sources, including the Internet.

(C) The AUTHORITY shall process applications in the order in which they are received.

(D) The AUTHORITY shall provide parents of participating students with a writtenexplanation of the allowable uses of Education Savings Accounts, the responsibilities ofparents and the duties of the AUTHORITY.

(E) The AUTHORITY shall maintain a list of approved providers.

(F) The AUTHORITY shall compare the list of students participating in the program withthe public school enrollment lists before each program payment to avoid duplicatepayments.

(G) The AUTHORITY may bar a participating school or education provider from theEducation Savings Account Program if the AUTHORITY establishes that theparticipating school or education provider has:

(1) Routinely failed to comply with the accountability standards established in thissubchapter; or

(2) Failed to provide the eligible student with the educational services funded by theEducation Savings Account.

(H) If the AUTHORITY decides to bar a participating school or education provider from theprogram, it shall notify eligible students and their parents of this decision as quickly aspossible.

(I) The AUTHORITY will have the authority to make any parent of an eligible studentineligible for the Education Savings Account program in the event of substantial misuse


of the funds in the account.

(J) The AUTHORITY will have the authority to conduct or contract for the auditing ofaccounts, and will at a minimum conduct random audits of accounts on an annualbasis. The AUTHORITY will have the authority to make any parent of an eligiblestudent ineligible for the Education Savings Account Program in the event ofsubstantial misuse of the funds in the account.

(K) The AUTHORITY will have the authority to refer cases of substantial misuse of funds tolaw enforcement agencies for investigation if evidence of fraudulent use of an accountis obtained.

(L) The AUTHORITY shall promulgate rules to allow participating students to return totheir zoned public schools at any time, providing the least disruptive process.

(M) The AUTHORITY shall adopt rules and procedures as necessary for the administrationof the Education Savings Account Program.

(N) The AUTHORITY may contract with one or more qualified nonprofit organizations toadminister some or all portions of this program.

Section 5. {Administration of the Education Savings Account Act.}

(A) The AUTHORITY shall qualify private financial management firms to manage EducationSavings Accounts.

(B) The AUTHORITY shall make payments to eligible students’ Education Savings Accounts on aquarterly basis.

(C) The AUTHORITY shall develop a system for payment for services by participating parentsby electronic funds transfer, including but not limited to debit cards, electronic paymentsystems, or any other means of electronic payment that AUTHORITY determines to becommercially viable, cost effective, and parent-friendly. However, AUTHORITY shall notadopt a system that requires parents to be reimbursed for out-of-pocket expenses.

(D) The AUTHORITY shall provide parents of participating students with a written explanationof the allowable uses of education savings accounts, the responsibilities of parents andthe duties of the AUTHORITY.

(E) The AUTHORITY may deduct an amount from the grants to Education Savings Accounts tocover the costs of overseeing the accounts and administering the program up to a limit of5 percent. These funds shall come from the remaining 10 percent of funds not depositedinto an Education Savings Account pursuant to Section 3(C).

(F) The AUTHORITY shall establish and provide reasonable fees for private financialmanagement firms participating in the program based upon market rates.

(G) For purposes of continuity of educational choice, the program payments made under thissection shall remain in force until a student participating in the program participates inany of the prohibited activities specified in this chapter, returns to a public school,


graduates from high school, or attains 22 years of age, whichever occurs first. A participating student who enrolls in a public school or public school program is considered to have returned to a public school for the purpose of determining the end of the program’s term.

(H) Unused funds shall roll over to the following year. However, only funds that were savedover the course of an entire school year are eligible to roll over. Therefore only funds thatwere saved over the course of all four quarterly deposits are eligible to rollover.Remaining funds that were generated from less than four deposits, because the studenteither entered or left the program mid-year, shall revert to the state.

(I) Accounts shall remain active and usable until:

(1) Funds are revoked by AUTHORITY for misuse.

(2) A student graduates from a postsecondary institution, after four consecutive yearsafter high school graduation in which a student is not enrolled in a postsecondaryinstitution, or a student turns 25 years of age.

(3) After two consecutive years of account inactivity.

Section 6. {Accountability Standards for Participating Schools, Providers, and Students.}

(A) Administrative Accountability Standards. To ensure that students are treated fairly andkept safe, all participating private schools shall:

(1) Comply with all health and safety laws or codes that apply to private schools;

(2) Hold a valid occupancy permit if required by their municipality;

(3) Certify that they comply with the nondiscrimination policies set forth in 42 USC 1981;and

(4) Conduct criminal background checks on employees. The participating school thenshall:

(a) Exclude from employment any people not permitted by state law to work in a non-public school; and

(b) Exclude from employment any people that might reasonably pose a threat to thesafety of students.

(B) Financial Accountability Standards. To ensure that funds are spent appropriately, allparticipating schools shall:

(1) Provide parents with a receipt for all qualifying expenses at the school.

(2) Demonstrate their financial viability by showing they can repay any funds that mightbe provided from Education Savings Accounts, if they are to receive $50,000 or moreduring the school year, by:


(a) Filing with the AUTHORITY prior to the start of the school year a surety bondpayable to the state in an amount equal to the aggregate amount of the fundsfrom Education Savings Accounts expected to be paid during the school year fromstudents admitted at the participating school; or

(b) Filing with the AUTHORITY prior to the start of the school year financialinformation that demonstrates the school has the ability to pay an aggregateamount equal to the amount of the funds from Education Savings Accountsexpected to be paid during the school year to students admitted to theparticipating school.

(C) Academic Accountability Standards. In order to allow parents and taxpayers to measurethe achievements of the program parents shall ensure that:

(1) Each year their eligible student takes either the state achievement tests or nationallynorm-referenced tests identified by the AUTHORITY that measure learning gains inmath and language arts, and provide for value-added assessment. Students withdisabilities for whom standardized testing is not appropriate are exempt from thisrequirement;

(2) The results of these tests are provided to the AUTHORITY or an organization chosen bythe AUTHORITY on an annual basis, beginning with the first year of testing;

(3) The student information is reported in a way that would allow the state to aggregatedata by grade level, gender, family income level, and race; and

(4) The state or an organization chosen by the state will be informed of the eligiblestudent’s graduation from high school.

Section 7. {Annual Report.}

(A) In compliance with all student privacy laws, the AUTHORITY or an organization chosen bythe AUTHORITY shall produce and annual report that is accessible via a state website.Student findings shall be aggregated by the students’ grade level, gender, family incomelevel, number of years of participation in the scholarship program, and race. The reportshall access:

(1) Student performance on state achievement tests or nationally norm-referenced tests,including learning gains;

(2) High school graduation rates;

(3) Parental satisfaction via a survey that shall ask parents of students receiving educationsavings accounts to express:

(a) Their satisfaction with the program; and


(b) Their opinions on other topics, items, or issues that the state finds would elicitinformation about the effectiveness of education savings accounts program and thenumber of years their child has participated in the program.

(4) The percentage of funds used for each qualifying expense identified in Section 3(B);

(5) The fiscal impact to the state and resident school districts of the program, which mustconsider both the impact on revenue and the impact on expenses. Furthermore, thefiscal savings associated with students departing public schools must be explicitlyquantified, even if the public school losing the student(s) does not reduce its spendingaccordingly.

(B) The report shall:

(1) Apply appropriate analytical behavioral science methodologies to ensure publicconfidence in the study; and

(2) Protect the identity of participating students and schools by, among other things,keeping anonymous all disaggregated data.

Section 8. {Independence of Participating Schools.}

(A) The Department or any other state agency may not in any way regulate the educationalprogram of a participating private school or education provider that accepts funds from aneducation savings account;

(B) The creation of The Education Savings Account Program does not expand the regulatoryauthority of the state, its officers, or any school district to impose any additionalregulation of private schools or education providers beyond those necessary to enforce therequirements of the program; and

(C) Participating schools and education providers shall be given the maximum freedom toprovide for the educational needs of their students without governmental control.

(D) In any legal proceeding challenging the application of this chapter to a participatingschool, the state bears the burden of establishing that the law is necessary and does notimpose any undue burden on participating schools.

Section 9. {Responsibilities of Resident School Districts.}

The resident school district shall provide a participating school or education provider that has admitted an eligible student under this program with a complete copy of the student’s school records, while complying with the Family Educational Rights and Privacy Act of 1974 (20 USC Section 1232 g).

Section 10. {Effective Date.}

The Education Savings Account Program will be in effect beginning with the fall semester of the next school year.

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