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Research and Commentary: Education Savings Accounts and Tax-Credit Scholarships Would Turn Texas into a National School Choice Leader

February 2, 2017

Universal ESA, Tax-Credit Scholarships Would Instantly Bring Texas To The Forefront Of The Education Choice Movement

Texas is considering a proposal that would establish the Lone Star State’s first private school choice programs. The proposal contains provisions for both a universal education savings account (ESA) program and a tax-credit scholarship program.

The ESA program would make available funds for use by parents to pay for tuition and fees at private and parochial schools. The funds could also be used to pay for textbooks, tutoring services, online courses, educational therapies and services for disabled students, computers and other approved hardware, and to cover the fees required to take national standardized achievement tests, such as the SAT and ACT. Leftover funds would carry over each year of the child’s eligibility and would be available to help pay for tuition at postsecondary schools. 

All Texas children that attended a public school during the preceding school year or are starting kindergarten or the first grade would be eligible for the ESA. Eligible students with special needs will receive 90 percent of the per-pupil state average maintenance and operations expenditures. Students whose families have incomes below 200 percent of the amount needed to qualify for the federal free or reduced-price lunch program would receive 75 percent. Students whose families have incomes above this threshold would receive 60 percent.

The Texas Public Policy Foundation (TPPF) argues establishing a universal ESA would allow an additional 11,800 students currently in high school or entering high school within the next year to graduate. Additionally, TPPF says an ESA program would improve college readiness among Texas high school graduates, increase the competitiveness of the state’s public schools, and provide other significant benefits for Texas students, such as increased test scores and graduation rates.

Under the proposed tax-credit scholarship program, nonprofit organizations, after receiving approval from the state, would be eligible to grant scholarships to Texas students. Businesses would then donate to these nonprofits and receive a tax credit equal to as much as 50 percent of the amount of their contribution. Donations for $100 million in tax credits would be allowed during the state’s 2018 fiscal year. 

Students would receive a scholarship of up to 75 percent of the average per-pupil state expenditure, unless their family’s income exceeds 175 percent of the amount needed to qualify for the federal free or reduced-price lunch program, in which case their scholarships would not exceed 50 percent of the per-pupil state average. The program is only open to students with families whose income falls below 200 percent of the free or reduced-price lunch program threshold, as well as all students in foster or institutional care or who have a parent currently on active duty in the military.

Only 44 percent of Texas 4th graders and 32 percent of 8th graders tested “proficient” in math on the 2015 National Association of Education Progress (NAEP) test, also known as the Nation’s Report Card. Only 31 percent of 4th graders and 28 percent of 8th graders tested proficient in reading. These results show Texas’ public school system is failing to educate roughly seven out of ten 4th grade and 8th grade students to a proficient level in reading and mathematics.

Texas’ sub-standard performance on NAEP underscores the desperate need for the state to expand school choice opportunities far beyond what is currently available. The overwhelming majority of the available empirical evidence makes it clear educational choice offers families equal access to high-quality schools that meet their widely diverse needs and desires – and does so at a lower cost – while simultaneously benefitting public school students. 

Providing a universal ESA program and tax-credit scholarships would instantly bring Texas to the forefront of the education choice movement, and would give all Texas families a greater opportunity to meet each child’s unique education needs. When parents are given the opportunity to choose, every school must compete and improve, which gives more children the opportunity to attend a quality school.

The following documents provide more information on education savings accounts, tax-credit scholarships, and education choice.

A Win-Win Solution: The Empirical Evidence on School Choice (Fourth Edition)
https://www.heartland.org/publications-resources/publications/a-win-win-solution-the-empirical-evidence-on-school-choice-fourth-edition?source=policybot
This paper by the Friedman Foundation for Educational Choice details how a vast body of research shows educational choice programs improve academic outcomes for students and schools, saves taxpayers money, reduces segregation in schools, and improves students’ civic values. This edition brings together a total of 100 empirical studies examining these essential questions in one comprehensive report.

Boosting Graduation Rates in Texas Using Education Savings Accounts
https://www.heartland.org/publications-resources/publications/boosting-graduation-rates-in-texas-through-education-savings-accounts
This report from the Texas Public Policy Foundation claims low-income and minority students would experience the largest graduation rate increases as a result of the greater access to private schools provided by education choice programs, thereby reducing inequality in the Lone Star State.

Recalibrating Accountability: Education Savings Accounts as Vehicles of Choice and Innovation
https://www.heartland.org/publications-resources/publications/recalibrating-accountability-education-savings-accounts-as-vehicles-of-choice-and-innovation?source=policybot
This Special Report from The Heritage Foundation and the Texas Public Policy Foundation explores how education savings accounts expand educational opportunities and hold education providers directly accountable to parents. The report also identifies several common types of regulations that can undermine the effectiveness of the program and how they can be avoided.

The Achilles Heel of Texas: Improving College Eligibility Rates through K–12 Education Savings Accounts
https://www.heartland.org/publications-resources/publications/the-achilles-heel-of-texas-improving-college-eligibility-rates-through-k-12-education-savi
In this report from the Texas Public Policy Foundation (TPPF), TPPF researchers argue only a minority of Texas students is college ready and that public schools would improve and students would excel with the creation of an educational savings account program similar to the one recently passed in Nevada.

Competition: For the Children
https://www.heartland.org/publications-resources/publications/competition-for-the-children
This study from the Texas Public Policy Foundation claims universal school choice results in higher test scores for students remaining in traditional public schools and improved high school graduation rates.

Texas K-12 and School Choice Survey
https://www.heartland.org/publications-resources/publications/texas-k12-and-school-choice-survey-polling-paper-no-14
This survey, commissioned by EdChoice and conducted by Braun Research, measures Texas registered voters’ familiarity and views on a range of K–12 education topics and school choice reforms.

The Fiscal Effects of School Choice Programs on Public School Districts
https://www.heartland.org/publications-resources/publications/the-fiscal-effects-of-school-choice-programs-on-public-school-districts?source=policybot
In the first-ever study of public school districts’ fixed costs in every state and Washington, DC, Benjamin Scafidi concludes approximately 36 percent of school district spending cannot be quickly reduced when students leave. The remaining 64 percent, or approximately $8,000 per student on average, are variable costs, changing directly with student enrollment. This means a school choice program attaching less than $8,000 to each child who leaves a public school for a private school actually leaves the district with more money to spend on each remaining child. In the long run, Scafidi notes, all local district spending is variable, meaning all funds could be attached to individual children over time without creating fiscal problems for government schools.

How School Choice Programs Can Save Money
http://www.heritage.org/Research/Education/wm727.cfm 
This Heritage Foundation study of the fiscal impact of voucher programs notes Washington, DC vouchers cost only 60 percent of what the city spends per pupil in government schools. The study estimates if the states with the top eight education expenditures per pupil adopted voucher programs similar to the Washington, DC program, they could save a combined $2.6 billion per year.

How School Choice Can Create Jobs
https://www.heartland.org/publications-resources/publications/how-school-choice-can-create-jobs?source=policybot
Examining five South Carolina counties, Sven R. Larson found school choice programs were associated with gains of up to 25 percent in youth self-employment. Larson writes, “School Choice raises academic achievement and reduces the problems and costs associated with high school dropouts. But it also has a decisively positive impact on youth entrepreneurship and could provide a critical boost for the economies of poor, rural counties.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit School Reform News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Nathan Makla, Heartland’s state government relations manager, at nmakla@heartland.org or 312/377-4000.

Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org @BenceAthwart