By Martin F. Lueken and Michael Q. McShane
Last year, Missouri was one of 18 states that introduced legislation to create an education savings account (ESA) program for families. While it didn’t ultimately become law, it’s stoked the conversation about educational choice in the state and how we can empower families to find schooling options that work for their kids.
Under an ESA program, state officials deposit money into an account for education expenses for children who sign up for the plan. Parents can spend the money on a host of education expenses ranging from books to special needs services, online education, tutoring, SAT and ACT preparation or private school tuition. Parents can also roll over unused funds and use them in the future to pay for college tuition.
Currently, there are five K-12 ESA programs operating in five states – Arizona, Florida, Mississippi, Nevada, and Tennessee.
What’s different about the attempt in Missouri is that legislators had hoped to fund the ESA program through tax credits, rather than through a direct appropriation from the state budget. Tax credit-funded school choice programs currently exist in 17 states and give a tax credit to individuals and organizations that donate to non-profit organizations that grants scholarships to K-12 a credit against their tax liability. Under a system with a 100% credit, if you owe $1,000 in taxes to the state and make a $1,000 donation to a scholarship organization, you would owe $0 in taxes at the end of the year.
Any time we talk about tax credits or educational expenditures, people want to know what both the educational and fiscal impact of the program will be.
As researcher Greg Forster recently pointed out in his recent review of the empirical research on school choice outcomes, school choice has positive educational benefits for students who participate and for students who remain in public schools on a variety of academic and social indicators. Students who take advantage of school choice programs on average score higher in reading and math and are more likely to graduate from high school and succeed in college. They also are more likely to learn civic values. Moreover, increased competition from school choice makes students remaining in public schools better off. When students choose, schools also tend to become more integrated. And not a single study found that school choice cost taxpayers any money.
But what about the bottom line? We recently co-authored a paper analyzing the fiscal impact of a hypothetical $50 million tax-credit funded ESA program. This program would be funded by tax credits for private donations, in which nearly all Missouri K-12 age children (88 percent) would be eligible. To put it in context, even a $50 million program would be a drop in Missouri’s $5.7 billion K-12 education system’s bucket.
Using a variety of circumstances to make our estimates, we found that state government and local school districts combined would save between $8 million and $58 million per year under a tax-credit funded ESA program. The school districts alone would save $21 million to $40 million per year. The state – which is footing the bill by issuing tax credits – could save up to $18 million annually.
What does this mean? For starters, public school districts would have more resources for each student who remains in public school, as well as other tangential benefits such as smaller class sizes and better matches between Missouri students and schools.
Overall, however, Missourians and their children would have little to worry about and a whole lot to gain. The Show-Me State has tried many things to improve their schools, especially in the areas that struggle the most, with little success. It’s time to go bold, and try something that’s already a demonstrated success. It’s time for Missouri to create an education system fit for the future.
Martin F. Lueken, Ph.D. is the Director of Fiscal Policy and Analysis at the Friedman Foundation for Educational Choice. He grew up in St. Louis and graduated from St. Louis University High School.
Michael Q. McShane, Ph.D., is Director of Education Policy at the Show-Me Institute.