Education Savings Accounts Bill Draws Skepticism from Superintendents, Governor

Education Savings Accounts Bill Draws Skepticism from Superintendents, Governor
Jim Dotson

A bill that would establish education savings accounts in Arkansas is breaking new ground in school choice legislation, according to its sponsor. But critics — including the state's influential school superintendent association — say it could pose major fiscal problems for Arkansas if passed in its current form.

House Bill 1222, filed by Rep. Jim Dotson, R-Bentonville, combines two tactics used by lawmakers in other states who favor school choice: the creation of a savings account to be used at a parent's discretion to fund private school and other education costs, and the use of a tax-credit scholarship in which individuals and corporations can donate to a nonprofit organization that provides money to parents seeking a private or home school education for their children.

"This is the first time that those two models have been blended into one program," Dotson said. "We will be the first in the nation where education savings accounts are funded through a tax credit."

In Arkansas, the largest portion of the cost of a public school student's education is covered by what's called "foundation funding" — a mixture of state general revenue and local property taxes that the state collects and then remits to local school districts. The legislature has established foundation funding at $6,646 per student. When a student leaves a public school for a private school, the foundation funding does not follow the student. The student's former public school district does not receive foundation funding for that student the next year. 

HB 1222 would not directly divert public education funding to private schools, as some voucher programs in other states have done. Instead, dollars that would have otherwise entered state general revenue in the form of income tax would be diverted to the nonprofits administering the education savings accounts. Those nonprofits would then be able to transfer an amount of money equivalent to foundation funding for each academic year into an eligible student's account.

"There are no state dollars tied to it," Dotson said. "There is no actual check written from the state because it's revenue that was never collected."

But while the state may not pay for the savings accounts directly, the money will be offset by tax credits. Contributors to the nonprofits that administer the savings accounts would receive an income tax credit from the state of Arkansas equal to their donation. The donation would also qualify for a federal income tax deduction.

legislative impact statement released by the Department of Finance and Administration found the bill would lead to a $10 million reduction in state general revenue from July 2017 to June 2018. "For subsequent years the total impact is unknown. The bill provides a growth mechanism that is unclear," according to the impact statement.

Rep. Bruce Cozart, R-Hot Springs, who chairs the House Education Committee, said he has concerns about where the money would come from and how much the program could grow each year.

"When you give tax credits, you lose general income, your general revenue goes down," Cozart said.

"I'm a choice person," he said, "but I don't want to take it away from public schools … and put it in private schools."

Critics of the bill say the education savings accounts are a voucher program. School vouchers use state money to fund scholarships that pay for students to attend private school.

"It's a voucher bill that's thinly disguised as a savings account," said Sen. Joyce Elliott, D-Little Rock, who vice-chairs the Senate Education Committee. "You can call it whatever you want, but if the effect is we're taking money out of the public school coffers to be used for private reasons, then you know it is a voucher."

Parents could use the money in the education savings account to fund tuition at a private school as well as for other education expenses, including uniforms, books, tutoring services, transportation, examination fees and even college, since unused money in a savings account would carry over to the next year.

There's a $10 million cap on the program in the first year, which means, if it is fully funded by contributors' donations, about 1,500 students selected by a lottery could participate in 2017. The lottery is weighted for students who receive free or reduced-price meals under the National School Lunch Act.

"It's absolutely not a voucher program," said Sen. Bart Hester, R-Cave Springs, a co-sponsor of the bill. "It's not taking one dollar away from public schools."

Supporters point to a working paper recently released by the Department of Education Reform at the University of Arkansas that found the bill could result in a small financial benefit to the state overall in its first year. That would be the case only if a majority of education savings account students are drawn from the existing public school population. Otherwise, the paper projected the program would have a negative impact on state revenue. In addition, the paper only looks at the first year of the program, when there is a $10 million cap on tax credits.

The program has the potential to expand dramatically in the second year because there is no financial cap set after the first year and because the bill says all students on the waiting list must be funded, in addition to the students who received accounts in the first year.

Currently, about 30,000 students attend private school in Arkansas. Richard Abernathy, executive director of the Arkansas Association of Educational Administrators, which represents school superintendents, said he worries that all of those students will apply for education savings accounts and those who aren't funded this year will be added to a waiting list to be funded next year.

"The second year, all bets are off. The state will be losing money, period," Abernathy said. "I would just about bet everything that 30,000 kids will be applying for that because they already attend private schools. Why wouldn't they apply for that?"

Gov. Asa Hutchinson also expressed concerns about the bill.

"I've always been in support of parents and students having choice in education," Hutchinson said in a statement. "As for this particular piece of legislation, I am concerned that the use of tax credits will have a significant, negative impact on the budget." 

"It's still a great bill," Dotson said, "The program is supposed to be designed to grow slowly over time."

Dotson said in other states with similar programs, there has been only a little growth in the first year or two.

"The vast majority of people stay in their public schools," he said.

(This report is courtesy of the Arkansas Nonprofit News Network, an independent, nonpartisan news project dedicated to producing journalism that matters to Arkansans. Benjamin Hardy contributed to this report.)