Arizona’s Education Savings Accounts Turn Two

Arizona’s Education Savings Accounts Turn Two
October 20, 2012
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This fall, Arizona’s unique system of education savings accounts turned two years old. After beginning quietly with 75 children in September 2011, the program enrolled more than 400 students this school year. In 2013-14, 200,000 children will be eligible. As the accounts (called “Empowerment Scholarship Accounts”) draw more attention and enrollees, lawmakers will need to pay attention to how to improve them and prevent fraud.

Qualifying families use ESAs for their child’s education. The state deposits the student’s portion of state education funding into the account, and parents can use the money for a host of education expenses, including private school tuition, tutoring, educational therapy, and college savings plans. The accounts are similar to health savings accounts for medical expenses, except deposits come exclusively from the state.

Gov. Jan Brewer (R) signed the original law, directed toward special needs students, in 2011. In 2012 she signed a law expanding eligibility to students from failing schools, active-duty military families, and those adopted out of the state foster system.

Data regarding the accounts’ effectiveness is already issuing from two critical areas: how parents are spending the money and how to prevent fraud and abuse in the program.

How Parents Use ESAs
First, families with an education savings account receive debit cards, just as anyone would after opening a checking account. The accounts are distinct from vouchers, which are certificates or checks the state sends to private schools on behalf of parents. With the savings accounts, parents have the flexibility to make purchases online, such as buying textbooks from retailers such as Amazon, for example, or to pay school tuition.

Just three months into the 2011 school year, the Arizona Department of Education reported that parents used ESAs to pay more than $182,000 in tuition; $2,500 on textbooks; $10,000 to educational therapists; $3,200 for tutoring services; and $600 was deposited in college savings plans.

These expenses are a remarkable departure from the way families use vouchers or tax-credit scholarships. Once students from failing schools begin to use ESAs, it is likely parents will continue to use the accounts for different alternatives such as online classes and tutoring, in addition to private school tuition or homeschooling curricula.

Parents have even created their own “buyer’s guide” message board on Yahoo.com where parents ask questions such as, “What reading programs does the International Dyslexia Society recommend?” or “How do I transfer to an online virtual school?” The site allows families to exchange ideas, find answers to common questions, and develop community knowledge.

State Oversight 
Second, the state department of education audits the accounts quarterly and plans to complete the first annual audit before the end of 2012. Each quarter, parents must send receipts to the department for what they have purchased using account money, and department staff cull through the records to make sure money goes only for educational expenses.

Although this model is not scalable because staff are bound to be overwhelmed as more children use the accounts, the department has already identified misuses of the funds and addressed these with families (in most cases, parents simply didn’t understand the rules). One way to improve this process would be outsourcing audit responsibilities and conducting random reviews. The department could also use common mistakes to produce an online factsheet parents can reference.

Lawmakers can learn from the mistakes administrators made in their oversight of programs such as food stamps and Medicaid that made these systems susceptible to abuse. For example, posting a telephone hotline for fraud reporting would be a good first step.

Education savings accounts radically rethink education, and change can be uncomfortable in a school system that has seen little in the way of innovation for more than a century. Arizona leaders should carefully monitor the program to make sure the savings accounts provide parents and students the efficient, effective opportunities lawmakers intended.

Jonathan Butcher (jbutcher@goldwaterinstitute.org) is the education policy director at the Phoenix-based Goldwater Institute. For more information about Arizona’s education savings accounts, visit goldwaterinstitute.org/esa.

Learn more:
“Education Savings Accounts: Frequently Asked Questions,” Goldwater Institute: http://goldwaterinstitute.org/article/education-savings-accounts-questions-and-answers

Image by SanJoseraginggrannies.