Nevada Passes School Choice For All

Nevada has joined four other states (Arizona, Florida, Mississippi, and Tennessee) in implementing the next generation of school choice programs.

Governor Brian Sandoval signed a bill into law that instituted an Educational Savings Account program. The ESA program deposits the money the public school system would have spent on the child’s education into a restricted-use savings account for the parents to use on educational services and materials.

This program is years ahead of most other states.  While states such as New Jersey and Illinois are still debating whether charter schools are an acceptable alternative to public schooling, the ESA system is even better than school vouchers.

The modern school voucher system was largely designed by economist Milton Friedman in 1975. Since then, 13 states and the District of Columbia have implemented some kind of school voucher program.

With a voucher system, instead of being required to send children to their local public schools, which might be in poor condition, parents can receive vouchers worth 90 to 100 percent (depending on the state) of what a public school would spend on each student. The children can then go to a qualified private school of their choice, with the voucher discounting tuition, often up to $5,000 per year.

An ESA is different because the money can be spent on more than just tuition for private school. Private tutoring, standardized test preparation, and even college savings are all eligible uses of the funds. Children with special needs especially benefit because the ESA can be spent on one-on-one tutoring or educational therapy.

What makes the Nevada law truly groundbreaking is the expansion of eligibility for the program. In Arizona, only children in underperforming schools, foster children, children of active-duty military families, or children with special needs are eligible for an ESA. Nevada has established a “universal” ESA. All school-aged children are eligible, and will receive at least 90 percent of the state’s per-pupil funding. Parents can receive 100 percent of the funds if their children have special needs or come from low-income families.

With Nevada’s new program, parents are able to use these educational funds for homeschooling. Within certain guidelines, overseen by the state treasurer and the Nevada Department of Education, parents may spend the money on textbooks, tutoring, and test fees. For parents who already practice homeschooling, this program will significantly reduce their expenses. A universal ESA also gives parents a chance to try homeschooling if they have not been able to afford it in the past.

Another benefit of Nevada’s ESA program is that the money can roll over from year to year. For example, if parents receive $4,500 per year, and they are able to find a private school whose tuition is only $4,000 per year, the remaining $500 stays in the account to be spent on education in the future. If there is money in the account when the child graduates from high school, the remaining funds may be used for college tuition.

One concern that is often raised about both voucher and ESA programs is whether taxpayer money can constitutionally be spent at religious institutions. Those who stress the separation of church and state fear that public spending on religious schools violates the establishment clause of the first amendment.

For Friedman, an effective voucher system solves this problem. In a 2003 CNBC interview, he said, “The religious organizations have had a real advantage in that they were the only ones around who were in a position to subsidize the education and keep the fees down low.” With a voucher system based on spending per student, more non-religious schools may be able to profitably enter the market and compete with both public and religious private schools.

However, a traditional voucher system may not create a downward pressure on tuition. A charter system or voucher program provides no incentive for parents to save money by reducing educational costs. The schools receiving the vouchers may have a disincentive to reduce costs, since they are receiving the same amount of money from the government no matter what.

Nevada’s new system is the only kind of program that actually encourages public schools to economize and save money. Educational savings accounts, especially ones that roll over from year to year, encourage parents to save money on educational services. This provides a pressure on competing school systems to lower costs in order to compete. If less money is needlessly spent on public schools, then overall spending on education will go down, reducing the burden on state and local government budgets.

Another concern is that all of the good schools may become oversubscribed and some children who apply may not get in. Again, Friedman’s analysis above may provide an answer to this concern, at least in the long-run. As school choice is expanded, more private schools may open up to fill the demand for better schools. In order for this to be possible, it will be important for Nevada to refrain from placing artificial caps on the number of qualified schools.

A final concern is that property values in areas with already better-performing schools will decline as any child is permitted to attend. Some homeowners may lose their investments in real estate with good school districts. But this decline will likely correspond with a rise of property values in areas with new schools, as shown in a study by Robert Shapiro and Kevin Hassett. The question that remains is whether we want to put the perseverance of property values of some homeowners before the education of their children.

School choice works because it allows parents to address the individual educational needs of their own children, rather than forcing them into a one-size-fits-all system. Choice through an ESA also encourages parents to save money, which may deflate the dramatic increase in K-12 spending in the last 30 years.

Parents in Nevada have struck gold. A universal ESA benefits every child and will help to drive down costs. It should be a no-brainer for other states to follow their lead.

Jonathan Nelson is a contributor to Economics21. Follow him on Twitter here.

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