If the Education Savings Account (ESA) program proposed in Senate Bill 193 becomes law, school district operating budgets can be expected to decline on average by a mere 0.14 percent in the program’s first year, leaving districts with 99.86 percent of their operating budgets intact, based on the performance of school choice programs in other states.
School choice programs nationwide have varying rates of eligibility and participation. The average participation rate in the first year of a school choice program is approximately 1 percent of eligible students. It is important to note that this is 1 percent of students who are eligible for the program, not 1 percent of student enrollment.
Based on the eligibility criteria in Senate Bill 193, we estimate that 50% of New Hampshire public school students would qualify for the program. We then apply the average first-year participation rate of 1% to the eligible population.
A 1% participation rate would see 835 students statewide choose an ESA. Given the eligibility criteria in the bill, we estimate the average cost of an Education Savings account to be $4,500. In SB 193, students who choose an ESA would receive an amount equal to 95% of the state adequate education grant of $3,636, plus 100 percent of additional state grant money (called “differentiated aid”) they might receive. Special-education students and those who are eligible for free-or-reduced-price lunch qualify for differentiated aid, which helps districts cover additional expenses associated with those students. Differentiated aid for non-proficiency in third-grade reading is not included in SB 193.
With an average ESA cost of $4,500, a 1% participation rate would reduce state appropriations to local school districts by $3,757,500, or 0.14% of district operating budgets, on average. Again, on average, districts would therefore keep 99.86% of their operating budgets.
We also run the figures for a scenario in which 5% of eligible students choose an ESA. That would be a high first-year participation rate, but a reasonable rate to expect several years down the road, based on the experience in other states. A 5% participation rate would see 4,175 students statewide choose an ESA. State appropriations to local school districts would be reduced by $18,787,500, or 0.72% of district operating budgets. Districts would therefore keep 99.28 percent of their operating budgets, on average.
For perspective, we calculated the percentage of total public school enrollment (called average daily membership) that would be expected to choose an alternative education were the ESA program in SB 193 available.
With 50% of students eligible for the program, a 1% participation rate would equal a reduction of 0.5% in statewide average daily membership. A 5% participation rate would equal an average daily membership reduction of 2.49 percent. As we noted in our December study, the average reduction in ADM from 2010-2015 was 7%, so the expected decline in enrollment would be well within the average range that school districts handle on a yearly basis.
SB 193 also includes stabilization grants that are triggered if a district’s total revenue is reduced by 0.25% because of students choosing ESAs. If a district’s revenue declines by at least 0.25%, the state reimburses the district for any revenue loss that exceeds 0.25%. Our study looks only at operating budgets, rather than total revenue, to give a more accurate picture of the impact on funding that a district controls from year to year. Total budgets include costs, such as interest payments and construction, that are less variable and are not included in operating budgets. To keep this study simple, we did not include the amount districts might receive in stabilization grant funding. Had we included stabilization grants, the average revenue loss would be even smaller.
Table 1 shows the impact of a 1% ESA participation rate. Table 2 shows the impact of a 5% ESA participation rate. As in our previous study, we included every district for which we had data.
See the accompanying PDF to download the complete report with tables. JBC — Education Savings Accounting