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Analysts skeptical about fiscal benefits of expanded voucher program

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State taxpayers will see minimal to no savings when students transfer from public to private schools under an expanded voucher program.

In fact, a bill to make vouchers universally accessible to all Arizona children will actually increase the cost to the state budget, not result in savings as the measure’s chief architect has touted, state budget analysts determined.

Sen. Debbie Lesko, the sponsor of SB1431, wants to gradually allow more children access to empowerment scholarships, Arizona’s version of a private school voucher. If the Legislature approves her bill, all students in Arizona would be eligible for the vouchers in 2020.

Rep. Debbie Lesko

Sen. Debbie Lesko

Expanding the program to that extent would add $24.5 million in expenses to the General Fund by 2020, according to a report by the Joint Legislative Budget Committee.  Meanwhile, most taxpayers in school districts that would see lower enrollment as some parents abandon public schools in favor of vouchers won’t save money, and instead would continue to pay the same property tax rate, according to Chuck Essigs, a lobbyist for the Arizona Association of School Business Officials.

Lesko, R-Peoria, has pitched her bill in interviews and to her fellow Republican senators as a savings to the taxpayer of roughly $4,300 per year per student. The claimed savings was the top talking point in a memo she distributed to the Senate’s GOP Caucus on Feb. 14.

But the reality of the state’s funding formulas for K-12 students says otherwise, according to Essigs.

“A lot of times you hear this in terms of ‘look how much the taxpayers will save’… That’s quite misleading,” Essigs said during a briefing on the impact of vouchers on Feb. 15.

That’s because the state, not local school districts, control the rate at which property in Arizona is taxed to fund education, Essigs said, and student enrollment has nothing to do with how that rate is adjusted. That means taxpayers in school districts that lose traditional public school students to vouchers won’t see lower property tax bills.

At the state level, multiple reports confirm that it costs the state General Fund more, not less, to educate a student on a private school voucher than in a public school.

An analysis by school business officials at AASBO and the Arizona School Boards Association calculates the difference at roughly $1,100 per elementary school student and $1,300 per high school student.

Legislative analysts say it’s a $800 hit to state coffers when a student switches from public to voucher.

Lesko vowed to continue pushing the bill, which now needs a vote of the full Senate for approval. A concurrent bill is being run in the House.

“I’m still going to proceed because I believe that parents should have a choice about where to send their kids to school and not have the government tell them where to send their child to school,” Lesko said February 16.

Lesko has downplayed the impact, arguing that opponents are inflating estimates of the amount of students who’ll leave public schools for vouchers.

“I think the opponents are over exaggerating the effect,” Lesko told the Senate Republican Caucus on Feb. 14. “This is really designed as an additional option. I just don’t see tons of parents leaving their public school. If they were going to do that, we really have a problem in our public schools.”

But even if a minimal percent of eligible students opt for vouchers, the state will see its expenses increase by millions of dollars.

SB1431 phases in eligibility for vouchers by increasing a cap on enrollment by 5,500 a year for three years, before enrollment becomes limitless in 2020.

In the first year of enrollment, assuming that 1 percent of 285,000 eligible public school students enroll in the voucher program, the state will see its expenses increase by $1.5 million, according to the JLBC report. By fiscal year 2021, when an estimated 2.6 percent of 975,600 students are eligible for vouchers, the hit to the state General Fund rises to $13.9 million.

JLBC analysts also calculated the impact of new kindergarten students, some from families that would have enrolled their children in private school regardless of the voucher program, now utilizing an ESA. By 2020, the cost of funding those students would rise to $10.6 million, analysts found.

Lesko said that JLBC only analyzed one pot of money that finances schools – the state General Fund. Taxpayers will realize savings, she said, through reductions in spending in local districts as federal and local dollars are no longer needed with fewer students attending public schools.

Essigs said it sounds logical that, if there were fewer students enrolled in a public school district, it’d cost taxpayers in that district less to fund those schools, but that ignores the realities of Arizona’s K-12 funding formula — particularly the “qualifying tax rate,” or QTR.

Schools’ funding mainly comes from two sources: the state’s General Fund and local property taxes. The Legislature sets the basic state aid funding level for school districts each year.

The QTR, established in 1980, is the rate that school districts apply to local properties and is multiplied by the valuation of properties in each school district to determine how much funding can be raised through local taxes.

If the amount is less than what’s called the equalization base, the state fills in the remainder. So, if a school district is owed $10 million under the equalization formula, but its local property tax would only generate $5 million, the state would cover the other $5 million. The system is designed to equalize funding for students in both rich and poor areas of the state.

Essigs said the QTR has only been adjusted based on property values. The rate is governed by the Truth in Taxation law, which took effect in 1999. It provides a mechanism to reduce property tax rates in order to offset an increase in the value of property, allowing owners to avoid higher taxes when property values increase.

There’s never been a time, to Essigs’ knowledge, that the state has lowered the QTR to account for lower enrollment in a school district. That means property owners in school districts that might lose enrollment to the ESA program won’t be paying less in taxes.

As for federal dollars, the only way local taxpayers would save money if federal allocations were reduced is if the federal government lowered taxes, Essigs said.

The only immediate savings to taxpayers, Essigs said, might be in districts that approved budget overrides, and only if the override is contingent on student enrollment. Not all districts have approved them.

Lesko has said she’s not concerned about the impact to the General Fund, arguing that the cost to the state is similar to if a student left a public school to attend a charter school.

In fact, the JLBC report shows that there is a savings to the state, about $600, if a student leaves a charter school for the voucher program. Lesko compared the cost of an ESA to the cost of a charter school education to the state, arguing that if it’s OK for Arizona to pay extra for a charter school student, why not a private school voucher?

“I don’t have a concern, because right now that district student can leave the district school for a charter school. It’s the same fiscal impact to the state General Fund for that than there is for an ESA,” Lesko said before the release of the JLBC report.

However, there are far fewer charter school students who’d be eligible for vouchers because there are simply far fewer charter school students than public school students. In fiscal year 2018, JLBC estimates 931,800 students in Arizona will attend public schools, while 190,100 students will attend charter schools.

Senate President Steve Yarbrough acknowledged that there is minimal to no immediate saving to local taxpayers, and that every student who switches from public to private school using the ESA program means extra dollars drawn  from the state’s General Fund, the taxpayer-funded source for state spending.

“I concede, the local money, the local funds, the local property tax, that my district, that I’m paying to the schools in my district, if 500 kids leave that enormous, whatever, (say) 40,000 that are there, if that many are to leave and go away, the property tax does not instantly change. That’s a reality,” the Chandler Republican said.

Yarbrough, a staunch school choice advocate, argued that the savings must be viewed in the long term. However, he acknowledged that even then, the only saving to local taxpayers would occur when a bond or budget override previously approved by voters expires — “The next override, the next bond issue, those things,” Yarbrough said. “And that might be years before that really flushes out and the full benefit financially becomes accomplished.”

It’s the long term that has some Republican lawmakers concerned that such a dramatic expansion of eligibility for private school vouchers isn’t the best idea for Arizona schools. Sen. Kate Brophy McGee, R-Phoenix, voted against the bill in the Senate Education Committee and argued that the state must focus on better funding its public schools before giving parents a choice to leave them.

Sen. Frank Pratt, R-Casa Grande, never had to vote on previous ESA expansion bills in 2016, and said he’s yet to make up his mind on this year’s version of the measure.

Sen. Bob Worsley, R-Mesa, said he has concerns with the impact to the General Fund caused by SB1431, and said last week that he’s “not there yet” on the bill.

“I just want to make sure, fiscally as a state, we’re not shifting all this money to a General Fund draw down that’s normally coming from other sources… [and that] we’re not putting the general fund at risk,” Worsley told his fellow Republicans in caucus.

— Includes information from Howard Fischer of Capitol Media Services.

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