New Report: Education Savings Accounts in New York State Could Yield Million-Dollar Windfalls

With state budgets constrained, and New York parents seeking alternatives to public schools, policymakers should consider ESAs

New York, NY – 2021 has been called "The Year of Educational Choice,” with 18 states passing 28 bills to date to create new educational choice programs or expand already operational ones. Education savings accounts (ESAs) are a particularly effective mechanism for expanding choice—and they enjoy bipartisan appeal, with somewhat higher levels of support among Democrats than Republicans (73 percent vs. 68 percent). As more parents and policymaker look to expand school choice in their states and consider the use of ESAs, a new report for the Manhattan Institute from Martin Lueken, Director of Fiscal Research and Education Center at EdChoice, quantifies the potential fiscal savings that such programs could yield New York State taxpayers. While Lueken’s findings are concentrated on New York, they suggest financial benefits for other states willing to place educational decisions in the hands of parents and expand choice.

Lueken’s analysis of NYS public schools considers an educational choice program modeled after the one West Virginia passed earlier this year. His analysis includes 669 school districts and excludes charter schools and non-traditional school districts. He finds that all but 15 school districts in New York would experience a net fiscal benefit if students leave to participate in an ESA program (or if students choose to leave for any other reason). For the other 15 school districts, estimated variable costs per student are less than state aid per student. These districts may incur a negative net fiscal impact in the short run—but can eventually fully adjust for a reduction in revenue for a given decrease in enrollment in the long run.

As a sampling, the types of savings Lueken observed include:

• If 1% of eligible students participate in a $6500 ESA, and if at least 70% of those students would have otherwise been enrolled in public school, the program could save New York taxpayers between $159-$301 million in short-run net fiscal benefits   

• If 1% of eligible students participate in a $9,900 ESA, local districts would experience between $197 million and $282 million ($7,400 to $10,500 per ESA student) in net variable savings  

The fiscal effect of choice programs is a matter of design. Lueken explains that it’s possible to design a program with revenue neutrality or savings in mind, detailing that there have been 70 analyses of the fiscal effects of educational choice programs currently operating in the United State; of these studies, 65 found programs generated net savings for taxpayers, four found programs were cost-neutral, and only five found programs generated net costs.

With a substantial and well-established body of evidence demonstrating the academic and developmental benefits that school choice can offer students, families, and communities, debates over expanding choice often boil down to questions of cost. Lueken’s report offers definitive evidence that ESAs can generate state and local policymakers substantial windfalls, which can be applied to tricky deficit areas, like underfunded pension liabilities and long-standing transit projects. With parents increasingly looking for options outside of traditional schools, and with states like California looking to add ESA proposals to their ballots, Lueken’s intervention offers a timely resource for local policymakers weighing the costs and benefits of expanding school choice.

Click here to read the full report.