The Questions Behind Implementing ESAs

Welcome to the Future of Education.

And now here's your host, Michael Horne.

Welcome to the Future of Education, where we are dedicated to building a world in which all individuals can build their passions, fulfill their potential, and live a life of purpose. And to help us think through how that might work in some new designs cropping up in a number of states that throughout the US Right now. We have two special guests today from EY Parthenon, Phil Vacaro, a partner there, and Nita Bhatt, senior director there. Nita Phil, thank you so much for joining us. I can't wait to have this conversation.

It's great to be here. Michael, thank you for inviting us to participate.

You bet. I'm really excited to dig into this because you all did this fascinating work that we're going to talk about in some depth around education Savings accounts, in particular ESAs and the implementation of them in a state. And I think people might pause there and be like, wait a minute, implementation of ESAs? What does that even mean? We're going to get to that and why it's so important in just a couple minutes. But let's start at a high level, like how did you, you know, what brought you to this work in education, Arkansas in general, and sort of introduce yourselves to how you all your own personal journey is into this. Phil, why don't you start us off?

Yeah, great. So, you know, in some ways Nita and I bring a similar backgr to the work. But you know, I started as a teacher in the New York City school system, worked for the school district for five years under Mayor Bloomberg, and then switched over to the Parthenon team to do this work in education from a consulting standpoint. And really for the past 14 years, my goal has been to, you know, stay relevant from a commercial standpoint. And a lot of that is, you know, tracking what states and districts are doing, what their top priorities are focused around system level change and school improvement. We have seen a variety of waves of what education reform looks like and which policies have been more or less in vogue. And certainly over the last few years, the private school choice policies have really accelerated in terms of their adoption across states. And so that's building on trend that is sort of long time in the making with respect to school vouchers and more broadly speaking, just school choice ecosystems. And so we've been a part of supporting school systems that have strong choice environments. And so this is kind of where we are from the current standpoint is these new policy initiatives around education Savings accounts.

Gotcha. Nita how about you? What's your own story into the work?

Yeah, absolutely. Thanks, Michael. So for me it goes back to how and where I grew up, which was in Miami, Florida. I remember going to four different public elementary schools in high school, applying to and being waitlisted at a bunch of magnet schools, some of them fairly far away from my house because my parents wanted me in some specific program or some aspect of my schooling wasn't meeting their expectations. We didn't have the right vocabulary for it at the time. But that was my parents saying that they didn't want the house, that they could afford to limit the quality of education they wanted me to get. Fast forward after college, had the opportunity to teach at different neighborhood and public charter schools in Philly. So another angle on school choice then at Parthenon over the last decade I've been able to serve in some really interesting school choice contexts and as Phil mentioned, including in New Orleans, which has really shaped my thinking, where I gained an appreciation for how to actually design a system that promotes not just choice for kids and family, but good school choice. And that's really what's sort of brought me to this work with ESAs and in Arkansas.

Super interesting and unbelievable background with your parents engaging in that before people thought about these questions, I think in that same depth. But and as I mentioned up top, my audience is certainly familiar with education savings accounts. It's something we've talked about in the show, but they're clearly different, I think from some of the other forms of private school choice that we've seen historically. Tax, scholarships, vouchers, even the charter space. Certainly. I'm just curious in your minds what makes a funding vehicle an esa? What are the core components just to level set us all about what exactly we're talking about when we're talking about ESAs specifically. Nita, why don't you lead us off on this one?

Yeah, rather than getting too technical, I want to take this sort of conceptually, you know, what makes an ESA unique from vouchers is two main things. So first, ESAs are being rolled out to serve a much broader set of students than ever before. While vouchers were primarily targeted at low income families, at least in the beginning, ESAs, at least in today's avatar, are intended to serve many more students. And in some states any family is allowed to apply, so it's called universal. The second thing is that ESAs can be used for a much broader array of expenses than vouchers. Vouchers typically went from the government directly to a private school to support tuition, whereas ESAs involve the state putting the money into a digital wallet for each participating family. And then they can deploy the money where they choose to, whether it's a private school, or maybe it's to curate a curriculum, to buy books, to buy uniforms, maybe a course at the public school or a local charter school. So that's really the difference in terms of why we, you know, we think they've taken off. Really, the pandemic illustrated that, you know, traditional school models aren't working for everyone. And in fact, you know, maybe that's true for a large number of students. You know, nationally, we see the rate of chronic absenteeism, kids aren't coming to school has doubled between before and after the pandemic. I think there's a little bit of parents and advocates saying, we want to take education back into our own hands.

Super interesting. So that leads in obviously, then, to the work that you all did in the state of Arkansas where they were launching a universal ESA program. Tell me about that experience, because I suspect, again, folks like me might think they passed a policy, they allocated funding, there's a digital wallet, boom, you're off to the races. Right. But I'm certainly interested in learning how this really works. And when we've had some back and forth before this, it sounds like it's not nearly so simple as that. And it's much more complicated, in fact. So, Phil, why don't you lead us off, talk about some of the major design choices that go into launching a universal ESA program and give us a sense of the complexity that we're talking about here.

Yeah, love to. Well, to start, it is complex and, you know, I'm glad that you're focused here, Michael, on the implementation piece, because I do think that that is sort of the overlooked factor in really bringing these education Savings account programs to life. And there is a lot involved. And, you know, I think about it from the standpoint of there's a number of strategic questions that need to be answered, there's a number of operational questions that need to be answered, and you really have to build a team that has the capacity to implement the work. And so, you know, from a. From a strategic standpoint, one of the first questions that a department has to ask itself is well beyond sort of where is it going to live within the state? So, you know, in. In arc, in the Arkansas context, it lived with the Department of Education. In other systems, it lives with other government agencies. But a big question on the front end is, what are you going to do internally and what are you going to hire somebody else to do? And so, you know, there are a few vendors out there that are very active in this space that bring primarily a technology solution, but then can bring some process around it as well. And, and so departments need to figure out, okay, well, I want to insource this piece of it, I want to outsource this piece of it. And with that sort of knowledge in mind, how do I design a process where the department is going to be able to work with the vendor and or vendors on a regular basis to get this work done. And so the other sort of nuance there is the set of activities that you do during the launch of a program and can look a little different than the set of activities that happen once a program is launched. And so I think that when we first got into Arkansas and our support for the state of Arkansas is public record, I mean, we co authored a LinkedIn blog post with the folks there about our work. And I'm really proud of the fact that the folks in Arkansas dedicated the amount of time that they did to getting the implementation right because we have seen in other states examples of, you know, mistakes that have sort of set back those, you know, the initiatives in those places. You know, we were very fortunate that NITA was able to spend a lot of time on the ground, you know, from day one, working with their team on a number of sort of the nitty gritty issues, which, you know, if you think about it, you start with a statute and then you have to sort of bring that in, you know, bring that to life and you know, so the first step starts with, okay, well let's do a deep dive into the rules. What, what, what doesn't exist in statute that needs to be further clarified. That's going to set up a number of design choices, a number of operational decisions and we'd love to turn it over to NITA to talk about some of those.

Sure. Look, there are hundreds of design decisions and I, I can't go into all of them. And Phil at the beginning I think said I, I could talk about this for three hours. And the answer is I, it's true, I can. Well, I'll just stick to some of the high level things that both the law had to consider and then we had to build on when we were there doing the design implementation. You know, first is around like what population do I tend on serving? Is it kids who are in low performing public schools? Is it actually everyone? Is it something in between? That, that line of inquiry is usually figured out in the law. And then we build on it. You know, there's a whole layer of questions around accountability. You know, do I want to measure how students on essays are performing academ? Well, how do I want to measure that? Do I want to test them? In what subjects? Are there consequences for providers or even families if a student isn't testing? Well, you know, how long do I give them? How do I want to use the information that I collect? Do I want to make it public? There's like hundreds of questions in that layer. One of my favorite ones is around financial safeguards. So how do I curtail providers from unreasonably inflating their tuition? There are real examples of, in some states of the ESA goes into effect and, you know, let's say the ESA is $7,000. I'm sort of just making this up, Michael. And the, the private school used to have a tuition of $7,000. But then after the ESA goes into effect, they raise their tuition to $14,000. So in effect, the, you know, the families who are in ESAs and other families, you know, they're not seeing the benefit of that esa. They're effectively paying the same that they would have otherwise. You know, that is probably characterized as, you know, unwanted behavior that you don't, you know, you don't want to have. So how do you, how do you. And we've seen that happen. So how do you curtail that? And there's a whole, whole layer of questions on, like, what can I spend my money on? There's something just straightforward. Books, tuition, uniforms. Great uniforms. Am I going to do sports uniforms? What about shoes? Are shoes okay? If shoes are okay, can I buy like the new line of kicks that I want to buy? Is transportation allowed? If it is, can I take an Uber? Am I going to be able to expense that? Private school tuition fees are allowed. That seems straightforward. Some private schools have fees that are actually required donations to the church. Do I want to allow that with this publicly funded taxpayer money? So it becomes very, very nuanced. So hope you get some sort of sense how complex it could actually get.

Yeah, I mean, I'm thinking through a bunch of those and wondering how the heck you parse through them. And so maybe we can to take some of these and dig a little bit deeper. Maybe. Let's start with the program intended for just because, you know, you mentioned it's universal. So like. But that implies a level of focus and outreach. How, you know, how did you work through that question in Arkansas? How much was in law? How much was in regulation? How much were you figuring out on the ground?

Yeah, no, that's a great question. I'll sort of take it more broadly than, than just Arkansas. You know, some states are very clear in this, in their intentions. So they, they're like, we're going to prioritize kids who attend low performing schools today. Let's give those kids a better choice. You know, that's how Georgia's done it. You know, sometimes a state will say, hey, it's universal, it's for everybody. And that's how Arizona's done it and that's where Arkansas is headed. But sometimes states will take this middle approach as they're facing up to universal in particular where they'll say we're going to prioritize our most vulnerable populations. So special needs, low income, homeless, foster, etc. Not just that, we're going to also prioritize kindergartners. Let's play that out. That's year one. We fill our program with those kids. Great. The next year we'll say we have more budget, we're going to grow our program a little bit. So we are going to let more vulnerable kids in, but maybe like lower the threshold slightly. So if like the income was like, you know, the most stringent sort of threshold in year one and year two, we're gonna relax it a little bit. So it's still for low income kids but, but slight, slightly higher income than it was in year one. This year we're gonna let in kindergartners again, of course, and then first graders, we're gonna add first graders. So we're sort of growing and phasing in a way that seems reasonable. Right. But one thing that I don't think people are not necessarily like thinking of is that in these situations, the kindergarten uptake rate and the uptake rate of the kindergartners and the first graders becomes quite high relative to some of these high need populations. Unless you're really intentional about it. And this is, this is logical. Like we see families from, you know, with more information, capital or more access to resources. Like they're going to be the first people to take advantage of a pro a program like this. They'll apply fast and furiously. And so of course once a child is in the program, they're in the program. And so where I'm going with this is like you could see in the out years, years, fours, year, five, six, onward, where like if you're a kindergartner and you're in, you could, you could be in for 13 years and you could end up with a day where it's like the, the program is approaching full or is full. And now you have a situation where the composition of the program you have is like not actually all that strategic. And then if I'm a new family trying to get in, there might not be spots for me. And I'm left wondering, well, why did I get unlucky? Because my kid was born in a later year and there's not enough space for me. So that, that's just something that, that I think like maybe people miss when they, when, like when they're not thinking through all this kind of thing and it's sort of hard to think, think through. We, you know, we had the benefit of being able to like model it out.

Yeah, no, it's fascinating. I'm imagining the keyboard warriors, right, signing up for summer camp. It's the same sort of phenomenon, right, of I'm going to be the first one to get in on that before it fills up. But then it brings up the question that naturally comes, which is around financing and funding levels for these programs. There's you know, questions around are they pulling from public school dollars? Right. How, you know, are there caps to the funding? How has that all worked out and what are the major things people ought to be thinking about on those dimensions?

No, that this one's great. So Phil and I are like, you know, district finance nerds. So we, our head goes there pretty quickly. So one of the common criticisms, criticisms that we hear about ESAs is that it's like taking money away from public schools. There's a logic to that, right. So the student leaves a public school to go to a private school. The public school loses the money that it otherwise would have gotten for that, for that student. But the reality is a bit more complicated here because in many states not all students who are in the ESA program were actually public school students to begin with. You know, in fact, some of them are always in private school. And in some states we know that most of them were already in private school. So basically what is happening is the government is allocating new money towards that student that it wasn't before. And that money is usually coming from the, you know, the state's general fund that's tax based, maybe from some reserves, but it's not education specific dollars. And so in effect what is happening is that a state may be investing hundreds of millions of dollars in new money and education, but it's only going to fund a very small fraction of that state's students, you know, and the critics will ask, you know, is that the best use of a new hundreds of millions of dollars of education spend? And look, I think that's a criticism that states do have to contend with if they're, if they're designing things this way. Interestingly enough, down the road, if your ESA program gets big enough, policymakers may need to ask themselves, well, where is that money going to go come from? And do I need, you know, should I, do I need to cut funds on the public school side now? And like that can be, you know, really hard and how do I start to rationalize my budget anyway? All of these considerations, I think need to happen in a broader frame of how much am I allocating to this program? You know, what, what are my, what are my caps year over year, even if I'm, if I'm calling it a universal program?

Yeah, just to stay on that for one more moment because you mentioned, you know, the providers that maybe double tuition once they see that there's 7,000 of public subsidy coming in, and so I can still get 7,000 from the families because they were paying it before, so why not charge 14k? That hypothetical example, how do you navigate those considerations? Where did you land on trying to curtail some of that behavior? Or is that something that you say, well, it stinks in the early years, but hopefully the market has enough providers that it shakes out?

Yeah, I think it's a good question. I mean, I think different states have approached it differently. As far as we know, Arkansas is the only one that has like put a stake in the ground and said that we are going to monitor this and we're going to do something about it if we think it's unreasonable. So that was a really promising place to start. And by the way, this isn't happening like broadly, and I don't want to over exaggerate the extent to which this is happening. We toyed with a number of, of considerations there for that particular question, like should we be like monitoring growth? Should, should a school provide justification? Should there be like a limit that they can go up to? And ultimately we felt like if we did define a limit, like maybe it's 5% or 10%, we were worried that schools would kind of use that as permission to like raise to that amount, even if historically they weren't or they didn't intend to. And so ultimately we left it as we're going to monitor this and you know, we are going to ask for rationale if we see an above average increase or an Outlier here and there. And then we're going to take a take a case by case approach.

Gotcha. Gotcha. Yeah. I mean, I assume you're trying to avoid the college tuition behavior over time, so it makes sense. Phil, let me turn to you because I'm just thinking about, as you situate these ESAs in a broader, not just school choice strategy, but really a school improvement strategy across an entire state. How do you think about that as a component within a strategy? Where are you all landing on helping, not just Arkansas, but any state think through that question?

Yeah, and I would say, Michael, it's a really important question. One just making sure that the conversations are happening that emphasize education savings accounts as one lever of school improvement in a system, whether it is because you're getting kids, more kids into better schools or because, you know, it's creating more competition in the system. And, you know, the notion being, you know, that creates a rising tide of all boats, you know, But I do think that we have seen systems go heads down very quickly in terms of, okay, we have this statute, we're going to go implement it, but really what are they doing to think strategically about how this fits in with other school improvement strategies that they're pursuing and how are they coordinating with districts, which historically have been the folks who have been responsible most directly for, you know, supporting a student's learning. And so, you know, one thing that we built into our process in Arkansas was to make sure that we were having a regular cadence around some of these more strategic discussions. And, you know, it really helps when you put a map on a, on a piece of paper and map out, okay, well, where are the students? Where are the schools? Where are the lower performing schools? Where, where's the private school capacity? You know, where are there parts of the state where we don't have sufficient supply to meet potential demand? Where are there places where we may have a robust charter system? And, you know, how does, how do the charter schools fit in with this private school choice? And so there, there are really, you know, strategic questions about, okay, well, private school choice is going to help you in certain parts of the state, or frankly, you may have a lot of private schools in one area, but they're mostly full. So it doesn't actually get you a lot in terms of, you know, new students into those, into those programs. And so, you know, you have to think like there are going to be a percentage of students that benefit from this program, and hopefully, as the theory goes, those students will either have access to a better school or Maybe the kids who don't participate in the competition for those kids that will help those schools improve. But in places where you don't have capacity either, how do you think about providing new capacity into the system? Whether it's through new. Could be new charter schools, it could be micro schools, could be, you know, these sort of consortia of home schools. You know, that's. That's a huge strategic question that. That states need to think about. And also just in their coordination with the districts, you know, the schools where there's a net outflow of students, you know, there is a funding implication because they are serving fewer students. But, you know, if that happens to any degree of scale, then that changes the way that that district can serve folks in students in their schools. And taken to sort of its logical extreme, can actually change some of the dynamics in which those school districts are able to serve students. So, first of all, you think about this policy in the broader landscape of school choice as part of your theory of change. But, you know, the LEARNS act in Arkansas was a very comprehensive bill that specified, you know, policy change in a number of areas. And so what we see, and this is where I think it's really important where the program lives. The extent that the program lives with the Department of Education, it has a higher degree of likelihood of staying connected to the other sets of strategies that are getting implemented in these states. And if you give it to other organ, you know, to other government agencies, you know, you can run a great program, but you then have to make a concerted effort to have that coordination with the Department of Education to continue to think about this policy as.

A.

Lever for school improvement in the broader context of other things that states and districts are doing.

Yeah. So you hit on a couple things that I think are really important there. One of the big things that I've been thinking about is the supply side as well. You referenced not just how do you trigger new operators coming in, but something I'm deeply worried about is do they have sustainable models that will actually last more than, say, two or three years? Because it seems to me you have a lot of teachers saying, well, I'll volunteer for a year or two effectively, but then what? But then the second question you're raising is around coherence with the Department of Education and the rest of the programs that they're overseeing, strategy, et cetera. And I'd love us, as we start to wrap up here, for you to reflect on that part of it, because you began one of the, you know, as we thought about considerations One of the big questions to think about was not just where it lived. Department of Education may be one answer to create that coherence, but also what are the resources internally and externally and where do those different things said that the department or wherever it's sitting are going to, you know, deploy in effect to actually implement, operationalize this program. I'd love you just to reflect on that. Like if you're a state thinking about launching an ESA going into year two, whatever else it is, like, what are we talking about in terms of effort? Are there off the shelf things that can help in your view, how should we be thinking about what it's really going to take to do this work?

Well, yeah, no, it's a great question. And I, you know, I think like, if we just think historically about the role that states have played in, you know, education historically, standards, policies, budget allocation, accountability, they are not, they have not been set up to do direct to family kinds of programs, which creates a need for capacity at a level of scale that has not historically existed within school districts. So, you know, you have to build out a team to do this work. Nina can tell you war stories of all the inbound questions that people had about filling out their applications incorrectly, or did I get accepted into the program? Or, you know, when is the tuition going to be transferred? And you can do a lot of that with FAQs, but a lot of people want to get somebody on the phone and have a conversation. And so there's real work that's involved in that. Now you can outsource that to some of the vendors. So choose your vendors wisely when you go through this, be very explicit in the rfp, what exactly are you looking for? What is sort of the division of responsibility between sort of the host government organization and the vendor itself. But you certainly need to build out your team. And that's sort of one of the places where if we can work side by side with your team during a launch period, then we're kind of, you know, helping to build out? Okay, well, these are the workflows and this is how data needs to flow to, to, to a certain place at a certain time. And so you start to actually have to get very sort of specific about how you're, you're making these various points of connection. But you know, we are talking a little bit about a reimagining of what the state is responsible for in terms of, you know, the work that they are committed to as a, you know, in not just someone who sets policy or organization that sets policy but one in, in which they're actually, you know, really focused on the implementation side of it as well. And so I think that that's where this has the potential to get it a little bit confusing, particularly with the school districts themselves. And so, you know, just a lot of role definition needs to happen up front, front and you know, to maintain that coherence that you're talking about. You know, this is where we can't lose the, the discussion around strategy and how these levers fit, the, the full set of levers within a state fit together to support school improvement.

Super helpful. I, huge thanks to both of you. I feel like we're just scratching the surface and I can see, Nita, why three hours would not be a hard thing for you to talk about in depth. Because like each of these things I want to know the trade offs of any decision point and so forth. But, but maybe as we wrap up like reflections from each of you, just, you know, as, as, as we move into a new legislative season in a few months, right. I suspect we'll see new ESA programs pop up. We already know Texas has made a big push, right, to, to try to get that on the radar. So we're going to see more of these. I just, you know, bring us home like one to two things. You say, hey, make sure, you make sure you think about this. As we go into the season of.

Implementation, I would say one thing is set out a clear list of guiding principles. From the beginning in Arkansas, we had six guiding principles around empowering parents and expanding educational opportunity, supporting high quality school options, and so on and so forth. The reason why it's important to have guiding principles is really twofold. One is you're going to make a number of decisions. We've touched on that. When you're making those decisions, you know, sometimes it's helpful. Many times it's helpful, especially if you want to develop a coherent program, to go back to your guiding principles and say, okay, are the, which of these decisions or which of the decision options are most aligned to the guiding principles that we set out to accomplish? And so being able to have that common reference point I think is really important. And two, it's also helpful from a communication standpoint so that you have a consistent set of talking points. Excuse me. Sometimes we hear systems saying, well, the real purpose of this work is X. And then someone else in the system will say well, the real purpose of this work is Y. And it's like, okay, well both of those really can't be true. So which one is it and so being clear on the communications piece is really important. And two, you know, just to, just on the implementation side, I mean these, these systems are allocating tens if not hundreds of millions of dollars to these programs. You have to take the time upfront to design the work well to put a clear plan in place for implementation. If you can't, you know, if you're going to spend $800 million like some states are in that sort of Vicinity, spend 5 to $10 million upfront to get the work in place in a way that is going to consider the strategic and implementation issues, that's going to map out sort of what the budget possibilities are, what the budget implications are, you know, how it fits together with other school improvement strategies, what can go wrong, have contingencies for those things and really dedicate that time up front because this is, you know, it's a high stakes endeavor for any state given sort of, this is part of the Republican platform at this point. And you know, there are 17 states, I believe that are now actually implementing with other states in process. And we, you know, states can't just think about this from the standpoint of what do I need to be successful in my state. This is a national movement and you know, if the movement is going to be successful long term, then, you know, we need all these states to be implementing it well and ultimately for the students who can benefit the most from these programs to be. To be accessing these programs.

Super helpful. Nita, a final word and thoughts from you.

I think that was great, Phil. I mean the only thing I'll come back to because it's worth repeating is for me and for us, like this should be a school choice movement. It's great to create these options for kids and families, but, but let's have them be good options. So what do you have to do as a system to make sure that you have quality choices for kids?

Nita? Phil, thank you so much for sharing just a fraction of your expertise as you've delved into the implementation of ESAs. And hopefully we can have you back at some point to tell us more findings along the way as you continue to do this work, but just deeply appreciative of you both.

Thank you, Michael. And we are certainly proud of the folks in our community for the work that they've done here. I think that they've done a really great job.

No, thank you. And it's evident that they've gone through a comprehensive process. So for all you tuning in, we'll be back next time on the future of education.