Blueprint or cautionary tale? Arizona’s $800 million school choice program is popular but unruly

More than half of states have at least one private school choice program, while 11 have followed Arizona’s lead, enacting universal programs or lifting restrictions on existing ones. Idaho could be next. (Getty Images)

This story was originally posted on IdahoEdNews.org on Dec. 15, 2024. This is the second in a series of stories about private school choice leading up the 2025 legislative session. Future installments will be published weekly. 

PHOENIX — When Arizona adopted a universal private school choice program in 2022, supporters hailed the Grand Canyon State as the “national standard-bearer” for education freedom and urged other states to follow its “blueprint.” 

It was the first time a state had unlocked public funds for private school and home-school students without restrictions on income or learning disability. The universally accessible program has exploded in popularity in its first 2 1/2 years, and it keeps growing.

The quick, unpredictable growth has proved costly and difficult to manage, however. Arizona is spending $800 million and counting, well beyond initial projections. Most of the money has subsidized expenses for students already attending private school or studying at home. And the Arizona Department of Education has a backlog of reimbursements waiting to be processed. 

Still, state superintendent Tom Horne believes Idaho should adopt a similar program and seemed surprised it hadn’t already. 

“I thought Idaho was a conservative state,” he said in an interview with Idaho Education News last month.

More than half of states have at least one private school choice program, while 11 have followed Arizona’s lead, enacting universal programs or lifting restrictions on existing ones. Idaho could be next. Lawmakers are expected to consider a range of private school choice bills when they convene in January. 

It’s unclear whether a universal program will be on the table this session. But it’s likely the “end game,” said Raquel Mamani, a public school educator and board member with Save Our Schools Arizona. The group has led the opposition to universal expansion in Arizona, arguing it would threaten the public school system.

“Don’t do it, Idaho,” Mamani said. “Take Arizona as a cautionary tale.” 

Why universal school choice?

Arizona created education savings accounts (ESAs) in 2011. The first program of its kind, it gave a portion of state funds meant for public schools to students seeking an alternative option.  

Initially, only students with learning disabilities could access the funds. Arizona lawmakers in subsequent years expanded eligibility to include military families, foster children and students attending public schools with poor achievement grades, among other criteria.

Matthew Ladner was part of the team at the Goldwater Institute, a Phoenix-based think tank, that dreamt up the program. There are “a whole host of pragmatic and moral reasons” for offering diverse education options, Ladner said in a recent interview with EdNews and the Idaho Press. Families with special-needs students, for instance, are able to customize their education by choosing which therapist will provide services to their child.

Of the 28 states that have a private school choice program, 16 restrict eligibility. Wyoming offers ESAs to families who earn less than 150% of the federal poverty limit, and Montana offers them only to students with disabilities. States like Florida, North Carolina and West Virginia previously had restricted programs, but in the last two years made all students eligible.

Arizona was the first to leap toward universal eligibility in 2022. Former Gov. Doug Ducey, a Republican, and GOP allies in the Arizona Legislature lifted restrictions and offered private education subsidies to all 1.1 million students in the state.

The national push for expanding private school choice programs has coincided with rising tensions over what’s taught in public school classrooms. Debates about curriculum on race, gender and sexuality — on top of controversial public health policies during the COVID-19 pandemic — have fueled school choice advocates’ argument for education alternatives.

Making these public funds available to all families helps them access schools that align with their values, said Ladner, who is now an education policy advisor at the Heritage Foundation, the Washington, D.C.-based think tank.

“We’re not a one-size-fits-all society, and attempting to have a one-size-fits-all education system … is basically an invitation to never-ending controversy and social conflict,” he said. “The bottom line is everyone pays the taxes to support the school system, and therefore, everyone should be eligible to participate in any form of education that they choose.”

That door remains shut in Idaho, but the Heritage Foundation and other school choice advocacy groups have lobbied lawmakers to open it. The American Federation for Children and Young Americans for Liberty have consistently ranked among the top-spending lobbyists at the Idaho Statehouse. And school choice political action committees spent hundreds of thousands of dollars this year in campaigns to elect like-minded policymakers and oust opponents. 

Idaho lawmakers have considered a universal school choice program before. In 2023, Sens. Tammy Nichols, R-Middleton, and Brian Lenney, R-Nampa, sponsored an ESA bill modeled after Arizona’s, and the Senate rejected it over its uncertain cost. If Arizona’s program is any indication, the sponsors’ estimate of $45 million in the program’s first year was likely too low.

Public school educators resist ESA expansion

The universal expansion in 2022 wasn’t the first time Arizona Republicans tried to grow the ESA program. In 2017, Ducey signed a bill extending eligibility to nearly all Arizona students, but a group led by public school advocates got in the way.

Mamani, an educator at a Phoenix public school and the mother of two public school students, joined Save Our Schools Arizona that year. She was collecting donations to pay crossing guards and teacher’s aids through a parent-teacher organization (PTO) when she heard about the expansion plan. It would have removed nearly all eligibility restrictions and grown ESA enrollment to 30,000 students.

“I was incensed, infuriated and appalled,” Mamani told EdNews. “I was wondering, what’s going on with our public education? Where’s the money? Why do we have to keep raising all these dollars as PTO parents?”

Save Our Schools led a voter referendum that struck down the 2017 expansion. But it failed to block the 2022 universal law, falling short of the required signatures to qualify a ballot initiative.

In its seven-year campaign opposing ESA expansion, Save Our Schools has argued that private school and home-school subsidies siphon limited public education funds. The group continues to push for limits on the program, and the nonprofit’s leaders are travelling the country, warning other states about the pitfalls of universal ESAs.

One recipient told ABC15 in Phoenix that the money allowed her to create a learning pod for her autistic son and his four friends. Leila Woodard said her 7-year-old had been kicked out of a couple of schools that couldn’t accommodate his needs.

“Not all children fit within the box of public education,” she told the news station. “I think we’re seeing a lot of people very happy with the program and how it’s helping their children.”

Arizona now has more than 83,000 ESA recipients, according to the Arizona Department of Education. That’s up from about 12,000 since the eligibility restrictions were lifted. And the total cost is about $800 million in its third fiscal year, a 323% increase since 2022.

State budget analysts predict the cost will rise to $822 million by the end of the current fiscal year and increase by another $90 million next year. 

These estimates are “highly speculative,” analysts regularly note in their projections, because it’s difficult to predict how many students will enroll. A state budget analyst initially predicted the ESA expansion would cost $33.4 million in the first year, then $64.5 million the second year and $125.4 million the third.

Arizona’s K-12 state budget is $9.3 billion this year, nearly three times what Idaho spends on public schools, and Arizona has roughly four times as many students.

Arizona makes cuts amid $1.4 billion deficit

Arizona House Speaker Ben Toma, a Republican who sponsored the 2022 universal expansion bill, has said the rapid uptake of ESAs shows the program is a “huge success.” Toma’s rivals, on the other hand, highlighted the significant costs amid a broader $1.4 billion budget deficit that led to spending cuts earlier this year. 

Arizona Gov. Katie Hobbs, a Democrat, called for reforms that would rein in ESA costs. But cutting the ESA program was a nonstarter among Arizona’s Republican legislative majority during this year’s budget negotiations, the Associated Press reported. 

Legislative leaders and the governor’s office ultimately passed a $16.1 billion budget that slashed spending by 3.45% across most state agencies, AP and the Arizona Republic reported. 

They also cut spending on public school construction and eliminated a funding stream that helps school districts with a high percentage of students living in poverty. Planned investments in water infrastructure and road projects, worth hundreds of millions of dollars, were also cancelled.

Critics pinned the budget deficit on the “runaway” ESA program, but supporters have disputed that claim. The Arizona Mirror reported that a 2021 income tax cut, which moved the rate to a flat 2.5%, was the primary culprit of the deficit. The Arizona Legislature adopted the tax cut and the ESA program during surplus revenue years.

Idaho has cut income taxes four times the last two years. The Idaho Fiscal Policy Center recently cautioned that the cuts were supported by temporary budget surpluses and weakening state revenues over time could limit the state’s ability to fund public services, including schools. 

“Idaho is a limited budget state. We love to cut taxes,” said Quinn Perry, deputy director for the Idaho School Boards Association. “We are a state that values tax relief, and I think it is so important for individuals to see what’s happening in Arizona.”

Delays, fraud plague distribution of funds

The Arizona Department of Education administers the ESA program. The state superintendent said he’s taking heat from both school choice critics and ESA beneficiaries, as distributing the money has been plagued by delays and fraud. 

Critics have made hay of “wasteful” spending on items like ski passes and golf equipment, while supporters have argued the program is “burdened by too much oversight,” and some ESA parents have successfully resisted efforts to put additional guardrails on the expenses. 

“People attack me a lot,” Horne said. “What I tell them is I’m six-foot-six, and I only weigh 100 pounds. The rest of what you see is thick skin.”

The department’s ESA guide says it will “approve any reasonable education-related expenses,” and its latest quarterly report shows most awards go toward tuition, fees and textbooks at private schools. Other eligible expenses include curriculum, supplemental education materials and computer hardware and software, among other things. 

A list of “disallowable expenses,” which includes everything from day care fees to amusement park tickets, pizza ovens and go-carts, offers a clue into some of the claims that have been denied. Horne said some people have tried to abuse the system, but he believes the funds should only be spent on “valid educational purposes” and not at “super luxurious prices.”

ESA purchases can be made online through an automated system facilitated by ClassWallet, the same company that Idaho contracts with for its Empowering Parents microgrant program. Or parents can pay out-of-pocket and seek reimbursement from the department, which reviews the expenses.

The reimbursements are “much more burdensome,” Horne said, and the department has struggled to process the volume of claims — 500 are coming in per day, he said. Horne is hoping the Legislature will allocate funding for additional staff next legislative session, so the agency can address a backlog of 89,000 unprocessed claims. 

In the meantime, Horne told the Arizona State Board of Education last week, the department is expediting approvals on reimbursement claims less than $2,000, and staff will audit the purchases later to ensure they were eligible.

This move is likely to raise eyebrows, after several people, including a few former department employees, this year were indicted on charges of defrauding the ESA program. The latest charge came down last week. A grand jury indicted two Colorado residents for collecting $110,000 in Arizona ESA awards by filing applications for 50 children, 43 of whom did not exist.

In a news release last week, Horne said that his department caught the fraudulent payments and informed the attorney general’s office about them. “I am determined … to eliminate any fraud within the ESA program,” he said.

Most funds benefit existing private- and home-schoolers

Supporters of Arizona ESA program have argued that it educates students at a cheaper rate than public schools. And the net cost of the program is lower than the total cost often cited by critics.

A study by the Goldwater Institute showed that the typical ESA award, between $7,000 and $8,000, almost covers tuition at most K-8 private schools in Arizona (high school tuition is much higher). Meanwhile, per-pupil spending in public schools — when including state funds and local funds supported by property taxes — is $12,757.

And the $800 million gross cost of the ESA program doesn’t account for offsetting savings when a public school student moves to an ESA-funded program, Horne noted.

“We’re accused of being a big financial burden, and we’re not,” he said. 

When a new ESA student transfers from a public school to a non-public school it can generate savings for the state. But it varies by school district. In some cases, state funding for a public school is less than an ESA award, Patrick Moran, a fiscal analyst for Arizona’s Joint Legislative Budget Committee, explained to a committee studying the program last year. 

Most ESA awards have gone to students who were already attending a private school or studying in a home-school setting. These awards are a total net cost to the state. As of September, 69% of new ESA enrollees didn’t previously attend a public school.

The claim that ESAs save taxpayer money is based on “voodoo math,” Mamani said. “These kids have never been in public school. It’s a brand new cost to the state.”

EdNews asked the Arizona Department of Education to provide figures illustrating the net cost of the universal expansion but didn’t receive a response by the time of publication. 

Independent researchers have made estimates that account for offsetting costs when a public school student transfers to an ESA-funded program. The Learning Policy Institute estimated the net cost of universal eligibility was $243 million in FY 2023, and the Grand Canyon Institute pegged it at $332 million in FY 2024 and $429 million for the current fiscal year. 

Separate studies by ProPublica and the Brookings Institution found that wealthier zip codes in the Phoenix area have a disproportionate share of ESA enrollees compared to low-income neighborhoods. The well-to-do suburb of Paradise Valley, for instance, has the highest median income in the area as well as the highest rate of ESA enrollment.

Public, private schools compete for enrollment

Horne noted that a higher rate of public school students are switching to ESA-funded programs today than when eligibility first expanded in 2022. Last fiscal year, students previously enrolled in a public school represented 48% of new ESA enrollees, up from 21% the prior year. 

“The more the balance is changing, the more it’s clear it doesn’t add to the budget,” Horne said.

If this trend continues, it should decrease the net cost of the program. It will also ramp up pressure to perform on public schools, which are now competing with private schools for enrollment and the state funding tied to it.

This competition is by design. Private school choice advocates argue that a diversity of options — created by ESAs as well as school choice policies in the public education system, like open enrollment and charter schools — will compel all schools to perform better.

“It’s a tide that lifts all boats,” Ladner said.

Nearly 20,000 students have left Arizona public schools for the universal ESA. At least three public school districts in Arizona, including Paradise Valley Unified, this year announced school closures due to declining enrollment.

ESA critics have pointed to the closures as a sign that the program is harming public schools, but it likely wasn’t the only factor. The Arizona Republic reported that Paradise Valley Unified’s enrollment has been dropping for five years, due to a declining birthrate and lack of affordable housing in the area along with competition in the school choice market.

Still, Mamani worries the trend in closures will continue along with other cuts to public schools. And if private schools are going to compete with public schools for funding, they should be held to the same academic standards, she said.

“There’s winners and losers in a competition, and in education there shouldn’t be losers.”