Senate’s new and poorly-designed voucher program would expand avenues for educational fraud

Last week, Senators Barefoot, Clark, and Lee introduced SB 603, a bill creating a new voucher program that would provide approximately $9,000 per year to students with disabilities going to nonpublic schools. Known as “education savings accounts” or ESAs, these new types of vouchers differ from traditional vouchers in that parents may spend the money on tuition as well as other educational expenses.[1] Additionally, unused funds may be saved to make purchases in the subsequent year.

SB 603 is troubling for a variety of reasons, as the bill:

  • Expands opportunities for fraud beyond typical voucher programs
  • Costs more to administer than traditional voucher programs
  • Diverts funding from traditional public schools, with particularly negative impacts for public school programs for disabled students
  • Creates an annual drain on the state budget
  • Lacks accountability measures allowing parents to make informed educational choices for their children

What does SB 603 actually do?

If passed, SB 603 would dedicate $20 million to create the North Carolina Personal Education Savings Account Program. The program would be administered by the North Carolina Department of State Treasurer. Eligibility would be limited to students with disabilities who do not attend free public schools. Parents of eligible students would receive a debit card loaded with approximately $9,000 per year (the per-student state funding provided to LEAs on the behalf of the average student with disabilities).  The debit card could be spent on:

  • Tuition, fees, and required textbooks from a nonpublic school
  • Accredited tutoring services
  • Curricula
  • Fees for standardized tests, advanced placement exams, and college entrance exams
  • Account fees
  • Educational therapies
  • Educational technology

Strangely, SB 603 would prohibit students from using voucher funds on post-secondary education. Arguably, the primary benefit of ESA programs over traditional voucher programs is that they allow parents to save unused funds at the end of the year to apply towards college tuition. All other state ESA programs allow the use of ESA funds on college tuition.

It is also important to note that SB 603 would allow parents to double- or triple-dip into North Carolina’s other two existing voucher programs. In addition to receiving the $9,000 Personal Education Savings Account, parents could simultaneously receive $4,200 from the Opportunity Scholarship program (for students meeting certain income requirements) and an additional $8,000 via the Disabilities Grant Program. SB 603 would have a negative impact on the state budget, as the voucher awards will greatly exceed per-student spending for students double- and triple-dipping by getting awards via other state voucher programs.

Why is SB 603 bad?

ESAs greatly expand opportunities for fraud, even when compared to existing voucher programs that are experiencing fraud-related controversy. Under North Carolina’s existing voucher programs, funds are sent directly to the private school, or provided to the parent as a documented reimbursement. Under SB 603, funds would be provided to parents, with little statutory oversight of their spending.  Monitoring of eligible purchases would rely on self-reporting from parents and an indeterminate number of audits with no minimum number of accounts to be audited each year.

In Arizona’s similarly-sized ESA program, Department of Education staff identified more than $102,000 of misspending from ESAs in one six-month period. Parents had used ESA funds for groceries and cell phones.  Actual misspending over that period was certainly higher, as the department’s monitoring system was criticized by the Arizona Office of the Auditor General, and certain fraudulent activities, such as the vendor over-charging then refunding the parent in cash, are difficult to identify.

Under the proposed North Carolina program, even if an audit uncovers illegal spending, there is no requirement that the parent be removed from the program or be forced to repay the state.

Administering this program will require more resources than North Carolina’s other voucher programs.  he North Carolina Education Assistance Authority oversees the Opportunity Scholarship and Disabilities Grant Programs for administrative fees of no more than 4% of program appropriations. It is unclear what the comparable rate would be in the program created by SB 603.[2] It will almost certainly be higher, as there are more administrative responsibilities under an ESA program, and the State Treasurer does not have experience administering similar programs. The bill allows the State Treasurer to contract with outside companies to manage the accounts and conduct account audits. There are no limits on what the Treasurer could spend on these contracts.

Like traditional voucher programs, SB 603 would increase budget pressures on already-underfunded traditional public schools. Districts with declining enrollment face a number of costs that are fixed in the near term.  The school must be maintained and heated. There must be a principal, and teachers must still be employed, as enrollment declines seldom occur in class-size increments. That means that schools with declining enrollment face an increased cost-per-student, even though per-student funding remains constant.

Finally, SB 603 lacks any accountability measures. Students will not be tested, and the state will not collect any data on student performance or parental satisfaction. The lack of accountability is unfair to the public who fund the program and have a significant stake in the program’s success. The lack of accountability is also unfair to parents wanting to take advantage of such a program, and betrays the underlying premise behind school choice. Market-based education reforms like vouchers are based on the efficiency of the free market.  But efficient free markets require three elements:

  1. Many buyers (potential voucher recipients)
  2. Many sellers (private schools willing to accept voucher students)
  3. High-quality information (accountability data allowing parents and policymakers to make informed decisions)

It is unclear why North Carolina’s education policymakers have such a unique aversion to including accountability measures in school choice programs. Recent evaluations of voucher programs in Indiana, Louisiana, and Ohio, however, have uncovered incredibly poor test results for voucher students.

So who is this for?

Given the bill’s many negatives, it’s unclear why anyone in the General Assembly would support such a program. The program would be costly, create new opportunities for fraud, and strain public school budgets with no evidence the program would lead to better educational outcomes for the students its meant to help. Even Texas recently rejected a bill creating ESAs.

Further, there does not appear to be any demand for such a program from students with disabilities. North Carolina already has a voucher program for students with disabilities, the Disabilities Grant Program. As of February 1, 2017, the program has made just $3.9 million in awards, leaving $5.7 million in awards unclaimed. It does not appear there’s demand for a second $20 million program targeted towards this same population.

No matter the motives, policymakers and their constituents would be best served by rejecting this problematic proposal.


[1] Currently only four states – Arizona, Florida, Mississippi, and Tennessee – have active ESA programs.

[2] The bill’s appropriations language does not work from a technical perspective.  As currently written, the State Treasurer would receive a nonrecurring appropriation of $20 million in FY 17-18 to “establish the program.”  Any unspent funds from this appropriation would revert to the state’s General Fund at the end of FY 17-18.  Beginning FY 18-19, the State Treasurer would receive recurring appropriations of $20 million per year, but these funds are required to be spent on “the award of scholarship funds to eligible students,” and would not be available for administrative expenses.

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