I’ve recently had questions from quite a few people about how Education Freedom Accounts (EFAs) work. During the conversations, they often mention that “the money follows the child” and “EFAs are saving money”.
EFAs are one of many solutions for families for whom the default district school isn’t working. But families will be in a better position to make good decisions if the public policy discussions were based more on analysis and less on advocacy. That’s what I’m trying to address here.
The truth is that EFA money rarely follows the child, and EFAs rarely save money. You should know how it works. I will be as factual as possible, with some simplifications to make it as clear as possible.
A History of School Funding in New Hampshire
To understand how EFAs work, it’s helpful to understand how the state started funding schools, via “adequacy grants”, and how the process changed over time. This has only been the practice since the turn of this century — 25 years. To me that feels very recent, just a few years before I moved here.
Adequacy grants are supposed to pay for an “adequate education”, which is defined by mandating that students be taught things like reading, math, art, and history.
Adequacy grants are based on student attendance in the prior year, plus some other factors — students with special needs, learning English as a second language, or eligible for free or reduced lunch. The state calculates the grant amount for each town, each year.
The adequacy grant amount was set at the average per-student cost at the time, about $5k (adjusted for inflation).
If schools were only allowed to spend the adequacy grant amount, which I think was the intention, our school spending would not be as out of control as it currently is. Schools now spend over $26k per student.
If the state collected $2.40 per $1000 of home value, it would pay for all the state's public schools at the adequacy rate today, with no extra spending. Can you imagine?
To pay for these new adequacy grants, the legislature created the State-Wide Education Property Tax (SWEPT). This shows up on your property tax bills as the State line. In some towns, the amount collected by SWEPT is more than enough to pay for adequacy grants. In other towns, it’s less than enough. Towns that raised more than enough sent the excess to the state to distribute to towns that raised less than enough.
In 2011, the law changed to allow towns with excess SWEPT to apply that excess to their local school budgets. SWEPT was no longer redistributed. Instead, the state’s Education Trust Fund (ETF) had to raise funds in other ways to pay for adequacy grants that local SWEPT funds did not cover. So they started using utility taxes, business and tobacco taxes, sweepstakes funds, and tobacco settlement funds.
This is where we are today.
Does EFA money follow the student?
When a student takes an EFA, he no longer attends his local public school. This means that the school no longer gets an adequacy grant for that student. The Education Trust Fund pays for all EFAs, also about $5k per student. So it seems that an adequacy grant that used to go to the school now goes to the EFA student. This is what people mean by “The money follows the student.”
This is sometimes true, but there are many exceptions to that simple statement.
Switchers
First, only 35% of students were “switchers”, meaning they were attending public school prior to taking an EFA. The other 65% of students were either attending a private school or were homeschooled before taking an EFA. For all these EFA students, new money is being raised. That percentage may change over time, of course. But no money follows non-switcher students.
Budgets do not go down when students leave schools
Second, when a child leaves a district public school for any reason, the district no longer gets the $5k adequacy grant for that student. This is true whether a child takes an EFA, or a family moves out of the district. That’s important because in either case the district budget does not change.
School budgets pay for buildings and teachers and transportation and things like that. They do not pay for students directly. The idea of a per student cost is an accounting fiction.
Since the district budget doesn’t change when students leave, property taxes go up to make up the amount that the school is no longer getting in adequacy grants.
People then ask, “But what about when a lot of kids leave? Won’t the budgets go down then?” The answer: School budgets just keep going up.
To realize how true this is, take a look at this chart. The blue line shows that school budgets have gone up — by a lot, even while the orange line shows that student enrollment has gone down — also by a lot.
The chart isn’t showing per student cost, it’s showing all school spending. H/T to Drew Cline for putting this chart together.
Overall spending went down by a significant amount from 2011 to 2013 (see the blue line again). It could be that districts reduced budgets when the law changed to let SWEPT towns keep their excess. Then it slowly crept (or leapt?) up to where it is now. The rate of growth is slower now, but still too high.
Rich towns, poor towns, and tuition
Third, there are quite a few types of school districts. For our purposes, we will address
- districts that provide all K-12 grades, and
- districts that spend money directly on a student, such as tuition for some or all of their grades, or for special education.
For our examples, let’s assume that all the students are switchers — that they left public schools to take EFAs.
Let’s look at Sunapee. It provides all K-12 grades. It gets no adequacy grants from the state Education Trust Fund because its SWEPT more than covers the amount needed. When 22 students (7% of the total) left Sunapee schools to take EFAs, the SWEPT tax that would have paid their adequacy grants was rerouted to pay their school tax. To a taxpayer in Sunapee, nothing changes. The ETF has to come up with an additional $100,980 for EFAs. Nothing follows nobody nowhere, and there is additional spending at the state level.
Now let’s look at Berlin. It provides all K-12 grades. It gets 88% of its adequacy grants from the ETF. When 61 students (7% of the total) left Berlin schools to take EFAs, the ETF funds that would have paid their adequacy grants are now paying for the EFAs. The adequacy money technically follows the student. But the school budget doesn’t change, so now local school taxes go up to make up for that adequacy amount. What the state used to help them with, they now pay on their own. If the money really followed the student, the school budget would be less. But it’s not.
Finally, let’s look at Croydon. It has a K-4 school and pays tuition to other schools from 5th grade on. It gets 55% of its adequacy grants from the ETF. When 9 tuitioned students (14% of the total) left their out-of-district schools to take EFAs, Croydon lost $5k in adequacy grants for each of those students, but it didn’t have to pay the $17,000 average tuition for them anymore. This removes $153,000 from their budget directly. The adequacy money follows the student. But better yet, Croydon saves money on tuition when tuitioned students leave.
Direct spending for special education would also be saved if certain special ed students take EFAs. An out-of-district placement or a dedicated para can be treated as tuition (direct spending) for our purposes.
But remember, not all the students are switchers. Recall that for non-switchers, EFAs are 100% new spending from the state Education Trust Fund. And not all EFA students in Croydon are necessarily tuitioned.
Conclusion
Schools that provide all K-12 grades are funding schools, not students. There is no direct spending on a student. This is why the budget doesn’t change when a few students leave a school.
A district paying tuition for students is the only scenario in which EFAs reduce spending. Since EFAs cost about $5,000 per student, if the direct spending on a student is $20,000, there’s a savings of $15,000 to that school district every time a tuitioned child leaves their public school and takes an EFA.
That sounds attractive, but it’s important to keep in mind that this scenario applies to less than 5 percent of all New Hampshire students.
All the other scenarios bring additional spending from the Education Trust Fund, and most raise taxes for local property owners. Where there is direct spending on a student, EFAs reduce overall spending. Where there isn’t, they don’t.
One of reasons EFA funding seems so complicated is that many of the people who support EFAs are trying to paint a rosy picture. In order to do so, they ignore non-switchers, and they mistakenly treat all switchers as belonging to the very small “tuitioning” category. They make it sound like the per student cost is direct spending, when that is rarely the case.
