Phil Vaccaro and Nita Bhat of EY-Parthenon joined me to discuss their work partnering with Arkansas to help the state design and implement its Education Savings Account (ESA) program. They shared the big questions every state must consider when developing and operationalizing their ESA programs and discussed the thinking behind some of Arkansas’s choices. I confess, when I think about ESAs, I hadn’t thought about all the questions that goes into operationalizing them beyond passing the legislation, so this was a very interesting conversation for me. I look forward to hearing from all of you!
Michael Horn:
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. To help us think through how that might work with some new designs cropping up in a number of states throughout the US right now, we have two special guests today from EY Parthenon, Phil Vaccaro, a partner there, and Nita Bhatt, a senior director. Nita, Phil, thank you so much for joining us. I can't wait to have this conversation.
Phil Vaccaro:
It's great to be here, Michael. Thank you for inviting us to participate.
Michael Horn:
You bet. I'm 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, particularly ESAs, and their implementation in a state. People might pause there and think, "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 of minutes. But let's start at a high level. What brought you to this work in education in Arkansas in general? Phil, why don't you start us off?
Phil and Nita’s Journey to the Work
Phil Vaccaro:
In some ways, Nita and I bring a similar background to the work, but 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. For the past 14 years, my goal has been to stay relevant from a commercial standpoint, tracking what states and districts are doing, what their top priorities are, focused around system-level change and school improvement. We've seen various waves of what education reform looks like and which policies have been more or less in vogue. Over the last few years, private school choice policies have really accelerated in terms of their adoption across states. This builds on a trend that’s been a long time in the making with school vouchers and the broader school choice ecosystem. We've supported school systems with strong choice environments. This is where we currently are with these new policy initiatives around education savings accounts.
Michael Horn:
Gotcha. Nita, how about you? What's your own story into the work?
Nita Bhat:
Yeah, absolutely. Thanks, Michael. 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 and high school, applying to and being waitlisted at a bunch of magnet schools, some fairly far away from my house, because my parents wanted me in a specific program or felt 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 they didn't want the house they could afford to limit the quality of education they wanted me to get. Fast forward after college, I had the opportunity to teach at different neighborhood and public charter schools in Philly, another angle on school choice. Then, at Parthenon, over the last decade, I've served in some interesting school choice contexts, including in New Orleans, which has really shaped my thinking, where I gained an appreciation for how to design a system that promotes not just choice for kids and families but good school choice. That's what brought me to this work with ESAs in Arkansas.
The Core Components of ESAs
Michael Horn:
Super interesting and an unbelievable background with your parents engaging in that before people thought about these questions in the same depth. As I mentioned, my audience is certainly familiar with education savings accounts. It's something we've talked about on the show, but they're clearly different from some of the other forms of private school choice we've seen historically: tax scholarships, vouchers, even the charter space. I'm curious, in your minds, what makes a funding vehicle an ESA? What are the core components to level set us about what exactly we're talking about with ESAs? Nita, why don't you lead us off on this one?
Nita Bhat:
Rather than getting too technical, I want to take this conceptually. What makes an ESA unique from vouchers is two main things. 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, in today's avatar, are intended to serve many more students. 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 to curate a curriculum, buy books, uniforms, or a course at the public school or a local charter school. That's the difference. In terms of why we think they have taken off, the pandemic illustrated that traditional school models aren't working for everyone. In fact, that may be true for a large number of students. Nationally, we see the rate of chronic absenteeism, where kids aren't coming to school, has doubled between before and after the pandemic. Parents and advocates are saying they want to take education back into their own hands.
Arkansas ESA Program
Michael Horn:
Super interesting. That leads into the work you all did in Arkansas, where they were launching a universal ESA program. Tell me about that experience because I suspect folks like me might think they passed a policy, allocated funding, there's a digital wallet, and boom, you're off to the races. 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. It’s much more complicated. Phil, why don't you lead us off and talk about some of the major design choices that go into launching a universal ESA program and give us a sense of the complexity involved?
Phil Vaccaro:
Yeah, I'd love to. To start, it is complex, and I'm glad you're focused on the implementation piece because that is the overlooked factor in bringing these education savings account programs to life. There's a lot involved. There are a number of strategic and operational questions that need to be answered, and you have to build a team with the capacity to implement the work. From a strategic standpoint, one of the first questions a department has to ask itself beyond where it will live within the state. In Arkansas context, it lived with the Department of Education. In other systems, it lives with other government agencies. A big question on the front end is what will you do internally and what will you hire someone else to do? There are a few vendors active in this space that bring primarily a technology solution but can also bring some process around it. Departments need to figure out what to insource and what to outsource. With that knowledge, how do you design a process where the department can work with the vendor(s) on a regular basis to get the work done? The set of activities during the launch of a program can differ from the activities once a program is launched. When we first got into Arkansas, our support for the state is public record. We co-authored a LinkedIn blog post with them about our work. I'm proud that the folks in Arkansas dedicated time to getting the implementation right because we've seen mistakes in other states that have set back those initiatives. Nita spent a lot of time on the ground from day one working with their team on the nitty-gritty issues. You start with a statute and then bring that to life. The first step is a deep dive into the rules. What doesn't exist in statute that needs further clarification? That sets up a number of design choices and operational decisions. I'll turn it over to Nita to talk about some of those.
Nita Bhat:
Sure. There are hundreds of design decisions, and I can't go into all of them. Phil said he could talk about this for three hours, and it's true. I'll stick to some high-level things that both the law had to consider and we had to build on during the design and implementation. First, is around what population do I intend on serving? Is it kids in low-performing public schools? Is it everyone? Something in between? That line of inquiry is usually figured out in the law, and then we build on it. There's a whole layer of questions around accountability. Do I want to measure how students on ESAs are performing academically? How do I want to measure that? Do I want to test them? In what subjects? Are there consequences for providers or families if a student isn't testing well? How long do I give them? How do I use the information I collect? Do I make it public? There are hundreds of questions in that layer. One of my favorites is around financial safeguards. How do I curtail providers from unreasonably inflating their tuition? In some states, the ESA goes into effect, and let's say it's $7,000. The private school had a tuition of $7,000, but after the ESA goes into effect, they raise it to $14,000. The families aren't seeing the benefit of the ESA. They're paying the same as before. That's unwanted behavior. How do you curtail that? There's a layer of questions on what can I spend the money on? Books, tuition, uniforms, great. Sports uniforms? Shoes? Are shoes okay? Can I buy the new line of kicks? No. Is transportation allowed? Can I take an Uber? Can I expense that? Private school tuition fees are allowed, but what about required donations to the church, do I want to allow that with this publicly funded taxpayer money? It becomes very nuanced. Hope you get some sense of how complex it can get.
Design Decisions
Michael Horn:
Yeah, I'm thinking through those and wondering how you parse through them. Let's take some and dig deeper. Let's start with the program's intended audience. You mentioned it's universal, but that implies a level of focus and outreach. How did you work through that question in Arkansas? How much was in law, regulation, and figured out on the ground?
Nita Bhat:
Yeah, great question. I'll take it broadly than just Arkansas. Some states are clear in their intentions, like prioritizing kids in low-performing schools, as Georgia does. Some states are universal, like Arizona and that is where Arkansas is headed. Sometimes states take a middle approach, phasing up to universal by prioritizing vulnerable populations: special needs, low-income, homeless, foster, etc. They might also prioritize kindergartners. In year one, we fill the program with those kids. Next year, we have more budget, and we're going to grow our program a little bit. So we let more vulnerable kids in but maybe lower the threshold slightly. If the income was the most stringent threshold in year one then in year two, we’re going to relax it a little bit. It’s still for lower-income kids but slightly higher income than it was in year one. This year we are going to let kindergartners in again and add first graders. We’re growing and phasing in a way that seems reasonable. One thing that I don’t think people are necessarily thinking of is in these situations the kindergarten and first-grade uptake rate becomes quite high compared to the high-needs population unless you are intentional about it. This is quite logical. We see families with more information and resources are the first to take advantage, applying fast. Once a child is in the program, they’re in. What you see in the out years, years four, years five, years six, and onward... If you're a kindergartner and you're in the program, you could be in the program for 13 years. You could end up with a day where the program is approaching full or is full. Now you have a situation where the composition of the program you have is not all that strategic, leaving new families out. This is something people might miss. We had the benefit of modeling it out.
Funding ESAs
Michael Horn:
Yeah, no, it's fascinating. I'm imagining the keyboard warriors signing up for summer camp. It's the same sort of phenomenon. 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. Are they pulling from public school dollars? 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?
Nita Bhat:
No, this one's great. So Phil and I are district finance nerds. Our head goes there pretty quickly. One of the common criticisms that we hear about ESAs is that it's taking money away from public schools. There's a logic to that, right? 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 student. But the reality is more complicated because, in many states, not all students in the ESA program were public school students to begin with. In fact, some of them were always in private school. In some states, we know that most of them were already in private schools. So what's happening is the government is allocating new money towards that student that it wasn't before. That money is usually coming from the state's general fund, which is tax-based, maybe from some reserves, but it's not education-specific dollars. In effect, a state may be investing hundreds of millions of dollars in new money in education, but it's only going to fund a very small fraction of the state's students. Critics will ask if that's the best use of new education funds. That's a criticism states have to contend with if they're designing things this way. Down the road, if your ESA program gets big enough, policymakers may need to ask themselves where that money will come from and if they need to cut funds on the public school side. These considerations need to happen within a broader frame of how much is being allocated to this program and what the caps are year over year, even if it's a universal program.
Michael Horn:
Just stay on that for one more moment. You mentioned the providers that maybe double tuition once they see there's $7,000 of public subsidy coming in. So they still get $7,000 from the families because they were paying it before. Why not charge $14,000 in 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 stinks in the early years, but hopefully, the market has enough providers that it shakes out?
Nita Bhat:
Yeah, I think that's a good question. Different states have approached it differently. As far as we know, Arkansas is the only one that has put a stake in the ground and said they are going to monitor this and do something about it if they think it's unreasonable. That was a promising place to start. By the way, this isn't happening broadly, and I don't want to overexaggerate the extent to which this is happening. We toyed with a number of considerations for that particular question. Should we be monitoring growth? Should a school provide justification? Should there be a limit they can go up to? Ultimately, we felt if we defined a limit, maybe it's 5% or 10%, we worried that schools would use that as permission to raise to that amount, even if historically they weren't or didn't intend to. Ultimately, we left it as we are going to monitor this, ask for rationale if we see an above-average increase or an outlier, and take a case-by-case approach.
Fitting ESAs in Broader Strategies
Michael Horn:
Gotcha. I assume you're trying to avoid the college tuition behavior over time. Phil, let me turn to you because I'm thinking about how you situate these ESAs in a broader, not just school choice strategy, but a school improvement strategy across an entire state. How do you think about that as a component within a strategy? Where are you landing on helping not just Arkansas but any state think through that question?
Phil Vaccaro:
Yeah, it's a really important question, Michael. One just making sure that the conversations emphasize education savings accounts as one lever of school improvement in a system, whether it's because you're getting more kids into better schools or creating more competition in the system. The notion being that creates a rising tide for all boats. We've seen systems go heads down quickly in terms of implementing the statute. But really, what are they doing to think strategically about how this fits in with other school improvement strategies they're pursuing? How are they coordinating with districts, which have been responsible for supporting a student's learning? In Arkansas, we built into our process a regular cadence around strategic discussions. It helps to map out where the students are, where the schools are, where the lower-performing schools are, where the private school capacity is, and where there are parts of the state without sufficient supply to meet potential demand. Where are there robust charter systems, and how do charter schools fit in with private school choice? There are strategic questions about how private school choice helps in certain parts of the state or where you have many private schools, but they're mostly full. You have to think there will be a percentage of students that benefit from this program, and hopefully, they will have access to a better school or create competition that helps those schools improve.
In places without capacity, how do you provide new capacity into the system? Whether it's through new charter schools, micro-schools, or consortia of home schools. That's a huge strategic question that states need to think about. Also, in coordination with the districts where there's a net outflow of students, there is a funding implication because they are serving fewer students. If that happens to any degree of scale, it changes how that district can serve students. Taken to its logical extreme, it can change the dynamics in which those school districts serve students. You think about this policy in the broader landscape of school choice as part of your theory of change. The LEARNS Act in Arkansas was a comprehensive bill specifying policy change in a number of areas. Where the program lives is important. If it lives with the Department of Education, it has a higher likelihood of staying connected to other strategies implemented in the state. If you give it to other government agencies, you can run a great program, but you must make a concerted effort to coordinate with the Department of Education to consider this policy a lever for school improvement in the broader context of other things that states and districts are doing.
Supply and Sustainability
Michael Horn:
Yeah, you hit on a couple of important things. One big thing I've been thinking about is the supply side. Not just how do you trigger new operators coming in, but do they have sustainable models that will last more than two or three years? A lot of teachers say they'll volunteer for a year or two, but then what? The second question you're raising is coherence with the Department of Education and the rest of the programs they oversee strategy, etc. As we start to wrap up, reflect on that part of it. You began with one big question 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 sit that the department or wherever it's sitting will deploy to implement and operationalize this program? Reflect on that. A state launching an ESA going into year two, what are we talking about in terms of effort? Are there off-the-shelf things that can help? How should we think about what it takes to do this well?
Phil Vaccaro:
Yeah, it's a great question. Historically, states' roles in education have been standards, policies, budget allocation, and accountability. They have not been set up to do direct-to-family programs, creating a need for capacity at a level of scale that hasn't existed within school districts. You have to build out a team to do this work. Nita can tell you war stories of all the inbound questions about filling out applications incorrectly, whether they got accepted, or when tuition will be transferred. You can do a lot with FAQs, but people want to talk to someone on the phone. There's real work involved. You can outsource that to vendors, so choose your vendors wisely. Be explicit in the RFP about what you're looking for and the division of responsibility between the host government organization and the vendor. You need to build out your team. Working side by side with your team during the launch period helps build out workflows and data flow to specific places at specific times. You must be very specific about making these connection points. We are reimagining what the state is responsible for in terms of the work they are committed to, not just setting policy but focusing on implementation. This can get confusing with the school districts. Role definition needs to happen upfront to maintain coherence. This is where we can't lose the discussion around strategy and how these levers fit within a state to support school improvement.
What’s Next for ESAs
Michael Horn:
Super helpful. Huge thanks to both of you. I feel like we're just scratching the surface, and I see, Nita, why three hours wouldn't be hard for you to talk about in-depth. Each of these things has trade-offs at any decision point. As we wrap up, reflections from each of you as we move into a new legislative season. I suspect we'll see new ESA programs pop up. We already know Texas is pushing to get that on the radar. We're going to see more of these. Bring us home. One or two things to consider going into the season of implementation.
Phil Vaccaro:
I would say set out a clear list of guiding principles. In Arkansas, we had six guiding principles around empowering parents, expanding educational opportunities, supporting high-quality school options, and so on. It's important to have guiding principles for two reasons. One, when making decisions, it's helpful when you want to develop a coherent program to refer back to your guiding principles and say which of these decision options are most aligned with the guiding principles we set out to accomplish. So being able to have a common reference point I think is important. Two, it helps with communication, so you have consistent talking points. Sometimes systems say the real purpose of this work is X, and someone else says it's Y. Both can't be true, so which one is it? Being clear on the communication piece is important. On the implementation side, these systems are allocating tens if not hundreds of millions of dollars to these programs. Take the time upfront to design the work well and put a clear plan in place for implementation. If you're going to spend $800 million, spend $5 to $10 million upfront to consider the strategic and implementation issues. Map out budget possibilities, implications, how it fits with other school improvement strategies, what can go wrong, have contingencies, and dedicate time upfront. It's a high-stakes endeavor for any state. This is part of the Republican platform now, with 17 states implementing it and others in the process. States can't think about this only from their state's perspective. This is a national movement. For the movement to be successful long-term, states need to implement it well so students who can benefit most can access these programs.
Michael Horn:
Super helpful. Nita, final thoughts?
Nita Bhat:
I think that was great, Phil. The only thing I'll repeat is this should be a school choice movement. It's great to create options for kids and families, but let's have them be good options. What do you have to do as a system to ensure quality choices for kids?
Michael Horn:
Nita, Phil, thank you so much for sharing just a fraction of your expertise on implementing ESAs. Hopefully, we can have you back to tell us more findings as you continue this work. Deeply appreciative of you both.
Phil Vaccaro:
Thank you, Michael. We are proud of the folks in Arkansas for their work. I think they've done a great job.
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