Taxes & Government Spending

How to pay for eliminating ESA’s 100-day requirement

Victor Joecks

By Victor Joecks

December 7, 2015

There’s a way to pay for expanding Nevada’s near-universal Education Savings Account program to students currently enrolled in private schools, without raising taxes or even cutting currently wasteful General Fund spending.

The Silver State’s groundbreaking ESAs are extremely popular with the public. Over 3,800 students applied during a just-concluded early enrollment period, making Nevada’s ESA program the biggest such program in the entire country.

Dozens of lawmakers have touted the program, and many politicians who are seeking political cover for voting for a $1.5 billion tax hike are aggressively using ESAs to boost their grassroots bona fides.

While outfits like the ACLU have predictably opposed ESAs, a surprising, but not unjustified, group has also expressed some angst: current private school parents.

At the first regulatory hearing held by Treasurer Dan Schwartz, private school parents filled not just the meeting room, but the overflow room. Most comments centered around one concern: “Why does a student have to be in a public school for 100 days to be eligible to apply?”  It struck private-school parents as unjust to exclude them from the program, because they had previously been saving the state money by paying for private education.

The overwhelming demand was simple: “Fix this.”

The Treasurer’s Office, however, lacks the authority to change the clear wording of the law, even given the desirability of the policy outcome. It’s Gov. Brian Sandoval who is the key to producing this change. He has the authority to call a special session and put ESAs on the agenda.

When the elimination of the 100-day requirement is considered, an obvious question is: “How would you pay for it?”

Bringing ESA equity to the education of students currently in private schools would incur a new cost to the state. Indeed, that cost is the reason for the 100-day requirement in SB302, which established ESAs. Sen. Scott Hammond’s original version of the bill didn’t have a limit on eligibility. The 100-day requirement was added to eliminate a fiscal note that would have sunk the bill.

While NPRI has identified over $1.5 billion in waste and inefficient spending in the budget, there’s a more politically practical path to the funding.

In his Fiscal Year 2016-17 Governor’s Recommended Budget, Sandoval proposed transferring $127 million from the 2009 car-tab tax increase from the Highway Fund to the General Fund, roughly $63.5 million each year. These funds were part of the original “sunset” tax package in 2009, but instead of expiring like the other taxes, they were supposed to go into the Highway Fund. Instead, these monies have been diverted back to the General Fund.

With the Legislature passing a $1.5 billion tax increase — which was $160 million higher than Sandoval had originally called for — lawmakers decided to only transfer half of the FY17 car-tab tax amount from the Highway Fund to the General Fund.

This is the $32 million lawmaker could use to pay for eliminating the 100-day requirement. It is the same money that Sandoval had originally proposed diverting from the Highway Fund in the first place. It is also money that the Highway Fund never received, and using it to expand ESA eligibility now would simply redirect the revenue.

As a first step, lawmakers should make elimination of the 100-day requirement effective July 1, 2016. This will give the Treasurer’s Office time to prepare for any logistical challenges, while allowing Treasury staff to focus on its current rollout. It also will move all costs to FY17.

Second, when DOE originally scored the bill, it put the FY17 cost of DSA funding at just $30 million. While it’s tempting to use that estimate, DOE predicted that just 25 percent of Nevada’s 20,235 private school students would use ESAs.

Based on parent interest, that number should be much higher than 5,000. If you combine private school students with home schoolers who’d use ESAs, a better guess would be that 15,000 new students would apply for ESAs.

Those who wouldn’t apply include students who’ve graduated, students attending private schools that won’t accept ESAs, private and home-school students who’ve already decided to meet the 100-day requirement and home-school families who simply put a higher value on their independence.

Instead of offering these students the full ESA, lawmakers could offer them a $2,000 ESA in 2017. That would cost Nevada $30 million and could be funded fully by the $32 million Sandoval originally planned on diverting from the Highway Fund.

The bill should include an escalator so that these students are on a path to receive a full ESA within a few years. One such path would create ESAs worth $3,000 in FY18, $3,500 in FY19, $4,500 in FY20, and then be fully caught up in FY21.

Another reason for Sandoval and lawmakers to consider ESAs in a special session is to put into law the regulations the Treasurer’s office is currently considering. Expanding ESAs to kindergarteners and military families is a laudable goal, but unless enacted by the Legislature those changes aren’t likely to survive a court challenge.

Sandoval is reportedly calling a special session on Dec. 16 to consider tax breaks for the car company Faraday. He has the authority to add ESAs onto the agenda, and citizens who want to urge him to do that should call his office at 775-684-5670.

While lawmakers can only consider items that Sandoval puts on the agenda, three legislative leaders have the leverage to make sure ESAs are included: Sen. Majority Leader Michael Roberson, Assembly Speaker John Hambrick and Assembly Majority Leader Paul Anderson.

Their leverage is that they could refuse to pass Sandoval’s Faraday tax package, unless he ends the special session and then calls a new special session that includes ESAs on the agenda, assuming Sandoval doesn’t originally include ESAs.

Citizens wanting to contact legislative leadership should call or email those lawmakers:

So, fixing the 100-day requirement is politically possible. The policy is laid out. The money is there without raising taxes or cutting General Fund spending. Now it’s just about whether or not the Governor and current legislative leaders have the desire to make it happen.

Victor Joecks is executive vice president of the Nevada Policy Research Institute, a nonpartisan, free-market think tank. For more visit http://npri.org.