NC legislators waste little time in trying to further privatize state’s public schools

As state legislatures have started their sessions, anti-public school lawmakers have wasted no time introducing “school choice” bills that would divert public funds to privatization schemes. In the first three weeks of January alone, 34 bills to expand private education options had been introduced in 15 states.

North Carolina lawmakers wasted little time jumping on this trend. House Bill 32, introduced in the General Assembly’s first week, would substantially expand eligibility for North Carolina voucher programs. The changes would funnel taxpayer funds to increasingly subsidize payments to families who were already planning to enroll in private schools. The bill is estimated to cost the state $159 million over the next nine years.

What does HB32 do?

HB32 changes all three of North Carolina’s voucher programs.

The Opportunity Scholarship voucher, limited to families earning up to 278% of the federal poverty level ($72,705 for a family of four), is the state’s largest voucher program. Under current law, funding for the program is slated to increase from $75 million in FY 2020-21 to $145 million in FY 2027-28.

HB32 would make five changes to the Opportunity Scholarship program:

1. No prior public school enrollment requirement for entering second graders: Under current law, first-time voucher recipients had to previously been enrolled in a public school unless they are entering kindergarten or first grade. Under H32, applicants entering second grade would not have to have been previously enrolled in a public school. As a result, more vouchers will be provided to students who were already enrolled in a private school.
2. Increase value of the voucher: Since its inception in FY 2014-15, the Opportunity Scholarship voucher has been capped at $4,200. Under HB32, the maximum voucher amount would be set to “70 percent of the average State per pupil allocation in the prior fiscal year.” The average state per pupil allocation is currently $6,586, implying a maximum voucher of more than $4,610 if, as proposed, this goes into effect for vouchers awarded in the 2022-23 school year. The maximum voucher value would then be bumped up to 80% of the average State per pupil allocation in the 2023-24 school year and beyond. This would permit vouchers of up to $5,269, given current state spending levels.
3. Loosening of prior public school enrollment requirement in grades 3-12: HB32 would allow students entering grades 3-12 to also be eligible for a voucher even if they’re already enrolled in a private school, so long as they were in a public school in the preceding semester. For example, if a student started their school year in a public school, but transferred to a private school for the spring semester, they would still be eligible for a voucher in the subsequent school year. This change would first apply to vouchers awarded in the 2022-23 school year.
4. Diversion of funds to marketing efforts: Since inception, the Opportunity Scholarship program has been overfunded. HB32 would divert $500,000 worth of unused funds to “a nonprofit corporation representing parents and families” to market the program in an effort to juice up demand. There are few (if any) organizations that would qualify for these funds beyond Parents for Educational Freedom in North Carolina. It is probably just a coincidence that PEFNC provided HB32 sponsor Rep. Hugh Blackwell with an all-expenses paid trip to Miami in 2012.
5. Increase of administration funding. Under current law, the NC State Education Assistance Authority  may retain $1.5 million for administrating the Opportunity Scholarship program. Under HB32, they would be allowed to use up to 2.5% of appropriated funds. That equates to $2.1 million for FY 2021-22, rising to $3.6 million by FY 2027-28.

The bill also amends the state’s two other voucher programs: the Disabilities Grant voucher and Personal Education Savings Accounts vouchers.

The Disabilities Grant is a traditional voucher covering up to $8,000 per year for students with disabilities. Funds can be used for school tuition, as well as for related expenses such as therapy, tutoring and educational technology.

Under the Personal Education Savings Accounts, parents of qualifying children receive a debit card loaded with $9,000 to be spent on a wide range of education-related expenses.

HB32 make the following changes:

1. Merges the two programs and changes the name. The combined program would be called Personal Education Student Accounts.
2. Expands eligibility. Currently, students must have an Individualized Education Plan (IEP) to qualify for either program. Under HB32, eligibility would also be extended to students with 504 plans, which broadens the allowable disabilities. Students would also be eligible even if they are already enrolled in college, so long as they are taking less than 12 credits per year.
3. Different awards and carry-forward rules. If a student is affected by autism, hearing impairment, moderate or severe intellectual or developmental disability, multiple, permanent orthopedic impairments, or visual impairment, they qualify for a higher award amount and may carry-forward up to $4,500 of unspent funds to the next fiscal year. These students will get $17,000 on their debit cards. Other disabled students’ awards are based on a percentage of per-student funding provided in the prior year. Based on 2020-21 funding levels, the award would be $9,549. These students would not be permitted to carry forward unspent funds.
4. Eligibility verification relaxed. Currently the State Education Assistance Authority is required to verify eligibility of 6% of applicants each year. That requirement would be removed under HB32.
5. Additional skimming of funds by financial companies. HB32 would permit the charging of “transaction or merchant fees” of up to 2.5% of all spending.
6. Forward-funds the program and creates guaranteed funding increases through FY 2031-32. Under HB32, appropriations for Personal Education Savings Accounts would be made to a reserve account to forward-fund vouchers in the subsequent fiscal year. Additionally, funding would increase $1 million annually through FY 2031-32, increasing total funding by 62%. Voucher programs are the only education programs with guaranteed funding increases beyond FY 2021-22.

Finally, the bill would permit county governments to contribute to either of the voucher programs. Counties would be able to appropriate up to $1,000 per every child in the county who receives a voucher and attends a private school in the county. These funds would be used to increase the size of student vouchers rather than increase the number of vouchers awarded.

Fiscal impact of Opportunity Scholarship changes

If HB32 becomes law, it would be the second consecutive year of rapid expansion of the Opportunity Scholarship program to divert additional state funding to students who were already planning to go to a private school. During the 2020 legislative session, the General Assembly expanded the program’s income eligibility requirements and removed limits on awards to students entering Kindergarten and first grade. These changes are expected to cost the state approximately $272 million over the next 10 years.

The changes proposed under H3B2 would add $159 million to these costs over the next nine years.

The modifications would result in a greater share of vouchers being awarded to students who would have attended private school in the absence of the program. Additionally, the change in award size decreases the savings that occur when a student switches from public to private school.

Impact of Personal Education Savings Account changes

This analysis does not include a fiscal examination of the changes to the Disabilities Grant and Personal Education Savings Account programs, because of the complexity of modeling such impacts and the time sensitivity of this analysis. Additionally, these programs remain relatively small, making the fiscal impact less relevant.

Still, by rolling the Disabilities Grant program into the personal educational savings programs, HB32 would exacerbate the issues associated with savings account vouchers. For example, there could be increased opportunities for fraud since the monitoring of debit card spending relies almost entirely on self-reporting from parents. Additionally, Hb32’s loosening of eligibility requirements will likely result in the “creaming” of students with milder disabilities. Because North Carolina’s supplemental funding for students with disabilities provides an equal dollar amount on behalf of every student with an identified disability, creaming leaves districts with less money to dedicate to the children they remain responsible for with more severe disabilities.

How to meet the needs of lower-income students and those with disabilities

It is no secret that North Carolina’s schools have failed to meet the needs of too many students from lower-income families and those with disabilities. HB26 continues the General Assembly’s misguided belief that “choice” is a substitute for providing schools with the resources that allow all students to flourish.

Under the long-running Leandro court case, the state has continually been found culpable of violating students’ constitutional right to a decent education. These failures have fallen particularly hard on students from lower-income families and students with disabilities. Luckily, the case is offering legislators with a path forward to rectify these harms and provide students with the education they are owed.

For students with disabilities, Judge Lee’s 2021 Leandro Plan court order called for removing the funding cap that limits supplemental funding to 12.75% of a district’s students. Had the General Assembly not ignored this order, removing the cap would have increased funding this year by $40 million (4.3%). Additionally, Judge Lee set a long-term goal of increasing funding to 2.3 times that of an average student, an increase of 49%.

For students from lower-income families, Judge Lee ordered an increase of $60 million for the Disadvantaged Student Supplemental Funding allotment, an increase of 63%.

Additional elements of the plan such as attracting high-quality, diverse educators, proper staffing of instructional support staff, and improved professional development, would also have benefited these students. Unfortunately, the General Assembly failed to comply with Judge Lee’s court order.

Legislators will get a second bite at the apple this year. Legislators interested in meeting the needs of North Carolina’s students would be wise to reject the misguided notion that choice is a substitute for adequacy. Instead, they should embrace the proven investments and reforms included in Judge Lee’s Leandro Plan. Families will no longer accept a legislature unwilling to meet its constitutional obligations to students.

Kris Nordstrom is a senior policy analyst with the North Carolina Justice Center’s Education and Law Project.