LEGISLATIVE BUDGET BOARD
Austin, Texas
 
FISCAL NOTE, 85TH LEGISLATIVE REGULAR SESSION
 
March 26, 2017

TO:
Honorable Larry Taylor, Chair, Senate Committee on Education
 
FROM:
Ursula Parks, Director, Legislative Budget Board
 
IN RE:
SB3 by Taylor, Larry (Relating to the establishment of an education savings account program and a tax credit scholarship and educational expense assistance program.), Committee Report 1st House, Substituted



Estimated Two-year Net Impact to General Revenue Related Funds for SB3, Committee Report 1st House, Substituted: a negative impact of ($107,090,665) through the biennium ending August 31, 2019.

The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.



Fiscal Year Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2018 $35,826,035
2019 ($142,916,700)
2020 ($158,492,897)
2021 ($188,627,986)
2022 ($218,763,085)




Fiscal Year Probable Savings/(Cost) from
General Revenue Fund
1
Probable Savings/(Cost) from
Foundation School Fund
193
Probable Revenue Gain/(Loss) from
General Revenue Fund
1
Probable Revenue Gain/(Loss) from
Foundation School Fund
193
2018 ($6,516,994) $42,343,029 $0 $0
2019 ($380,949,702) $338,033,002 ($75,000,000) ($25,000,000)
2020 ($692,578,694) $634,085,797 ($75,000,000) ($25,000,000)
2021 ($1,004,988,783) $916,360,797 ($75,000,000) ($25,000,000)
2022 ($1,317,398,882) $1,198,635,797 ($75,000,000) ($25,000,000)

Fiscal Year Change in Number of State Employees from FY 2017
2018 31.0
2019 40.0
2020 46.0
2021 50.0
2022 54.0

Fiscal Analysis

The bill creates two distinct programs to be administered by the Comptroller of Public Accounts: the Education Savings Account Program and a tax credit for contributions to certain educational assistance organizations. The programs may, under certain circumstances, be accessed simultaneously.

Article I: The Education Savings Account Program

The bill would create the Education Savings Account Program, to be administered by the Comptroller of Public Accounts (CPA), to provide funding for certain education-related expenses of eligible children who are not otherwise enrolled in a public school. The bill would create the Education Savings Account Program Fund in the General Revenue Fund.

The bill would set the eligibility criteria as a child who was born on or after September 1, 2012, or attended a public school during the entire preceding academic year. The bill would require the CPA to deposit into the child's account an amount equal to 60 percent of the state average maintenance and operations (M&O) expenditure per student in the preceding year, if the child is a member of a household with a total annual income that exceeds 200 percent of the income guidelines necessary to qualify for the national free or reduced-price lunch program; 75 percent of the state average M&O expenditure per student in the preceding year, if the child is a member of a household with a total annual income that is at or below 200 percent of the income guidelines necessary to qualify for the national free or reduced-price lunch program; or 90 percent of the state average M&O expenditure per student in the preceding year if the child has a disability. In the first year of a child participating in the program, the bill would entitle the school district the child would otherwise attend an amount equal to 50 percent of the difference between the state average M&O expenditure per student in the preceding year and the amount the child's parent receives under the program. The bill would require a student who participates in the program to be included in the weighted average daily attendance of the school district the student would otherwise attend for purposes of determining the district's equalized wealth level under Chapter 41 of the Education Code in the first year the student is participating in the program.
 
The bill would prohibit the use of federal funds, the Permanent School Fund, or the Available School Fund to finance the program.
 
The bill would authorize the CPA to contract with one or more financial institutions to establish and manage an account or each child participating in the program.
 
The bill would authorize the CPA to deduct an amount, not to exceed five percent, from each program participant's account to cover the cost of administering the program, and require the CPA to contract with a private entity to randomly audit accounts as necessary to ensure compliance with applicable law and the requirements of the program.
 
The bill would authorize the CPA to refer to the Attorney General for investigation any evidence of fraudulent use of an account.

The bill would require the Commissioner of Education to approve private tutors or employees of a teaching service under the program.

The bill would require the CPA to establish a parent review committee.
 
The bill would require the CPA to notify the Commissioner of Education and the Legislative Budget Board no later than October 1 of each year of the number of students likely to participate in the program, disaggregated by school district or open-enrollment charter school the eligible student would otherwise attend. The bill would require the CPA to notify the Commissioner of Education and the Legislative Budget Board of actual participation information by March 1 of each year.
 
The bill would require the Commissioner of Education to adjust enrollment estimates and entitlement for each school district based on information provided by the Comptroller under the provisions of this bill.

Article II: Tax Credit Scholarship and Educational Assistance Program

The bill would create a tax credit for contributions to a certified education assistance organization which are used to provide scholarships or educational expense assistance to eligible children. The bill would authorize the CPA to certify a primary and secondary educational assistance organization that meet certain requirements. The bill would require nonpublic schools with students receiving funding from educational assistance organizations to be accredited by the Texas Education Agency (TEA) or by another organization that meets certain requirements; annually administer a nationally norm-referenced assessment instrument; obtain a valid certificate of occupancy; and develop policy statements regarding admissions, curriculum, safety, food service inspection, and student-teacher ratios.

The bill would require the educational assistance organization to notify the Commissioner of Education and the Legislative Budget Board no later than October 1 of each year of the number of students likely to participate in the program, disaggregated by school district or open-enrollment charter school the eligible student would otherwise attend. The bill would require the educational assistance organization to notify the Commissioner of Education and the Legislative Budget Board of actual participation information by March 1 of each year.

To be eligible to receive a scholarship from an educational assistance organization, a student would be required to be in foster care, in institutional care, have a parent who is on active duty in the military, or have a household income not  greater than 200 percent of the income guidelines necessary to qualify for the national free or  reduced price lunch program. The student must also have been enrolled in a public school during the preceding year or be starting school in the state for the first time. The student would also qualify if they were previously eligible. The bill would also allow a student to receive a scholarship if the student is in kindergarten through grade 12 and eligible under Section 29.003 of the Education Code to participate in a school district's special education program and has an individualized education program.
 
The bill would prohibit a student from receiving a scholarship from a certified educational assistance organization and from participating in the Education Savings Account Program in the same year unless the student is in foster care, in institutional care, has a parent who is on active duty in the military, qualifies through a special educational program, or has a household income not  greater than 175 percent of the income guidelines necessary to qualify for the national free or  reduced price lunch program. The maximum scholarship provided to a student who participates in both programs may not exceed the difference between the full tuition amount for the student's nonpublic school and the award under the Education Savings Account Program and a transportation allowance, not to exceed $500.
 
The bill would require a student who receives a scholarship from an educational assistance organization to be included in the weighted average daily attendance of the school district the student would otherwise attend for purposes of determining the district's equalized wealth level under Chapter 41 of the Education Code in the first year the student is participating in the program.
 
The bill would limit the scholarship to no more than 75 percent of the state average M&O expenditure per student in the preceding year, or 50 percent of the state average M&O expenditure per student in the preceding year if the child is a member of a household with a total annual income that is greater than 175 percent of the income guidelines necessary to qualify for the national free or reduced-price lunch program and the child is not eligible to participate in the program through a special education program.
 
The bill would set the maximum educational expense assistance at $500 per student for fiscal year 2018 and would authorize increases in the amount of 5 percent per year.
 
The bill authorizes a taxable entity to receive a tax credit for money contributed to a certified educational assistance organization, up to 50 percent of the taxable entity's tax liability under the insurance premium tax.
 
The bill would limit the total amount of tax credits available under the provisions of the
bill for the insurance premium tax to $100 million in each fiscal year.
 
The bill would require the CPA to administer the tax credits provided under this bill. The Education Savings Account Program would apply beginning with the 2018-19 school year. The tax credit for contributions to certified education assistance organizations would take effect January 1, 2018.

The bill would require the Commissioner of Education to adjust enrollment estimates and entitlement for each school district based on information provided by the Comptroller under the provisions of this bill.

This legislation would do one or more of the following: create or recreate a dedicated account in the General Revenue Fund, create or recreate a special or trust fund either with or outside of the Treasury, or create a dedicated revenue source. Legislative policy, implemented as Government Code 403.095, consolidated special funds (except those affected by constitutional, federal, or other restrictions) into the General Revenue Fund as of August 31, 1993 and eliminated all applicable statutory revenue dedications as of August 31, 1995. Each subsequent Legislature has reviewed bills that affect funds consolidation. The fund, account, or revenue dedication included in this bill would be subject to funds consolidation review by the current Legislature.


Methodology

The bill creates two distinct programs to be administered by the Comptroller of Public Accounts: the Education Savings Account Program and a tax credit for contributions to certain educational assistance organizations.

Education Savings Account Program Assumptions:

The state average per-pupil M&O expenditure based on the most recent audited actual financial data submitted to the Public Education Information Management System (PEIMS) for fiscal year 2015 is $9,065. Sixty percent of this amount (the estimated value of the award for a family with an income above 200 percent of the free or reduced-price lunch program) would be $5,439; 75 percent of this amount would be $6,799 (the estimated value of the award for a family with an income at or below 200 percent of the free or reduced-price lunch program); 90 percent of this amount would be $8,159 (the estimated value of the award for a child with a disability).
 
In fiscal year 2015, the same year that expenditure data is available, the statewide average Foundation School Program (FSP) entitlement per student in ADA was $8,065. Based on the available data, the state would save the difference between the statewide FSP entitlement and the amount of the award.
 
Based on information provided by TEA, it is assumed that 8.7 percent of students that enroll in the program would receive the highest award due to a disability, 77.6 percent of the students in the program would have an income at or below 200 percent of the free and reduced-price lunch program level, and 13.7 percent of students would have a family income that exceeds 200 percent of the free and reduced price lunch program level.

Estimated Fiscal Impact of Education Savings Account Program: 

TEA assumes that students attending private school as a result of the Education Savings Account Program could grow by approximately 25,000 students per year (approximately 10 percent of current capacity). Using these assumptions, 25,000 students would utilize the program in fiscal year 2019 (the first year the program would be available), and participation would grow to 100,000 students by fiscal year 2022. Based on the demographic and award assumptions provided for above, the total statewide awards for these students would be $168.2 million in the fiscal year 2019, $336.6 million in fiscal year 2020, $504.9 million in fiscal year 2021, and $673.1 million in fiscal year 2022.

For the same population, there would be a savings to the FSP from these students leaving the public school system. Based on the statewide FSP entitlement, the savings per student would $8,065, for a total savings to the FSP of $201.6 million in fiscal year 2019, $403.3 million in fiscal year 2020, $604.9 million in fiscal year 2021, and $806.5 million in fiscal year 2022.
 
Based on information provided by TEA, this analysis assumes that an additional 20,000 students currently enrolled in the public school system would choose instead to home school in fiscal year 2019, with an additional 10,000 students each subsequent year. Based on the demographic and award assumptions provided for above, the total statewide awards for these students would be $134.6 million in fiscal year 2019, $201.9 million in fiscal year 2020, $269.3 million in fiscal year 2021, and $336.6 million in fiscal year 2022. For the same population, there would be a savings to the FSP from these students leaving the public school system. Based on the statewide FSP entitlement, the savings per student would be $8,065, for a total savings to the FSP of $161.3 million in fiscal year 2019, $242.0 million in fiscal year 2020, $322.6 million in fiscal year 2021, and $403.3 million in fiscal year 2022.
 
Under the provisions of the bill, any child entering kindergarten in the 2018-19 school year would be eligible for the Education Savings Account Program. For children who would have home schooled or enrolled in private school even without the bill, there would be no offsetting savings to the FSP. Based on information provided by TEA, this analysis assumes that an estimated 22,821 kindergarten students would either attend private kindergarten or be homeschooled in school year 2019-20. TEA notes that this large population would be particularly likely to participate in the program offered under the bill. For purposes of this analysis, it is assumed that 50 percent of these 22,821 students who absent the provisions of this bill would have entered private kindergarten or be home schooled would choose to enroll in the program. The total statewide awards for these students would be $76.8 million in fiscal year 2019, $153.6 million in the fiscal year 2020, $230.4 million in fiscal year 2021, and $307.2 million in fiscal year 2022. 


The bill would provide a school district the student would otherwise attend 50 percent of the difference between the amount the child's parent receives and the statewide average M&O expenditure per student in the preceding year. Based on the participation rates described above, a total of 56,411 students would be first time participants in the Education Savings Account Program in fiscal year 2019, while there would be 46,411 new participants in subsequent years. Based on demographic and award assumptions provided for above, the statewide cost of these grants to schools would be $37.8 million in fiscal year 2019, and $31.1 million in subsequent years.

The bill provides that a student who participate in the Education Savings Account program should be included in the weighted average daily attendance of the school district the student would otherwise attend for purposes of determining the district's equalized wealth level under Chapter 41 of the Education Code for the first year the student is in the program. Based on information provided by TEA, 12 percent of students attend a recapture district statewide, and the average cost for a credit of recapture is $5,891. Based on the participation rates laid out above, the anticipated cost to the state of less recapture revenue would be $39.9 million in fiscal year 2019, and $32.8 million in subsequent years.

Tax Credit Scholarship and Educational Expense Assistance Program Assumptions:

Regarding the tax credits program for contributions to certain educational assistance organizations administered by the Comptroller of Public Accounts, the bill stipulates that the tax credits awarded under the bill may not exceed $100 million in each fiscal year. The Comptroller anticipates no revenue loss in 2018 because credits based on donations made on or after January 1, 2018 would be taken on reports due in 2019 or later. Statute states that 75 percent of the insurance premium tax revenue is deposited to the General Revenue Fund and 25 percent of the tax revenue is deposited to the Foundation School Fund. As a result, the Comptroller indicated that there would be a decrease of $75 million in tax revenue deposited to the General Revenue Fund, and a decrease of $25 million in tax revenue deposited to the Foundation School Fund No. 193 in each fiscal year.
 
The bill would authorize the educational assistance organization that administers the scholarships and awards of the tax credit program to keep up to 10 percent of the annual revenue from contributions for the administration of the program. Based on this provision and additional information provided by TEA, this analysis assumes that in fiscal year 2018, the first year of implementation, 10 percent of the funding would be utilized to administer the program ($10 million), half of the remaining funding provided (or $45 million) would be provided as scholarships to students not also participating in the Education Savings Account Program, 25 percent of the funding (or $22.5 million) would be provided to students who are participating in both programs, and 25 percent of the funding (or $22.5 million) would be as educational expense assistance.
 
Based on a state average M&O expenditure per student of $9,065 for fiscal year 2015, the most recent year with data available, the awards for students not also participating in the Education Savings Account Program would be: 1) $4,532 for a student whose family income exceeded 175 percent of the income guidelines for the national free or reduced-price lunch program, or 2) $6,799 for a family whose income does not exceed those limits. Since the award for the Education Savings Account Program is higher for anyone whose family income exceeds 175 percent of the income guidelines for the national free or reduced-price lunch program, this analysis assumes the students receiving the scholarships would have a family income that does not exceed 175 percent of the income guidelines for the national free or reduced-price lunch program.

Estimated Fiscal Impact of Tax Credit Scholarship and Educational Expense Assistance Program:

Based on a total of $45 million to be provided as scholarships to students not also participating in the Education Savings Account Program, the total number of students benefitting under this program would be 6,619 in each fiscal year.  


For the students participating in the tax credit program only, there would be a savings to the FSP from these students leaving the public school system. Based on the statewide FSP entitlement, the savings to the FSP would be $53.4 million in each fiscal year. 

For students participating in both the Education Savings Account Program and the tax credit program, based on information provided by TEA, the estimated additional scholarship provided through the tax credit is assumed to be $2,500. Based on the assumption that $22.5 million would be provided in scholarships to these students, the number of students participating in both programs is 8,996 in each fiscal year. There would be no additional savings to the students participating in both the Education Savings Account Program and the tax credit program because the savings to the FSP have already been included in the Education Savings Account Program analysis.
 
The bill provides that a student who receives a scholarship under the tax credit program should be included in the weighted average daily attendance of the school district the student would otherwise attend for purposes of determining the district's equalized wealth level under Chapter 41 of the Education Code for the first year the student is in the program. For the purposes of this analysis, it is assumed that the total number of students in the program remains constant, but that 5 percent of the students are new to the program in each fiscal year.


Based on information provided by TEA, 12 percent of students attend a recapture district statewide, and the average cost for a credit of recapture is $5,891. Based on the participation rates laid out above for students who only participate in the tax credit program and those that participate in both programs, the anticipated cost to the state of less recapture revenue would be $11.0 million in fiscal year 2018 and $0.6 million in subsequent years.

Administrative Costs:

The provisions of the bill authorize the CPA to deduct up to 5 percent of the total awards under the Education Savings Account Program to implement the provisions of the bill. This analysis assumes that any CPA administrative costs are included in amounts indicated above for fiscal years 2019 and beyond, when the program is operating. CPA has indicated administrative costs in fiscal year 2018 though, which would be an additional cost to General Revenue, because there would be no Education Savings Account Program awards from which to deduct the funds.

In total, CPA indicates administrative costs associated with implementing the provisions of the bill to be $5.3 million in fiscal year 2018, $4.5 million in fiscal year 2019, $4.7 million in fiscal year 2020, $5.3 million in fiscal year 2021, and $5.9 million in fiscal year 2022. The Comptroller also indicates an additional 26 FTEs would be required in fiscal year 2018, 35 FTEs would be required in fiscal year 2019, increasing to 49 FTEs in fiscal year 2022 to implement the provisions of the bill. Administrative costs would include $4.0 million over a five year period related to technology costs to establish an online enrollment system, website development and maintenance, to develop interfaces with outside entities, and for the purchase and customization of a record keeping system. 
 
TEA reports that a total of five FTEs would be necessary to implement the bill at an estimated cost of $469,897 in fiscal year 2018 and $442,988 in subsequent years. TEA reports that one FTE would be necessary to manage and adjust the WADA and school district funding; two FTEs would be necessary to promulgate rules, review applications, and process criminal history background checks for tutors; and two FTEs would be needed to maintain the application processing system needed for private tutors and employees of a teaching service.



Technology

The Comptroller indicates technology costs would total $4.0 million over a five year period to establish an online enrollment system, website development and maintenance, to develop interfaces with outside entities, and for the purchase and customization of a record keeping system.

TEA indicates technology costs would total $1.6  million over a two year period to establish an application processing system to assist in approving private tutors or employees of a teaching service.


Local Government Impact

Collectively, school districts would experience a net loss of revenue from students exiting to attend nonpublic schools. Revenue implications would vary by district depending upon the number of students exiting and the application of wealth equalization provisions under Chapter 41 to the district.



Source Agencies:
302 Office of the Attorney General, 304 Comptroller of Public Accounts, 701 Texas Education Agency
LBB Staff:
UP, RC, THo, AM, AH, LCO, JSm