Private schools rake in money from Iowa ESA – and so do the middlemen

A year ago, Iowa began spending hundreds of millions of dollars on private K-12 schools. Before and since, the op-eds I’ve published in this section have mostly debated the wisdom of the plan, assuming the Education Savings Account program would be competently implemented.

The first official crack in that assumption came on July 23. According to a report from the State Auditor’s Office, the Department of Education agreed to pay the private vendor that processed the payments, New York-based Odyssey, hundreds of thousands of dollars more than originally proposed, through per-transaction fees and other changes. Then, state officials failed to produce paperwork to show they had followed their own rules for changing the contract for seven months after being asked, the report said.

More: Contract costs for company running Iowa’s ESA program have doubled, state auditor says

Many critics have warned that Iowa could invite the spending nightmares and outright fraud reported by similar programs in other states. Arizona ran a $1.4 billion budget deficit this year after paying for ski trips, golf equipment and a piano through the Empowerment Scholarship Account system. The architects of Iowa’s laws were undoubtedly aware of such embarrassing and damaging missteps and were choosy about where taxpayer money could be spent. But the report that Odyssey could rake in more than twice as much money in coming years as originally anticipated does not inspire confidence.

“It’s bad enough that the voucher program siphons hundreds of millions of dollars from our public schools, but now we discover that the Reynolds administration understated the estimated payments to the private company that runs the program and hid the cost increases until the state auditor forced disclosure,” Sen. Herman Quirmbach, a Democrat from Ames, said in a prepared statement.

Education officials and Gov. Kim Reynolds’ office defended the changes, saying per-transaction fees are typical for these types of systems and that Odyssey’s fees are lower than competitors.

Private schools and private businesses receive Iowa tax dollars while desperate needs go unmet

The discrepancy in what Odyssey receives is a pittance in the context of the state’s $8.91 billion budget, or even next to the potential $234 million that the state government, Iowa’s most generous contributor to church collection plates, will spend on ESAs for 2024-25, based on estimates announced this month. But neither the nearly $1 million for Odyssey nor the $200 million-plus for mostly religious schools would be needed if the state government had instead spent portions of that money on clean water, nursing home inspections, adequate anti-hunger efforts or, you know, public schools.

ESAs are hugely popular. But no one should be surprised that families who already sent their children to religious schools are accepting the free money — which was the case for most ESA recipients last year. The numbers are expected to rise even further next summer, when the already generous income limits for families who attended private schools before 2023-24 are lifted entirely.

We can count ourselves lucky that we were made aware of the extra Odyssey spending through the work of State Auditor Rob Sands’ office. Perhaps next time, the Department of Education officials involved will refuse to turn over the documents, as Republican lawmakers are now allowing them to do, and we will simply be none the wiser.

Nationwide, malicious fraud and poor accounting aren’t the only sources of unintended consequences for ESA-like programs. According to researchers at Brown and Princeton University, Iowa’s private schools have, quite rationally, raised tuition. If I’m $6,000 short, even after financial aid, of disposable income to enroll my child in private school, and I apply for an ESA for $7,826, I’m still out of luck if tuition suddenly goes up another $2,000.

School choice offers some benefits, but not nearly enough to offset the costs

Education savings accounts have been transformative for some Iowa families, I have no doubt about that. (Iowans deserve to hear those stories, too; consider emailing me at [email protected].) Reynolds’ refrain about giving parents “a choice when it comes to their child’s education” is not without truth. ESAs have enabled some families to find the right fit.

Moreover, in far too many cases, “vouchers!” have been the all-encompassing bogeyman to explain public school budget cuts and other problems. ESAs are far from the only reason for declining enrollment and reduced programming.

But the balance of pros and cons still tips pretty much in favor of ESAs for me. On the one hand, some scattered success stories and lots of savings for higher income families. On the other hand:

The revelation that the state is spending more to make ESAs work, while ignoring the regulations to do so, is just the latest evidence against the soundness of this plan. The state’s financial resources could be better spent elsewhere.

Lucas Grundmeier is the opinion editor of the Register.

This article originally appeared in the Des Moines Register: Iowa School Choice Includes Undisclosed Costs for ESA Administrator