Following the money: What Arizona's growing ESA spending really means

By Stacy Mantle
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Arizona is projected to provide more than $1.2 billion in Empowerment Scholarship Account awards this fiscal year as the program continues to grow.

About 113,600 students are expected to participate in fiscal year 2027, compared with roughly 1.04 million students in Arizona district and charter schools. ESA awards would account for about 11% of the state's $10.6 billion Basic State Aid formula.

To understand what ESAs costs the state, it helps to know where students were educated before they joined the program.

When a student leaves an Arizona district or charter school for ESA, the public school generally stops receiving state funding for that student. If the student was already attending private school or being educated at home, however, the state may be taking on an expense it didn't previously have.

Arizona's newest ESA data show both are happening.

ESA enrollment continues to grow

The Joint Legislative Budget Committee projects ESA enrollment will reach 113,602 students in fiscal year 2027.

JLBC's baseline includes an additional $154.2 million for ESA enrollment growth and estimates participants will qualify for approximately $1.216 billion in awards.

That's about 11% of the approximately $10.6 billion Basic State Aid formula. By comparison, JLBC projects approximately $7.26 billion in district equalization assistance and $2.15 billion in charter equalization assistance.

The numbers are projections, not a cap on ESA spending, and JLBC has cautioned that it remains difficult to predict when enrollment in the relatively new universal program will level off.

The fiscal year 2026 budget originally assumed 97,905 ESA participants. JLBC's fiscal year 2027 baseline projected that would grow to 101,602 by the end of fiscal year 2026, but the Arizona Department of Education reported 102,891 participants as of March 31.

Most ESA awards were relatively small, but the sheer number adds up. Three-fourths of awards reported during the third quarter of fiscal year 2026 were between $7,000 and $9,000. Students with certain disabilities can qualify for substantially more.

Where did ESA students come from?

This is where the numbers get more complicated.

Among universal-eligibility students in first through 12th grades who entered ESA during the first three quarters of fiscal year 2026, 58.6% had attended an Arizona public school immediately before joining.

That share has grown dramatically.

In fiscal year 2023, just 21% of new universal ESA students in first through 12th grades previously attended an Arizona public school. It increased to 47.6% in fiscal year 2024, 57.3% in fiscal year 2025 and 58.6% through the third quarter of fiscal year 2026.

Doug Nick, communications director for the Arizona Department of Education, explained it using a hypothetical student.

“If Student A attends a public school, the state sends the school an average of $8,500 for that student. If Student A decides to join the ESA program the following year, the school obviously doesn’t get reimbursed for him or her, but Student A gets $7,500 through ESA,” Nick said. “In either case, state funding is being used to pay for Student A’s education.”

But the other 41.4% and where they attended school before opting for an ESA is more of a mystery. ADE's quarterly report doesn't break that group down. It could include students who previously attended private school, were educated at home, moved into Arizona or simply did not have a matching Arizona public-school record.

Without that information, the quarterly reports can't show how much ESA funding replaced money that otherwise would have gone to public schools and how much represents spending the state wasn't previously making.

Gross cost isn't the same as net cost

That distinction is at the heart of the debate over what Arizona's ESA program costs.

The Joint Legislative Budget Committee previously cautioned that the total amount of ESA awards represents the program's gross cost, not necessarily its net impact on the state budget. When students leave district or charter schools for ESA, the state also spends less through those public-school funding formulas.

ESA supporters emphasize those savings.

“While the total ESA award amounts may continue to increase, the net impact to state and local taxpayers will be a savings in every instance in which a student switches from either a district or a charter school,” Matt Beienburg, director of education policy at the Goldwater Institute, wrote in an analysis of ESA costs.

The Grand Canyon Institute, a nonpartisan Arizona fiscal-policy organization that has criticized universal ESA expansion, also considers where students otherwise would have been educated when calculating the program's cost.

Its February 2026 analysis estimated the entire ESA program cost $872 million in fiscal year 2025 but put the net cost attributable to universal expansion at about $360 million.

The institute estimated about three-fourths of universal ESA students either never attended or would not otherwise have attended district or charter schools, meaning the program “primarily ends up funding students who would not otherwise receive general fund support.”

It estimated approximately $336 million in fiscal year 2025 costs came from universal ESA students who never attended district or charter schools.

Despite their differing conclusions about the program, both analyses distinguish between an ESA awarded to a student leaving an Arizona public school and one awarded to a student whose education the state previously did not fund through the public-school formula.

What happens to money families don't spend?

There's another wrinkle in the $1.2 billion figure: ESA families don't have to spend all of their award during the year they receive it.

State law requires parents to use a portion of the annual allocation to educate their child in required subjects. Money they don't spend can remain in the student's account and roll over from year to year.

That means a family could spend less than its ESA award — or pay some educational costs out of pocket — and build a balance over several years.

That money can eventually help pay for college.

After high school, new ESA awards stop, but accumulated funds can be used for qualifying expenses such as tuition, fees and required textbooks at eligible postsecondary institutions.

If the student graduates from college, any money left in the account returns to the state. The account also closes and the balance is returned if the student goes four consecutive years after high school without enrolling in an eligible postsecondary institution.

The amount of money currently sitting in ESA accounts isn't readily available.

“The only ESA info available is in the quarterly reports,” Nick said. “We don’t keep a running tally of those figures.”

That means $1.216 billion in projected fiscal year 2027 awards isn't necessarily $1.216 billion families will spend that year. Some money could be spent immediately, some could remain in accounts for future education costs and some could eventually return to the state.

What if a student goes back to public school?

The money takes another path if an ESA student returns to a district or charter school.

Suppose a family receives its quarterly ESA payment and then enrolls the student in public school. The unused ESA money doesn't simply transfer to the new school.

“In general practice those monies should be freed up and returned to an account balance with ADE,” Nick said. “Therefore, funds are returned to ADE after the appropriate return amount is determined by the ESA team.”

What happens next depends on when the money was issued.

“If the funds were issued within the current fiscal year, it goes back to the Basic State Aid (BSA) pool to redistribute,” Nick said. “If they were issued in the prior year, the funds return to the general fund.”

And timing matters.

Asked about an ESA student who returns to a district or charter school after the 100-day mark, Nick said the receiving school generally would not receive Basic State Aid for that student.

“Unless the public school operates a 200 day calendar, in this scenario no basic state aid is provided to the school district or charter school,” Nick said. “Most schools offer a 180-day calendar per state law.”

In that situation, the student is back in public school, but the unused ESA money can return to the state rather than going to the school now educating that student.

It's an exception to the often-used description of education funding “following the student.” Money can shift from a public school when a student enters ESA, but it doesn't necessarily shift back to the receiving school in the same way if that student returns later in the year.

Fiscal year 2026 shows the moving pieces

The fiscal year 2026 budget originally assumed 97,905 ESA participants and approximately $1.002 billion in awards.

In its January 2026 baseline, JLBC increased its projection to 101,602 participants — 3,697 more than originally budgeted — and approximately $1.062 billion in awards, about $59.8 million above the enacted estimate.

Enrollment continued to outpace that projection. By March 31, ADE reported 102,891 ESA participants, already 1,289 more than JLBC had projected for the end of fiscal year 2026.

At the same time, public-school formula costs came in below projections. JLBC's January baseline estimated district equalization costs would be about $15.7 million below the enacted fiscal year 2026 estimate and charter equalization costs about $1.1 million lower.

JLBC attributes the lower costs primarily to lower-than-expected public-school enrollment, partially offset by higher per-pupil costs.

Its fiscal year 2027 forecast assumes public school enrollment will decline another 1.6%. About 0.7 percentage points of that decline is expected to come from students switching to ESA, with the remainder attributed to demographic trends.

None of that means ESAs necessarily save the state money. It also doesn't mean every dollar awarded through ESA is an entirely new expense.

Instead, the numbers illustrate why at least three figures matter when evaluating the program's fiscal impact: how much Arizona awards to ESA participants, how much of that funding replaces spending that otherwise would have gone to public schools and how much ultimately is spent or returned to the state.  

That leaves another piece of Arizona's ESA spending picture unclear: how much of the money awarded by the state has actually been spent, how much remains in student accounts for future use and how much will eventually return to the state.

Editor’s note:   A grant from the Arizona Local News Foundation made this story possible. The foundation awarded 15 newsrooms to pay for solutions-focused education reporters for two years. Please submit comments at yourvalley.net/letters or email them to AzOpinions@iniusa.org. We are committed to publishing a wide variety of reader opinions, as long as they meet our Civility Guidelines.

Stacy Mantle
Education Solutions Reporter

smantle@iniusa.org

Meet Stacy
Stacy Mantle is joining the team at Independent Newsmedia, Inc. as an Education Solutions journalist, thanks to a grant from the Arizona Community Collaborative. She has a long history in education that ranges from teaching junior high and middle school to developing curriculum and standards-based assessments.

Community: A longtime advocate for animal welfare, Stacy is deeply involved in rescue efforts and volunteers with several nonprofit organizations.

Random Fact: Once upon a time, she shared her home with a pet coyote and two wolf hybrids. The experiences were wild enough to become the subject of her first book!

Education: She holds a BA in English with a minor in Political Science, a Post-baccalaureate in Secondary Education, and an MBA with a emphasis on Marketing.

Hobbies: In her spare time, Stacy writes fast-paced urban fantasy novels, crafts small-batch artisan soap, and is always up for hiking or off-roading through the Arizona wilderness with her husband of 23 years.