(The Center Square) – More than 30,000 Iowa students will receive money through the state’s Education Savings Accounts as the initiative begins its second year.
However, a recent audit by State Auditor Rob Sand’s office has raised questions and criticisms of the program championed by Gov. Kim Reynolds during the 2023 legislative session.
The savings accounts were approved by lawmakers in the first two weeks of the session and signed by Reynolds during the third week, the governor said at the American Legislative Exchange Council’s annual meeting last week. Reynolds is serving as co-chair of ALEC’s “Education Freedom Alliance,” which aims to pass school choice measures in 25 states by 2025.
Reynolds told ALEC CEO Lisa B. Nelson that “COVID” motivated her to push for school choice.
“We had a front-row seat of what was happening in our classrooms,” Reynolds said. “And when you have school board members at some of our largest public schools in the state of Iowa that were voting to keep kids out of the classroom but at the same time (one) was sending her child to private school so they could play football.”
Reynolds campaigned for school choice legislative candidates in the 2022 election in hopes of getting a bill passed. After the bill passed the Iowa Legislature, the Department of Education contracted with Odyssey, a New York firm. An automated system was set up in eight weeks, Reynolds told Nelson.
The Education Savings Accounts won’t be open to all students until the 2025-2027 school year.
Reynolds said the program’s first year’s enrollment was 19,000, and it will grow by more than 60% to 30,000 in the 2024-2025 school year. Students whose families are at or below 400% of the 2024 Federal Poverty Guidelines are eligible this year and will receive $7,826. All families will be eligible in the next school year.
The governor praised the automated application system during her speech at ALEC, but an audit raised questions about the cost.
A recent audit shows Odyssey’s administrative cost will increase from $267,250 in fiscal year 2024 to $852,750 in fiscal year 2027. The increase was not included in the original contract with Odyssey. The change was approved in July 2023 but was not formally approved by the Bureau of Accounting until nearly a year later.
Sand criticized the DOE and the governor at a news conference.
“Conservative estimates show that alone could cost Iowa taxpayers an additional $2.3 million by 2027,” Sand said. “But we won’t know exactly how much more Iowans will pay for these administrative fees until we know how many students are enrolled in the program.”
But even with the increase, Odyssey’s and Merit’s original bids show a $3 million difference in first-year costs.
Odyssey estimated its first-year cost at $582,333.75, which included a 7.5% increase to Iowa because it is a first-time customer. The bid included the application system, fiscal management and payment system and customer service.
Merit submitted a bid that would have cost the state $8 million in the first three years, with $3.6 million coming in the first year.
DOE officials said in a statement that a thorough evaluation was conducted to determine whether the amendments would keep Odyssey competitive.
“Odyssey’s fee structure included 0.25% of all transacted funds plus $0.25 per transaction. Other vendors providing ESA services charge a 2.5% transaction fee, ten times higher than the fee charged by Odyssey,” The DOE said. “The state estimated that the transaction fees would add approximately $300,000 in year one to the existing contract with Odyssey, bringing the total year one costs to approximately $985,000. By comparison, the year one costs for the only other viable bidder for the ESA contract (Merit), were $3,600,000. Even with the additional transaction fee costs, Odyssey’s costs were nearly four times lower than the next closest competitor.”
