Amid school district pressures, Texas sees flood of applications for voucher program

Public school officials across Texas, already under pressure from declining enrollment, are watching warily as the state rolls out its high-profile voucher program, panelists said Tuesday at The Bond Buyer's Texas Public Finance Conference.

More than 274,000 applications for the vouchers had been filed by Tuesday's deadline, officials said.

Republican Gov. Greg Abbott, who made education savings accounts his top priority for the 2025 legislative session, in May signed Senate Bill 2, creating an initial $1 billion state-funded program called Texas Education Freedom Accounts. It allocates about $10,000 per student to attend alternatives to public schools.

With state funding of public schools allocated primarily on a per-pupil basis, a shift of students to private options could result in budgetary pressures as the voucher program ramps up, ratings agencies have warned.

Of the 5.5 million K-12 students in Texas, more than one million are already either in private or charter schools or homeschooled, according to panelist Gilberto Prado, assistant superintendent of finance and operations at the Mesquite Independent School District.

Early application data shows that Dallas and Houston saw "huge" interest but that Mesquite only saw about 600 applications, Prado said.

"But the interesting thing that is happening with the applications is that most of the applications coming in are actually from students already in private school or being homeschooled," Prado said. "As we dive deeper into some of the analytics ? it will be interesting to see how impactful it is," he said. "Will it impact school districts? Absolutely. To what extent we're going to have to see what comes next."

More than 8,000 students applied within the first hour of the program opening up, said Kelly Hancock, the state's acting comptroller of public accounts, whose office oversees the program. By the time the application period closed, 274,000 students had applied, he said Wednesday at the conference, noting the program has only $1 billion in funding. A third of the applicants are special needs students, who will receive around $30,000 and could account for a third of the $1 billion program, he said. The office will need to hold a lottery for the second tier, which is income-based, he added. Hancock called it an exciting program that has "lots of eyes looking on it."

"Not everybody loved this program, the media particularly, and we knew we were targets, but they were able to roll Texas education freedom accounts out flawlessly," Hancock said.

Many Texas school districts are facing enrollment declines ? despite the state's population growth ? due partly to demographic trends like an aging population and, for urban districts, the lack of affordable housing, said Katrina Montgomery, CFO of Austin ISD.

With the new voucher competition, public schools will need to get better at differentiating themselves and talking about what they do well, Montgomery said.

"We're already competing for each other's students," she said. "We have to do a better job of telling our story, and what our successes are."

Despite the headwinds, Texas ISD paper remains popular and well-traded because it's backed by the triple-A-rated Texas Permanent School Fund (PSF), said Debi Jones, managing director at Raymond James.

"As long as the PSF is there to back up the ISD paper for the most part, investors continue to be comfortable with PSF," Jones said. "Yes, investors look through the PSF but not that much."

It remains to be seen whether the underlying ISD pressures translate into wider spreads for PSF versus other triple-A rated paper, Jones said.

PSF issuance so far this year is down from last year's record issuance, according to Jones.

"There's still quite a bit of authorization, but as schools navigate the landscape of aging populations, enrollment and state funding" they may start to reassess borrowing needs, Jones said.

Projected available capacity under the PSF's bond guarantee program was $38.5 billion at the end of February.

If the state Legislature is successful in efforts to limit bond elections to just November instead of May and November, the move would "significantly hurt the ISDs," Jones warned.