Welfare for the rich? Private school tax credit programs expanding

(By Daniel Acker - BLOOMBERG)
(By Daniel Acker – BLOOMBERG)

(Update: Alabama legislature passes tax credit program)

At a time when government budgets at all levels are under enormous strain, families and businesses are struggling and federal agencies are facing dramatic across-the-board spending cuts, you would think lawmakers would be careful about spending public money. So it may surprise you to learn that in a growing number of states, legislators are setting aside public money to pay for private school tuition — and rich people are benefiting.

It’s a school choice option known as tuition tax credits (or private school tax credits or student tax credits or scholarship tax credits and a few other things too.) Whatever they are called, these tax credits are essentially alternatives to vouchers, which give public funds to families so their kids can attend private schools.

According to the National Conference of State Legislatures, there were 14 tuition tax credit programs in 11 states as of last fall, and they are spreading. On Thursday, a tax credit program passed in the Alabama legislature (with Republican support and despite Democratic opposition), while there are bills awaiting votes in other legislatures, such as in Mississippi. Virginia passed one last year, and a tax credit program in Georgia that “won” an award for being exceedingly wasteful may be expanded.

In some places they are structured to get around state constitutional prohibitions against using public dollars for religious schools. And in many instances, the schools that qualify to accept vouchers aren’t regulated and teach things we know aren’t true, such the creationist notion that humans co-existed with dinosaurs. Many also are not required to administer standardized tests that public schools are required to give for accountability purposes. And in Georgia, as this New York Times story reported, a popular tax credit program is allowing the use of public money to be used for tuition at more than 100 private schools that  refuse to enroll gay, lesbian or bisexual students. The story says:

The 400 students at a private school in Woodstock, for example, must adhere to a policy that states, “Homosexual behavior, whether an ‘immoral act’ or ‘identifying statement,’ is incompatible with enrollment at Cherokee Christian Schools and is a basis for dismissal.”

 

Tax credit programs are not identical from state to state. Some allow parents to take deductions off their taxes for private school tuition and other educational expenses. Other programs are aimed at individuals and corporations who can get tax credits for donating money to funds that provide “scholarships”, or vouchers, to families who then use it to pay private school tuition.

Call it welfare for the rich. Why? Wealthy businesses and individuals are the folks who get the tax credits for putting up the cash to pay the tuition. Furthermore, the amount of money for tuition made available for tuition by private scholarship organizations often does not actually cover the full cost of attending a private school. Poor families can’t make up the difference. Guess who can.

In Pennsylvania, for example, the Educational Improvement Tax Credit is promoted as a school reform measure that helps poor students, but critics say it takes money away from needy public schools. KYW Newsradio reporter Pat Loeb did a four-part series on the program (you can read Part 1 here, Part 2 here, Part 3 here and Part 4 here) exposing it for what it really is. She explained what the program does:

The tax credit goes to businesses who make donations to a scholarship organization, which then subsidizes tuition to non-public schools.  But the businesses get most of their donation back from the tax credit — 90 percent of it if they donate for two years — and they get to claim it as a charitable donation on their federal taxes.

 

But, says Susan Gobreski of Education Voters of Pennsylvania, “It’s actually not a donation.”

 

Families eligible to receive money to pay private tuition can earn more than $72,000, she reported, and she quoted one school board member, Larry Feinberg, as saying that a 2012 expansion of the tax credit program ” was essentially a taxpayer-funded bailout of our parochial schools.”

Meanwhile, in Georgia, some lawmakers want to expand from $50 million to $80 million a year the popular tax credit program that became law in 2008. The program, originally advertised as intended to help poor families, allows individuals and businesses to take a dollar-for-dollar tax credit for a donation to an organization that offers school vouchers. And any student in a Georgia public school or entering kindergarten can qualify for a publicly funded voucher to attend a private school.

The tax credit program expansion effort comes at a time when school systems are looking for ways to cut millions from their local budgets. So far, it is estimated that more than $170 million in public funds that would have gone to public schools didn’t as a result of this program.

Virginia Gov. Bob McDonnell (R) signed into law last year a tax credit program that allows individuals and businesses to contribute to scholarship “foundations” and receive a tax credit equal to 65 percent of the contribution. Individuals can’t get a tax credit for more than $50,000 a year, but there is no limit on businesses and corporations.

Virginia awards businesses and individuals tax credits for contributions made to “scholarship foundations”. The credit is equal to 65 percent of the contribution. All contributions must be at least $500 to be eligible for the tax credit and individuals cannot receive a tax credit for more than $50,000 in a given year. There is no cap on how much a business can receive in tax credits. The total amount of tax credits that can be awarded statewide is capped at $25 million per year.

But hey, it’s just another school choice.

Valerie Strauss covers education and runs The Answer Sheet blog.
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Valerie Strauss · February 28, 2013