Tax Credit School Scholarship Plans

I. OVERVIEW: HELPING LOWER INCOME FAMILIES CHOOSE PRIVATE K-I2 SCHOOLS FOR THEIR CHILDREN BY GIVING OTHER TAXPAYERS TAX CREDITSIn recent years, a number of cities and states (and even the federal government with respect to the District of Columbia) have embraced new ways of funding the private elementary and secondary education of children from low and modest income families.' These new mechanisms enable some parents, who would otherwise have their children attend public schools, to send their children to a private school of the family's choosing.2 At present, most of the private schools that these families select are religious schools, although that may change if new secular private schools are created in response to these plans, and in any event families participating in these plans are not legally restricted to religious school choices.Although "school vouchers" are the most widely discussed of these mechanisms, this article focuses on a newer innovative plan that relies on state "tax credits" that fund "scholarships."1 This tax credit approach is most prominently in place in Arizona4 which first embraced this strat* egy in 1997 and in Florida' and Pennsylvania6 which later implemented this idea in 2001. Additional versions of it have been adopted, as of this writing, in nine other states as well: Alabama,7 Georgia,* Indiana,9 Iowa,10 Louisiana," New Hampshire,12 Oklahoma,13 Rhode Island,14 and Virginia.1' Many of these state plans were recently enacted and serve a small number of students. However, together the three early-adopting states, Pennsylvania, Florida, and Arizona, provided scholarships to more than 100,000 children in the 2011-2012 school year.16 In that year, Pennsylvania served 45,000 students,17 Florida 40,000'* and Arizona 30,000,19 respectively. More than 1,200 schools are participating in the Florida plan,20 and more than 300 (perhaps as many as 1,000) in Arizona's.21 The plans in Iowa, Georgia and Indiana are mid-sized, each serving between 5,000 and 12,000 students during the 2011-2012 school year.22 Nationwide, it now appears that more than 150,000 students in 2012-2013 are receiving scholarships funded by tax credits (including more than 50,000 in Florida), which is substantially more than are participating in all of the publicly-funded school voucher plans.23For comparative numbers on school voucher programs (excluding first the special voucher programs aimed exclusively at disabled children with special needs), in 2011-2012 there were about 5,600 children in the Cleveland school voucher program, 23,200 in the Milwaukee program, 1,700 in the Washington D.C. program, 3,900 in the Indiana program, and 1,800 in the Louisiana program, all of which are aimed at lowincome families.24 Louisiana's program, in particular, is focused specifically on serving those families escaping from low performing public schools.23 Another 16,000 Ohio children from failing public schools received vouchers to attend private schools.26 Altogether, then, these broader school voucher programs served over 50,000 children (and perhaps 30,000 or more additional students were using vouchers through special needs programs which some states have in place).27 By now the total number of school voucher users is around 100,000.2STo be sure, the number of students in both the tax credit and school voucher programs combined is dwarfed by the nearly 2 million students attending charter schools today, which of course, are public schools, albeit choice schools.24The most important feature to understand up front about these tax credit plans is that families do not get a tax credit (or tax deduction) for expenditures incurred in educating their own children. That sort of tax credit (or deduction) plan, though modest in size, has been in place in a few states, like Minnesota, Iowa and Illinois for some time.3" Rather, under the new approach, it is a third party (a corporation and/or individual) who receives a tax credit for making a contribution to a non-profit intermediary organization that in turn provides a scholarship to someone else's eligible children. …