The 22 TCS programs covered by our review varied widely in total donations and number of scholarships awarded. For example, total donations during 2017 ranged from $854,326 in New Hampshire’s program to approximately $623 million in Florida’s largest program (see fig. 1 and app. I). Of the 17 states operating these programs, Arizona, Florida, and Pennsylvania operate the largest programs in terms of both dollars donated and number of scholarships awarded. These are also the only three states that operate multiple programs per state. Decisions about whether to develop and operate a TCS program—as well as how to structure requirements—are at the discretion of each state; there is no federal role in establishing these programs. For example, states sometimes choose to establish requirements that SGOs and schools must follow as a minimum condition for participation. Since scholarships are funded through donations rather than state appropriations, the financial impact to states from TCS programs primarily occurs through forgone revenue resulting from the associated tax credits. Various state agencies, SGOs, and participating private schools generally all play a role in administering state TCS programs, with the specific division of responsibilities varying by program. State agencies that are responsible for tax administration, education, or both, generally administer these programs. For example, in some programs, state agencies disseminate information to donors, scholarship students, or the public, and approve SGOs or private schools to participate in the program. SGOs are tax-exempt organizations that are generally responsible for managing some aspects of the donation process—such as collecting donations—as well as awarding scholarships to students. Participating private schools educate students receiving tax credit scholarships. They sometimes also facilitate donations or inform parents about TCS scholarship awards. Participating schools can vary in terms of characteristics such as their size, religious affiliation, and whether they focus on specific student populations, such as students with disabilities. In September 2018, we issued a report that described state TCS program requirements related to donations and student eligibility for programs operating at the beginning of 2018. In that report, we found that these programs offered tax credits to individuals, businesses, or both that ranged from 50 percent to 100 percent of the donation amount. We also found that most programs set limits on the amount of TCS program donations that could be made per year. In terms of eligibility, we found that TCS programs commonly determined student eligibility based on their household income, with income limits varying widely across programs. States have established requirements that SGOs must follow as a condition of participation in their TCS programs. See figure 2 for key requirements that some states have chosen to put in place for SGOs. All TCS programs have financial requirements that limit the percentage of donations that SGOs are permitted to use for non-scholarship expenses—such as staff salaries—and most also require SGOs to undergo annual financial audits or reviews. (See fig. 3.) The limit on the percentage of donated funds that SGOs are permitted to use on non-scholarship expenses ranges from 2 percent to 10 percent for 20 of the 22 programs. The other 2 programs—both in Pennsylvania— have a limit of 20 percent. About half (12) of programs also require SGOs to follow rules about how donated funds or related interest are managed and spent. For instance, South Dakota requires SGOs to spend all revenue from interest or investments on TCS scholarships. Most (19) programs require SGOs to undergo either an annual financial audit or review. Some of these programs require more extensive audits for SGOs that receive donations over a certain dollar threshold (e.g., over $1 million). Three programs require at least some SGOs to submit proof of fiscal soundness, such as a surety bond or letter of credit. For example, to insure against potential financial loss, Florida requires SGOs to submit a surety bond equal to the SGO’s unspent donations. Some programs require SGOs to take steps to guard against conflicts of interest. For example, four programs require SGOs to have a conflict of interest policy or a policy designed to prevent individual financial gain among SGO personnel. For instance, New Hampshire prohibits SGOs from awarding scholarships to children of any SGO employee or to children of any business owner whose business donates to the SGO. About a third (8) of programs prohibit SGOs and participating schools from sharing resources or personnel, while other programs do not include such prohibitions. For example, in Pennsylvania, schools are permitted to operate as SGOs and award scholarships directly to their students. In addition, TCS programs require SGOs to be recognized as tax-exempt organizations by the Internal Revenue Service (IRS), so they generally are also subject to applicable federal requirements for tax-exempt organizations, such as filing an annual information return or notice with the IRS. In addition, SGOs may be subject to applicable state laws for tax-exempt or non-profit organizations. Figure 4 shows the number of state TCS programs that had selected administrative requirements for SGOs. All programs require SGOs to register or receive state approval by, for example, submitting an application to the state or providing documentation showing the SGO is a tax-exempt organization. Slightly fewer than half (10) of programs require SGOs to follow rules about the qualifications of SGO leadership personnel. For instance, Nevada requires the SGO’s top board member to sign an affidavit stating that no member of the board of directors or SGO employee has ever been convicted of a felony, among other requirements. Nine of the programs have requirements related to marketing and fundraising practices. For instance, Louisiana requires SGOs to send the state any advertisements so state officials can review the materials. Almost all (21) programs require SGOs to report to the state the number or total dollar amount of scholarships they awarded. Also, 19 programs require SGOs to report information about the characteristics of scholarship students, such as household income or geographic location. These programs sometimes choose to require SGOs to report individual student-level information or aggregated information for all of their scholarship students combined. For example, Alabama requires SGOs to report identifying information and scholarship amounts for each student to the state. Alternatively, Georgia requires SGOs to report the number of families of scholarship recipients by income group. Figure 5 shows how many programs had key requirements for SGOs related to scholarship awards. Almost all (20) programs prohibit SGOs from awarding scholarships to only one school. Some of these 20 programs require SGOs to allow students to use their scholarships at any qualified school whereas others allow SGOs to work with a subset of two or more schools. The majority of programs prohibit donors from recommending that scholarships go to specific students while fewer programs prohibit donors from directing funds to specific schools. More than half (16) of programs prohibit SGOs from allowing donors to recommend that scholarships go to specific individuals, such as students they know personally. About one-third (8) of programs prohibit SGOs from allowing donors to recommend that scholarship funds be used at a specific school. In addition to requirements for SGOs, states with TCS programs also have requirements for private schools. See figure 6 for key requirements that some states with TCS programs have chosen to put in place for schools. Some requirements were specific to schools participating in the TCS program and some requirements were for all private schools, regardless of TCS program participation. We counted programs as having a particular requirement as long as the requirement applied to at least some of the participating private schools. Programs generally have one or more academic requirements for participating private schools. (See fig. 7.) About half (9) of the programs require private schools to register or be approved by the state TCS program before their students can receive TCS scholarships. For example, in Nevada private schools must register with the state by completing a form acknowledging that they will follow program requirements. Other programs, such as Georgia’s, require SGOs to determine if private schools meet program participation requirements. Separate from any requirements to register with the TCS program itself, over half (14) of the programs require participating private schools to be accredited by the state or another organization, such as a regional accreditation organization. For example, Pennsylvania requires participating private schools to be 1) licensed by the state, 2) accredited by an association approved by the state, or 3) operated by a religious institution. Private schools participating in most TCS programs are subject to requirements regarding minimum instructional time or student attendance and requirements related to curriculum content or core subjects, such as reading, mathematics, social studies, and science. These requirements may or may not be the same as requirements for all private schools in a state. For example, Nevada requires all private schools, including those participating in its TCS programs, to provide 180 days of academic instruction per year. South Carolina’s TCS program generally requires participating private schools to offer the courses required to receive a high school diploma in the state. Eleven programs require schools to give academic tests to TCS students. Of these programs, three require participating schools to administer the same test required of public school students and eight allow schools to select among multiple tests. For example, Louisiana requires participating private schools to give TCS students the same state tests in English and math that are used in public schools, whereas Florida allows participating private schools to choose from a state approved list of norm-referenced tests. These 11 programs also require schools to report TCS students’ test results to the state, parents, or other entities. For instance, one of Florida’s programs requires schools to report test results to a university selected by the state to analyze TCS students’ test scores. Participating schools are often required to ensure their teachers undergo background checks or meet minimum qualifications, and less frequently required to undergo site visits. (See fig. 8.) Most (18) programs require participating private schools to conduct background checks or fingerprinting of employees with direct, unsupervised contact with children. Additionally, 12 programs require schools to ensure teachers meet certain qualifications, such as holding a state-issued certificate or a college degree. For example, Alabama requires all private school teachers to hold teaching certificates issued by the state. Nine of the programs require private schools to permit state or other officials to conduct site visits. In the majority of these programs, site visits are a general requirement for private schools in the state or a component of state accreditation that some or all schools are required to obtain before participating in the TCS program. Across these programs, the frequency of the site visit varies. For instance, Indiana state officials are required to make random site visits to at least five percent of participating private schools each year, while Iowa requires a site visit for all private schools operating in the state at least once every five years. Among the 22 programs, financial requirements for participating private schools are generally less common than academic and administrative requirements. (See fig. 9.) Most (19) programs have requirements related to student withdrawals, such as requiring schools to report or repay the scholarship when students withdraw from the school for which the scholarship was originally awarded. For example, Illinois requires schools and SGOs to prorate scholarships for students who transfer to another private school during the school year, while Louisiana requires schools to immediately notify the SGO and state if a scholarship student is no longer enrolled. Few (4) programs require schools to complete an annual financial audit or review. Among programs with such requirements, Florida requires schools that receive more than $250,000 in scholarship funds to submit the results of a financial audit to the SGO that awarded the majority of those funds. South Carolina requires all schools to include a copy of an audit or other financial review when they initially apply to participate in the program and annually afterwards. About one-fourth (5) of programs require schools to provide surety bonds or other evidence to demonstrate financial viability. For example, Louisiana requires schools that have operated for fewer than five years and will receive more than $50,000 in TCS funds to either provide a SGO with a surety bond equal to the amount of TCS funds they expect to receive during the school year or other information showing financial viability. Florida requires schools operating for fewer than three years to provide the state with a surety bond equal to the amount of scholarship funds for any quarter. In the three states with the largest TCS programs—Arizona, Florida, and Pennsylvania—SGOs are generally responsible for recruiting donors while state agencies administer tax credits. (See fig. 10). SGOs generally recruit potential donors and sometimes help them apply for tax credits. SGO officials in all three states described ways they solicit donations, such as meeting with representatives from corporations to promote TCS programs or providing banners and pamphlets for private schools to display. In Arizona—where SGOs are permitted to allow donor recommendations for specific schools or students in certain programs— SGO and school officials described roles for schools or students and their families in soliciting donations. For example, family members of prospective scholarship students may encourage members of their community to donate and recommend their child or child’s school, according to officials from a SGO and a school we visited in Arizona. In addition, SGO officials we spoke with in all three states noted that they help donors navigate the process of obtaining tax credits. For example, officials from a SGO in Pennsylvania described how they can fill out the application for tax credit pre-approval as the donor’s delegate or review completed applications for errors before donors submit them to the state. State agencies administer state tax credits based on the rules of each TCS program. Specifically, five of the eight programs in the three states have a maximum total dollar limit on the amount of all scholarship tax credits that can be awarded in a year. In those five programs, the state requires donors to apply for pre-approval of the tax credits to ensure the limit has not been reached and tax credits are still available. In the Florida and Arizona programs that have such limits, state agencies consider all donor applications for tax credit pre-approval on a first come, first served basis. Pennsylvania considers returning donors for pre-approval before considering new donors (while tax credits remain). State officials in Pennsylvania and Florida described different methods for reviewing donors’ tax compliance before and after they file their taxes and claim the TCS tax credit. Specifically, the Pennsylvania Department of Revenue checks for any outstanding tax liability before approving tax credits for the TCS programs and reviews all tax returns that claim TCS credits to ensure the amount of tax credits claimed does not exceed the amount that was pre-approved. The Florida Department of Revenue reviews tax returns that claim a TCS credit to ensure the amount of tax credits used matches the approved amount that was allocated for the donor. Officials from the Arizona Department of Revenue said it does not have a separate tax compliance review process for its TCS credits. All three states established scholarship requirements while SGOs managed the scholarship awards process by determining which students are eligible for TCS scholarships, which eligible applicants will receive scholarships, and how much to allocate to scholarship recipients within program limits. In contrast, state agencies have a limited role—or no role at all—in determining the allocation of scholarships among eligible students, according to state and SGO officials in all three states. However, states may provide guidance documents to help SGOs navigate the state’s general policies for the awards process. The number of SGOs awarding scholarships varied across the three states, as did program policies for how those SGOs determine which eligible students receive scholarships. In fall 2017, Florida had two SGOs—one of which awarded 99 percent of scholarships. Meanwhile, Arizona’s four TCS programs had between 14 and 60 SGOs each and Pennsylvania’s two programs had approximately 190 and 260 SGOs each. In addition, as described in table 1, states varied in their requirements for how SGOs prioritize eligible students, the degree to which SGOs may work exclusively with a subset of schools, and whether SGOs may consider donors’ recommendations when deciding which students receive scholarships. Further, because each SGO is responsible for establishing its own procedures for awarding scholarships within program requirements, a TCS program with many SGOs could have substantial variation in how scholarships are awarded. Prioritizing eligible students: The three states provide varying levels of discretion to SGOs in how they prioritize eligible students when awarding scholarships. For example, Florida’s largest program requires SGOs to award scholarships on a first-come, first-served basis with first priority to students who previously received a scholarship, and then to students from lower-income households or who are in foster care; its other program requires SGOs to award scholarships to students on a first- come, first-served basis. Two programs in Arizona and one in Pennsylvania outline requirements for how SGOs must prioritize among eligible students, while the remaining programs do not. Further, in all four Arizona programs and both Pennsylvania programs, SGOs are permitted to set additional criteria for selecting scholarship recipients beyond requirements set by the state, as long as those criteria align with program rules and existing laws. For example, officials we spoke with at one SGO in Arizona noted that their selection committee considers written narratives from students and their parents about the student’s character and academic achievement when prioritizing eligible students, among other factors. Working with a subset of schools: State policies about partnerships between SGOs and schools can affect which students receive scholarship awards and where students can use those awards. SGOs in Florida award scholarships to students who can then use their scholarship award at any private school that qualifies to participate in the TCS program. In contrast, Arizona and Pennsylvania allow SGOs to partner with subsets of participating schools and award scholarships exclusively to students at those schools. For example, in Arizona and Pennsylvania, some SGO officials noted that the scholarships awarded through their SGO may only be used at partner schools that shared a religious affiliation with the SGO. Allowing donor recommendations: The TCS programs in the three states also had different rules on whether donors may recommend that scholarships be awarded to particular schools or students. Florida prohibits donors from making scholarship recommendations or designations for specific schools or students. In all Pennsylvania and Arizona programs, donors can recommend or designate donations for specific schools, but SGOs can take different approaches to distributing any such recommended funds. For example, one SGO in Pennsylvania sends recommended donation funds directly to the designated schools and the school decides how to distribute the scholarship funds among eligible students. In Arizona, one SGO tracks the amount of donations donors recommend for each of its partner schools and awards those funds to eligible students enrolled at those schools. Further, Arizona’s two TCS programs designed for individual donors (rather than businesses), allow donors to recommend that the funds they donate go to specific students. An official at one SGO we visited in Arizona said they provided its external scholarship award committee with information about students’ applications, including any student-specific recommendations, to inform the selection process. Pennsylvania programs do not expressly prohibit donor recommendations for specific students. In Pennsylvania, officials from one school that was also a SGO told us that they did not accept student-specific recommendations, while officials in a different SGO described how donors may not make student- specific recommendations, but may designate certain groups of students, such as children of first responders. In addition to establishing program policies regarding how eligible students are selected, the three states also have requirements regarding the amount of scholarship money that can be awarded per student, and SGO officials described different methods for determining the amount and frequency of scholarship awards for each student. Among the schools we visited the proportion of students who received TCS scholarships compared to students who did not receive TCS scholarships varied. For example, in one school in Florida, less than one percent of students received TCS scholarships and in a school in Arizona, school officials told us that about 80 percent of students receive TCS program scholarships. When awarding scholarships, officials at some SGOs we visited chose to issue a limited number of awards at the maximum allowable scholarship amount while others chose to issue scholarships to more students in smaller amounts—sometimes for shorter periods. In addition, students in Arizona and Pennsylvania may receive multiple concurrent scholarships from different SGOs, different TCS programs in the state, or both. This approach potentially increases the amount of funding students receive; however, it can also present logistical difficulties for the schools and families of scholarship recipients, according to SGO and school officials. For instance, officials at one school described wanting students to receive as much TCS funding as possible, but said it was also challenging to track the different SGO award cycles, incoming funds, and the projected impact on tuition balances for each student. As part of the scholarship award process, some SGOs we visited told us they collected information about tuition and fees at schools to ensure scholarship award amounts do not exceed school tuition, per program requirements. Costs for tuition ranged from approximately $6,000 per year to approximately $37,000 per year among the schools we visited. To participate in TCS programs, all three states require SGOs to provide a description of some of their operating procedures and regularly report donation and scholarship information. The type of information states collect and how they determine whether SGOs are following applicable TCS program requirements varies. (See table 2.) All three states require SGOs to complete an application to participate in TCS programs, which involves signing a form attesting that the SGO will follow program requirements and providing other types of documentation. This documentation includes evidence that the SGO is recognized as tax- exempt by the IRS, descriptions of the SGO’s procedures for awarding scholarships, and other information, depending on the program. When reviewing SGO applications, state officials in all three states described how they check that all required information is included in accordance with program rules, but generally do not evaluate the content. For example, in Pennsylvania, a program official noted that the state agency checks that SGOs submit all required documents and relies on attestation statements signed by SGO officials as an essential step for certifying that SGOs will follow program requirements. In addition, state agencies also generally provide SGOs with some guidance on how to interpret program requirements in all three states. State agencies in both Arizona and Pennsylvania have developed guidance manuals for SGOs. Florida collaborates closely with SGOs to interpret program rules and develop guidance, according to SGO and state officials. In addition to application materials, all three states require SGOs to regularly submit information about donations received, scholarships awarded, and the results of financial audits or reviews. The extent to which these audits or reviews include an assessment of SGO compliance with program requirements varies. For example, in addition to financial audits, Florida also requires the state Auditor General to review SGO operations for compliance annually. According to SGO officials, the Florida Auditor General conducts file reviews and on-site visits during these compliance reviews. In Arizona, the SGO manual includes optional procedures financial auditors may use to determine if SGOs are following certain program requirements as part of their review. Pennsylvania does not require an assessment of SGOs’ compliance with program requirements as part of its annual financial audit. According to officials, states typically work with SGOs to resolve any compliance issues and state agencies rarely permanently revoke SGOs’ approval to participate in TCS programs. According to officials in Florida, no SGOs have been removed from the programs due to noncompliance. The officials said that once a SGO has been approved through the states’ initial application process it is very likely that they will be renewed each year unless a large compliance issue arises. Officials in Pennsylvania noted that they contact SGOs to clarify discrepancies in documentation and have temporarily revoked approval from a small proportion of SGOs that failed to submit required information. Officials in Arizona described one instance where a SGO was decertified due to noncompliance; officials stated that the SGO would be recertified if it resolved the compliance issues and reapplied to be a SGO. State officials in the three states described different approaches to overseeing participating private schools’ compliance with program requirements. Florida state officials described using a variety of monitoring activities to oversee participating private schools, while Arizona and Pennsylvania state agency officials said they do not conduct ongoing monitoring activities due to the parameters of their statutory authority. (See table 3.) Florida state officials described conducting site visits to schools during the initial application process and when they determine schools are at risk of noncompliance. They also noted their monitoring practices have led them to identify multiple issues of noncompliance at certain schools and, as a result, they have temporarily or permanently suspended those schools from receiving TCS program funds. They said the state also delegates certain monitoring activities to SGOs, such as reviewing financial audit results, following up with schools to resolve any issues resulting from those audits, and reporting those issues to the state. State and SGO officials said that SGOs in Florida may also be responsible for implementing any penalties to schools, such as adjusting scholarship payments to schools that do not meet certain reporting requirements. For all Arizona programs and one of two Pennsylvania programs, officials told us that they generally rely on SGOs to verify that schools receiving scholarship funds meet program requirements. For example, in Arizona, SGOs are responsible for determining if a school qualifies to participate in the state’s TCS programs. SGO officials we spoke to in Arizona noted they require schools to sign documents attesting that the school meets the requirements to be a qualified school. In Pennsylvania’s Educational Improvement Tax Credit Program, SGOs determine whether schools are qualified to participate and each SGO may approach this differently, according to state officials. For example, in addition to meeting the state’s criteria for participation in the program, one SGO we spoke with in Pennsylvania also required schools to be tax-exempt, have a board and budget, and share its religious affiliation. Another SGO we spoke with in Pennsylvania required that a school attest that it meets program requirements. In Pennsylvania’s other TCS program (the Opportunity Scholarship Tax Credit Program) state officials told us that they determine whether schools are qualified to participate and do not conduct subsequent monitoring activities. We provided a draft of this report to the Department of Education for review and comment. Education’s comments are reproduced in appendix III. Education also provided technical comments, which we incorporated as appropriate. We also provided relevant excerpts from the report to the appropriate state agencies in each state we reviewed and incorporated their technical changes as appropriate. Education did not comment on the report’s findings. Instead, it provided information about the administration’s tax credit proposal and made observations about how the scope of TCS programs covered in our report was both similar and different from educational programs that are addressed in the administration’s proposal. In its comments, Education further stated that given these scope differences, the GAO report may not fully inform the debate around the administration’s proposal. As stated in the draft report, promoting school choice options—both private and public—through a variety of spending and tax expenditure programs continues to be a topic of national debate. The purpose of this report was to examine state TCS programs that are used to fund scholarships that students can use to attend private elementary and secondary schools by describing: (1) key requirements state TCS programs have chosen to establish for SGOs, (2) key requirements for private schools participating in state TCS programs, and (3) how selected states implement TCS programs and how they assess whether SGOs and participating private schools are following key state requirements. Education stated that the draft report does not note that several TCS programs allow scholarships to be used for educational expenses beyond tuition. As stated in the draft report, some states use tax credit scholarship programs to fund preschool, career and technical education, or public school initiatives; the draft report further noted that these programs are outside the scope of this review. This report is the second of two GAO reports examining K-12 TCS programs. The prior report (GAO-18-679) discussed various ways students can use state K-12 TCS scholarships. Specifically, we reported that, as of SY 2017-2018, more than half of the programs (13 of 22) allowed students to use their scholarship money for costs like transportation and books in addition to tuition, whereas the remaining programs (9 of 22) required scholarship funds to be used for tuition only. Education asserted positive fiscal effects associated with state TCS programs and cited several studies to this end. As stated in the draft report, tax credits are a form of forgone revenue. Assessing the fiscal impact of these programs was not among the purposes of this report. Thus, we did not assess the reliability of these studies or the validity of their results. Education also commented on our decision to exclude Montana’s TCS program from the scope of this report. As noted in our report, we did not include Montana’s program because it was the subject of pending litigation at the time of our review. Finally, Education noted, as also stated in the draft report, that states and school districts have obligations under the Elementary and Secondary Education Act and the Individuals with Disabilities Education Act to make equitable services available to eligible private school students, including those who participate in TCS programs. We agree and have reported extensively on equitable services in the context of private schools in GAO-16-712 and GAO-18-94. In GAO-18-94, we recommended that Education review information provided by states related to changes in federal special education rights when a parent places a student with a disability in private school and work with the states to correct inaccurate or incorrect information. In that report, we identified some private school choice programs that were providing information that Education confirmed inaccurately described rights under the Individuals with Disabilities Education Act when a student with a disability is moved from a public to a private school. Education agreed with this recommendation – a recommendation GAO considers to be among the highest priority of recommendations we have made to the Department. However, Education has not yet fully implemented this recommendation and, as of September 2019, we found that some information Education confirmed to be inaccurate remains in several states’ private school choice program documents. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Education, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (617) 788-0580 or nowickij@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix IV. of donors: businesses, individuals, or both) 1,957b (both) 15 (business) 795 (business) $1,856 88,109b (individual) $1,450 47,895b (individual) ——- (both) 286d (business) 23,411b (both) ——- (both) 6,768b,d (both) 3,054 (both) 153 (both) 79 (both) 69d (business) 71 (business) of donors: businesses, individuals, or both) Average donation amount per donor ——- (both) 1,671 (business) 662 (business) 40 (business) 788d (both) ——- (business) 1,428 (both) The profiles in this appendix describe key features of the largest tax credit scholarship programs in Arizona, Florida, and Pennsylvania, as measured in terms of the scholarships awarded in 2017. Information in these profiles was obtained from interviews with state agency and selected scholarship granting organization (SGO) officials and state program documents, and was verified by state officials. GAO did not independently review state laws or regulations. Unless otherwise specified, program requirements are as of school year 2018-2019. 10 percent of donations. Undergo annual audit or financial review depending on amount of donations received. donations. Administrative Receive state approval to operate. Ensure all promotional materials include required language. scholarship awards. Academic Follow guidelines for school curriculum or core subjects. Follow guidelines for minimum instructional time or attendance. Donations: Donors contributed over $68 million during calendar year 2017. The program is open to individual donors only (business donors may fingerprinting for staff. donate through other Arizona programs.) Financial Follow requirements if students withdraw (e.g., report or repay). Donations are eligible for 100 percent tax credits. The program does not limit annual program-wide donations. Individual donors (filing as single) were limited to $569 in tax credits during tax year 2019. Scholarship awards: 34,632 scholarships were awarded between July 1, 2017 and June 30, 2018. All K-12 students who live in Arizona and attend a private school are eligible for the program. SGOs are expected to consider financial need when prioritizing among eligible applicants. Students may receive more than one scholarship from this program and concurrently receive scholarships from other tax credit scholarship programs in the state, up to the full cost of tuition. SGOs may partner with a subset of qualified schools, such as schools with shared religious views or teaching methods. Donors may recommend that their donation fund scholarships at specific schools or be awarded to specific students (within certain parameters). 0 percent of donations in first 3 years and 3 percent afterwards. Provide a surety bond or line of credit. Maintain separate accounts for scholarship funds. Not share resources or personnel with private schools. Have a conflict of interest policy. Undergo annual financial audit. Report information about donations. Administrative Receive state approval to operate. Not have an owner or operator who recently filed for bankruptcy. Limit funds used for marketing. Report on scholarship awards. Academic Register with state. Follow guidelines for minimum instructional time or attendance. Donations: Donors contributed about $623 million during tax year 2017. The program is open to businesses (not individuals). Donations are eligible for 100 percent tax credits. Maximum allowable credit amounts per donor vary from 50 percent to Administer an approved academic test (not necessarily the test used in public schools). 100 percent of tax liability, depending on the type of business tax to which the tax credit is applied. Program-wide limit on tax credits was $698 million in state fiscal year 2017-2018. Administrative Hire teachers who meet minimum qualifications. Ensure background checks or fingerprinting for staff. Undergo state site visits. Scholarship awards: 108,098 scholarships were awarded during school year 2017-2018. Students are eligible for full scholarships if their household income level does not exceed 200 percent of the federal poverty level or if they are in foster care. Financial Undergo annual audit if receive a Students may only receive one tax credit scholarship at a time, up to $7,208 for tuition and fees, as of school year 2017-2018. given amount of scholarships. SGOs must allow students to use scholarships at any private school Provide a surety bond or line of participating in the program. credit if in operation for less than 3 years. Donors are prohibited from recommending that their donation fund scholarships at specific schools or for specific students. Follow requirements if students withdraw (e.g., report or repay). 20 percent of donations. Undergo annual audit or financial review. donations. Administrative Receive state approval to operate. Report information about scholarship awards. Academic Be accredited, licensed by the state, or a religious institution. Follow guidelines for minimum instructional time or attendance. Follow guidelines for core curriculum or academic subjects. Administrative Hire teachers who meet minimum qualifications. Ensure background checks or fingerprinting for staff. Donations: Donors contributed about $87 million during tax year 2017. The program is open to businesses, including “special purpose entities” Financial Follow requirements if students withdraw (e.g., report or repay). which allow individuals to donate to the program through the entity. Donors are eligible to receive tax credits for 75 percent of their donations if they donate for one year and tax credits for 90 percent of their donations if they donate for two consecutive years. The maximum allowable tax credit amount per donor is $750,000. The program-wide limit on tax credits was $135 million in fiscal year 2017. Donors must apply for pre-approval before claiming tax credits. Past donors may apply for credits before potential new donors apply for any remaining tax credits. Scholarship awards: 37,725 students received scholarships during school year 2017-2018. Students are eligible for scholarships if their household income level does not exceed $85,000, plus $15,608 per dependent in the household (higher for students with disabilities). Students may receive multiple tax credit scholarship at a time. Total scholarship award amount may not exceed the cost of tuition and fees. SGOs may partner with a subset of qualified schools, such as schools with shared religious views or teaching methods. Donors may recommend that their donation fund scholarships at specific schools. Donors are not prohibited from recommending scholarships to specific students. In addition to the individual named above, Nagla’a El-Hodiri (Assistant Director), Barbara Steel (Analyst-in-Charge), Andrew Emmons, and Jessica L. Yutzy made key contributions to this report. Also contributing to this report were Isabella Anderson, Jeff Arkin, Deborah Bland, Lilia Chaidez, Sarah Cornetto, Caitlin Cusati, Charles Ford, Monika Gomez, Alison Grantham, Kirsten Lauber, Sheila R. McCoy, Mimi Nguyen, Corinna Nicolaou, and Michelle Philpott.

Summary: All TCS programs are state programs. States develop program policies and requirements, including establishing the roles and responsibilities of SGOs and participating private schools. The President's fiscal year 2020 budget request included a proposal for federal tax credits for donations to state-authorized SGOs. GAO was asked to review key characteristics related to accountability in state TCS programs that can fund K-12 educational expenses. This report examines (1) key requirements state TCS programs have chosen to establish for SGOs, (2) key requirements for private schools participating in state TCS programs, and (3) how selected states implement TCS programs and assess whether SGOs and participating private schools are following key state requirements. GAO identified key requirements states may choose to establish related to accountability for SGOs and schools based on relevant research and prior work. GAO also reviewed program documents from all 22 TCS programs to identify whether they had these key requirements as of school year 2018-2019 and then verified this information with state program officials. GAO did not conduct an independent review of state laws and regulations. GAO visited Arizona, Florida, and Pennsylvania, which have the largest TCS programs. In each of these states, GAO reviewed program documents and interviewed officials at state agencies and staff at selected SGOs and private schools (selected to provide variation in size and other characteristics). State tax credit scholarship (TCS) programs—programs that offer state tax credits for donations that can fund scholarships for students to attend private elementary and secondary schools—have established various key requirements for the scholarship granting organizations (SGO) that collect donations and distribute awards. For example, all 22 TCS programs in operation as of January 2019 require SGOs to register with or be approved by the state and limit the percentage of donations they can use for non-scholarship expenses. In addition, almost all of these programs—which received over $1.1 billion in donations and awarded approximately 300,000 scholarships in 2017—also require SGOs to undergo annual financial audits or reviews (19 programs). Fewer programs have requirements about SGO fundraising practices (9 programs) or the qualifications of SGO leadership personnel (10 programs), such as restrictions on officials having previous bankruptcies. States also have various key requirements that apply to private schools that enroll students with TCS scholarships. For example, private schools in most of the 22 programs must follow certain academic guidelines related to curriculum content (18 programs) and instructional time (19 programs), and have staff undergo background checks (18 programs). Schools in fewer programs are required to conduct academic testing (11 programs), ensure their teachers have specified qualifications (12 programs), or undergo an annual audit or financial review (4 programs). The three states with the largest TCS programs—Arizona, Florida, and Pennsylvania—implement and oversee their programs in different ways. In all three states, state agencies administer the tax credits while SGOs are generally responsible for managing donations and awarding scholarships; the details of these processes varied based on the requirements of each program. For example, Arizona and Pennsylvania's programs allow donors to recommend that funds go to specific schools, which can affect how SGOs solicit donations and award scholarships. Florida does not permit recommendations. All three states require SGOs to report on operations and undergo annual financial audits or reviews, while the states differ in how participating private schools are overseen. Florida's TCS programs use multiple monitoring methods, while all Arizona programs and one of two Pennsylvania programs generally rely on SGOs to confirm that schools comply with program requirements.