Celebrating National School Choice Week: Scholarship Tax Credits — The Bluegrass Institute for Public Policy Solutions

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The Bluegrass Institute for Public Policy Solutions, Kentucky’s first and only free-market think tank, joins with hundreds of groups nationwide to celebrate the fifth annual National School Choice Week (Jan. 25-31). Since its beginning more than 11 years ago, the Bluegrass Institute has been the leading voice to give Kentucky parents effective alternatives to ensure that each child receives a quality education. As part of National School Choice Week, the Bluegrass Institute will publish a series of blogs offering information on different types of school choice. This series will be one of 6,000 events nationwide taking place as part of this year’s National School Choice Week. Today, we offer a snapshot of Scholarship Tax Credits: Business friendly. House Bill 141, which was introduced during the 2014 session of the Kentucky General Assembly, offers Kentucky businesses a 50 percent tax credit for donations to scholarship funds, which then are used to assist students by paying tuition, fees and other items related to getting an education at a private school. This way, businesses are directly contributing to the education of future members of its workforce. (Some scholarship tax-credit programs also allow individuals to participate.)

Student friendly.

Scholarship tax credits are creating opportunities for disadvantaged students as well as those from poor and even middle-class families to receive a quality education in private schools and thus more likely determine their own fate. Currently, there are 17 scholarship tax credit programs in 14 states, 13 of which require means testing and limit access based on income. There are two scholarship programs specifically designed to assist special-needs children.

Family friendly.

Several recent surveys suggest that scholarship tax credits remain the most popular form of private school choice. A recent Education Next survey indicates that 60 percent of respondents favored scholarship tax credits (up from just 46 percent in 2009) compared to 50 percent for universal school vouchers and only 37 percent of low-income vouchers. Support was strongest among younger Americans (aged 18-34) who support this form of school choice by a 74 percent to 14 percent margin.

Taxpayer friendly.

House Bill 141 would have resulted in the possibility of 30 million new dollars being made available to educate kids in Kentucky each year – all without raising taxes. A nonpartisan analysis of the Florida Tax Credit Scholarship Program reports that taxpayers in the Sunshine State save $1.49 for every $1 spent on the program.

Administratively friendly.

While monitored by state government for financial accountability, the scholarship programs are run by nonprofit, tax-exempt, scholarship-granting organizations (SGOs) which use their own criteria for distributing scholarship monies to eligible students. HB 141 would have required these organizations to use at least 90 percent of the funds they receive in the form of scholarships actually received by children while the remaining 10 percent funds is for administering the program.

Application friendly.

Families do not even have to approach the scholarship-granting organizations themselves. Families turn over information about their finances when applying to a private school of their choice, which the school in turns over to the SGO, which. The SGO then contacts the school and the family and informs them how much tuition it will pay. It’s a simple process that results in an underprivileged family securing a bundle of donated dollars to pay for their children’s private education.

School friendly.

SGOs must be willing to distribute the funds it receives to children at more than one school. Prohibiting these entities from becoming a scholarship bank for one particular school keeps the initiative focused on the students rather than schools.

Politically friendly.

Kentucky’s Constitution, which contains a strong Blaine Amendment, makes the prospects of scholarship tax credits more politically feasible than vouchers directly granted by parents. As Adam Schaeffer, an adjunct scholar with the Cato Institute, stated: “Tax credits are less likely to be challenged and overturned by state courts. It is difficult enough to convince legislators to stand up to the government education industry and support school choice without them worrying that the law will be found unconstitutional. Education tax credits come with little of the legal baggage under which vouchers currently strain.”

Click here for more information on states with scholarship tax-credit programs, including Kentucky’s neighboring states of Indiana and Virginia.