Ensuring Scholarship Continuity

[Guest Post by Jason Bedrick]

In a recent Friedman Foundation blog post I coauthored with Lindsey Burke of the Heritage Foundation and Friedman’s own Robert Enlow, we argued that the government should not prohibit mission-specific (e.g. – Catholic or Montessori) scholarship-granting organizations from participating in tax-credit scholarship programs. We offered both principled and pragmatic reasons for opposing such a policy.

Simply put, private organizations should have the right to set their own institutional mission and donors should be free to choose to support those that align with their values. Moreover, prohibiting mission-specific scholarship organizations could reduce the overall level of scholarship funding because some donors would prefer to support only certain types of education to the exclusion of others. And, as it happens, the largest scholarship-granting organization (SGO) operating in each state with a scholarship tax credit law tends to be the type that grants scholarships to any eligible student to attend any qualifying school.

However, proponents of the universal model offer a strong objection. We all want to ensure that every child has access to the school that best meets his or her needs, but where there is a cap on the total amount of tax credits offered, students might lose their scholarships if the SGO upon which they relied fails to claim the requisite amount of tax credits before other SGOs do. When SGOs in Georgia hit the total tax-credit cap almost immediately after the fundraising period commenced, some SGOs were unable to continue providing scholarships for many of the low-income students that they had been funding previously. Wouldn’t it be better to require that SGOs fund students attending any school of their choice?

I have several responses to this challenge:

  1. The main problem here is that the tax-credit cap is too low. One reason competition in a free market is healthy is that it can expand the size of the economic pie. Unfortunately, tax-credit caps create a zero-sum game. If the cap is not high enough, the growth of one SGO comes at the expense of others. In Georgia and several other states, there is much greater demand for scholarships than there is funding for those scholarships. Raising the cap, therefore, should be the primary goal of school choice groups in Georgia and in other states that might be facing similar issues. But assuming the cap cannot be raised sufficiently…
  2. The market can solve this problem, although it is not guaranteed. A similar issue arose in Arizona when a new and well-funded SGO entered the state, thereby depriving other SGOs of credits upon which they were depending. I am told that the new SGO gave priority to students that had previously received tax-credit scholarships but who were unable to obtain funding that year. That said, there is no guarantee that SGOs will work together like this, and it seems that some low-income students in Georgia lost their scholarships, so perhaps a policy solution is necessary to address such situations.
  3. The universal model doesn’t necessarily solve this problem. In a state with multiple SGOs that all fund students attending any school their family chooses, it would still be possible for one SGO to experience a drop in funding that causes them to grant smaller and/or fewer scholarships. Again, it’s possible the other SGOs would step in and prioritize students who lost their scholarships, but it’s also possible that they would fund students on their waiting lists first, and some students would still lose their scholarships. This is one reason that some groups would prefer to have a single SGO in each state, but the monopoly model is fraught with other dangers, and even there, the lone SGO might see a decrease in fundraising one year, which would mean granting smaller and/or fewer scholarships.
  4. There are other ways to address this problem that don’t entail the government excluding mission-specific SGOs. As noted above, tax-credit caps create a zero-sum game. Fortunately, there are ways to design a scholarship tax credit program to mitigate the problems that tax-credit caps create. One approach would be to “grandfather” credits to existing SGOs for a certain period of time before opening them up to other SGOs to claim. For example, an SGO that raised $500,000 in tax-credit-eligible donations one year would have six months in the following year to raise an equal amount. After that point, any credits their donors did not claim would be open for other SGOs, along with any new credits available if the credit cap increased. The “grandfathering” approach would prevent SGOs from losing funding to competition due to the credit cap, though if the SGO was unable to raise funds for another reason (e.g. – a large donor went out of business, there was a scandal, etc.), it’s still possible that some students could lose their scholarships. (Then again, the same things could happen in a state with the universal model.)

In a perfect world, every child would have access to the education that best meets his or her needs. Sadly, the world we live in is far from that ideal and even the best educational choice policies have not yet attained it. For the foreseeable future, it’s trade-offs as far as the third eye can see.

When attempts to solve problems that arise put two ideals in tension (e.g. – universal access vs. the autonomy of private organizations), education reformers should strive as much as possible to find a solution that preserves both. There is no way to guarantee that no student will ever lose his or her tax-credit scholarship, but I believe the approach I outlined above in Point 4 mitigates that risk as much as possible. It also preserves the autonomy of SGOs while education reformers work toward lifting the tax-credit caps and ensuring universal access to a quality education.

One Response to Ensuring Scholarship Continuity

  1. George Mitchell says:

    “In a perfect world…” I would settle for one where every child could attend a school selected by his parents/guardians. While that would not always be a school that “best met” his or her needs, for the vast majority of kids the result would be positive and a clear net improvement over existing conditions. The key would be universal tax supported choice, which would produce decidedly better results than under-financed choice available mainly to poor families.

    The legislative debate too often is constrained by the fact that the pool of money for existing traditional K-12 schools is off limits. Choice reforms at the margin scramble for scarce “extra” dollars. This would change dramatically if all the money were available to follow students to the school of their parents choice. But of course we are a long way from such an “anti public education” model.

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