School Choice Wins in 2008; Unrestricted Eligibility in Georgia

June 18, 2008

(Guest post by Greg Forster)

The Washington Post is now reporting that the House Appropriations subcommittee will fund the DC voucher program for another year. People are saying that the future of the program doesn’t look good, because the subcommittee chairman is blustering about how much he doesn’t like it. But read that Post article carefully. He doesn’t say that the program will be killed next year. The Post reports that he says he’s funding the program for another year “to give District leaders a chance to restructure the program.” He is quoted as saying, “I expect that during the next year the District leaders will come forward with a firm plan for either rolling back the program or providing some alternative options.”

That sounds to me like a man who’s looking for a deal. The DC program is already loaded up with monster payoffs to the District’s patronage-bloated public school system. How hard is it to make those payoffs bigger? And maybe the program will have to accept some more politically motivated restrictions on participation, so that critics will have a trophy to hang on their wall.

Whether those tradeoffs are worth it for the school choice movement – there is a real cost, and not just in dollars, associated with them – is a question I leave for another day. And of course this is just the subcommittee; there could still be more trouble ahead. And maybe next year the critics will get a better offer from the unions than the deal they’re apparently angling to get on behalf of the DC patronage machine.

All I want to do is observe that the program’s chances of survival are now looking a lot better than they did yesterday.

As the political season winds to a close, let’s survey the results:

  • A new personal tax credit for private school tuition in Louisiana
  • A new tax-credit scholarship program in Georgia
  • A new voucher program in Louisiana
  • An expansion of Florida’s tax-credit scholarship program, including a $30 million increase in the cap; a bump up in the value of the scholarship and a linking of the scholarship value to state school spending (which always goes up); and a relaxation of the program’s unreasonably stringent accounting rules (which used to allow not one penny of carryover from year to year in the scholarship organizations’ accounts, and not one penny from eligible donations for administrative expenses).
  • A million-dollar funding increase and guaranteed future funding stream for Utah’s voucher program.
  • Preservation (tentatively) of the DC voucher program in a hostile Congress.

That’s three new programs, two expansions of existing programs and an upset victory in DC. Pretty good for a dead movement, wouldn’t you say?

By the way, how did accountability testing do this year? How many new programs? How many existing programs expanded?

How about instructional and curricular reforms? How’s the Massachussetts miracle holding up?

Anyone? . . . Anyone?

Some of these victories did come at a cost. The two programs in Louisiana are going to score poorly when measured against the gold standard of universal choice. The tax credit is limited to a very small amount of money, which means it offers a very small amount of choice. And the new voucher program is only offered to students who are in grades K-3, low-income, and enrolled in public schools (or entering kindergarten) in a chronically failing school district located in a highly populated parish – which currently means only New Orleans. Plus it’s limited by annual appropriations (currently $10 million). A new grade level will become eligible each year (4th grade next year, then 5th grade, etc.) and Baton Rouge may become eligible if its public schools continue to fail. But this is still an inadequate program. And we can also add the prospect of more restrictions in the DC program to the debit column.

But there was also a huge step forward for universal choice. Georgia’s new tax-credit scholarship program offers school choice for all students. It has no demographic restrictions at all. Any public school student can apply. The only limit is the $50 million program cap – and experience in other states pretty consistently shows that dollar caps rise as programs grow to meet them.

Georgia’s new program is basically the same as the Arizona program funded by individual donations, except that Georgia’s program also allows corproate donations. And that makes a big difference, because it greatly expands the pool of available funds – and hence the size of the program.

Come to think of it, Georgia’s program is the first tax-credit scholarship program to include corporate donations and not place demographic restrictions on who can participate. That’s a potentially powerful combination. It will be exciting to see whether Georgia ends up taking school choice to a whole new level.


Cajun Choice

April 23, 2008

(Guest post by Greg Forster)

On a much more serious note (see below), the news that America got a new school choice program last month seems to have slipped by under the radar.

On March 24, Louisiana Governor Bobby Jindal signed SB5, providing a deduction off parents’ personal income taxes for qualified education expenses, including private school tuition. The deduction is worth 50% of the total amount spent on qualifying expenses, up to a maximum deduction of $5,000. For more details on the program see here.

The tax deduction became effective as soon as it was signed, so we now have 22 school choice programs in 14 states plus D.C. All eyes are now on Georgia to see if a tax-credit scholarship program passed by the legislature becomes America’s 23rd school choice program; Governor Sonny Perdue has until May 14 to sign it, veto it, or allow it to become law without his signature.

Personal tax credits and deductions for educational expenses are an unusual way to do school choice; Louisiana’s program is only the fourth of this type. But it’s an approach with a long history. Minnesota enacted a tax deduction for educational expenses in 1955; Iowa enacted a tax credit in 1987; Minnesota added a tax credit on top of its deduction in 1997 (the credit excludes tuition but includes other expenses like books and fees – it’s the only program of this type not to include tuition); and Illinois enacted a credit in 1999.

Personal tax credit/deduction programs tend to be broad in scope but miniscule in magnitude. Only the Minnesota program has an income restriction, so the number of people eligible to participate in these programs is typically very large. Almost 650,000 families benefit from the Iowa, Illinois, and Minnesota programs. On the other hand, the Iowa and Illinois programs provide maximum credits of only $250 and $500 respectively. The Minnesota program is slightly more generous, providing a maximum credit of $1,000 and a maximum deduction of $1,625 in grades K-6 and $2,500 in grades 7-12. And the maximum deduction in Louisiana is $5,000. I don’t know what that works out to in tax savings, but since state tax rates are lower than the federal rate it can’t be that much. Moreover, in most cases the taxpayer does not get a dollar-for-dollar credit or deduction for the money he or she spends; for example, in Louisiana you only get 50 cents on the dollar.

One idea behind these programs is to cut out the middleman and provide school choice as directly as possible. For example, the most important drawback of tax-credit scholarships is that they don’t create a parental entitlement to school choice. The scholarship granting organizations act as gatekeepers, generally favoring low-income parents and thus exacerbating the problem of “targeting” in school choice programs. (Of course, a corresponding advantage is that scholarship granting organizations have flexibility in the distribution of resources; one thing I discovered when I did the research behind this report is that scholarship granting organizations will often step up to provide full-ride scholarships to students facing personal crises such as the death of a parent.) By contrast, both vouchers and personal tax credits/deductions create a parental entitlement to school choice.

I have heard some argue that personal tax credits/deductions are better than vouchers because they cut out the middleman even more completely; supposedly it would be harder to add unnecessary regulations restricting the private schools. But I’ve never been able to understand why this is the case. In both voucher and personal tax credit/deduction programs, the legislature defines which private schools are eligible, and in both cases that’s where the unnecessary regulations get inserted. Why is it harder to do in one case than in the other? Is there some political reason why such restrictions are less likely to be written into the tax code than into other laws? That doesn’t strike me as plausible, but I’d be open to correction if somebody could make a case for it.

The major drawback to these programs is in the structure of state income taxes. Until some state enacts a refundable credit,** the benefit families get from these programs is limited to their total state income tax bill. That’s not a lot of money. And fewer dollars means less choice, as this report helpfully reminds us. Of course, you could in theory pass a refundable credit, but the political obstacles to that would be formidable.

For the record, the Friedman Foundation for Educational Choice, where your humble servant is employed, has no position on whether vouchers, tax-credit scholarships, or personal tax credits/deductions are preferable. Our only goal is to provide a full choice to all students, and in theory all three types of programs can do that. They each have their advantages and disadvantages, but we evaluate each program based on how much choice it provides, not its funding mechanism.

That said, until we achieve universal choice, we’re stuck with limited programs, and in that context each of the three types has its own advantages and disadvantages.

Louisiana is a lot better off for having this program as opposed to no program. It will help a substantial number of families send their children to the school of their choice more easily, and it’s a universal program, establishing the important principle that school choice is good for all, not just for some.

That, and the passage of yet another school choice program is further proof, if further proof were necessary, that school choice is politically stronger than ever.

**CORRECTION: George Clowes has reminded me that the Minnesota tax credit is in fact refundable. That doesn’t really affect my point much, since the Minnesota credit doesn’t include tuition (only other education expenses like books and fees) and this is an even bigger limitation than the “unrefundability” (to use a totally real and not-made-up word) of the credits in other states. Tax credits for private school families won’t provide much choice until we get one that 1) is refundable, 2) isn’t restricted to a small amount of money, and 3) includes tution. Nonetheless, I apologize for the error, and I thank George for bringing it to my attention.