Program design is crucial for tax credit scholarships

Stephanie Saul offered an indictment in the New York Times today of tax credit scholarship programs that have, in my opinion, serious design flaws. These flaws were almost guaranteed to provide examples like Saul found for her article. How lawmakers and, just as importantly, parental choice advocates respond is an important test of their credibility.

Not much of what Saul reported is new, though that makes it no less troubling. Georgia’s law sets no boundaries on the income of scholarship recipients and no limit on the amount of the scholarship itself. It requires no financial audits, no attempt at any meaningful data collection. Many of the contributions are steered through schools and parents with a self-interest to underwrite the tuition of their own students. In Georgia and two other states she covered, Pennsylvania and Arizona, the public has little idea whether students are learning because no tests are required and no academic data collected.

The story was loaded with powerful anecdotes of abuse, but employed surprisingly pedestrian journalistic standards in its attempt to portray those practices as national in scope. The punchline in what newspaper writers call the nut graph – that “the programs are a charade” – was qualified as a  question raised by “some” private school administrators. The characterization of programs becoming “enmeshed in politics” was leavened again with the word “some.” How many of the eight states with tax credit scholarship laws “collect little information”? You guessed right. The answer was “some.”

To her credit, Saul did acknowledge that at least one state has different statutory and regulatory standards: “In Florida, where the scholarships are strictly controlled to make sure they go to poor families, only corporations are eligible for the tax credits, eliminating the chance of parents donating for their own benefit. Also, all scholarships are handled by one nonprofit organization, and its fees are limited to 3 percent of donations. Florida also permits the scholarships to move with the students if they elect to change schools.”

The Florida scholarship program, as readers of this blog should be aware, is where the creators of this blog work. So we certainly have a self-interest in seconding such an assessment but also an intimate appreciation of the tension that appropriately exists with education options that have one foot in the private market and the other in the public treasury. We want to give the parents of poor and struggling school children something they could not otherwise afford – a private school learning option – and we recognize that with tax-credited funding comes public responsibility.

Finding the right balance between regulation and market is no simple feat. But our prescriptions for a well-designed law are as follows:

* Financial means testing. This focuses the resources of the program on students who most need it and can least afford it.

* Portability. Parents – not individual schools or scholarship organizations – should own the decision of where their children attend school. In Florida, the scholarship can be used at any one of the 1,350 private schools whose participation has been approved by the state.

*Academic accountability. Scholarship students must be tested, with either the state test or a nationally norm-referenced test. Further, scores must be reported to an independent research entity that will publish the overall learning gains of the students. Florida has taken one further step, which is to report learning gains of any school with at least 30 students with test scores for two years.

*Fiscal accountability and transparency for scholarship organizations. Audits are essential for organizations that often handle millions of dollars.

*Fiscal accountability for schools. In Florida, if you take $250,000 worth of scholarship kids, you must submit to the scholarship organization a review by a legitimate third-party CPA showing you used the money properly.

The point of these scholarships is to give low-income parents legitimate learning options for their children, and though the Times story may have distorted the national picture, the abuses it reported do serve as fair warning. A properly designed scholarship needs proper bill design.

Update: I was reminded by my friends at the American Federation For Children that the Georgia statute requires scholarship organizations to conduct financial audits by third party CPA and submit them to the state Department of Revenue. A very good step in the right direction.