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.

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BY John Kirtley

Chairman of Florida scholarship organization for low-income students, Vice Chair of American Federation For Children, a national parental choice organization


I am the former CFO of Step Up for Students (the Florida Tax Credit Scholarship administrator) and the current CEO of a Georgia SSO. We had the same criticisms about the Georgia program that John Kirtley and the NYT article highlight when we first got involved in Georgia so we decided to do something about it.

We fixed the problems by designing our SSO to address those issues head-on.

AAA Scholarship Foundation is different from every other SSO in Georgia in that we:
• Award scholarships directly to families – not schools
• Award scholarships solely to qualifying low-income families
• Empower parents to choose the best school for their child(ren) – scholarships follow the children to each school as long as the family remains eligible
• Award scholarships for a 3-year term because we believe that continuity of the educational setting is important for children to succeed
• Have over 15 years hands-on experience successfully administering tax-credit scholarship programs (Florida and Georgia)
• Have contracted with a nationally-respected 3rd party provider to objectively determine each family’s scholarship qualification
• Have a CPA on-staff to ensure that your tax questions are answered correctly and to ensure timely and accurate reporting

We are truly helping those families for whom this program was designed – the low-income and working-class families who otherwise would not be able to afford to send their children to the schools that best meet their learning needs.

Matthew Ladner

Arizona lawmakers took steps to curb abuses in recent years up to and including giving our Department of Revenue the ability to execute an organizational death sentence against non-profit groups participating in the program, including swapping credits.

I would like to see our laws further strengthened along many of the lines John suggests, but in the meantime if Mr. Thomas or anyone else can present evidence of continued swapping I invite them to bring it to the AZDoR. If groups are violating the law, no one would celebrate their suffering the appropriate consequences more than me. Otherwise, the Times ought to refrain from repeating idle speculation.

In Georgia, we agree that program design is crucial to the health of tax credit scholarship programs, as is accurate information about the programs. We appreciate the great and varied work our colleagues are doing around the country, and look forward to hearing about continued improvements and advances.

Please note the following corrections to information included in the above article (and referenced in the New York Times article):

“Georgia’s law sets no boundaries on the income of scholarship recipients and no limit on the amount of the scholarship itself.”

* Georgia passed HB 325 last year and it put a limit on scholarship amounts. Scholarships cannot be larger than that average state and local expenditures per student in public schools. For 2012 the limit is $9,437.

* Although not required by Georgia law, donation data and the policies of many of the large SSOs indicate that a significant number of Georgia scholarships are distributed by SSOs with income-based requirements.

“…It requires no financial audits, no attempt at any meaningful data collection.”

* The original program legislation states that all SSOs must conduct an audit of its accounts by an independent certified public accountant within 120 days after the completion of the student scholarship organization’s fiscal year and submit the audit to the Georgia Department of Revenue.

“…Many of the contributions are steered through schools and parents with a self-interest to underwrite the tuition of their own students.”

* This practice is specifically prohibited by Georgia law. The practice of designating donations to a particular student is prohibited under Revenue Regulations 560-7-8-.47 paragraph 20. Only a small number of Georgia SSOs allow parents to underwrite the tuition of their own students through donations. While this is certainly a signficant issue, it is not a significant problem in practice frequency.

I welcome colleagues, writers, and reporters to contact us at the Center for an Educated Georgia for information on the program.

Jerri Nims Rooker, Director, Center for an Educated Georgia

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