Designing tax credit scholarship programs

sketchingI have written an article about tax credit scholarship plans that will be published in the Journal of Law and Education (Volume 43, Issue 1, Jan. 2014). You can read it here.

The article describes these school choice scholarship plans, which have now been enacted in 12 states. Put simply, funded by state tax credits, these plans enable low- and modest-income families to send their children to private schools in grades K-12. The main purpose of the article is to discuss design parameters that those creating such plans must consider. I address the important issues and show how states have come up with a variety of answers to these questions. I also make some brief legal and economic comparisons between tax credit school scholarship plans and voucher plans, and I discuss Sen. Marco Rubio’s recently proposed federal tax credit school scholarship plan.

The key design questions for these plans (which I consider) are:

1.   What families are eligible for the scholarships (as measured by income and up to what level, and by whether their children are already in private schools)?

2.   How large must or may the scholarships be (and how large are they likely to be if there is discretion)? What do such limits mean for the obligation of the family whose child wins a scholarship to pay tuition in part out of its own pocket?

3.   To what extent are schools that accept scholarship students to be regulated and by whom (in terms of testing regimes, teacher qualifications, and control over admissions)?

4.   Are students who initially win scholarships reasonably assured of ongoing scholarship aid so long as their families remain eligible and they remain in private schools? And may their families switch private schools and retain their child’s scholarship?

5.   Against what taxes are the tax credits allowed (individual and/or corporate)? Is the amount of the tax credit 100 percent or less? Are there plan maxima? And, if so, are they applied at the taxpayer level and/or on an overall statewide basis?

6.   Who can be a scholarship granting organization and how are they regulated (in terms of to whom they grant scholarships, of what amount, and what conditions may they impose on schools that wish to accept the scholarships)?

7.   What are the likely financial consequences to state government and local school districts based on the parameters selected?

8.   Is the plan likely to be upheld against a legal challenge brought under state and/or federal law?

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BY Stephen D. Sugarman

Professor of law, University of California at Berkeley, author with John E. Coons of Private Wealth and Public Education and Education by Choice

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