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GAO Finds Uneven Landscape of State Rules for Tax-Credit Scholarships

By Evie Blad — October 27, 2019 5 min read
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New data from a government watchdog shows that 17 states operated 22 tax-credit scholarship programs as of January 2019, and that some of those programs provided inaccurate information on the rights of students with disabilities, despite previous warnings.

Those programs—which provide tax credits in exchange for contributions to scholarship organizations that allow students to attend private schools—received over $1.1 billion in contributions, providing awards to about 300,000 students in 2017, says a new report from the Government Accountability Office.

Those programs operate under widely varying requirements, the nonpartisan federal agency found. For example, just 14 of the 22 scholarship programs require participating schools to be accredited by a state-approved entity. And half don’t require participating schools to assess their students through standardized testing.

The report was requested by Sen. Patty Murray, D-Wash., the ranking member of the Senate’s education committee; Sen. Ron Wyden, an Oregon Democrat and ranking member of the Senate finance committee; and Sen. Sheldon Whitehouse, D-Rhode Island, after the Trump administration proposed $5 billion in federal tax credits for tax-credit scholarships.

“While [tax-credit scholarships] programs serve a relatively small number of students nationwide compared to traditional public schools, promoting school choice options—both private and public—through a variety of spending and tax expenditure programs continues to be a topic of national debate,” the report says. “Although no federal [tax-credit scholarship] program exists, bills to authorize federal tax credits for contributions to [scholarship-granting organizations] have been introduced in recent years. In addition, the President’s fiscal year 2020 budget request included a proposal for federal tax credits for donations to state-authorized [scholarship-granting organizations].”

Notably, the GAO didn’t seek to assess the effectiveness of such private school choice programs. Rather, it explored the landscape of state policies that allow them. Contributions to state tax-credit scholarships ranged from $854,326 in New Hampshire to approximately $623 million in Florida’s largest program, the GAO’s analysis of 2017 data showed.

Variations in States’ Tax-Credit Scholarship Programs

“Since scholarships are funded through donations rather than state appropriations, the financial impact to states from TCS programs primarily occurs through forgone revenue resulting from the associated tax credits,” the report says, touching on a debate over funding of the Trump proposal. “Participating schools can vary in terms of characteristics such as their size, religious affiliation, and whether they focus on specific student populations, such as students with disabilities.”

Those variations have concerned some civil rights organizations. They say the tax credits drain money from public funds that could be directed toward public schools in exchange for choice options that some students—like LGBT students who may not be welcomed at some faith-based schools—can’t benefit equally from. Policies on requirements for scholarships and schools varied, investigators found, as did procedures to ensure compliance with those rules.

In a previous 2017 report, the GAO found the websites for some states’ private school choice programs included inaccurate or incomplete information about the rights of students with disabilities. The federal Education Department agreed that the information was inaccurate, and the GAO recommended it conduct a review of the information states provide to families of students with disabilities. But that review has not been conducted, GAO said, and some private school choice programs were still providing inaccurate information at the posting of the newest report.

The GAO didn’t explore policies related to discrimination or religious issues in its newest evaluations. But investigators noted variation in some academic requirements, like core subject mandates or rules related to instructional time and student attendance. An overview of those findings are summarized in this chart.

Investigators also explored differences in administrative requirements for participating schools. For example, 10 programs set no requirements for teacher qualifications, while 12 do.

The Federal Context for Private School Choice

The GAO report comes as U.S. Secretary of Education Betsy DeVos continues promoting the administration’s federal Education Freedom Scholarship proposal, despite the view of many education pundits that it is “dead on arrival” in Congress and concerns from organizations that are typically aligned with DeVos on education issues.

In response to the report, officials from the Education Department reiterated that DeVos has pushed for tax-credit scholarships to be used for a broad list of programs that extend beyond enrollment at public schools, including supplementary tutoring, transportation to education programs, and homeschool materials. In recent public events, that distinction has led DeVos to use the term “education freedom” instead of “school choice.”

“Since states are not required to include any specific education setting [under the Trump administration proposal], and the report is limited to only one potential type of scholarship program states may design, the extent to which GAO’s analysis can help inform the debate around the Education Freedom Scholarships proposal is limited,” the Education Department said in a letter included in the report.

Notably, the GAO excluded Montana’s program because it was subject to “pending litigation.” As Mark Walsh of Education Week wrote recently, that litigation is a U.S. Supreme Court case that could drive significant change in the private school choice landscape.

The dispute centers on a Montana law, that bans awarding state funds to religious schools. Thirty-seven states have similar policies, and private choice advocates say overturning them could open the door for the expanded use of state tax-credit scholarship programs.

Photo: Getty.