School Choice & Charters

Finances, Mission of State Tax Credit Programs Questioned

By Sean Cavanagh — May 22, 2012 1 min read
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Tax credit scholarships have taken hold in a number of states, where they’ve been touted as effective options for allowing needy children stuck in failing public schools to move to private schools using money that would otherwise have wound up in the state treasury.

But today, a New York Times story takes a look at those programs and finds that some of them aren’t operating in the way they were sold to the public.

Specifically, the Times says that some of the programs are apparently making tax-credit-funded scholarships available to families who not only aren’t poor, but whose children are already attending private schools to begin with. In Georgia, for instance, parents of private school students are being encouraged to “enroll” students at public schools, in name only, in order to receive access to qualify for private school scholarships.

The story also cites examples in Georgia of private schools and programs that administer the scholarships working in concert to decide who will get them—"in effect limiting school choice for the students themselves,” as the Times puts it.

A number of voucher programs limit eligibility to impoverished families, and the programs’ ability to increase educational opportunities to disadvantaged students has long been one of their key selling points. But in Georgia, families of all incomes are receiving tax-credit-funded awards from some scholarship-granting organizations, a practice which gives the private schools they’re attending a steady source of income. The newspaper reports:

And although [the program] prohibits donations designated for a specific student, some students are benefiting from the donations of relatives and friends. Hanaiya Hassan, whose daughter attends Hamzah Academy in Alpharetta, Ga., said she had saved $5,000 by asking four friends to donate to a scholarship organization with money earmarked for her daughter's school. "If you collect four people for $2,500, then one of your children is free," she said. The friends were awarded a tax credit. Depending on their tax bracket, some donors could actually come out ahead by filing for a federal charitable deduction as well as the state credit. The Christian Heritage School in Dalton, Ga., circulated a flier for the 2011-12 school year titled "TUITION BREAKS FOR CURRENT FAMILIES!" It stated, "The scholarship tax credit is so vital to CHS that the school is encouraging all parents to participate in the program and enlist at least two others to do the same." Participating families would get a 10 percent tuition rebate and a $250 bonus. The rebates would be doubled or tripled depending on overall participation. The school has discontinued the rebate program, its controller said.

As the story points out, some voucher programs have been ruled unconstitutional by state courts, when they’ve been found to have improperly directed public funds to religious institutions, meaning private sectarian schools. Tax credit scholarships have offered an appealing alternative to this prevailing legal uncertainty, because the money never goes into the public treasury, creating less risk of losing a court challenge.

Whether the Times story leads lawmakers to rethink their support of tax credit programs—or increase their oversight—remains to be seen.

A version of this news article first appeared in the Charters & Choice blog.