Court Rules Tax-Credit Scholarship Program Constitutional

On April 21, the Ninth Circuit Court of Appeals ruled that a tax-credit scholarship program remains constitutional under the Establishment Clause of the U.S. Constitution. The ruling marks the latest failure by opponents of parental choice in education to halt the program and spells good news for California.

Choice opponents have tried unsuccessfully to end the Arizona individual tax-credit program, the country’s longest-standing tax-credit scholarship program, through numerous court challenges, which began mere weeks after its passage in 1997. In 1999, the U. S. Supreme Court ended the first round of challenges by the Arizona Education Association, the state’s largest teachers union and sister organization of the California Teachers Association.

Then, in 2000, Arizona’s ACLU affiliate filed a collateral suit against the program. While certain aspects of the Arizona law will be clarified in federal trial court, yesterday’s Ninth Circuit decision is welcome news for California, which could become the seventh state to adopt a tax-credit scholarship program if a proposal currently in the suspense file of the Assembly Committee on Revenue and Taxation is approved.

Under the Great Schools Tax-Credit Scholarship Program introduced by Assemblyman Mike Duvall (R-Yorba Linda), qualified California taxpayers could claim credits worth up to 50 percent of their state tax liability for donations to charitable non-profit 501(c)(3) organizations that distribute scholarships to students from low- and middle-income families. Parents could use those scholarships for private-school tuition and fees or transportation to a public school outside of their child’s resident school district.

Parents in Arizona, Florida, Georgia, Iowa, Pennsylvania, and Rhode Island are currently using more than 105,000 tax-credit scholarships to send their children to 1,700 private schools of their choice. Because private schools are typically about half as expensive as public schools, those states realized a combined annual savings of more than $250 million during the 2006-07 school year.

K-12 funding has also never declined in any state with tax-credit scholarship programs. On the contrary, funding has increased an average of 23 percent in real, inflation-adjusted terms since their programs were adopted.

Florida’s program, a model for the proposed California Great Schools Tax Credit Program, saves the state $1.49 for every dollar it reduces state revenue, according to an official government evaluation. That amounts to a 49-percent return on investment, which would go a long way toward helping California out of its current budget deficit.

Even without the Ninth Circuit’s ruling, California legislators have abundant empirical evidence that tax-credit scholarship programs are good for students and beneficial for the states that enact them, specifically:
• Numerous state and Supreme Court rulings have found that such programs benefit students and are religiously neutral;

• California already allows tax exemptions for clergy and corporations with religious affiliations, as well as tax-deductible contributions to religious organizations; and

• More than 200,000 California students use public dollars in the form of Pell Grants, Cal Grants, Chafee Grants for Foster Youth, and special education funding to attend private schools when their public schools cannot provide the services they need.

Simply letting parents choose their children’s schools is one of the most powerful improvement forces in education. Research suggests that if public schools had to work to attract students productivity could be 28 percent higher than it is now, increasing student performance while reducing costs. In fact, more than 200 scientific analyses to date show competition for students improves public schools in terms of higher student achievement, smaller class sizes, higher teacher salaries, and reduced costs.

Other research indicates that expanding education options would produce the same student achievement gains in math as increasing per-pupil spending by more than $3,000 or raising family income by nearly $8,000.

Putting private education within the financial reach of all students, not just those from affluent families, is also sound public policy. Inner-city high school students using scholarships to attend private schools have graduation rates up to 78 percent higher than even selective public schools. Low-income students who attend private schools are also up to four times as likely to earn a college degree by their mid-20s as their public school peers.

During the April 20, 2009, Revenue and Tax Committee hearing on the proposed California Great Schools Tax Credit Program, the ACLU affiliate urged members to wait for the Ninth Circuit’s ruling before proceeding. Now that the verdict is in, California legislators should have all the reassurances they need that tax-credit scholarship programs are a win-win situation for students and taxpayers alike.
Vicki E. Murray, Ph.D., is associate director of Education Studies at the Pacific Research Institute in Sacramento. The California School Finance Center database developed by PRI and Just for the Kids-California is online here.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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