Tax Credit Scholarship Programs are Gifts that Keep on Giving - Pacific Research Institute

Tax Credit Scholarship Programs are Gifts that Keep on Giving

During this season of giving, imagine if California taxpayers could give the gift of a better education to thousands—even tens of thousands—of deserving children.

Today a variety of parental-choice scholarship programs across the country, including tax-credit scholarships, empower parents to send their children to the schools of their choice—regardless of their families’ income or address. Such programs allow individuals and/or businesses to claim credits against their state income taxes for charitable contributions to nonprofit, tax-exempt organizations that award scholarships to eligible students to attend the public or private schools that best meet their needs.

Arizona became the first state to enact a tax-credit scholarship program in 1997. As of 2009, there are nine tax-credit scholarship programs in seven states. Most of these programs serve targeted student populations, including children who are low-income, in failing public schools, have special needs, or those from the foster-care system.

Nationwide, tax-credit scholarship donations amounting to nearly $255 million enabled non-profit organizations to award nearly 107,000 scholarships in 2009. Scholarships can cover the cost of private-school tuition, tutoring, textbooks, and transportation, including transportation to public schools outside of students’ assigned districts. Participating private schools must also meet several standards to participate, including compliance with health, safety, fiscal, anti-discrimination, and academic accountability requirements.

Non-profit scholarship-granting organizations can be started by community groups, philanthropic organizations, or any other group, and must comply with numerous federal and state reporting requirements.

A California tax-credit scholarship program was proposed—but defeated—in 2009 that would have allowed taxpayers to 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. The scholarships could have been used for private school tuition and fees or transportation to a public school outside the eligible student’s resident school district.

A leading myth about tax-credit scholarship programs is that they hurt state and public school budgets. Empirical evidence shows otherwise. The Florida Tax Credit Scholarship Program (FTC) is the country’s largest program. Average private school scholarships are less than $4,000, and they enabled nearly 29,000 low-income and minority children to attend more than 1,000 private schools statewide during the 2009-10 school year. The result is a win-win for students and budgets.

Surrounding public schools improve in terms of student math and reading performance on the state standards test because they have to compete with private schools for students. And, because private schools cost less than traditional public schools, the state saves money. The Florida Legislature’s Office of Program Policy Analysis and Government Accountability (OPPAGA) found that for every dollar spent on the FTC Scholarship program “taxpayers saved $1.49 in state education funding.”

With improved student performance—and a stunning 49 percent annual return on investment—tax-credit scholarship programs are truly gifts that keep on giving. In 2011, California’s new class of legislators should craft a tax-credit scholarship program for all children in the Golden State.

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.

Scroll to Top