choice history

The rise of tax credits: How Arizona created an alternative to school vouchers — and why they’re spreading

PHOTO: U.S. Department of Education

With its recent adoption of a tax credit scholarship program, Illinois became the 18th state to adopt an innocuously named — but highly controversial — policy that critics have described as a “backdoor voucher.”

In some sense, the description is apt. But by injecting a middle layer into the government’s support of private school tuition, tax credits help avoid some of the legal and political obstacles that have dogged efforts by advocates, like Education Secretary Betsy DeVos, to promote school choice through vouchers.

Perhaps as a result, more students now use tax incentive programs than vouchers to attend private schools in the U.S. A federal tax credit is also seen as the Trump administration’s favored approach for promoting school choice at the federal level, though its immediate progress looks increasingly unlikely.

The 20-year history of this approach offers insights into why it has taken hold: resistance to legal challenge; limited government oversight, appealing to among free-market advocates of school choice; and a more politically palatable branding than vouchers.

This is far better than vouchers — it is easier to pass and easier to uphold,” Trent Franks, a conservative activist and now a U.S. congressman, said in 1999 after Arizona’s state supreme court upheld its tuition tax credit program. “I think this is the direction the country will go in.”

He proved largely right.

The number of students participating in private school choice programs over time, including tax credits (green) and vouchers (orange). (EdChoice)

Arizona’s pioneering approach

The first tax credit program was passed in Arizona in 1997. Arizona’s constitution, like most other states’, bars public dollars from going to religiously affiliated schools. Proponents knew any plan to promote private school choice would likely end up in court.

So they landed upon an ingenious approach that would make the initiative more likely to survive legal challenge. Instead of issuing vouchers for private school tuition — like Milwaukee had done since 1990 — the state would outsource that role to nonprofits. Those groups would get their money from donations, encouraged by generous tax credits.

It worked like this: An individual could donate up to $500 to a nonprofit, then get a tax cut for the exact amount they donated. The nonprofit would take the donated money and use it to offer tuition stipends — essentially vouchers — to families who met certain conditions. That system allows the state to promote the tuition subsidy, losing $500 in revenue for each maxed out donation, without paying for it directly.

Arizona’s program has since grown, and the state has created a number of other tax credit programs. (This approach is distinct from programs that give individual families tax breaks for educational spending on their own children; Illinois has had such an initiative since 2000, while Minnesota has had one since 1955.)

Arizona’s and Milwaukee’s policies look similar. In both places, students can receive a subsidy to attend a private school, and it comes at the expense of state revenue. But crucially, in Arizona, the government never had the money to begin with.

“The point was in part to ensure that these were not government-run programs,” Lisa Graham Keegan, who was Arizona’s school superintendent when the tax credit program passed, told Chalkbeat. “Those scholarships are completely separate, both for legal reasons and for philosophical reasons.”

Tax credits: the legal survivors

Private school choice across the country have been inundated with legal challenges, but tax credits have proven remarkably resilient.

Although voucher programs have continued to grow and were upheld by the U.S. Supreme Court in 2002, they have also faced legal challenges in state courts. Colorado’s top court, for example, struck down a voucher program in 2015. (The case is currently being reconsidered in light of a recent Supreme Court decision.)

But tax credits have never ultimately lost in state or federal court, prevailing in Arizona, Alabama, Florida, Georgia, New Hampshire, and the U.S. Supreme Court.

Tax credits “grew up as a result of saying we need a different vehicle than vouchers in states that have legal issues,” said Robert Enlow, the president of EdChoice, an Indianapolis-based group that backs both vouchers and tax credits. (EdChoice is a funder of Chalkbeat.)

Often, cases have been thrown out before substantive arguments can be made, amounting to a win for the programs: Some courts have ruled that private organizations or individuals do not have legal standing to challenge tax credits, since they aren’t government expenditures.

That was the decision in the 2010 Supreme Court case Arizona Christian School Tuition Organization v. Winn, in which the majority said equating government spending and tax credits was “incorrect.”

“When Arizona taxpayers choose to contribute to [scholarship organizations], they spend their own money, not money the State has collected,” Justice Anthony Kennedy wrote.

Light regulatory touch proves a blessing and a downside

To Arizona conservatives skeptical of both regulation and the education establishment, the system had an additional benefit.

“The point was in part to ensure that these were not government-run programs,” said Graham Keegan, and additionally that “these don’t become government dollars.”

Nationwide, tax credit scholarship programs appear less regulated than voucher programs, some of which require private school students to take state tests or for schools to undergo financial audits.

Free-market oriented supporters “see ‘neovouchers’ as much less likely to be regulated and have restrictions — the government strings attached — than a traditional voucher law,” said Kevin Welner, a University of Colorado professor who wrote a book on the rise of tax credit programs and is generally critical of them.

A 1998 essay published by the Mackinac Center, a conservative Michigan think tank, made this case explicitly: “Tuition tax credits also create very different effects than vouchers. … Vouchers are more likely to be viewed as a rationale for regulating the entity that receives the subsidy.”

This has played out in practice. One analysis compared several voucher programs to a number of tax credit programs and found that, in almost all cases, vouchers were more regulated. Most tax credit systems had few, if any, financial reporting or disclosure requirements. (Notably, Florida’s program, the largest in the country, was the most regulated tax credit initiative.)

Many tax credit programs do not require participating students to take state exams, and if they do, the tests are rarely comparable to the assessments taken in public school. This means that while voucher programs have been widely studied, there is little research on the effect of receiving a tax credit scholarship.

Supporters of this approach argue that such requirements discourage private schools from participating.

Limited oversight, however, has proven something of a political liability, insofar as it has allowed for financial malfeasance. National media have drawn attention to how one prominent politician and advocate for Arizona’s program was also able to profit personally from it, for example.

“I think [limited regulation] is a feature that has some bugs,” said Enlow of EdChoice. “We need to have transparency. The programs, like Florida, which are very transparent and very open to data collection, I think are very important.” He declined to name any tax credit programs that, in his view, lacked sufficient transparency.

The use of the tax code has also raised another concern: Under some tax credit systems, “donors” can actually earn a profit by taking advantage of both state and federal tax breaks.

Selling tax credits

How exactly to brand tax credit programs has been the subject of fierce debates. Opponents have called them “neovouchers” and “voucher schemes,” while supporters sometimes portray them as entirely distinct from vouchers.

Tax credits tend to poll better than vouchers, and Welner thinks that may be because it’s less clear to most people what they are.

“People’s eyes get bleary and they tune out when people start talking about tax credits,” he said. “That helps to avoid a situation where they respond to it the same way they respond to a voucher proposal.”

Tax credits are essentially a tax cut, which can be a selling point for some, especially conservatives. Advocates sometimes also downplay the costs of tax credits to the government.

“Is it foregone revenue? Sure, but it doesn’t mean it’s the state’s revenue,” said Enlow.

The distinctions between vouchers and tax credits, though, may ultimately matter less to lawmakers in states where they are being debated. In Illinois, critics connected tax credits to vouchers, and Democrats were largely opposed to the tax credit initiative that ultimately passed.

“In my experience the arguments have been the same whether it’s a tax credit bill or a voucher bill when you’re talking with legislators,” Enlow said. “There’s some nuances, but it’s still the same.”

Correction: An earlier version of this piece misstated the name of a free-market Michigan think tank, which is the Mackinac Center.

School funding

Poll: Most residents want Michigan to change the way it funds schools

PHOTO: (Photo by Ariel Skelley via Getty Images)
Members of the School Finance Research Collaborative are calling for equitable school funding so all Michigan students get the education they deserve.

Most Michigan residents believe the state’s current method of funding schools is both insufficient and unfair.

Those were the findings of a new statewide poll that was conducted in June by the School Finance Research Collaborative, a prominent group of Michigan educators, policymakers, and business leaders that has called for major changes to the way schools are funded.

The poll of 600 Michigan residents found that 70 percent believe the state’s schools are underfunded, and 63 percent think they are not funded fairly.

“The results of the poll should really be a wake-up call for policymakers on both sides of the aisle, and to anyone seeking elected office,” said Wanda Cook-Robinson, a School Research Collaborative member and superintendent of Oakland Schools. “They need to listen to the Michiganders and use the school finance research collaborative study as a road map for a new, fair schools funding system.”

The poll follows a report the collaborative released in January, which recommended sweeping changes to the way schools in Michigan are funded. Instead of sending schools the same amount per student, the report recommended providing schools with additional funds for students who are learning English, living in poverty or facing other challenges.

The group spent nearly two years and about $900,000 producing the report but it did not get much immediate response from Lansing. The education budget signed by Gov. Rick Snyder this summer included increases to school funding, but made no changes to the funding formula.

Michael Addonizio, a professor of Education Policy Studies at Wayne State University and a member of the collaborative, said the poll offers another reason why lawmakers should pay attention to the issue.

“It’s time for a new school funding system that meets the unique, individual needs of all students, whether they are enrolled in special education, living in poverty, English language learners, and [whether] students attend school in geographically isolated areas of the state,” he said.

Details about the survey including the specific questions asked are below.

Listening Tour 2018

5 bold ideas for how Chicago can send more kids through college

PHOTO: Elaine Chen
Chalkbeat Chicago sat down with educators and OneGoal staff as part of our series of listening tours throughout the city

It takes resilience and a lot of support to launch students on the path to college, let alone get through Year One.

“Students trying alone to make it is not going to work,” said Kate Kaushal, a counselor at Phillips Academy High School in Bronzeville. “It takes a village.”

In a conversation on Tuesday, educators, Chalkbeat reporters and editors, and staff from the nonprofit OneGoal brainstormed ways to marshal that village to guide more students in Chicago’s neighborhood schools toward college and careers. As the sixth stop of Chalkbeat’s summer listening tour, the two-hour discussion took place at the Loop office of OneGoal, which offers one-on-one coaching to help low-income high school students transition to college.

The discussion covered many of the challenges schools face, from keeping students moving forward during their “sophomore slump,” to conquering the complexity of college applications and financial aid forms — and, moving beyond, to keeping students in college once they get there.  In 2016, 66 percent of CPS high school graduates enrolled in two- or four-year colleges. But of district students who had enrolled in college in 2011, only 57 percent graduated by spring 2016.

Tuesday’s group shared ideas that are working — and even came up with other bold ones that could catch on. Here are five ideas that came out of our conversation:

1. Build out a system of post-secondary “help desks” in libraries and public spaces

Sharon Thomas Parrott suggested instituting “help desks” to support high school students in navigating financial aid

Problem: The variations among applications for colleges and trade programs is mind-boggling,  even for adults, said Kaushal of Phillips Academy.: “Each college has a different process, and a different portal, and students get frustrated when applying.”

Solution: Sharon Thomas Parrott, an ex-officio member of One Goal’s Board of Directors who began her career as a CPS teacher, proposed a network of community “help desks” that could help students review options and navigate applications and federal financial aid forms. “How do we support schools and provide counseling opportunities without counselors?” she asked rhetorically. Help desks with services in English and Spanish would also help make the process more accessible to parents and guardians.

2. Financial aid navigators accessible to high school students throughout the city, either at schools or through organizations

Problem: College has become astronomically expensive. It’s great to encourage students to pursue higher education, “but don’t sugarcoat it either,” said Andrew Nelson, a humanities teacher at Multicultural Academy of Scholarship High School in South Lawndale. However, reality can also discourage families.

Solution: Alejandro Espinoza, OneGoal Chicago’s director of secondary partnerships,  suggested that the city or schools can provide financial aid navigators to help families figure out how much schools cost, what financial aid is available, and how loans figure into the picture. “Parents won’t take a risk if they don’t know this information.”

3. Start the post-secondary conversation earlier

Mary Beck, principal of Senn High School, emphasized the importance of Freshman Connection for getting incoming students on track for high school graduation

Problem: Many students don’t enter high school with thoughts about what they’ll do afterward, and may not think about them until junior year, when their options — such as entering into a trade or a college — become limited because they lack required courses and credits.

Solution: Mary Beck, the principal of Senn High School in Edgewater, said that her school has placed much emphasis on Freshman Connection, a program that gets incoming students acquainted with staff and graduation requirements before the school year starts. At Senn, the goal is to get students on track to graduate before they even show up for Day One of high school. “It’s setting yourself up so that you have options,” she said. “They have to be prepared to apply for a four-year college even if they don’t ultimately go.”

4. Focus on individual students once they get to college

Problem: Students who make it to college don’t always stay there. Beyond academics, it can be challenging to deal with a new environment, cost, and even culture. Adults often tell students that once they’re in college ‘you’re going to be an adult, no one is going to hold your hand,’ said Kaushal, “but sometimes someone still needs to hold their hand.”

Solution: Thomas Parrott said that colleges or external programs could provide counselors who sit down with incoming college students and looking at what classes they’ll take in freshman year, as those grades set the foundation for the students’ trajectories in college. Kaushal added that guidance needs to continue in college. While organizations such as OneGoal provide one-on-one coaching for college freshmen, she said that continued coaching will help ensure students ultimately graduate.

5. Students need to see success stories

Problem: Students sense challenges facing their family, neighborhood and city all the time. They need to hear stories of resilience — and see exactly how kids who look like them persevered.

Solution: OneGoal Director of External Affairs Chloe Lahre said that mentors, connected through a robust directory of program alumni, could offer practical advice and encouragement. Nelson of Multicultural Academy suggested more stories in the media about students overcoming setbacks. It would be helpful, he said, “seeing people who have had similar experiences and seeing what their story is like.”

In our listening tours, we’ve gathered parents, community groups, students, and educators to discuss pressing issues in Chicago education. Our seventh event, in partnership with City Bureau, is next Thursday, August 23. It is open to the public.