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 of 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.

Mixed messages

Is the Board of Regents hostile to charter schools? Depends upon whom you ask.

PHOTO: Monica Disare
Regent Collins and Regent Johnson engage in a discussion after a Board of Regents meeting.

When the Board of Regents took the unprecedented step of rejecting two new charter schools last week, it sent shudders through the charter school sector.

Even before the meeting last Monday, the Regents had been making charters “nervous,” said Andrea Rogers, the New York State Director for the Northeast Charter Schools Network. The rejections only heightened the anxiety.

“I think these denials skyrocketed the issue to the front of people’s minds,” she said.  

And yet, during the same meeting, the board praised and signed off on the opening of five other charter schools, which brings the number of new schools approved this year to more than any year since 2013.

The meeting was emblematic of the mixed signals that this Board of Regents have been sending over the last few months, feeding different interpretations among both those who advocate for charter schools and those who champion traditional schools

The board’s willingness to criticize and question charters have many believing the Regents are, at best, skeptics and, at worst, opposed to the publicly funded, privately run schools that they authorize and oversee.

At the same time, the Regents have not been without praise for charters, and some charters say they have appreciated the support of the body and the state’s support staff.

Chancellor Betty Rosa said the Regents’ decisions are evidence of nuance, not rigid ideology or partisanship.

“I think there’s too many times when people want to simply say ‘you’re for’ or ‘you’re against.’ It’s so much more complicated than that,” Rosa told Chalkbeat in an interview Wednesday. “To me, if it’s a wonderful opportunity for kids — you got me. If it’s not, I’m probably going to be your worst enemy.”

As an authorizer, the Board of Regents has the power to approve new schools and decide which of its 87 schools should remain open. In addition to deciding the fate of individual schools, the board is rethinking how it evaluates all of its schools   and whether they should take a closer look at measures like surveys or chronic absenteeism.

With several new members and a relatively new leader, the Regents’ actions have been under particular scrutiny for signs of partisanship. Some have seized on recent events, such as critical statements made by some Regents as charter schools have come before the board for approval or renewal.

One Regent suggested that charter schools achieve high test scores by pushing out students; another suggested a charter school in Brooklyn is contributing to segregation.

Rosa has fiercely opposed a proposal that would allow some charter schools to certify their own teachers, calling the idea  “insulting.” The board also rejected a batch of Success Academy renewals, arguing that their authorizer attempted to renew the high-performing but controversial charter schools too soon. (The move had little practical effect, since their authorizer, SUNY, can override the board’s decision.)

Rosa said the sum of these decisions does not mean either she or the board is anti-charter. Her opposition to the teacher certification proposal had nothing to do with the source of the proposal — a charter authorizer — but because, she said, she believes the idea is an affront to the teaching profession and will allow unqualified teachers to enter classrooms.

The Success Academy renewals, she said, were returned based on legal requirements — and were not an appraisal of the charter network.

But taken together, observers of different educational ideologies have concluded that the board is more likely to probe problems with charter schools than in the past.

“It is quite a change from a couple years ago, and it does show greater misgivings about charter schools than what we saw under the board as it was previously constructed,” said Bob Lowry, deputy director of the New York State Council of School Superintendents. (Lowry said he appreciates that the board is paying more attention to how charter schools will affect the funding of surrounding school districts.)

The state’s teachers union has picked up on the change and praised the board for providing more oversight of charter schools, while calling on them to do more.

“The Regents, at this point, are providing much overdue scrutiny of the charter sector,” said NYSUT spokesman Carl Korn. “We believe that the Regents and the state education department need to do more, but this is a good step.”

Charter school advocates agree, seeing the Board of Regents’ actions as worrying. Since the board’s philosophy is hard to pin down, schools are starting to wonder if they can switch authorizers, Rogers said.

Yet there are signs that charters’ fear are based on conclusions that are far too sweeping. As the board rejected two schools outside of New York City, they also lauded applications for schools opening in the city a fact that may suggest differences in how the Regents assess schools in different areas of the state.

Regent Christine Cea welcomed a new school in Staten Island, saying she is “totally in favor of it.” Rosa expressed excitement about a new KIPP school in the Bronx, saying the community has “tremendous support” for its opening.

Rosa said Regents are more thoughtful and involved in reviewing schools now. She suggested that there are educational innovations that can be learned from charter schools, but also offered some critiques. At the top of her list, she worries that charter schools are not well-equipped to serve students with the most severe disabilities.

Several schools that are currently authorized by the board expressed their appreciation for the Board of Regents and those in the state education department’s charter school office who provide technical assistance to schools and create charter school recommendations for the board.

“On our quest to better serve scholars with learning differences, we have found no better ally,” said Eric Tucker, who is a co-founder of Brooklyn Laboratory Charter School. “Through technical assistance and oversight, the Regents push public schools like ours to continually improve to better serve the needs of all students, all days.”

Still, said Bob Bellafiore, an education consultant who works with charter schools, several Regents come from district school backgrounds, and so their default attitude is to question charter schools and support the traditional school model.

“They’re much more district school system people,” Bellafiore said.

What's Your Education Story?

Tips for teaching poetry in a women’s prison. ‘Remember, you are not allowed to hug anyone.’

PHOTO: Lwp Kommunikáció, Flickr CC
Inmates at the Indiana Women's Prison.

Adam Henze was one of seven educators who participated in a story slam sponsored by Chalkbeat, Teachers Lounge Indy, WFYI Public Media and the Indianapolis Public Library on Sept. 5. Every teacher shared stories about their challenges and triumphs in Circle City classrooms.

A poet and educator, Henze read a poem about a day in his life as a poetry instructor at the Indiana Women’s Prison. Henze recounts the painful struggle to reconcile his experiences with the crimes for which his students were serving time — some life sentences for murder

It’s a story full of darkness, but it also offers hope that, as Henze said, “we are the sum of the things that we have done, but we’re also the sum of the things that we have yet to do.”

Check out the video below to hear Henze’s story.

You can find more stories from educators, students and parents here.