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.

Making Montssori

A popular new Montessori program in Detroit’s main district may expand into its own separate schools

PHOTO: Nick Hagen

Detroit’s main district is considering expanding its popular Montessori program, including possibly creating free-standing Montessori schools designed to draw students from around the city.

The possible changes could represent a major shift for the two-year-old program, which now operates in 14 classrooms in six schools.

Montessori parents have been on high alert in recent weeks. Told that changes are coming to the program, they’ve been worried that new Montessori schools would mean an end to existing programs.

“My son keeps asking ‘where am I going to school next year?’” parent Maria Koliantz told Chalkbeat last week.

Koliantz, who has two children in the Montessori program at Maybury Elementary School in Southwest Detroit, said a sense of brewing change has been affecting parents and teachers.

“I just keep trying to assure him,” she said of her son. “But … I hate that the uncertainty has affected him.”

But Superintendent Nikolai Vitti says there are no plans to move existing programs. Questioned by Koliantz at a school board community meeting Tuesday night, Vitti assured her the district would only add new programs, not close existing ones.

“We have no intention of discontinuing that program,” he said. “It’s a vehicle to recruit parents to the school system. I don’t think you’re going to see anything but expansion.”

Since his arrival in Detroit last spring, Vitti has talked about the need to give every school in the district a distinct identity, with some schools focusing on math and technology and others perhaps developing a focus on creative writing.

Vitti revealed Tuesday morning that the district is considering eventually creating three arts schools for children who’ve been identified as gifted or talented.

New Montessori schools are also on the table, he said. “The new schools will be announced by the end of March as we work towards ensuring that every school has a identifiable and distinct program to improve performance and enrollment.”

Freestanding Montessori schools could represent a new chapter for a program that was launched in Detroit two years ago as a hybrid system, with Montessori classrooms operating next to traditional classrooms in a handful schools.  

The program, which allows children to learn at their own pace in mixed-age classrooms, started in 2016 with classrooms serving pre-kindergarten and kindergarten students, as well as some students in grades 1-3 at Spain, Maybury and Edison elementary schools. The program more than doubled in size in 2017, adding classrooms in the first three schools and expanding into three more — Chrysler, Palmer Park and Vernor elementary schools.

But while the current structure at the six schools has been popular with some parents, it has also created some difficulties.

The Montessori program is run by a director, Nicola Turner, who hires teachers for the program, oversees their training, and supports them as they implement the Montessori curriculum. But those teachers also work for their school principals — a dynamic that can create complications.

In some schools, there has been tension between parents and teachers affiliated with the Montessori program and those connected to traditional classrooms. Since the Montessori programs tend to have more teachers and fewer students than traditional classrooms, that’s raised issues of fairness and equity.

The current setup has also created challenges aligning the Montessori curriculum with the structure and schedules of a traditional school. In an ideal Montessori classroom, for example, students would have an uninterrupted three-hour block to work on their core lessons, but that isn’t always possible in a school where many factors determine when students can have lunch, go to recess or take art and music classes.

Freestanding Montessori schools could avoid some of those problems — and potentially offer some advantages.

“We could do after-school programs that were Montessori-specific,” said Yolanda King, who has a son in the program at Spain Elementary and a younger child she hopes to enroll next year. Special classes like art, music and gym “could be more aligned to Montessori” in a freestanding school, she said, suggesting “yoga programs and whole food programs.”

Turner, the Montessori program director, declined to comment about the possible changes but an email she sent to parents this month indicates they were fairly divided about the prospect of freestanding schools.

Nearly half — 48 percent — said they preferred keeping Montessori classrooms in their current schools while 37 percent liked the idea of a Montessori school. About 15 percent did not indicate a preference.

Dan Yowell is among parents who’ve raised concerns that freestanding schools might feel removed from the rest of the district.

“We liked the fact that [Montessori] is accessible to people all over the city,” said Yowell, whose son is in the program at Spain.

A freestanding Montessori school “has a feeling that it’s more exclusive,” Yowell said. “I don’t want it to be perceived as something that only certain people can access.”  

Spain, in Detroit’s midtown neighborhood, is one of two schools with Montessori classrooms that has enough space to dramatically expand the program. The other one is the Palmer Park Academy, which is in northwest Detroit.

open questions

Segregation, struggling schools, ‘a larger vision’: What Councilman Mark Treyger is watching as NYC gets a new schools chief

PHOTO: Christina Veiga
City Councilman Mark Treyger is chair of the council's education committee.

As Mayor Bill de Blasio prepares to choose a new leader for the nation’s largest school system, no one is watching that decision more closely than Mark Treyger.

Treyger, a former history teacher who was recently named chairman of the city council’s education committee, will be responsible for holding the new schools chief accountable. In that role, the Brooklyn Democrat plans to support many of the de Blasio initiatives that the next chancellor will carry out — from expanded preschool to more social services in schools.

But Treyger also has some tough questions for the mayor and his yet-to-be-named schools chief. How do they plan to reduce school segregation? What is the mayor’s overarching vision for the school system? And must he choose the chancellor behind closed doors?

“I do believe that the best decisions are the ones where you involve critical stakeholders,” Treyger told Chalkbeat in a recent interview.

Below are some of the education issues that Treyger said he’ll be paying close attention to as de Blasio prepares to hand the reins of the school system over to a new chancellor.

1. What’s the larger vision for the school system?

Free pre-K has been de Blasio’s signature education accomplishment, but he’s also rolled out an assortment of lesser-known initiatives.

Many of them fall under the banner of “Equity and Excellence for All,” including efforts to make Advanced Placement classes available to all high-school students by 2021 and computer-science courses available to all students by 2025. Some critics have pointed out that many of those programs won’t be fully phased in until after de Blasio leaves. Others — including Treyger — wonder what they all add up to.

“It’s been a commendable beginning,” he said. “But I’m looking for a larger vision.”

On a practical level, Treyger also questioned whether the education department has laid the groundwork to roll out some of those initiatives. He said will work to make sure all schools have the infrastructure they need, such as reliable internet service and appropriate technology, to make sure they can offer courses like computer science.

“How can you have a conversation about computers,” he said, “when the lights don’t even work?”

2. Why not make the chancellor search public?

De Blasio has insisted that he won’t “crowdsource” the search for a new schools chief — despite calls for public input from a chorus of parents and experts.

Treyger thinks a compromise is possible: Let the mayor choose chancellor candidates, but then give the city council the power to vet the candidates during public hearings before signing off on the mayor’s pick.

“I believe that we should be open to moving towards a process where the city council has advise-and-consent power,” he said, adding that the legislature should consider altering the mayoral control law next year to give city lawmakers that power.

3. How serious is this administration about tackling school segregation?

School integration was not on de Blasio’s agenda when he came into office.

But after a grassroots movement of parents and educators called on the mayor to address the school system’s severe racial and socioeconomic segregation, he took some small steps in that direction. The education department released a “school diversity” plan last year, and has launched an integration-aimed admissions program at a few dozen schools and in one Manhattan district.

However, Treyger thinks the city can and must do more — including aligning school enrollment, zoning, and housing policies to work towards the same goal of integration.

“If we’re serious about addressing [segregation], we have to know the difference between managing the problem and actually solving it,” he said. “I think that we’ve seen, thus far, more management than actually solving.”

4. What’s next for the Renewal program?

The mayor’s $582 million “Renewal” program for struggling schools is at a crossroads.

De Blasio made a big bet that his administration could quickly rehabilitate 94 low-performing schools by giving them extra social services and academic support. But the program has achieved mixed results, and now the education department is planning to shutter eight Renewal schools next year — part of the largest round of school closures under de Blasio.

Meanwhile, another 21 schools that officials say have made significant progress will slowly transition out of the program.

Treyger’s first oversight hearing as education chairman, set for next week, will focus on the program. He has spent the last few weeks visiting schools in the program and says he wants to understand what the city’s future plans are for supporting those schools. And he wants to be sure that if struggling schools improve enough to leave the program, their extra support won’t suddenly be cut. (The education department has committed to maintaining the full budget allocation they receive through the city’s funding formula and extra social services for the 21 schools that are improving enough to leave the program.)

“We will not be happy,” he said, “if we learn that a school that is improving or turning things around — that its reward is a funding cut.”