A Scholarship Tax Credit Program for Colorado

IP-2-2013 | Revised December 2014

institute.org

by Benjamin DeGrow Senior Education Policy Analyst, Independence Institute A Scholarship Tax Credit Program for Colorado Revised December 2014

Executive Summary businesses that contribute to qualified Scholarship tax credits increase the op- nonprofit organizations that provide schol- portunity for K-12 students to access arships for K-12 non-public school tuition, non-public educational options. Such tax as follows: code modifications increase the incentive • All children from families with for persons and businesses to contribute incomes at or below 300 percent of funds to qualified nonprofit scholar- By harnessing federal poverty level should be eligible ship-granting organizations. In turn, the the power for a scholarship. organizations use most of the incoming of voluntary funds to assist low- and middle-income • To promote cost savings, scholarship contributions, families with private school tuition expens- eligibility during the program’s first es. three years further should be limited a scholarship to students previously enrolled in pub- tax credit Currently, 14 states operate a total of 17 lic school, incoming kindergarteners different scholarship tax credit programs. program could or 1st graders, new state residents, and No two programs are alike, with different open the doors students already receiving a tuition criteria for student eligibility, scholarship scholarship. of learning sizes, limits on the size or value of tax opportunity credits, and requirements for scholarship • The average scholarship amount organizations. Though research has been issued by a participating nonprofit or- for thousands limited, strong evidence exists that such ganization should be set at 50 percent of Colorado programs yield academic and compet- of state average Per Pupil Revenue students with itive benefits, generate a positive fiscal ($7,023 in fiscal year 2014-15). no negative impact on the state, and improve parental satisfaction. State and federal courts have • The program ideally should operate fiscal impact on without a total annual program cap. If consistently upheld scholarship tax credit the state. programs. a reasonably sized cap is implement- ed, it should include a mechanism for Colorado is in need of a scholarship tax automatic annual cap increases. credit program. Important measures of • The program should limit credits for achievement and attainment, especially individual contributions to a taxpay- among disadvantaged groups, contin- er’s total liability. ue to lag behind expectations. Even the highest-performing schools do not serve • Participating nonprofit organizations every student well. Parents should be em- must abide by basic financial account- powered to choose different educational ability standards and must disburse settings that serve their children’s needs. at least 90 percent of their funds as scholarships, though the General As- By harnessing the power of voluntary sembly also could consider a relaxed contributions, a scholarship tax credit standard for startup organizations. program could open the doors of learning opportunity for thousands of Colorado • Using one of a selection of nationally students with no negative fiscal impact on norm-referenced tests, participating the state. A model program would provide private schools would report scholar- dollar-for-dollar tax credits to persons and

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ship students’ academic progress to an income by $1,000 to $99,000, and his 5 independent research organization for percent tax bill to $4,950. A 100% tax credit a publicly reported annual program on his donation would reduce his tax bill by evaluation. $1,000 to $4,000.

Colorado policymakers should give careful Offering a tax credit rather than a deduc- The ultimate consideration to providing an important tion strengthens the incentive to give to benefit to many of the state’s families organizations that administer and grant beneficiary through the adoption of scholarship tax scholarships to K-12 students. In fact, new of the policy credits. organizations may well emerge to help fill change is the the demand for tuition scholarships. With What Is a Scholarship Tax student who more funds available, the opportunity Credit Program? exists to serve more students. receives one Scholarship tax credits enhance education- of the greater al choice through use of the state tax code. The ultimate beneficiary of the policy Persons or businesses receive significant change is the student who receives one of number of tax benefits for making contributions to the greater number of available scholar- available nonprofit groups that provide scholarships ships. Typically, the scholarship amount scholarships. to K-12 students, assisting families with covers a significant portion of total tuition private school tuition expenses. States that costs. Many families of limited means thus have adopted such programs now offer are enabled to afford a non-public educa- more learning opportunities for eligible tion they choose to fulfill their children’s students. Many of these states’ existing potential. A new school setting may be programs further preserve more dollars desired for stronger academics, a safer en- for each student who stays enrolled in the vironment, values that better resonate with public system. parents, or many other reasons.

In its basic form, a scholarship tax credit Example: The Jones Family cannot afford program provides a benefit to students to send daughter Alicia and son Alex to a and families by changing how state reve- private school that would better serve their nue collectors recognize charitable giving needs. Mr. and Mrs. Jones both work to to qualified groups. Under current law, a make ends meet. Annual tuition for two person or business that donates money to students is $10,000. With each student a K-12 tuition scholarship organization re- receiving a $3,000 scholarship from ABC ceives a tax deduction, or a decrease in the Scholarships, the school bill is cut by more amount of his income subject to taxation. than half, and the family can exercise an Under a tax credit program, the amount of educational choice previously unavailable. tax dollars owed to the state is directly re- duced according to the donation amount. History In 1997 Arizona became the first state to Example: With $100,000 in annual taxable enact a scholarship tax credit program. income, John Smith pays 5 percent in state As of today, 14 states have established 17 income taxes, or $5,000. He makes a $1,000 different programs (see table 1). Nearly donation to ABC Scholarships. The currently half have been adopted since 2011, four of offered tax deduction reduces his taxable them in 2012 alone. Texas and New York

IndependenceInstitute.org 2 A Scholarship Tax Credit Program for Colorado Revised December 2014 are among the other states where legisla- tors and other key state leaders recently have considered the adoption of scholar- ship tax credits.1

Table 1. K-12 Scholarship Tax Credit Programs, By Year Enacted State Program Year Enacted Arizona Personal Credit for School Tuition Organizations 1997 Florida Tax Credit Scholarship Program 2001 Pennsylvania Educational Improvement Tax Credit Program 2001 Arizona Corporate Credit for School Tuition Organizations 2006 Iowa School Tuition Organization Tax Credit 2006 Rhode Island Tax Credits for Contributions to Scholarship Organizations 2006 Georgia Private School Tax Credit for Donations to Student Scholarship 2008 Organizations Arizona Disabled/Displaced Pupils Corporate Tax Credit Program 2009 Indiana School Scholarship Tax Credit 2009 Oklahoma Equal Opportunity Education Scholarships 2011 Louisiana Tax Credit for Donations to School Tuition Organizations 2012 New Hampshire Corporate Education Tax Credit 2012 Pennsylvania Educational Opportunity Scholarship Tax Credit 2012 Virginia Education Improvement Scholarships Tax Credits 2012 Alabama School Choice Scholarships 2013 South Carolina Educational Credit for Exceptional Needs Children 2013 Kansas Tax Credit for Low Income Students Scholarship Program 2014 Source: Friedman Foundation for Educational Choice, http://edchoice.org

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No two scholarship tax credit programs differ. Voucher funds pass through govern- are exactly alike. Variations include not ment coffers, have a mixed record in the only how much of a contribution qualifies state courts, and are associated with more for a credit, but also which students are el- regulatory burdens on private schools.5 By igible to receive a scholarship. Many states contrast, tax credit programs utilize private cap the annual amount of tax credits for in- funds and have been consistently upheld ...tax credit dividual contributors or for total contribu- in court at both the state and federal level. programs tions statewide. Maximum tuition schol- arship amounts often are set, while some A 2009 Arizona Supreme Court decision utilize private programs place guidelines and reporting shut down a voucher program designed funds and requirements on scholarship-granting to serve special-needs students, while ex- have been organizations in order to participate. Some plicitly stating that a tax credit mechanism would survive scrutiny.6 Lawmakers quick- consistently states include public reporting of student results for program accountability. ly amended “Lexie’s Law” to meet the upheld in court’s concern. In a case stemming from a court at both Benefits of Scholarship Tax different Arizona choice program, the U.S. Supreme Court ruled two years later that the state and Credits Though little high-quality research on the state residents have no standing to chal- federal level. student and school impacts from scholar- lenge the constitutionality of a tax credit ship tax credits has been done, the results program because they utilize private, not consistently have been positive. Led by public funds.7 Northwestern University economist David Figlio, two major analyses of Florida’s Tax Research also has confirmed that the Credit Scholarship Program present key nation’s three oldest scholarship tax credit evidence for consideration. First, multiple programs all have resulted in significant years of test scores have shown “mod- savings to state budgets. Two of the three estly but consistently positive” math and states (Arizona and Florida) spend less reading achievement gains for thousands per pupil on K-12 education than Colora- of participating low-income students.2 Sec- do does. In all cases, average scholarship ond, the program demonstrated competi- amounts remain far less than public school tive benefits by yielding similar gains from per pupil expenditures. Spending reduc- public schools. The closer a private school tions thus substantially outweigh revenue that could accept a scholarship student, as that state treasuries have forgone due to well as the greater the number or diversity tax credits. Consider the following: of surrounding private schools, the more • A 2009 independent economic pronounced a public school’s academic analysis of Arizona’s Personal Credit .3 improvement estimated K-12 public expenditures The academic benefits of scholarship fell anywhere from $99.8 to $241.5 tax credits align closely with the broader million per year as students switched body of gold-standard research findings to private schools, while the state only 8 on vouchers.4 Indeed, both vouchers and lost $55.3 million in tax revenue. The scholarship tax credits offer greater choice wide range of the estimate is based in in the private educational sector. Yet the trying to determine whether students two types of programs fundamentally would have enrolled in non-public

IndependenceInstitute.org 4 A Scholarship Tax Credit Program for Colorado Revised December 2014

school without scholarship aid provid- said they were “very satisfied.”13 ed by tax benefits. Finally, scholarship tax credits garner • In 2010, Florida legislative research significantly greater support in scientific staff identified $118.4 million in opinion polling than do private school education spending reductions com- vouchers or even public charter schools. pared to $82.2 million in tax revenue A 2014 national survey found 60 percent ...60 percent forgone, resulting in a $36.2 million of Americans favor, and only 26 percent of registered net benefit to taxpayers.9 By law, all oppose, “a tax credit for individual and students in the program are low-in- corporate donations that pay for schol- Colorado come and have to transfer from a arships to help low-income parents send voters favored public school, unless they are entering their children to private schools.” As in scholarship tax kindergarten. previous editions of the annual survey, public support for scholarship tax credits credits. • A 2011 Commonwealth Foundation exceeds support both for charter schools analysis of Pennsylvania’s Educational and for vouchers.14 A September 2014 Improvement Tax Credit program re- Magellan Strategies survey conducted for corded $512 million in annual spend- the Independence Institute found that ing reductions versus $40 million in 60 percent of registered Colorado voters lost tax revenue. While the report favored scholarship tax credits. Support did not distinguish students who was highest among Hispanics and low- to would have attended private school middle-income ($50,000 per year or less) anyway, the average scholarship size voters.15 and number of low-income students served suggest a substantial annual net Colorado Students Need More 10 savings. Opportunities Despite a number of education reforms Both Florida and New Hampshire have that have been enacted and implemented systematically measured parental satisfac- in Colorado, the potential of far too many tion with their respective programs. More students is being lost. Achievement scores, than 95 percent of Florida scholarship as measured by a battery of state tests, parents rated their child’s new school as have registered progress in some areas but “excellent” or “good” on an official state still fall short of desired outcomes. On the survey.11 A 2009 poll sponsored by the critical benchmark of third grade read- Friedman Foundation for Educational ing, more than one in four students are Choice found similarly overwhelming lev- not reading proficiently. Roughly half of els of satisfaction. The numbers of parents eighth-graders do not perform proficiently “very satisfied” with various aspects of the in math or writing.16 new private schools were 10 to 20 times greater than those who reported satisfac- Though the on-time graduation rate for tion with the old public school.12 Of the Colorado students has climbed in recent mostly low-income families that received years to 76.9 percent, the state still places a scholarship during the New Hampshire among the lowest third in the nation. Re- program’s first year, 97 percent reported sults are even worse for students who are satisfaction, including 89.5 percent who Black or African American (70 percent),

IndependenceInstitute.org 5 A Scholarship Tax Credit Program for Colorado Revised December 2014

Hispanic / Latino (65 percent), or Eco- Student Eligibility and Scholarship 17 nomically Disadvantaged (64 percent). Size Among students who do graduate high Tax credit scholarships primarily should be school, the need for extra academic help at available to families with the least financial college remains high. During the 2012-13 means, but not made so restrictive as to ex- school year, more than one in three Colo- clude others who cannot reasonably afford Tax credit rado public high school graduates enrolled private school tuition. Ideally, students scholarships at Colorado two-year or four-year postsec- from low- or middle-income households ondary institutions needed remediation in that are already eligible for enrollment in primarily reading, writing, or math.18 Colorado public K-12 schools should be should be likewise able to receive a scholarship for available to Nonetheless, even high-performing non-public school tuition. Scholarships schools and districts are unable to serve all families with should be extended to families earning as students most effectively. Parents are best much as 300 percent of the federal poverty the least situated to determine the individual needs rate, currently $59,370 a year for a family and abilities of their children. Expanded financial of three.20 That figure nearly matches Colo- scholarship assistance could open doors means, but rado’s reported median household income for families with one or more children who not made so of $58,443, which means roughly half of are not being adequately served in their families—the least affluent—would be restrictive as to current learning environment. eligible to receive the benefit.21 exclude others Several nonprofit K-12 scholarship orga- Additionally, to promote fiscal savings who cannot nizations operate in Colorado, but their at the state level, the benefit should be reasonably financial capacity to serve families is ex- phased in for the first two or three years to afford private ceeded by the demand for private educa- include only current public school stu- tional options. In fact, existing institutions dents and incoming kindergarteners before school tuition. still have a significant amount of space to ending the “switcher” requirement.22 Ten serve more students. Cumulatively, the of the 17 existing scholarship tax credit 142 Colorado private schools that current- programs incorporate some sort of “pri- ly partner with the state’s largest scholar- or public” requirement on scholarship ship-granting organization (SGO) report recipients. Even without the requirement, running at 73 percent of capacity, with a Arizona and Pennsylvania have shown 19 total of 10,500 open seats. evidence of substantial savings.

A Scholarship Tax Credit Pro- Second, while means testing should not gram for Colorado restrict student access, two states have In adopting a scholarship tax credit pro- established quotas of low-income schol- gram, Colorado should embrace a policy arship recipients. New Hampshire’s law that maximizes learning opportunities and allows families up to 300 percent of the provides direct accountability to program poverty line to benefit, but requires at least beneficiaries, while also affording fiscal 40 percent of scholarships support stu- benefits to the state and local education dents from families eligible for the federal agencies. Parental choice, student equity, free and reduced lunch (FRL) program.23 and procedural transparency should be Florida limits scholarship eligibility to guiding principles.

IndependenceInstitute.org 6 A Scholarship Tax Credit Program for Colorado Revised December 2014

FRL students. Starting in 2016-17, though, (PPR)’s state share.25 Similarly, Colorado those same students will be granted priori- could cap the average scholarship amount ty, as families up to 260 percent of poverty at 50 percent of state average PPR. In also become eligible. 2014-15, the state’s average PPR is $7,026, which would effectively cap an SGO’s an- Virginia exempts special needs students nual average scholarship size at $3,513.26 from family means testing to receive one Nine of the 14 of the state’s newly-enacted Education For more on student eligibility in existing states with Improvement Scholarships Tax Credits. scholarship tax credit programs, see Ap- South Carolina’s 2013 program is limited pendix A (p. 11). scholarship tax to special needs students regardless of credit programs Setting Boundaries: Tax Credit family income. One of Arizona’s three make the benefit scholarship tax credit programs exclusively Amounts and Program Caps benefits students who have an Individual Nine of the 14 states with scholarship tax available both Education Plan or are served by the state’s credit programs make the benefit available for personal both for personal and corporate income foster care system. Other programs are and corporate aimed exclusively at—or give priority taxes, an approach Colorado should follow. income taxes, to—students who attend schools deemed In the other five states, including Pennsyl- to be failing by the state’s accountability vania, Rhode Island, and Kansas, the credit an approach system.24 only applies to corporate taxes. Neither Colorado should Florida nor New Hampshire levies a per- follow. Most existing tax credit programs cap sonal income tax. scholarship size, usually at full tuition value or at some amount that approximates Typically, a state can limit the scope of average non-public school tuition. Only scholarship tax credit programs in three in Florida does the average scholarship ways: amount distributed even approach this 1. Establish a total program cap that value. K-12 scholarships granted through limits the amount of tax credits that many non-profit organizations typically can be offered statewide in a given cover less than full tuition value to ensure year, creating an artificial barrier to families have some direct investment in the program demand; education decision. New Hampshire also has adopted a model policy worth pursu- 2. Lower the tax credit value so only a ing. The limitation onaverage scholarship portion of the scholarship donation size, rather than on individual scholarship is written off the tax bill, reducing size, provides greater flexibility to assist the incentive for taxpayers to make in different situations while retaining the donations; or fiscal benefit. 3. Limit the size of the tax credit a The experience of other states offers no -ev person or business can receive each idence to suggest this trend would change year in real dollars or as a share of tax under a tax credit program. Louisiana liability. indexes the maximum scholarship amount Establishing a total program cap would not to 80 percent (K-8 schools) or 90 per- be ideal for Colorado. The approach could cent (high school) of Per Pupil Revenue

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limit the demand to fund or receive schol- Pennsylvania pledge to make consecutive arships, affecting certain regions or sectors years of contributions in order to receive unevenly. To be acceptable, though, any a 90 percent credit, as opposed to only 75 total program cap contemplated ought to percent for making a single year’s contri- escalate automatically to provide for future bution. Some programs provide weaker demand. If the cap is set too low, consumer incentives with values of 65 percent (Iowa ...any total demand will trigger an adjustment. Re- and Virginia) or even 50 percent (Indiana program cap quiring legislative authorization to increase and Oklahoma).31 available program dollars could needlessly contemplated thwart students’ attempts to access avail- Instead, Colorado should grant a dol- ought to able educational opportunities. lar-for-dollar tax credit to match the escalate amount of the individual or corporate Arizona’s 1997 personal tax credits and scholarship donation. Seven of the 17 automatically Louisiana’s newly-enacted scholarship tax programs—all three in Arizona, along with to provide for credits are the only two existing programs Florida, Georgia, Louisiana, and South future demand. that do not operate under a fixed cap of Carolina—provide the 100 percent credit total program contributions. All the mon- for all donations. Alabama’s program gives etary caps—even Florida’s sizable $357.8 full value for individual donations, but million ceiling—are less than (and most of only 50 percent for corporate. them significantly so) 2 percent of annual state tax revenues for K-12 public educa- Of the three ways to limit the scope of a tion.27 Colorado scholarship tax credit program, the last is the most acceptable. Limiting Four states use an “escalator” approach the amount of tax credit by itself neither that allows the total program cap to grow restrains the number of contributors nor without additional legislative action. The weakens the incentive to participate by cap of Arizona’s corporate credit grows adding a “cost” to giving. Fully half of the generously each year by 20 percent. On existing programs place a hard limit on the other end of the spectrum, Georgia’s how much an individual or business can cap increases automatically each year until donate and still receive the tax write-off.32 2018 based on inflationary values in the Consumer Price Index.28 This model has To treat taxpayers more equitably, individ- not kept pace with demand, and has been ual tax credit limits would be better set as reported to adversely affect students.29 An a share of income tax liability. Corporate acceptable alternative can be found in two contributors to Georgia’s Private School other states. Once a contribution thresh- Tax Credit can give no more than 75 old is reached in New Hampshire (80 percent of their total liability in a given percent) or Florida (90 percent), the cap year. Even smaller limits apply in the newer is triggered to rise by 25 percent for the South Carolina (60 percent) and Alabama 33 following year.30 (50 percent) programs. Still, Colorado should seek to allow both personal and Lowering the value of the tax credit, corporate donors the opportunity to earn instead of establishing a total program cap, tax credits up to the full amount of the is equally unappealing to a model Colo- tax owed. Thus, an individual who owes rado program. Most corporate donors in $5,000 in taxes to the State of Colorado

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then could write off up to $5,000 in dona- temporarily lowering the disbursement tions to an eligible scholarship organiza- requirement to 80 percent. tion. Persons or businesses with higher tax burdens could make larger donations. To protect contributors and recipients, scholarship organizations should demon- For more on design features of existing tax strate financial viability, report basic credit scholarship programs, see Appendix information regarding contributions, and ...an individual B (p. 14). conduct employee background checks to who owes prevent inappropriate use of funds. Pri- Scholarship-Granting Organizations vate schools likewise ought to continue in $5,000 in taxes Policy changes should create minimal compliance with existing state and federal to the State of interference with the operations of schol- requirements, including basic health and Colorado then arship-granting organizations (SGOs) safety codes. except to ensure that funds are effectively could write off and transparently serving student needs. However, policymakers should avoid up to $5,000 SGOs ought to have recognized nonprofit imposing excessive regulations in order to in donations status and offer scholarships to more than help ensure schools and scholarship orga- one qualified private school. They would nizations are directed to serve students’ to an eligible be authorized to continue underwriting genuine needs rather than bureaucratic scholarship tuition payments that directly benefit par- priorities. Based on the experience of other organization. ticipating students. states with scholarship tax credits, such a program in Colorado likely would foster an Generally speaking, most tax credit expanded number of diverse organizations programs require participating SGOs to available to connect families to sought-af- “disburse at least 90 percent of their funds ter educational services. Organizations 34 in the form of scholarships.” Pennsylvania may specialize in serving students based more leniently allows the organizations to on income, region, or special learning spend as much as 20 percent of their bud- needs.37 gets on administrative costs, while Florida (3 percent) and Virginia (5 percent) have Testing and Accountability more stringent requirements.35 An infor- The requirement for participating schools mal survey of 44 Pennsylvania scholarship to regularly report a scholarship student’s organizations found that 27 were satisfied performance to parents provides the most with the 80 percent disbursement require- essential and fundamental form of ac- ment, while 13 respondents favored a countability. However, public reporting of more stringent mandate. academic results can immunize a scholar- ship program from attack. Unfair criticisms Among 60 organizations surveyed in five of publicly enacted programs tend to gain different tax credit states, the “average more credence in an environment where 36 disbursement rate was 92 percent.” A 90 no data exists to refute the challenge. percent requirement thus should be suit- Regardless, policymakers should take care able for existing Colorado organizations. to balance private school independence Yet policymakers could provide an excep- and flexibility with demands for academic tion for new organizations that incur more transparency.38 overhead expenses during a startup phase,

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New Hampshire requires SGOs to conduct Conclusion and report annual parent surveys. Seven of In recent years, Colorado policymakers the 14 tax credit states further mandate an- have initiated reforms to deepen academic nual administration and public reporting standards, to raise the bar of accountabili- of student academic assessments. Appro- ty, and to improve educator effectiveness. priately, four of the seven states mandate Yet despite pockets of improvement and Most private testing for scholarship students only.39 Ap- signs of modest progress, a significant schools already pendix C (p. 16) includes a full break- number of K-12 students are not reaching down of accountability features in other administer their full potential. states’ scholarship tax credit programs. some kind The track record of established scholarship of nationally Only Louisiana’s relatively small program tax credit programs indicates many of the insists upon state assessments for scholar- promised benefits of this approach. The norm- ship recipients. The other five states allow recent addition of many new programs referenced test, students to be tested on one of a selection further helps show the way to expanding making the of approved nationally norm-referenced educational freedom and opportunity in tests. Of the five states, three (Alabama, approach less a highly cost-effective way. The time has Indiana, and Virginia) have to report come for Colorado leaders to consider disruptive... results of academic progress to a state carefully the adoption of tax credit schol- agency, while South Carolina requires a arships. report to the legislative Education Over- sight Committee.40 Most private schools Acknowledgments already administer some kind of nationally Education policy analyst Ross Izard norm-referenced test, making the ap- provided invaluable research assistance in proach less disruptive to students’ needed updating this report. Special appreciation instructional time and to the schools’ exist- also goes to Jason Bedrick and Andrew ing operations. Coulson of the Cato Institute for review- ing the original 2013 draft of this publica- Florida offers a unique approach that tion and providing advice and constructive ought to appeal to Colorado’s deepest pro- feedback. ponents of school accountability while also respecting private school autonomy. Using the nationally norm-referenced test of their preference, Florida schools compile and report scholarship tax credit students’ results to a state-designated independent research organization (IRO). The IRO analyzes the data and publishes an annual program evaluation for the state legislature to review. The evaluation details partici- pation rates for different tests, as well as scholarship students’ overall achievement rankings compared to others in the nation- al testing sample.41

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Appendix A: Eligibility in Existing Scholarship Tax Credit Programs Private School Public Com- Student Eligibility Eligibility ponent OR Special Prior OR New OR Accred- Means- Needs Public 1st OR Prior Resi- Military OR Home Failing itation State Program Tested Only (or K) Grade Schol. dent Depend. school school Required Description AL School 150% No Yes for N/A N/A N/A No N/A Yes Yes OR N/A Choice Median, 75% meet state Scholar- locally of total require- ships varying state ments percent- funds age of low-in- come AZ Personal No No No N/A N/A N/A N/A N/A No No Extracurricular STO activities and Credit character education programs (including parent fees, no max) AZ Cor- 185% No Yes No Yes No Yes No No No N/A porate Red. (90 STO Lunch days) Credit AZ Disabled No IEP Yes No No No Yes No No No N/A / Dis- (IDEA) placed / Foster Pupils care STO Credit (“Lexie’s Law”) FL Tax FRL OR Yes Yes N/A No No No No No Scholarships Credit (2016- Foster for attending Scholar- 17: care public schools ship Priority outside of to 185% home district Poverty (transporta- or less, tion, $500 cannot max) exceed 260%) GA Qualified No No Yes Yes No No No No No Yes OR N/A Edu- (6 wks) in the cation process Expense of being Tax accredited Credit (Individ- ual)

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Appendix A: Eligibility in Existing Scholarship Tax Credit Programs Private School Public Com- Student Eligibility Eligibility ponent OR Special Prior OR New OR Accred- Means- Needs Public 1st OR Prior Resi- Military OR Home Failing itation State Program Tested Only (or K) Grade Schol. dent Depend. school school Required Description IN School 200% No No No Yes No No No No Yes N/A Scholar- FRL ship Tax Credit IA STO 300% No No N/A N/A N/A N/A N/A N/A Yes N/A Tax Poverty Credit KS Cor- 185% No Yes No Yes No No No Yes No N/A porate FRL (or Educa- special tion Tax needs) Credit Scholar- ship LA Tuition 250% No Yes No Yes No No No No No Separate pro- Dona- Poverty gram provides tion state-funded Rebate scholarships Program for low-income students in schools rated C-F NH Cor- 300% No Yes No Yes No No Yes No No Tuition for porate Poverty attending Educa- (at least public school tion Tax 40% to outside of Credit FRL) home district OK Equal 300% No No N/A N/A N/A N/A N/A Yes* Yes N/A Opportu- FRL* nity Ed- ucation Scholar- ships PA Educa- $75,000 No No N/A N/A N/A N/A N/A No No Full public tional house- component, Improve- hold in- loose guide- ment come** lines Tax Credit PA Educa- $75,000 No No N/A N/A N/A N/A N/A Yes*** No Tuition for tional house- attending Oppor- hold in- public school tunity come*** outside of Scholar- home district ship

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Appendix A: Eligibility in Existing Scholarship Tax Credit Programs Private School Public Com- Student Eligibility Eligibility ponent OR Special Prior OR New OR Accred- Means- Needs Public 1st OR Prior Resi- Military OR Home Failing itation State Program Tested Only (or K) Grade Schol. dent Depend. school school Required Description RI Tax 250% No No N/A N/A N/A N/A N/A No No N/A Credits FRL for Contri- butions to STOs SC Educa- No Yes Public N/A N/A N/A N/A N/A No No N/A tional school Credit must for not Excep- meet tional stu- Needs dent’s Children needs VA Edu- 300% OR Yes Yes Yes Yes No No No No***** N/A cation Pover- Yes**** Improve- ty**** ment Scholar- ships Legend: FRL: Free and Reduced Lunch federal eligibility guidelines Poverty: Federal Poverty Level (http://familiesusa.org/product/federal-poverty-guidelines) * Students who live in zone of failing school exempt from means testing; either income OR failing school designation needed ** For each additional child in the family the figure is raised $15,000 *** FRL students and those living in certain designated school districts are afforded priority; Child must live in low-achieving school zone, not necessarily attend school **** Special needs students, family cannot earn more than 400% of Poverty ***** Schools must conform to state accreditation law, which allows for private schools to be voluntarily accredited by a state-board approved process

Sources: Friedman Foundation for Educational Choice, http://www.edchoice.org/School-Choice/School-Choice-Programs.aspx The Foundation for Opportunity in Education, Education Tax Credit Programs: An Analysis of Provisions by State, http://bit.ly/1AhccAl Natl Conf of State Legislatures, http://www.ncsl.org/issues-research/educ/school-choice-scholarship-tax-credits.aspx

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Appendix B: Design Features of Existing Scholarship Tax Credit Programs Program Cap Tax Credit Carry Forward State Program Amount Growth Cap Value Time Scholarship Cap AL School Choice $25,000,000 Fixed Personal: 50% 100% 3 years Full tuition Scholarships of liability or individual, 50% $7,500; Corpo- corporate rate: 50% of liability AZ Personal STO None N/A $528 ($1,056 100% 5 years None Credit married), plus switcher credit $514 ($1,028 married) AZ Corporate STO $42,998,170 in total Automatic 20% None 100% 5 years $4,900 (K-8); Credit aggregate credits increase in ag- $6,200 (HS) gregate credits allowed/year AZ Disabled / Dis- $5,000,000 Fixed None 100% 5 years Lesser of full tuition placed Pupils or 90% of state pu- STO Credit pil formula funding (“Lexie’s Law”) FL Tax Credit $357,812,500 Escalator: 25% 100% of tax 100% 5 years Lesser of $5,272 or Scholarship rise if 90% liability full tuition reached GA Qualified Edu- $58,000,000 Escalator (CPI) Personal: 100% 5 years 100% avg state & cation Expense through 2018 $1,000 ($2,500 local expenditures Tax Credit married); per student ($8,983 Corporate: 75% in 2014) of tax liability IN School Scholar- $7,500,000 Fixed None 50% 9 years Full tuition ship Tax Cred IA STO Tax Credit $8,750,000 (corp. Fixed None 65% None Full tuition may not exceed 25% of total) KS Corporate $10,000,000 Fixed None 70% None unless lia- $8,000 (including Education Tax bility exceeded tuition, fees, trans- Credit Schol- portation) arship LA Tuition Dona- None N/A None 100% Rebate system, Lesser of full tuition tion Rebate donor deter- OR 80% (K-8) / Program mined 90% (HS) of state pupil formula funding NH Corporate $3,400,000 (Yr 1); Escalator: 25% No business 85% 10% of eligible Avg value: $2,500 Education Tax $5,100,000 (Yr 2) rise if 80% can receive contributions ($4,375 spec ed / Credit reached >10% total per year $625 homeschool) OK Equal Opportu- $3,500,000 ($1.75M Fixed $1,000 ($2,000 50% (75% 3 years if liabili- $5,000 ($25,000 nity Education ea. for personal & married); $100K 2 additional ty exceeded spec ed) OR 80% Scholarships corporate) business years) of state pupil formu- la funding

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Appendix B: Design Features of Existing Scholarship Tax Credit Programs Program Cap Tax Credit Carry Forward State Program Amount Growth Cap Value Time Scholarship Cap PA Educational $100,000,000 Fixed $750,000 75%; 90% None SGOs determine Improvement (2-yr) amounts Tax Credit PA Educational $50,000,000 Fixed $750,000 75%; 90% None $8,500 ($15,000 Opportunity (2-yr) spec ed) Scholarship RI Tax Credits for $1,500,000 Fixed $100,000 75%; 90% None None Contributions to (2-yr) STOs SC Educational $8,000,000 Fixed 60% of liability 100% None $10,000 Credit for Ex- ceptional Needs Children VA Education $25,000,000 Fixed $50,000 (individ 65% 5 years Lesser of full Improvement / married only); tuition or 100% of Scholarships $500 minimum* state pupil formula funding * Businesses can receive tax credit -- no limits apply

Sources: Friedman Foundation for Educational Choice, http://www.edchoice.org/School-Choice/School-Choice-Programs.aspx National Conference of State Legislatures, http://www.ncsl.org/issues-research/educ/school-choice-scholarship-tax-credits.aspx

IndependenceInstitute.org 15 A Scholarship Tax Credit Program for Colorado Revised December 2014

Appendix C: Testing and Accountability in Existing Scholarship Tax Credit Programs Testing Mandates Scholarship How Students Of- Reported to State Program Only Grades Type of Test ten? Whom? AL School Choice Scholarships Yes Aligned with State or National Annu- Parents; Dept. of state assess- Norm-Referenced ally Revenue ment system AZ Personal STO Credit NONE AZ Corporate STO Credit NONE AZ Disabled / Displaced Pupils STO Credit NONE (“Lexie’s Law”) FL Tax Credit Scholarship Yes (disabled 3 through 10 National Annu- Parents; Independent exemption) Norm-Referenced ally Research Org.(2014- (DOE) 15: FSU Learning System Institute) GA Qualified Education Expense Tax Credit NONE IN School Scholarship Tax Cred No Aligned with State (ISTEP) Annu- Dept. of Education state assess- Assessment ally ment system or National Norm-Referenced IA STO Tax Credit No Aligned with National Annu- Dept. of Education state assess- Norm-Referenced ally ment system (ITBS and ITED)* KS Corporate Education Tax Credit Scholar- NONE ship LA Tuition Donation Rebate Program Yes Aligned with State Assessment: Annu- Parents; Dept. of state assess- Math & English ally Education ment system Lang Arts NH Corporate Education Tax Credit NONE (Parent surveys required annually) OK Equal Opportunity Education Scholarships NONE PA Educational Improvement Tax Credit NONE PA Educational Opportunity Scholarship NONE RI Tax Credits for Contributions to STOs NONE SC Educational Credit for Exceptional Needs No Administered State or National Annu- Education Oversight Children “at progressive Norm-Referenced ally Committee grade levels” VA Education Improvement Scholarships Yes Not specified National Annu- Parents; Dept. of Norm-Referenced ally Education *Testing required for accreditation, not by Scholarship Tax Credit statute

Source: Friedman Foundation for Educational Choice, http://www.edchoice.org/School-Choice/School-Choice-Programs.aspx

IndependenceInstitute.org 16 A Scholarship Tax Credit Program for Colorado Revised December 2014

arizona-christian-school-tuition-organization-v-winn-garriott- Endnotes 1 Morgan Smith, “Patrick Presents Details of Tax Credit v-winn/. 8 Charles M. North, “Estimating the Savings to Arizona Scholarship Plan,” Texas Tribune, March 8, 2013, http:// www.texastribune.org/2013/03/08/senator-presents-details- Taxpayers of the Private School Tuition Tax Credit,” tax-credit-scholarship-pl/. Then-state senator Dan Patrick Center for Arizona Policy (2009), http://acsto.org/_media/ since has been elected to serve as lieutenant governor uploaded/e/0e1832055_estimating-the-savings.pdf. 9 of Texas. “Gov. Cuomo Reiterates Commitment to Deliver The Florida Legislature, Office of Program Policy Analysis Education Investment Tax Credit,” Invest in Education and Government Accountability, “Florida Tax Credit Blog, November 6, 2014, http://www.investined.org/blog/ Scholarship Program Fiscal Year 2008-09 Fiscal Impact,” gov.-cuomo-reiterates-commitment-to-deliver-education- Research Memorandum (March 1, 2010), http://www. investment-tax-credit (page accessed December 19, oppaga.state.fl.us/MonitorDocs/Reports/pdf/0868_1rpt.pdf. 10 2014). Andrew LeFevre, “A Decade of Success: Pennsylvania’s 2 David N. Figlio, “Evaluation of the Florida Tax Credit Educational Improvement Tax Credit,” Commonwealth Scholarship Program: Participation, Compliance and Test Institute Policy Brief 23, no. 8 (August 2011). Jason Scores, 2009-10,” report to the Florida Department of Bedrick, “Choosing to Learn: Scholarship Tax Credit Education (August 2011), http://www.floridaschoolchoice. Programs in the United States and Their Implications org/pdf/FTC_Research_2009-10_report.pdf. for New Hampshire,” Josiah Bartlett Center for Public 3 David N. Figlio and Cassandra Hart, “Competitive Effects Policy (March 21, 2012), p. 15, http://www.jbartlett.org/ of Means-Tested School Vouchers,” (April 2010), http:// schoolchoiceweek. 11 www.stanford.edu/group/irepp/cgi-bin/joomla/docman/ David N. Figlio, “Evaluation of the Florida Tax Credit figlio-irepp-presentation-paper-/download.html. The Scholarship Program: Participation, Compliance, Test researchers isolated the effects of competition created Scores and Parental Satisfaction,” University of Florida by scholarship tax credits from the threat of sanctions (June 2010). See also Bedrick, “Choosing to Learn,” p. 10. 12 under the state’s school accountability system. Effects Greg Forster and Christian D’Andrea, “An Empirical improving public school performance remained significant, Evaluation of the Florida Tax Credit Scholarship Program,” and stronger in the first year of the scholarship tax credit Friedman Foundation for Educational Choice (August program. 2009), http://www.edchoice.org/CMSModules/EdChoice/ 4 For a detailed summary of random-assignment study FileLibrary/383/FL%20Poll%200709.pdf. 13 findings of school voucher programs’ academic and Jason Bedrick, “Low-Income Parents Highly Satisfied with New Hampshire’s Scholarship Tax Credits,” competitive benefits, see Greg Forster,A Win-Win Solution: , March 7, 2014, http://educationnext. The Empirical Evidence on School Vouchers, Friedman Education Next Foundation for Educational Choice (March 2011), http:// org/low-income-parents-highly-satisfied-with-new- www.edchoice.org/Research/Reports/A-Win-Win-Solution-- hampshire%E2%80%99s-scholarship-tax-credits/. 14 The-Empirical-Evidence-on-School-Vouchers.aspx. Education Next / Program on Education Policy and 5 Andrew Coulson, “Do Vouchers and Tax Credits Increase Governance Survey 2014, http://educationnext.org/ Private School Regulation?” Cato Institute Working Paper files/2014ednextpoll.pdf. See also Michael B. Henderson, No. 1 (October 4, 2010), http://www.cato.org/sites/cato. Paul E. Peterson, and Martin R. West, “No Common org/files/pubs/pdf/WorkingPaper-1-Coulson.pdf; Andrew Opinion on the Common Core,” Education Next 15, no. 1 (Winter 2015): 8-19, http://educationnext.org/2014-ednext- D. Catt, Public Rules on Private Schools: Measuring the poll-no-common-opinion-on-the-common-core/. Regulatory Impact of State Statutes and School Choice 15 http://education.i2i.org/wp-content/uploads/2014/12/ Programs, Friedman Foundation for Educational Choice (May 2014), p. 46, Table 26, http://www.edchoice.org/ Colorado-Independence-Institute-School-Choice-Survey- CMSModules/EdChoice/FileLibrary/1056/Public-Rules-on- Presentation-091714-.pdf. 16 Private-Schools-Measuring-the-Regulatory-Impact-of-State- Colorado Department of Education, Unit of Student Statutes-and-School-Choice-Programs.pdf. Assessment, CSAP / TCAP Data and Results, http://www. cde.state.co.us/assessment/CoAssess-DataAndResults. 6 Cain v. Horne, 220 Ariz. 77, 202 P.3d 1178 (2009). asp. 7 Arizona Christian Sch. Tuition Org. v. Winn, 17 131 S. Ct. 1436, 179 L. Ed. 2d 523 (2011). See U.S. Department of Education, Ed Data Express, http:// also Supreme Court of the United States blog, eddataexpress.ed.gov. 18 http://www.scotusblog.com/case-files/cases/ Colorado Department of Higher Education, 2013 Legislative Report on Remedial Education (May 2014),

IndependenceInstitute.org 17 A Scholarship Tax Credit Program for Colorado Revised December 2014

http://highered.colorado.gov/Publications/Reports/ org/hundreds-lose-their-georgia-tax-credit- Remedial/FY2013/2013_Remedial_relmay14_rev071614. scholarships/#ryBHV. pdf. 30 Friedman Foundation for Educational Choice, School 19 ACE Scholarships, unpublished data (provided December Choice Programs. 10, 2014). 31 Ibid.; Bedrick, “Choosing to Learn,” p. 35. 20 U.S. Department of Health and Human Services, 2014 32 Friedman Foundation for Educational Choice, School Poverty Guidelines, http://aspe.hhs.gov/poverty/14poverty. Choice Programs. cfm (accessed December 9, 2014). The income thresholds 33 Ibid. increase incrementally with family size. For example, 300 34 Bedrick, “Choosing to Learn,” p. 32. percent of federal poverty level would be $71,550 for a 35 Ibid.; Friedman Foundation for Educational Choice, School family of four and $83,730 for a family of five. Choice Programs. 21 U.S. Census Bureau, American Community Survey data, 36 Bedrick, “Choosing to Learn,” pp. 32-33. http://www.census.gov/acs/www/. The average household 37 Ibid., p. 7. size in Colorado is around three people (2.42 for renter- 38 The Goldwater Institute’s Jonathan Butcher makes a occupied unit, 2.59 for an owner-occupied unit). compelling case in “Giving Arizona Children Better 22 Each student that switches from public school to private Opportunities in Education: A Case Study of the Nation’s school enrollment reduces state expenditures to a greater Oldest Tax Credit Scholarship Program,” Show-Me Institute extent than revenues are forgone to tax credits. The result Case Study No. 18 (March 2014), http://showmeinstitute. is a net savings in state funds. For more, see Benjamin org/document-repository/doc_download/463-giving- DeGrow, “K-12 Tuition Tax Credits,” in Citizens’ Budget: arizona-children-better-opportunities-in-education.html, pp. Road Map for Sustainable Government in Colorado, 10-11. Independence Institute Issue Paper 6-2010 (November 39 Among the seven states, Iowa requires test administration 2010), pp. 63-65, http://tax.i2i.org/files/2010/12/CB_K_12. and public reporting through its existing system of non- pdf. public school accreditation. Non-public schools in Iowa 23 Friedman Foundation for Educational Choice, New must be accredited in order to participate in the state’s Hampshire Corporate Education Tax Credit program scholarship tax credit program. See Iowa Admin. Code description, http://www.edchoice.org/School-Choice/ § 281-12.1 et seq. Information confirmed by Colleen Programs/Corporate-Education-Tax-Credit.aspx. Anderson, Iowa Department of Education, Bureau of 24 Friedman Foundation for Educational Choice, School Standards and Assessments, electronic mail to Ross Choice Programs, http://www.edchoice.org/School- Izard, Independence Institute education policy analyst, Choice/School-Choice-Programs.aspx. Pennsylvania and December 12, 2014. Louisiana have programs that focus on scholarships for 40 Friedman Foundation for Educational Choice, School students from failing schools. Choice Programs. 25 Ibid. 41 See compilation of annual program evaluations at http:// 26 PPR figures derived from Colorado Department of stepupforstudents.org/newsroom/independent-studies. Education, Public School Finance Data, http://www.cde. Fl. Rev. Stat. § 1002.395(9)(j) elaborates: “The report state.co.us/index_finance.htm. shall also include, to the extent possible, a comparison of 27 Revenue figures derived from Mark Dixon,Public Education scholarship students’ performance to the statewide student Finances: 2010, United States Census Bureau (June 2012), performance of public school students with socioeconomic p. 1, Table 1, “Summary of Public Elementary-Secondary backgrounds similar to those of students participating in School System Finances by State: 2009-2010,” http:// the scholarship program.” In 2014, the Florida General www2.census.gov/govs/school/10f33pub.pdf. Assembly approved changes to the public reporting 28 National Conference of State Legislatures, “Tuition Tax system, as follows: 1) Designated Florida State University’s Credits,” http://www.ncsl.org/issues-research/educ/school- Learning System Institute as the new independent research choice-scholarship-tax-credits.aspx (accessed January organization; and 2) Clarified that school-level testing 8, 2013); Friedman Foundation for Educational Choice, data be reported “for each participating private school in School Choice Programs. which at least 51 percent of the total enrolled students in 29 Mike Klein, “Hundreds Lose Their Georgia Tax Credit the private school participated in the Florida Tax Credit Scholarships,” Georgia Public Policy Foundation, Scholarship Program in the prior school year.” August 4, 2014, http://www.georgiapolicy.

IndependenceInstitute.org 18 Copyright ©2014, Independence Institute BENJAMIN DEGROW is Senior Policy Analyst for the Education Policy Center. He is the author of numerous INDEPENDENCE INSTITUTE is a non-profit, Issue Papers and Issue Backgrounders. non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) ADDITIONAL RESOURCES on this subject can be tax exemption from the IRS. Its public policy research found at: http://Education.i2i.org/ focuses on economic growth, education reform, local government effectiveness, and constitutional rights. NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence JON CALDARA is President of the Independence Institute or as an attempt to influence any election or Institute. legislative action.

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