THE TAX-CREDIT SCHOLARSHIP AUDIT Do Publicly Funded Private School Choice Programs Save Money? Martin F. Lueken, Ph.D. ABOUT EDCHOICE EdChoice is a nonprofit, nonpartisan organization dedicated to advancing full and unencumbered educational choice as the best pathway to successful lives and a stronger society. EdChoice believes that families, not bureaucrats, are best equipped to make K–12 schooling decisions for their children. The organization works at the state level to educate diverse audiences, train advocates and engage policymakers on the benefits of high-quality school choice programs. EdChoice is the intellectual legacy of Milton and Rose D. Friedman, who founded the organization in 1996 as the Friedman Foundation for Educational Choice. We are grateful for the generous financial support of the Walton Family Foundation, which made this project possible. OCTOBER 2016 THE TAX-CREDIT SCHOLARSHIP AUDIT Do Publicly Funded Private School Choice Programs Save Money? Martin F. Lueken, Ph.D. TABLE OF CONTENTS Executive Summary ........................................................................................................................................ 1 Introduction ..................................................................................................................................................... 7 What Are Tax-Credit Scholarships? ...................................................................................................... 7 Previous Work on the Fiscal Effects of School Choice .......................................................................8 Tax-Credit Scholarship Programs Under Analysis ........................................................................... 10 Tax-Credit Scholarship Program Participation .................................................................................11 Measuring the Fiscal Impact of Tax-Credit Scholarship Programs ............................................. 13 Formal Treatment for Measuring the Fiscal Impact ....................................................................... 14 Where Do Fiscal Savings from Scholarship Programs Go? ............................................................. 15 Savings to Federal Governments ................................................................................................... 16 Savings to State Governments ........................................................................................................ 16 Savings to Public School Districts .................................................................................................. 16 Overall Results .......................................................................................................................................... 17 Tax-Credit Scholarship Program Profiles ................................................................................................ 22 Arizona Original Individual Income Tax Credit Scholarship Program .......................................23 Arizona Low-Income Corporate Income Tax Credit Scholarship Program ...............................27 Arizona Lexie's Law for Disabled and Displaced Students Tax Credit Scholarship Program ............................................................................................................................... 31 Arizona "Switcher" Individual Income Tax Credit Scholarship Program ...................................35 Florida Tax Credit Scholarship Program ............................................................................................39 Georgia Qualified Education Expense Tax Credit ............................................................................43 Indiana School Scholarship Tax Credit ...............................................................................................47 Iowa School Tuition Organization Tax Credit ................................................................................... 51 Pennsylvania Educational Improvement Tax Credit Program......................................................55 Rhode Island Tax Credits for Contributions to Scholarship Organizations ...............................59 Appendix 1: Scholarships Awarded in Tax-Credit Scholarship Programs ........................................63 Appendix 2: Surveying Scholarship Organizations ................................................................................65 Appendix 3: Considerations and Complicating Factors........................................................................66 Appendix 4: Tax-Credit Scholarship Program Tax Credit Caps..........................................................67 Appendix 5: Sources for Table 5 and Tables and Figures in Tax-Credit Scholarship Program Profiles.....................................................................................................................68 Notes ............................................................................................................................................................... 69 About the Author ...........................................................................................................................................73 Acknowledgments ......................................................................................................................................... 74 LIST OF FIGURES Figure 1: Scholarships Awarded in Tax Credit Scholarship Programs SY 1997–98 to SY 2013–14 .........................................................................................................11 Figure 2: Scholarships Awarded in Tax Credit Scholarship Programs During First Five Years in Operation .................................................................................................. 12 Figure 3: Savings from Tax Credit Programs, SY 1997–98 to SY 2013–14 ...................................... 18 Figure 4: Arizona Original Individual Income Tax Credit Scholarship Program - Net Savings Per Student .......................................................................................24 Figure 5: Arizona Low-Income Coporate Income Tax Credit Scholarship Program - Net Savings Per Student .......................................................................................28 Figure 6: Arizona Lexie's Law for Disabled and Displaced Students Tax Credit Scholarship Program - Net Savings Per Student ................................................................32 Figure 7: Arizona "Switcher" Individual Income Tax Credit Scholarship Program - Net Savings Per Student .......................................................................................36 Figure 8: Florida Tax Credit Scholarship Program - Net Savings Per Student ............................ 40 Figure 9: Georgia Qualified Education Tax Credit - Net Savings Per Student .............................. 44 Figure 10: Indiana School Scholarship Tax Credit - Net Savings Per Student ...............................48 Figure 11: Iowa School Tuition Organization Tax Credit - Net Savings Per Student ....................52 Figure 12: Pennsylvania Educational Improvement Tax Credit Program - Net Savings Per Student ......................................................................................56 Figure 13: Rhode Island Tax Credits for Contributions to Scholarship Organizations - Net Savings Per Student ........................................................................... 60 LIST OF TABLES Table 1: Cumulative Savings for Nine Tax-Credit Scholarship Programs from Inception through 2013–2014 ........................................................................................... 1 Table 2: Annual Savings for Nine Tax-Credit Scholarship Programs from Inception through 2013–2014 .....................................................................................................2 Table 3: Percent of Students Who Must Switch from Public Schools for Program to Achieve Fiscal Neutrality ....................................................................................................... 3 Table 4: Cumulative Savings for Nine Tax Credit Scholarship Programs from Inception through 2013–14 ............................................................................................. 19 Table 5: Total Tax Support as a Percent of State's Total K–12 Educational Costs, SY 2013–14 ....................................................................................................................... 20 Table 6: Arizona Original Individual Income Tax Credit Scholarship Program - Overall Fiscal Effect ................................................................................................ 25 Table 7: Arizona Low-Income Corporate Income Tax Credit Scholarship Program - Overall Fiscal Effect .................................................................................................29 Table 8: Arizona Lexie's Law for Disabled and Displaced Students Tax Credit Scholarship Program - Overall Fiscal Effect .......................................................................... 33 Table 9: Arizona "Switcher" Individual Income Tax Credit Scholarship Program - Overall Fiscal Effect .................................................................................................37 Table 10: Florida Tax Credit Scholarship Program - Overall Fiscal Effect ...................................... 41 Table 11: Georgia Qualified Education Tax Credit - Overall Fiscal Effect ........................................45 Table 12: Indiana School Scholarship Tax Credit