Alabama’s School Choice Law Needs Improvement

Educational choice laws have the potential to expand educational opportunity and improve quality. However, design matters. Ideally, educational choice laws allow very wide participation and eschew technocratic regulations that can impede or even undermine their success.

Unfortunately, Alabama’s scholarship tax credit (STC) law is far from ideal.

Last week, the Alabama State Senate passed legislation making numerous changes to the state’s STC law. Yet while the legislation includes several improvements, the changes fail to address the law’s most serious flaws, and would further constrain what is already among the most limited private school choice laws in the nation.

Eligibility

Under the Alabama Accountability Act, low- and middle-income students who are zoned to attend a district school designated as “failing” are eligible to receive tax-credit scholarships from a nonprofit scholarship-granting organization (SGO). Sadly, while other states are seeking to expand eligibility, the Alabama Senate is seeking to further restrict it.

The legislation would lower the income eligibility level from 150 percent of Alabama’s median household income (about $65,000 for a family of four in 2014–15) to that of the federal free-and-reduced lunch program, which is 185 percent of the federal poverty line (about $44,000 for a family of four). It also eliminates the provision that allowed students to continue receiving scholarships if their parents’ income outgrew the eligibility guidelines, which could contribute to the poverty trap.

Even worse, rather than eliminate the problematic “failing schools” provision, the legislation would narrow the scope of what constitutes a “failing” school. The legislation would restrict tax-credit scholarships to students zoned to district schools scoring in the lowest 6 percent on the state standardized assessment in reading and math, down from 10 percent (among other provisions). However, even schools that perform higher on average might not meet the particular needs of particular students. Educational choice laws should provide opportunities to all students, no matter where they live or how well or poorly their local district school performs on average.

Tax Credits and Scholarships

Under current law, the total amount of tax credits available for donations to SGOs is $25 million. That may sound like a lot, but it isn’t. Alabama spends just under $10,000 per student in its district schools. If the scholarships averaged half that amount, there would be sufficient tax credits to fund only 5,000 scholarships, which is less than 0.6 percent of the approximately 841,000 district and private school students statewide. The law would raise the total credit cap by $5 million, which is a step in the right direction, but a very small one. The legislation would also eliminate the $7,500 per donor cap on tax credits, which unnecessarily limited donations to SGOs.

However, the legislation would also impose a new cap on the amount that scholarships can be worth: $6,000 for elementary school students, $8,000 for middle school students, and $10,000 for high school students. While it’s reasonable to impose some cap on scholarship sizes to ensure that the state saves money, it is better to cap the average scholarship size, as New Hampshire did, which grants SGOs greater flexibility in meeting the needs of particular families.

Confiscating Donations

Perhaps the most troubling provision of the legislation would mandate the potential confiscation of donated funds that the Alabama Supreme Court recently ruled constitute private money. But for a 5 percent allowance for administrative costs, the legislation would require SGOs to expend all tax-credit eligible donations as scholarships by the end of the following academic year. After that point, the state would confiscate the remaining donated funds and hand them to the “State Department of Education for the benefit of its At-Risk Student Program.” However noble or effective the At-Risk Student Program may be, it does not justify the confiscation of private funds donated to SGOs or any other nonprofit, no matter what tax deduction or credit the donors may receive. 

Alabama’s school choice law needs improvement, but the proposed legislation entails taking one step forward and 10 steps back. Alabama lawmakers should go back to the drawing board.