May 24, 2012 8:43AM

Diversity & Choice or Regulation & Monopoly?

Stephanie Saul’s anecdote-driven smear piece in yesterday’s NYT has perhaps had one positive effect; a serious discussion of good education tax credit bill design.

John Kirtley, chairman of the only active scholarship organization in Florida and father of the state’s credit program, used the NYT piece as a jumping-off point for legislative guidelines. Kirtley has done tremendous things in Florida for low income children and educational choice, but several of his policy recommendations (shared by others) are either unsupported or contradicted by the evidence.

I’ll use Saul’s brief description of the positive aspects of Florida’s credit program (which Kirtley praises) and his own guidelines as a structure for discussion. (See here for legislative guidelines and model legislation.)

Academic and Fiscal “Accountability”

This is the area in which the guidelines proposed by Kirtley and organizations such as the American Federation for Children are most at odds with research on education markets and government regulation. For decades, policymakers have desperately tried to improve education through accountability to the government. Their efforts have clearly failed. And it would be disastrous to involve the government, which has failed so dismally for so long, more directly in the private education sector and the private decisions of families and taxpayers. As Neal McCluskey showed for Florida specifically, fraud, waste and abuse in the public education system is much more widespread and pervasive than in private school choice programs.

Below are the reasons it is unnecessary and harmful to increase government regulation on education decisions made by families and taxpayers.

Education tax credits automatically impose three layers of accountability; 1) The parents who choose the school, 2) the scholarship organization that provides funds to parents, and 3) the taxpayer who donates or directly spends their own money on education. Additional government regulations are therefore unnecessary and interfere with the choices of those directly affected by the program.

Andrew Coulson’s international literature review of the school choice/education market research shows that the least regulated education markets had the greatest margin of superiority over state school systems.

The use of vouchers, as government funds, can only be held accountable to the taxpayers whose money is used through the government, which disburses those funds. By contrast, credit funds are private funds, disbursed to students or scholarship organizations directly by the taxpayers who earned them. There is already direct accountability to the taxpayers who fund the credit program.

In short, no new requirements for or regulations on private schools or home schooling should be imposed. If accreditation is not required for existing private educational options, then none should be imposed on private choices backed by private credit funds.

Scholarships are strictly controlled to make sure they go to poor families.

All other donation credit programs besides Georgia are means-tested.

However, there are serious problems with hard income cut-offs for any program meant to help those who need help. What about the family that has a child with special needs, perhaps not rising to the level of an IEP, but requires more resources than a typical child? Or the family that loses one income earner, but can’t qualify because of their most recent tax return?

In a decentralized credit scholarship system, such flexibility can be built into means-testing regulation. In New Hampshire, scholarship organizations are allowed to use up to 20 percent of their funds for families who fall outside the strict income cutoff.

Strict, hard income cutoffs may be easy for governments and large organizations to process, but they come at a serious cost in flexibility and responsiveness to the diverse needs of individual children and families.

Only corporations are eligible for the tax credits.

Individual-level tax credits are relatively difficult in Florida because there is no individual income tax. However, sales tax credits can be allowed for individuals at the point of sale.

From a larger perspective, however, this is an unfortunate flaw, not a feature, and including individual taxpayers is a huge positive for any program.

Corporate tax liabilities are subject to very large fluctuations year-to-year, there are far fewer corporate than individual taxpayers, and decisions must be made within an often-complex and time-consuming process.

All of this means that corporate-only credit programs are more volatile, uncertain, and costly.

Donations from individual taxpayers broaden and stabilize the revenue stream for credits, invest real human beings in supporting education with their personal funds, and thereby create greater accountability to a more diverse and attentive donors base.

Eliminating the chance of parents donating for their own benefit.

The problem of parents donating for the benefit of their own child is an issue created by poor policy design in the first instance.

What sense does it make to force parents with a tax liability, who also need assistance for their child, to 1) donate to a scholarship fund and then 2) apply to that non-profit for a scholarship funded with the money that they earned and donated in the first place?

This absurd circular-donation system can be easily fixed by allowing parents to claim a credit for their own child’s education—as is already done in Illinois and Iowa. It can be made even better by allowing grandparents, uncles, aunts, friends, and neighbors to claim a credit for money they spend on a specific child they know and want to help. Allowing those with a direct personal interest in the success of a child to help support their education creates yet more accountability and more direct involvement in education from extended families and communities.

All scholarships are handled by one nonprofit organization, and its fees are limited to 3 percent of donations.

Florida’s education tax credit program is run entirely by a single non-profit organization largely due to the fact that scholarship organizations are not able to use any credits funds for the significant overhead involved in running such an organization for the first three years, and then only 3 percent thereafter, which is inadequate for meeting reasonable costs.

This hyper-centralization is the single most concerning flaw in Florida’s education tax credit program.

Taxpayers have no choice among scholarship organizations, and therefore their only choice if they are unhappy with the current SO is to not donate money to support needy children at all.

By all accounts, the single SO in Florida is a model non-profit. However, what happens should the current leadership move on or pass away? The character and performance of large organizations does not continue in perpetuity, and the evidence on the performance of monopolies long-term is grim indeed.

In the case of malfeasance or even an innocent but serious mistake at this single scholarship organization, the results could be devastating. Without other SOs to turn to, allowing donors to immediately de-fund the underperforming SO in favor of better ones, there will be intense political pressure to shut down or take over the system. Indeed, even absent a scandal, the centralization of all scholarships in one SGO makes it a tempting and easy target for state takeover.

Furthermore, is it wise or right in a larger sense for a single, private non-profit to control and administer hundreds of millions of dollars, potentially more than $1 billion within seven years, on behalf of tens of thousands of children and all the taxpayer who want to help them?

A diverse array of scholarship organizations ensures beneficial competition among non-profits, provides choices to families and taxpayers, and allows the development of organizations more intimately connected with and integrated into local communities and more flexible and responsive to the needs of individual families and children.

Parents – not individual schools or scholarship organizations – should own the decision of where their children attend school. In Florida, the scholarship can be used at any one of the 1,350 private schools whose participation has been approved by the state.

The centralized bureaucracy of Florida’s education tax credit program means that taxpayers have no choices in directing their money where they think it will do the most good, and families have no choices of scholarships organizations to which they apply.

In this situation, there is little choice but to standardize the process and ensure equal access with no regard to the quality of the school or need of the child beyond the statutory minimum. Indeed, should the sole scholarship organization decide to make distinctions – even reasonable, well-intentioned distinctions – among schools or applicants, they would be vulnerable to charges of unfair treatment because there is literally no alternative in the state.

The diversity of scholarship organizations in other states means that taxpayers and families can choose to work with organizations and schools they think perform well and comport with their values. Taxpayers and families in Florida are not afforded those options, and taxpayers are forced to fund all schools chosen by families, from good to bad and from fundamentalist Christian to Catholic to secular liberal if they wish to participate in the program at all.

Parents and taxpayers should have a diverse array of choices, and a large and diverse collection of scholarship organizations is essential for achieving that.