September 25, 2015 12:06PM

A Solution in Search of a Problem

Last week, Georgia Governor Nathan Deal's Education Reform Commission released its draft recommendations for improving and expanding the state's school choice programs. While some of the commission's proposed changes are meritorious, the commission failed to recommend expanding the state's highly popular, nearly universal scholarship tax credit (STC), instead proposing that the state create a new STC that is highly regulated and much more limited in scope.

The commission's two proposed changes to the existing STC (having the Department of Revenue count actual contributions against the tax credit cap rather than mere pledges and changing the start date for claiming credits) would make it easier for scholarship organizations to raise funds. The commission also explored the possibility of converting the STC into an education savings account (possibly still funded through tax credits, though the report is not clear about that), enabling families to use the scholarship funds for a variety of educational goods and services beyond private school tuition along the lines of what I described in my testimony before the commission in May. 

However, while the commission recommended some minor improvements the existing STC, it is unclear why they did not recommend expanding it. This is especially puzzling because donors not only hit the $58 million tax credit cap on the first day credit were available this year, but taxpayers actually applied for about $91.5 million in credits--$33.5 million more than the cap. Additionally, one 2014 poll found that 62 percent of Georgia voters supported raising the cap to $100 million while another poll found that 64 percent of Georgia voters and 70 percent of parents of school-aged children wanted to raise the cap.

Moreover, the commission's proposed new STC contains numerous troubling features that the policymakers who designed the existing STC wisely avoided.

Income Eligibility Requirements

Unlike Georgia's existing STC, the commission's proposed STC would limit the scholarships to low-income students. Although well-intentioned, this proposal would reduce the overall support for the program exclude some needy families.

As Wilbur Cohen observed in a debate with Milton Friedman: "a program for the poor people will be a poor program." Friedman later accepted Cohen's view because he realized that broader eligibility translates into broader political support. Survey data supports this observation. In a recent poll by the Friedman Foundation for Educational Choice, 66 percent of respondents nationwide supported universal educational choice while only 36 percent supported restricting eligibility based on income. Likewise, one of the aforementioned polls of Georgia voters found that 55 percent of respondents supported a universal STC while only 11 percent supported restricting access based on income.

Moreover, a family's need is not always reflected on their tax statements. Families in which there was an illness, a parent lost his or her job, there is a student with special needs, or other exigent circumstances may be denied assistance under a strict income eligibility requirement. By contrast, Georgia's existing STC gives scholarship organizations the flexibility to consider each family's unique situation. 

Like other nonprofits, scholarship organizations tend to prioritize based on need. Indeed, the available evidence suggests that the STC primarily benefits those most in need. As I detailed in my testimony:

The Peach State’s largest [scholarship organization], Georgia GOAL, has awarded more than 92 percent of its scholarship funds since its inception to students from families with a household income of $48,000 or less, including more than 80 percent to families earning $36,000 or less. [page 7] They are not alone. Studies of education tax credit laws in Arizona, Florida, and New Hampshire have found that SSOs target low-income families to a greater extent than required by law.

According to the most recent data, three-quarters of scholarships statewide were awarded to students from families earning less than $62,202 annually. Moreover, as the Atlanta Journal-Constitution's Kyle Wingfield observed, families in the top income quartile could still qualify for for a free-or-reduced-price lunch at their district school depending on their family size.

The commission's proposal is a solution in search of a problem.

Eliminating Scholarship Organization Missions

The commission's proposal would "require that scholarships are portable during the school year and can be used at any qualifying school that accepts the eligible student according to a parent’s wishes." At first glance, that seems like a sensible policy that prioritizes parental choice. However, in practice, this policy would prohibit private organizations from setting their own institutional missions and substantially constrict the freedom of donors.

Under Georgia's existing STC law, scholarship organizations are free to set their own mission and donors are free to choose the organizations that align with their values. There are currently dozens of scholarship organizations with a variety of different missions. Some serve families who want to send their children to Christian or Jewish schools; others support students attending schools with a particular pedagogical approach; and others have their own unique mission, such as a focus on students who serve their communities. These organizations foster stronger communities by bringing together scholarship recipients, private schools, and individual and corporate donors.

Under the commission's proposed STC, scholarship organizations would be forbidden from setting their own institutional mission. Just as customers could choose any color Model T so long as it was black, donors could choose from any type of scholarship organization so long as it granted scholarships to low-income students attending any school of their choice. That's a noble model, but it's not the only worthy model.

As it happens, the largest scholarship organizations under the existing STC tend to be those that prioritize the needs of low-income families and grant scholarships to students to attend any school their families choose. Donors to Georgia GOAL, for example, can recommend that their contributions be used for scholarships to (unspecified) families desiring to attend particular private schools or types of schools or who live in a particular community, or they can contribute to the general fund that helps families wherever they choose to enroll. Individual and corporate donors are free to support them in their mission or they are free to support any number of smaller organizations with more specific missions. Eliminating that freedom is unnecessary and counter-productive.

Again, this is a solution in search of a problem.

Emphasis on Corporate Donors

This change could also affect the composition of the donor base. The ability to recommend the private schools at which donors desire their contributions be used to provide scholarships is a popular feature of the existing STC because donors can help low- and middle-income families in their communities. The proposed STC prohibits donors from doing so, which will likely depress individual taxpayer participation, so the vast majority of new credits will likely be claimed by large corporations.

Corporate donors have previously raised the concern that individual donors are better positioned to claim the existing credits because their income is more predictable, therefore the majority of the credits are claimed by individuals before the corporations have an opportunity to apply for the credits. Why this is problematic is not clear--what's most important is that there is sufficient funding available for the scholarship students, regardless of the source. For that matter, a model that relies on a large number of smaller individual donors rather than a smaller number of large corporate donors has several advantages. The individual-donor model is likely to be more reliable through changing economic circumstances and it fosters a wider base of support and more community involvement than the corporate-donor model.

Ideally, the state would eliminate the cap altogether, but short of that, there are other ways to give corporations the opportunity to donate through the existing STC. As Kyle Wingfield has explained:

If simply raising the cap substantially won’t work, a sensible compromise would be to spread out the credits throughout the year, maybe semiannually or even quarterly. That would give potential donors more time to determine their tax liability. To the extent that increased corporate donations, it could increase funds for low-income families without moving Georgia away from choice for all.

 Once again, this is a solution in search of a problem.

Mandatory Testing

Unlike Georgia's existing STC, the commission's proposed STC would mandate that all schools accepting scholarship students administer either the state test or a nationally norm-referenced test. Standardized tests are an important method to measure learning progress, which is why most private schools administer them, but requiring schools to administer the tests would be a mistake. A testing mandate would force schools and parents that are ideologically opposed to standardized testing to choose between their principles and their pocketbooks. Many parents are fleeing the district school system because they are concerned about over-testing. A testing mandate on private schools would leave them with no alternatives.

Parents who want their children to attend a school with high test scores currently have that prerogative, but parents generally want more than scores. A Friedman Foundation survey of Georgia scholarship families found that standardized tests scores ranked low among parents' priorities when selecting a school for their children (only 10 percent listed it as one of their top five reasons for choosing a school). Parents were more concerned about their children receiving personal attention, the student-teacher ratio, the curriculum, student discipline and safety, and the college acceptance rate.

Under the current law, parents who want standardized testing can get it and parents who want to avoid it can also do so. Donors who want to ensure their money is being used wisely can choose scholarship organizations that require standardized testing while donors with other priorities can contribute accordingly.

Yet again, this is a solution in search of a problem.

Georgia's existing STC is expected to serve about 20,000 students statewide this year and donors are prepared to support tens of thousands more. It is highly popular and has numerous advantages over the commission's proposal. If Georgia lawmakers want to better serve all students, their best course of action is simply to raise the cap on the existing scholarship tax credit.