Improving Georgia’s Education Tax Credit

Expanding Educational Options Subcommittee
Georgia Education Reform Commission

Chairman Peterson, honorable members of the subcommittee, thank you for the opportunity to address you regarding the vital subject of education reform.

My name is Jason Bedrick and I am a policy analyst at the Center for Educational Freedom at the Cato Institute, a nonprofit, non-partisan, public policy research organization. My comments are my own and do not represent any position of the institute.

The primary goal of education policy should be to ensure that all children have access to the education that best enables them to achieve their full potential. Of course, different children have different needs. Some children may thrive in one type of learning environment where others struggle. Even a school renowned for its high quality may nevertheless be a poor fit for a particular child. The ideal education policy would therefore empower parents to choose the school that best fits their child’s individual learning needs.

In their wisdom, Georgia policymakers have already taken great strides toward that goal. Georgia’s tax-credit scholarships and special-needs vouchers have expanded educational opportunity for thousands of students. Today I would like to focus on Georgia’s education tax credit, which is similar to laws in 13 other states that have been my primary area of study for several years.

Below I will summarize the advantages of Georgia’s existing education tax credit and propose two ways lawmakers can significantly improve the program.

Advantages of Georgia’s Education Tax Credit

Universal Choice

If the aim of education policy is to ensure universal access to a quality education, then a school choice program should have as close to universal eligibility as possible. On the other hand, it is sensible and fair to target limited funds toward those with the greatest need. By eschewing income limits and entrusting student scholarship organizations (SSOs) with funding decisions, Georgia’s education tax credit accomplishes both goals.

Rather than impose rigid income guidelines, the law gives SSOs the flexibility to determine scholarship awards based on families’ unique financial situations. SSOs can factor in circumstances that are not reflected in tax returns, such as students with expensive special needs or health issues.

The Peach State’s largest SSO, 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.1 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.2

Educational Freedom

The strong conclusion of the global research literature is that the freest and most market-like education systems outperform the less free and more centralized systems.3 In the most effective systems, schools are free to adopt the curricula and pedagogical methods they deem best and parents are free to choose among those options. A market in education creates strong incentives for higher-performing schools to expand and for lower-performing schools to improve. Less effective systems attempt to impose quality from above.

Fortunately, Georgia’s education tax credit does not impose unnecessary and counterproductive regulations, such as a mandatory curriculum or testing. However, this does not mean the school choice program lacks accountability. To the contrary, schools of choice are held directly accountable to parents, who can leave if their child’s needs are not satisfied. In addition to the dozen random-assignment studies that found positive impacts on the outcomes of participating students, 22 out of 23 empirical studies have found a modest but statistically significant positive impact on the performance of public schools as a result of increased choice and competition.4

Fostering Community

Through the student scholarship organizations, Georgia’s education tax credit brings together scholarship recipients, private schools, and individual and corporate donors. To better appreciate how this dynamic fosters a stronger community, it is useful to consider the differences between education tax credits and vouchers.

Under a voucher law, low-income students also receive financial assistance to attend their school of choice. However, individual taxpayers have no say in the matter. Many will be unaware the program exists, and some might even object to it.

By contrast, tax-credit scholarships rely on voluntary contributions from individual and corporate taxpayers. That requires the SSOs to raise awareness about the need for the scholarships and to solicit support from the community. Donors are given the opportunity to exercise compassion while supporting SSOs and schools that align with their values, rather than having their tax dollars extracted and spent on vouchers without their input or consent.

The participation of individual donors is crucial. Donors to SSOs become invested in the success of the program. Their involvement with the SSOs makes them better informed about the issues facing scholarship students and private schools, and more aware of legislation that might affect them. They are therefore more likely to advocate on behalf of tax-credit scholarship recipients and to resist attempts to impose counterproductive regulations.

Areas for Improvement

The following recommendations reflect two overarching goals: aiding as many students as possible and maximizing the positive impact of each scholarship.

Recommendation #1: Increase the total tax credit cap.

Georgia’s tax-credit cap unnecessarily limits the number of students who can receive scholarships. Legislators deserve credit for raising the cap from $52 million to $58 million 2013; however, that’s barely 0.3 percent of Georgia’s $17 billion in annual public education spending.5 Moreover, the additional $6 million in credits is only enough funding for about 1,750 additional scholarships worth about $3,400. It’s also worth noting that Georgia public schools spend more than $10,200 per pupil on average, about three times the size of the average scholarship.6

A $250 million cap — the equivalent of less than 1.5 percent of total public education spending — could help more than 70,000 students attend the schools of their choice. In addition, the legislature should consider restoring the annual adjustment for inflation. Without that adjustment, the real value of the credits diminishes each year. Better yet, the legislature should consider enacting an “escalator” clause as Arizona, Florida, and New Hampshire have done so the amount of available tax credits will increase over time to meet demand.

Recommendation #2: Expand the allowable uses of scholarship funds.

In addition to expanding access to scholarships, Georgia policymakers should consider expanding how the scholarships can be used. At present, Georgia families can only use tax-credit scholarships to cover private school tuition. However, not all education takes place in a traditional school setting. Increasingly, parents are turning to alternatives like online courses, tutoring, “micro-schools,” and homeschooling to educate their children — options that are not yet covered by Georgia’s tax-credit scholarships.

Some states are embracing the changes in how education is delivered by changing how education is funded. Five years ago, Arizona enacted the first education savings account (ESA) program, in which the state deposits funds into private bank accounts that parents can use to purchase a wide variety of educational products and services, including tutoring, textbooks, online courses, or educational therapy in addition to — or instead of — school tuition. Since then, Florida, Mississippi, and Tennessee have all enacted ESA programs for students with special needs and legislatures in a dozen other states have considered doing the same.

Likewise, tax-credit scholarship recipients in New Hampshire can either use the funds for private school tuition or a variety of homeschooling expenses. Georgia policymakers could improve upon the New Hampshire model by allowing families to combine the two approaches. Ideally, families could enroll their children in private school and take advantage of online courses, tutoring, and other educational products and services.

Expanding the uses of the scholarship funds in that way would allow parents to better tailor their children’s education in whatever educational environments work best for them. By focusing education funding on students’ learning needs rather than institutions, Georgia will foster a more innovative and student-centered education system.

Georgia’s education tax credit is a win-win-win. It’s a win for students who gain access to educational opportunities that would otherwise be out of reach. It’s a win for taxpayers who spend less per pupil for the same or better outcomes. And it’s a win for communities that come together to provide all children, no matter their parents’ income, with access to a diverse array of learning options.

Nevertheless, the education tax credit is not living up to its full potential. The severe cap on the amount of available tax credits limits the number of students who can benefit, and restrictions on how recipients can use the scholarship funds limit how those students can benefit. By adopting the changes proposed above, Georgia will empower SSOs to serve more students and serve them better.

Respectfully submitted,
Jason Bedrick

1 Georgia GOAL, The GOAL Report, 2014, page 7.
2 Vicki E. Murray, “An Analysis of Arizona Individual Income Tax-Credit Scholarship Recipients’ Family Income, 2009-10” (PEPG Working Paper 10-18, Program on Education Policy and Governance, Harvard Kennedy School, Harvard University, Cambridge, MA, 2011), http://www.hks.harvard.edu/pepg/PDF/Papers/PEPG10-18_Murray.pdf.
Jason Bedrick, Live Free and Learn: A Case Study of New Hampshire’s Scholarship Tax Credit Program, Case Study 19 (St. Louis: Show-Me Institute, 2014), p. 10, http://showmeinstitute.org/document-repository/doc_view/461-live-free-and-learn-a-case-study-of-new-hampshires-scholarship-tax-credit-program.html.
“A Few Facts about the Florida Tax Credit Scholarship,” Step Up for Students, http://www.stepupforstudents.org/newsroom/basic-program-facts.
3Andrew J. Coulson, Markets vs. Monopolies in Education: A Global Review of the Evidence (Cato Institute, 2008), https://www.cato.org/publications/policy-analysis/markets-vs-monopolies-education-global-review-evidence.
4Greg Forster, A Win-Win Solution: The Empirical Evidence on School Choice (Indianapolis: Friedman Foundation for Educational Choice, 2013), http://www.edchoice.org/Research/Reports/A-Win-Win-Solution—The-Empirical-Evidence-on-School-Choice.aspx.
5 National Center for Education Statistics, “Total expenditures for public elementary and secondary education and other related programs, by function and state or jurisdiction: 2010-11.” Digest of Education Statistics, 2013, http://nces.ed.gov/programs/digest/d13/tables/dt13_236.30.asp.
6 National Center for Education Statistics, “Total and current expenditures per pupil for fall enrollment in public elementary and secondary education, by function and state or jurisdiction: 2010-11.” Digest of Education Statistics, 2013, http://nces.ed.gov/programs/digest/d13/tables/dt13_236.75.asp.