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Research & Commentary: Tax-Credit Scholarship Would Be a Great First Step Toward Private School Choice in Illinois

August 11, 2017

$100 Million Program Would Take Effect Immediately

A draft proposal floating around school budget negotiations in the Illinois General Assembly would establish a tax-credit scholarship (TCS) program in the Land of Lincoln. This program would allow qualifying families to pay for tuition and fees at private and parochial schools, as well as at a public school located outside of the student’s school district, using scholarships provided by donors, who, in return, would receive tax credits.

Under the proposed program, nonprofit organizations, after receiving approval from the state, would be eligible to grant scholarships to Illinois students. Individuals and businesses would then donate to these nonprofits and receive an Invest in Kids Tax Credit amounting to up to $1 million in a calendar year. The total cap on donations to the program would be $100 million. However, if 90 percent of the maximum permitted credits are reached in any calendar year, the program would automatically receive a 25 percent budget increase for the following year.

Students whose family income is less than 250 percent of the amount needed to qualify for the federal free or reduced-price lunch program would qualify for the Illinois plan. Scholarship reward amounts cannot exceed “the costs and fees necessary” to attend a chosen school. Roughly two-thirds of Illinois families would be eligible for the program.

A TCS differs from other school choice options in two significant ways. First, the money a TCS uses comes entirely from private sources. This allows a TCS program to avoid state or federal prohibitions against sending money to religious institutions. Second, these programs offer the “cleanest” school choice option, meaning the one with the least burdensome government regulations, because they are not funded by tax collections. Currently, with 21 different programs in 17 states and more than 1.2 million scholarships granted, TCS programs are the most popular form of private school choice in the country. 

study released in October 2016 by EdChoice “estimates the fiscal effects” of 10 of the nation’s 21 TCS programs (comprising 93 percent of all awarded scholarships). It found TCS programs have saved “state governments, state and local taxpayers, and school districts” between $1.7 billion and $3.4 billion through 2014. This comes out to between $1,750 and $3,000 saved per student.

The EdChoice audit also found the cumulative savings of the programs studied grew every year with the expansion of the programs, with the three largest programs accounting for close to 75 percent of all savings. The savings in the 2013–14 school year alone, the last year available for study, were between $320 million and $580 million.

Only 37 percent of Illinois 4th graders and 32 percent of 8th graders tested “proficient” in math on the 2015 National Association of Education Progress (NAEP) test, also known as the “Nation’s Report Card.” Only 35 percent of 4th graders and 8th graders tested proficient in reading. These results show Illinois’ public school system is failing to educate roughly six out of 10 4th grade and 8th grade students to a proficient level in reading and mathematics.

Illinois’ troubling performance on NAEP underscores the desperate need for the state to expand school choice opportunities far beyond what is currently available. Too many public schools in Illinois are failing to adequately prepare students for productive lives. Parents should be allowed to choose the schools their children attend and should not be penalized financially if that choice is a private religious or secular school.

Currently, private school choice in Illinois is literally nonexistent, so enacting a TCS program would be a great first step for the Land of Lincoln, and would give all Illinois families a greater opportunity to meet each child’s unique education needs. When parents are given the opportunity to choose, every school must compete and improve, which gives more children the opportunity to attend a quality school.

The following documents provide more information about tax-credit scholarships and other school choice programs.

The Tax Credit Scholarship Audit: Do Publicly Funded Private School Choice Programs Save Money?
https://www.heartland.org/publications-resources/publications/the-tax-credit-scholarship-audit-do-publicly-funded-private-school-choice-programs-save-money
In this audit, EdChoice Director of Fiscal Policy and Analysis Martin Lueken updates previous work examining the fiscal effects of private school choice programs on state governments, state and local taxpayers, and school districts. Lueken’s report analyzes savings from tax credit scholarship programs, which allow individuals and businesses to reduce their state tax liability by making a private donation to a nonprofit organization that provides scholarships for children to attend private schools of their choice. This audit looks at 10 tax credit scholarship programs operating in seven states between 1997 and 2014. These 10 programs serve 93 percent of all students participating in tax credit scholarship programs nationwide.

A Win-Win Solution: The Empirical Evidence on School Choice (Fourth Edition)
https://www.heartland.org/publications-resources/publications/a-win-win-solution-the-empirical-evidence-on-school-choice-fourth-edition?source=policybot
This paper by the Friedman Foundation for Educational Choice details how a vast body of research shows educational choice programs improve academic outcomes for students and schools, saves taxpayers money, reduces segregation in schools, and improves students’ civic values. This edition brings together a total of 100 empirical studies examining these essential questions in one comprehensive report.

2016/17 School Choice Report Card
https://www.heartland.org/publications-resources/publications/201617-school-choice-report-card
This report card published by the American Federation for Children scores 27 active non-special-needs voucher, scholarship tax-credit, and education savings account programs against ideal standards for program quality. The report is an excellent tool policymakers and researchers can use to help improve education programs and maximize student participation. 

Education Savings Accounts: The Future of School Choice Has Arrived
https://www.heartland.org/publications-resources/publications/education-savings-accounts-the-future-of-school-choice-has-arrived
In this new Heartland Policy Brief, Policy Analyst Tim Benson discusses how universal ESA programs offer the most comprehensive range of educational choices to parents; describes the six ESA programs currently in operation; and reviews possible state-level constitutional challenges to ESA programs.

Taking Credit for Education: How to Fund Education Savings Accounts through Tax Credits
https://www.heartland.org/publications-resources/publications/taking-credit-for-education-how-to-fund-education-savings-accounts-through-tax-credits?source=policybot
This Cato Institute paper shows how legislators can design an education savings account (ESA) that is privately funded through tax-credit-eligible contributions from taxpayers, similar to tax-credit scholarship programs that already exist in states across the country. Tax-credit-funded ESAs would empower families with more educational options while enhancing accountability and refraining from coercing anyone to financially support ideas they oppose. Because they are funded through voluntary contributions, rather than public funds, tax-credit scholarships have been found by the U.S. Supreme Court and by every state supreme court that has considered the issue to be within the bounds of the U.S. Constitution and most state constitutions. In states that have Blaine amendments, which greatly restrict the ability of lawmakers to create some school choice programs, tax-credit ESAs could be a lifeline to families in need.

Research & Commentary: Indiana School Choice Parental Satisfaction Should Lead to More School Choice
https://www.heartland.org/publications-resources/publications/research--commentary-indiana-school-choice-parental-satisfaction-should-lead-to-more-school-choice?source=policybot
In this Research & Commentary, Heartland Policy Analyst Tim Benson examines an expanded, follow-up study to a 2014 report by EdChoice that examines why Indiana parents choose to take advantage of the state’s Choice Scholarship Program voucher and use it to send their children to private schools.

Competition: For the Children
https://www.heartland.org/publications-resources/publications/competition-for-the-children
This study from the Texas Public Policy Foundation claims universal school choice results in higher test scores for students remaining in traditional public schools and improved high school graduation rates.

The Fiscal Effects of School Choice Programs on Public School Districts
https://www.heartland.org/publications-resources/publications/the-fiscal-effects-of-school-choice-programs-on-public-school-districts?source=policybot
In the first-ever study of public school districts’ fixed costs in every state and Washington, DC, Benjamin Scafidi concludes approximately 36 percent of school district spending cannot be quickly reduced when students leave. The remaining 64 percent, or approximately $8,000 per student on average, are variable costs, changing directly with student enrollment. This means a school choice program attaching less than $8,000 to each child who leaves a public school for a private school actually leaves the district with more money to spend on each remaining child. In the long run, Scafidi notes, all local district spending is variable, meaning all funds could be attached to individual children over time without creating fiscal problems for government schools.

How School Choice Programs Can Save Money
http://www.heritage.org/Research/Education/wm727.cfm 
This Heritage Foundation study of the fiscal impact of voucher programs notes Washington, DC vouchers cost only 60 percent of what the city spends per pupil in government schools. The study estimates if the states with the top eight education expenditures per pupil adopted voucher programs similar to the Washington, DC program, they could save a combined $2.6 billion per year.

How School Choice Can Create Jobs
https://www.heartland.org/publications-resources/publications/how-school-choice-can-create-jobs?source=policybot
Examining five South Carolina counties, Sven R. Larson found school choice programs were associated with gains of up to 25 percent in youth self-employment. Larson writes, “School Choice raises academic achievement and reduces the problems and costs associated with high school dropouts. But it also has a decisively positive impact on youth entrepreneurship and could provide a critical boost for the economies of poor, rural counties.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit School Reform News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at john@heartland.org or 312/377-4000.

Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org