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Research & Commentary: Tax Credit Scholarships Save Taxpayers, School Districts Money

November 10, 2016

Scholarship Programs Have Saved Between Up To $3.4 Billion Nationwide

A study released in late October 2016 by EdChoice, titled The Tax Credit Scholarship Audit, “estimates the fiscal effects” of 10 of the nation’s 21 tax credit scholarship (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.

Tax credit scholarships allow corporations and individuals to make a donation from what normally would be a portion of their state taxes to an organization that grants and distributes the scholarships to students so that they can attend a private school. Arizona’s Original Income Tax Credit Scholarship Program, the nation’s first TCS program, was passed in 1997.

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. 

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.

“These programs are designed to attract capital to education and provide avenues for individuals and organizations to invest in their states. They represent a total win-win for taxpayers and for students who want to attend private schools,” said Martin Lueken, the report’s author and EdChoice director of fiscal policy and analysis, in an accompanying press release.

School choice opponents say giving families more options will take students, and therefore money, away from public schools, and opponents say it is not fair or beneficial to have private schools operate with different rules compared to those imposed on government schools. Heartland Research Fellow Joy Pullmann writes, “When designed and implemented properly, a scholarship tax credit program is a constitutional, popular, and fiscally sound method for increasing education options for low-income families. A system that maximizes individual choice over one’s own money and the education of one’s children is most likely to quickly address fraud and offer better options to more families.”

Proponents of TCS programs and school vouchers can point to a large number of gold-standard research studies that show these programs increase student achievement for voucher students and those remaining in traditional public schools, producing an increase in social harmony, citizenship, and racial and economic integration.

School choice offers families equal access to high-quality schools that meet their widely diverse needs and desires. Instead of unjustly condemning millions of children to failing and dangerous schools because their parents cannot afford to pay private school tuition rates, tax credit scholarships give thousands of families a greater opportunity to meet each child’s unique education needs.

The following documents provide more information about tax credit scholarships and 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.

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 Legal Landscape of Parental-Choice Policy
https://www.heartland.org/publications-resources/publications/the-legal-landscape-of-parental-choice-policy?source=policybot
The U.S. Supreme Court decision in Zelman v. Simmons-Harris cleared away the most significant obstacle to the expansion of private school choice programs by ruling the First Amendment’s Establishment Clause does not preclude faith-based schools from participating in private school choice programs. These programs raise other important legal questions, which fall into four categories: the scope of students’ rights to an education and parents’ rights to choose their children’s schools; state constitutional obstacles to private school choice; the effect of laws governing racial integration and the inclusion of disabled students; and the religious liberty implications of faith-based schools participating in such programs. The American Enterprise Institute (AEI) writes the lack of clarity on these questions poses challenges, but AEI also says these questions create opportunities for proponents of private school choice to scale up existing programs and expand program options.

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 at https://www.heartland.org/publications-resources/newsletters/school-reform-news, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at https://www.heartland.org/policybot/index.html.

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