This post is the second in a series on K-12 private school vouchers and how federal support for them could affect California.
In light of emerging federal proposals around private school vouchers, we recently blogged about several problems raised by traditional K-12 school voucher programs that use public funds to support private schools. One of the most notable problems is the prospect of spending public dollars to fund private religious schools. Back in the 1800s, California and many other states approved state constitutional provisions prohibiting such spending. In recent decades, however, lawmakers in many states have circumvented these constitutional prohibitions using a variety of means to create voucher-like programs. Examples of these back-door vouchers include education savings accounts and tax mechanisms like tuition tax credits for private education, the latter of which some have termed “neovouchers.”
In order to help shed light on what the concept of back-door vouchers might mean for California, particularly in the context of President Trump’s general support for them, this post explains how both education savings accounts and tuition tax credits work and discusses the possibility that federal policymakers could impose voucher-like programs on states.
Education Savings Accounts
Like traditional private school vouchers, education savings account (ESA) programs divert state dollars budgeted for K-12 public schools and set them aside for parents to pay tuition costs at private schools, including private religious schools. ESAs differ from traditional private school vouchers because they can be used for expenses other than tuition, such as private tutors, online courses, and school-transportation costs.
Five states offer ESAs: Arizona, Florida, Mississippi, Nevada, and Tennessee. States determine the amount set aside for participating parents’ ESAs, which is typically calculated based on K-12 education funding formulas and per-pupil allocations to public schools. States also determine the rules that govern ESAs, such as who is eligible to use them and how to handle unspent ESA dollars. Nevada, for example, makes ESAs available to all students who have recently attended a public school, while Florida only provides ESAs to students with disabilities. In Tennessee, unused ESA dollars are deposited into a college savings account, whereas in Mississippi unspent ESA dollars must be returned to the state.
Tuition Tax Breaks for Private Education — A.K.A. “Neovouchers”
So-called neovouchers, just like traditional vouchers, divert state dollars typically allocated for K-12 public schools and direct them to help parents pay tuition costs for their children to attend private schools, including private religious schools. However, unlike traditional vouchers, which are directly funded by the state, neovouchers are funded through state tax credits and deductions. While funding neovouchers through such tax schemes makes them far less transparent than private school vouchers, the ultimate effects of neovouchers are virtually indistinguishable from those of traditional school voucher programs. Under neovouchers, states allow taxpayers to either claim tax deductions for private school tuition expenses (and, in some states, for other private school expenses as well) or receive tax credits through a more complicated process. Here’s how the tax credits operate: Taxes that are owed to a given state by individuals or businesses are instead donated to voucher nonprofits. These nonprofits then use the donations to provide families with vouchers to help pay tuition costs for their children to attend private schools. States lose revenue under this tax scheme because they provide tax credits for some or all of the amount donated to the voucher nonprofit by the individuals or companies. Donors are not necessarily individuals with children enrolled in private schools and thus may not benefit from the vouchers in the form of reduced tuition or expenses.
Twenty states use some form of tax credit or deduction to redirect public dollars to private K-12 schools. All but one of these states — which offers only the tax deduction — use both the credit and the deduction. States determine who can claim the tax breaks and how much of their tax liability they can claim. For example, 10 of the 19 states with tax credit programs allow businesses and individuals to claim the credit, whereas seven states only allow businesses to do so and two states only provide the credit to individuals.
States also determine who is eligible to receive neovouchers. For example, while most states with neovouchers limit recipients to low- or middle-income families, at least three states allow parents to take advantage of neovouchers regardless of their income. States also vary in the overall amount of their budgets set aside for neovouchers. For example, Oklahoma caps the total amount for its tax credit at $3.4 million annually, whereas Florida has a cap of $700 million for the 2017-18 fiscal year.
Can the Federal Government Impose Back-Door Vouchers in California?
Despite provisions (here and here) in California’s Constitution that prohibit spending state and local dollars on private schools, California policymakers cannot prevent the federal government from enacting voucher-like programs that would divert federal dollars to private schools. And there are reasons to be concerned that the Trump Administration may propose changes to the federal tax code to boost the use of back-door vouchers, which would place federal policy directly at odds with a longstanding principle in California that public dollars should not go to private schools.
Prior to becoming the US Secretary of Education, Betsy DeVos advocated for the creation and expansion of neovouchers in various states and has pointed to Florida’s tax credit program as one of her biggest successes. Secretary DeVos also has supported legislation that would use the federal tax code to provide neovouchers to anyone in the US, a proposal that has raised concerns about tax fairness as well as the implications for education policy. Moreover, President Trump’s budget blueprint proposed significant public spending on private schools. While the President’s full budget proposal does not spell out a specific method for using public dollars to support private schools, numerous statements made by the President and Secretary DeVos indicate the Trump Administration intends to pursue neovoucher programs at the federal level.
What would federal enactment of neovouchers mean for California and is there anything the state can do to mitigate their impact? The answers to these questions are the subject of the next blog post in our series to be published in the weeks to come.
— Jonathan Kaplan
