Making a Flawed School Choice Bill (Slightly) Better

IF LAWMAKERS WANT TO IMPROVE A BADLY FLAWED “SCHOOL CHOICE” BILL, HERE’S WHERE TO BEGIN

We recently released our initial analysis of S.279, the most prominent “school choice” bill currently before the General Assembly. While it may be encouraging to see lawmakers discussing the expansion of school choice, the bill is flawed.  The tax deductions – not credits but deductions – supposedly intended to help parents fund their children’s tuiton in independent schools would save the average South Carolina family about $280 a year. That amount is less than a tenth of the average annual private school tuition in South Carolina.

Since our initial analysis, our policy staff has met with the Cato Institute’s Education Policy Scholar Jason Bedrick. Mr. Bedrick points out a number of other provisions in the bill that may keep it from achieving actual educational choice. These provisions and their possible effects deserve serious consideration.

First, S.279 gives tax credits to individuals who donate to non-profit scholarship funding organizations that provide grants to children who are either eligible for reduced school lunch programs, eligible for federal Medicaid benefits, or have exceptional needs. The bill also contains a provision requiring that qualifying non-profit scholarship organizations use no more than 5 percent of their funding for administrative purposes. In most other states that offer these credits (there are only two exceptions), the standard allowance for administrative costs is 10 percent. The two outlier states are Pennsylvania and Florida, which allow 20 percent and 3 percent of funds to be used on administrative costs respectively. Pennsylvania has 250 different scholarship organizations while Florida has only one. Mr. Bedrick’s research suggests that a higher allowance for administrative costs allows more scholarship organizations to form, though it makes sense to decrease the administrative cost allowance when scholarship organizations flourish in the state and achieve economies of scale. Further, Mr. Bedrick pointed out that S.279 doesn’t make clear that the administrative cost provision only applies to the donations for which tax credits were applied. Scholarship organizations sometimes receive donations beyond the amount that is eligible for a tax credit, and it’s unnecessary and counterproductive to impose an administrative cost allowance on these additional funds.

Second, the bill requires that in order to qualify as a school for which parents can claim a deduction for tuition payments, a school must be a member in good standing of either the Southern Association of Colleges and Schools, the South Carolina Association of Christian Schools, or the South Carolina Independent Schools Association. The state shouldn’t privilege a school just because it belongs to a certain group. The provision may be well-intended, but it’s likely to drive up costs over the long term and limit educational choices.

Another restriction requires that eligible schools must administer national achievement or standardized state tests. Such a requirement eliminates a large reason for enrolling a child in a private versus a public school: the alternative curriculum and teaching methods. This requirement encourages private schools to teach to the standardized tests, bringing their methods and curriculum more in line with public schools and diminishing whatever advantages their alternative curriculum might have.

The bill would restrict the choices of scholarship organizations in other ways, too. Eligibility for federal reduced lunch programs or federal Medicaid benefits is met at 185 percent of the poverty level. While it makes sense to target to program to those with the fewest available choices, such a low threshold excludes many families of limited means. Several other states allow tax credits for donations to organizations that give grants to families who are up to 300 percent of the poverty level. This 300 percent standard would enable scholarship organizations to empower more parents to send their children to the schools of their choice.

Finally, Mr. Bedrick suggests a provision that could help to improve at least one of the mechanisms by which S.279 attempts to expand school choice. Tax credits to scholarship organizations are capped at $15 million for grants made on behalf of students eligible for reduced school lunch programs or federal Medicaid benefits, or $10 million for grants made on behalf of special needs students. As the bill is written, these caps would be adjusted based on both the Consumer Price Index (inflation) and the state’s population. This provision could be improved by having the caps automatically adjusted upward (as they are in similar programs in Arizona, Florida, and New Hampshire) when the credits claimed reach somewhere around 80 or 90 percent of the cap.

While the Policy Council would prefer to have education funds follow the child to the roundabout route of tax credits for scholarship donations, credits for donations do have some advantages as they enable more decentralized decision-making and avoid stigmas of public funds being spent on religious or other ideas that many would object to funding with public money. As S.279 is currently written, however, the size of scholarship donation credits has a strong limitation and consequently the number of families that can benefit from this program will be strongly limited as well. A freely movable cap would certainly improve this provision and would likely increase the program’s effectiveness.

These changes would improve a problematic bill. If lawmakers want to make dramatic improvements to it, however, they ought to change the benefits for families from deductions to credits. That would begin to create genuine choice.