New Hampshire Tax Credit Safe—For Now

Published May 2, 2013

State Senate Republicans blocked a bill to repeal New Hampshire’s new tax-credit scholarship law, but pending court cases and repeal language in the state’s education budget have left the program, and students hoping for school choice this coming school year, in jeopardy.

The Republican-majority Senate voted 13-11 along party lines to defeat a bill repealing the school choice law. Two Republican Senators who voted against the original bill switched their votes to support it, saying rapid changes are bad policy.

The program for low and middle-income families grants scholarships averaging $2,500 a year to choose an out-of-district public school or private school, or smaller grants for homeschool expenses. The scholarship funds come from tax-deductible donations.

Kill Before Families Taste Freedom
“What we were trying to accomplish was to create a program to empower low- and middle-income families to choose the education that best fit their child’s individual needs,” said Jason Bedrick, a Cato Institute policy analyst who helped write the law. “We wanted a program that had very light regulations, common-sense things that ensure no abuse, but didn’t interfere in the ability of private schools to conduct things as they thought best.”

A long, careful process of compromise, negotiations, and a study committee made the bill one of the most vetted in the legislature’s recent history, Bedrick said.

Because Senate members had to override the governor’s veto to pass the law in spring of 2012, and that fall control of the House switched back to Democrats, an attempt to repeal the law with House Bill 370 was an expected response, said Jim Forsyth, the law’s original Senate sponsor who lost his seat in 2012.

“There were very few Democrats who were willing to engage with us,” Bedrick said. “The teachers union and some of the other activists who oppose school choice know that once families have choice they don’t want to give up that choice.… Their one chance to kill this program is before it goes into effect.”

Parent Interest
Approximately 750 children have applied for the first year of scholarships, and there will likely be 1,000 applicants by June, said Kate Baker, executive director of the NH Network for Educational Opportunity: “So families are really excited and interested in it. Particularly as the economy gets worse, more people need help.”

The pattern in other states is relatively few applicants in a school choice program’s first year and then rapid buildup, Bradley said.

“Having met some of the families with young kids who are trying to avail themselves of this opportunity, I also think if we get it up and running … these youngsters will be the best ambassadors for the initiative,” said Senate Majority Leader Jeb Bradley (R-Thornton). “Both Republicans and Democrats have constituents who want what works.”

Most of these first-year applicants are home-school or private school students, so the credits may not be getting to kids in the public school system, said repeal supporter Sen. Peggy Gilmour (D- Hollis).

The tax credits will save the state an estimated $550,000 in the program’s first year by educating children more cheaply than public schools, according to the New Hampshire Department of Education.

Tax Structure, Constitutionality Questions
Gilmour lists the law’s tax structure and questions about its constitutionality as major concerns.

“I wasn’t there at the time of the passage of the bill last year, so I can’t speak to the vetting process,” Gilmour said. “What I have heard is, prior to the initiation of the repeal there were a fair number of concerns around … the way the tax credit was structured as tax policy.”

The law’s 85 percent tax write-off “is the largest tax credit awarded in the state,” Gilmour said. “The next biggest one, which is a very old economic development one, awards 75 percent and has a lot of oversight.”

Continuing Court Battles
Just eight days after the senators saved the program, judges heard arguments in Stafford County Superior Court questioning its constitutionality for potentially sending money to religious schools.

In 2011 the U.S. Supreme Court ruled a similar Arizona law does not violate the constitution, as the private donations never enter tax coffers.

New Hampshire’s constitution “prohibits the state government from granting or applying money raised by taxation to religious schools,” said Dick Komer, a senior attorney at the Institute of Justice, which is defending the law. “By using tax credits to encourage private business donations to private scholarship organizations, [the tax credit] does not use funds raised by taxation.”

The law was crafted so that if a judge does rule to remove one aspect, such as directing funds to religious schools, the rest can remain intact.

The court case will likely hit the state Supreme Court, Komer said.

Back-Door Repeal
Repeal language in the state’s education budget could also destroy the program.

“Our program would save the state money, so it’s somewhat counterintuitive that they would want to repeal it, from a fiscal perspective,” Baker said.

Budget negotiations will determine whether tax-credit opponents “feel so strongly about killing this program and robbing students of choice” that they’re willing to forego half a million dollars, Bedrick said.

The uncertainty and controversy have created another challenge, Baker said: “There are tons of applicants but we’ll have to work really hard to find donors.”

Image by Neighborhood Centers, Inc.