Pennsylvania’s tax credit scholarship programs will be able to serve up to 15,000 more students next year, thanks to a $30 million increase in the overall cap on the credits.
Gov. Tom Wolf signed HB 1615, which includes a $25 million increase in the Educational Improvement Tax Credit (EITC) cap to $135 million and a $5 million increase in the Opportunity Scholarship Tax Credit (OSTC) cap to $55 million, on June 28.
Roughly half of the student applications for tax credit scholarships for the 2017-2018 school year—some 49,000—were rejected because the caps were reached, the Commonwealth Foundation of Pennsylvania reported on June 6, based on newly released data from the Pennsylvania Department of Community and Economic Development.
Vetoed Larger Expansion
Wolf earlier vetoed a larger tax credit expansion bill, HB 800, which would have nearly doubled the cap for the EITC program and increased the cap automatically in the future, on June 18.
The $30 million expansion was included in the state budget package with the support of House Speaker Mike Turzai (R-Allegheny).
“While these increases are robust and vitally important, please note that it was not the groundbreaking achievement we had hoped to attain with House Bill 800,” Turzai wrote in a letter to school choice supporters on July 22. “Still, HB 1615 represents a significant accomplishment, equaling the highest increase in any one year of EITC scholarship monies.”
Under the plan, Pennsylvania businesses receive a tax credit in return for making donations to organizations that provide scholarships for private school tuition to low- and middle-income families.
Corporations receive tax credits amounting to 75 percent of their donation, with an annual cap of $750,000 per business. If a business opts to make the same donation for two years in a row, it receives a tax credit in the amount of 90 percent of the donation. The state imposes a cap on the total of tax credits.
Despite the $30 million increase in the credits, the program will serve only about one-quarter of the applicants whose scholarships were denied last year.
“Unfortunately, Gov. Wolf chose to veto HB 800’s historic expansion of the EITC program, despite the obvious good it would have done for Pennsylvania’s students and families,” Turzai wrote in his letter. “I was immensely disappointed that Governor Wolf did not seize the opportunity offered by HB 800 to literally transform the lives of thousands of families who are looking for private educational opportunities.”
‘Auto Escalation Provision’
The best way to address rising demand for scholarships is to automate the increases, says Lennie Jarratt, project manager of the Center for Transforming Education at The Heartland Institute, which publishes School Reform News.
“The state could include an auto escalation provision,” Jarratt said. “If donations reach 90 percent of the capped giving for the year, the cap automatically grows by 25 percent the following year. Another potential auto escalation model could be to increase the cap by the number of applicants times the average per-student scholarship amount.”
HB 800 included an automatic escalator provision, and state Sen. Mike Regan (R-Cumberland) introduced SB 299, which would create an automatic escalator for both EITC and OSTC, on February 14.
Florida enacted tax credit scholarships in 2001, the same year as Pennsylvania, and in 2011 Florida added an escalator to the cap, writes Mark LeBlond, a senior policy analyst at the Commonwealth Foundation.
“Florida now awards twice as many student scholarships as Pennsylvania, and their average scholarship amount is significantly higher,” LeBlond wrote on the Commonwealth Foundation website on July 2.
Businesses’ Interest Exceeds Cap
The program is not forced to turn students away for lack of donations from businesses. The state’s Department of Community and Economic Development estimates businesses have applied for $180 million in EITC tax credits beyond the current cap. Were the cap to be raised to cover all contributions in these applications, as proposed in HB 800, the funding would be available to double the number of scholarships.
Critics of the program, including Gov. Wolf, say raising the cap on scholarship tax credits would take away funding from the state’s public schools.
“Why would the Commonwealth allow for the expansion of the Educational Improvement Tax Credit (EITC) that supports private institutions while our current public-school system remains underfunded?” Gov. Wolf asked when vetoing HB 800.
“We have public schools that are structurally deteriorating, contaminated by lead, and staffed by teachers who are not appropriately paid and overstretched in their responsibilities,” Wolf stated.
No Fund Diversion
Contrary to those claims, Pennsylvania has increased public education spending by 25 percent over the last five years, and the state spent a record $32 billion in state and local taxes on public education for the 2018-19 school year. None of those funds are diverted to the scholarship programs, Jarratt says.
“The EITC does not take money away from the public schools,” Jarratt said. “It is completely charitable donations that never go into the state treasury. The state can allocate whatever amounts they want from the state funds to the schools.”
School choice advocates will continue to push for expansion of the credit programs, says Turzai.
“We refused to allow the Governor’s veto to be the final word on EITC expansion this year,” Turzai wrote. “We will continue to fervently support school choice measures. Personally, I want to see the expansion of the EITC such that it can offer a scholarship to every child and family in want of one.”
Vivian E. Jones ([email protected]) writes from Murfreesboro, Tennessee.
State House Speaker Mike Turzai (R-Allegheny): http://www.repturzai.com/NewsItem.aspx?NewsID=276160
State Sen. Mike Regan (R-Cumberland): https://www.legis.state.pa.us/cfdocs/legis/home/member_information/Senate_bio.cfm?id=1646