Penn. Legislature Approves Increase in Scholarship Tax Credit Funding

Published October 1, 2007

When the Pennsylvania legislature finalized the state budget for the 2007-08 fiscal year on July 18, lawmakers increased the allocation for the Education Improvement Tax Credit (EITC) to $75 million, an increase of $16 million over last year.

For the 2007-08 fiscal year, organizations making donations to nonprofit scholarship-granting programs can take a total of $44.66 million in credits, as well as $22.33 million in credits for contributions to school improvement organizations. An additional $8 million in credits may be taken for donations to organizations granting preschool scholarships.

“The General Assembly should be applauded for recognizing the tremendous impact the EITC program is having on families across the Commonwealth,” said Andrew LeFevre, executive director of the REACH Alliance, a school choice advocacy group based in Harrisburg. “Thousands of additional families will now have access to the schools of their choice because of our legislative leaders’ foresight.”

Popular Program

The Pennsylvania EITC was established in 2001 at the urging of then Gov. Tom Ridge (R). The total amount of credits permitted in 2001 was $30 million, with a $20 million limit for donations to scholarship organizations and a $10 million limit for donations to school improvement organizations.

Each year, the credit–awarded on a first-come, first-served basis–has been exhausted well before the end of the fiscal year, with more than 2,300 Pennsylvania businesses participating.

The credit for the 2004-05 school year was exhausted in less than two months, LeFevre said, and in 2005-06 it was exhausted on the first day of the fiscal year. Last year businesses reached the limit within three months. At press time LeFevre projected they would reach the new limit by mid-September, less than three months into the fiscal year.

According to the REACH Alliance, approximately 33,000 students in Pennsylvania received scholarships during the 2006-07 year. The EITC is limited to households where total income is $50,000 plus $10,000 for each child in the household.

Massive Savings

Last year, the average scholarship amount was $1,090, while the average cost to educate a student in a Pennsylvania public school is approximately $11,000. The REACH Alliance, in a July 2007 analysis by LeFevre and Nate Bohlander, estimates the EITC saves the state $327 million annually.

The Commonwealth Foundation for Public Policy Alternatives–a think tank based in Harrisburg–published a policy brief in July written by Mary Yoder and Jared Walczak, who offered a slightly more conservative savings estimate of $305 million since the program began.

Citing a Milton and Rose D. Friedman Foundation study that found 30 percent of scholarship recipients would attend public schools without the scholarship, Yoder and Walczak wrote, “for each dollar in EITC tax credits, school districts saved at least $1.89.”

Room to Grow

Despite the increased tax credit caps, Nathan Benefield, the Commonwealth Foundation’s director of policy research, says the demand for scholarships will outstrip supply.

“It was good to see the increase, and it’s certainly positive, but the amount of the credit is small compared to the amount spent on public education,” said Benefield.

The Pennsylvania Department of Education reported total state spending allocated for pre-K through 12th grade education is $9.4 billion for the 2007-08 fiscal year. The EITC limit is less than 1 percent of that amount. Benefield cited one new program–Pennsylvania Pre-K Counts–that will spend $75 million on 11,000 students.

“We’d like to see an even greater expansion to meet the demand for scholarships,” Benefield said.

Michael Coulter ([email protected]) writes from Pennsylvania.

For more information …

The following documents are available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to and search for the document numbers provided below.

“Fiscal Impact of the Educational Improvement Tax Credit Program,” by Nate Bohlander and Andrew T. LeFevre, REACH Foundation Issue Analysis, Vol. 1, No. 2, July 2007, document #21955

“Education by the Numbers: The Fiscal Effect of School Choice, 1990-2006,” by Susan Aud, Milton and Rose D. Friedman Foundation, May 7, 2007, document #21956

“The Dollars and Sense of School Choice,” by Mary Yoder and Jared Walczak, Policy Brief, Commonwealth Foundation, July 31, 2007, document #21957