Tax Credit Program Could Save New Mexico Millions

Published July 1, 2005

Providing students with scholarships financed by tuition tax credits could save New Mexico more than $42 million in 10 years, according to a study released April 28.

“The Fiscal Impact of Tuition Tax Credits in New Mexico,” a rigorous economic study conducted by PolEcon Research, was commissioned jointly by the Milton & Rose D. Friedman Foundation and Albuquerque Partnership.

“Students from families with money can afford to choose a different school if their assigned public school doesn’t serve them. Students from low-income families have the same right,” said Troy Williamson, executive director of Educate New Mexico, a scholarship-granting organization in Albuquerque.

“This right becomes especially important in a state like New Mexico,” said Williamson, “a state that consistently ranks at or near the bottom of every educational assessment in our nation.”

New Mexico posted the nation’s lowest scores on the reading portion of the National Assessment of Educational Progress (commonly referred to as the nation’s report card) in 2002-03, with just 20 percent of eighth graders scoring in the proficient range.

Scholarships Spreading

Six states–Arizona, Florida, Illinois, Iowa, Minnesota, and Pennsylvania–have laws that give individual or corporate tax relief for contributing to scholarship organizations, which in turn provide grants for students to attend private schools.

New Mexico legislators are considering a tuition tax credit for individuals and corporations contributing to a “Citizen Educational Support Fund” (CESF) such as Educate New Mexico. CESFs would be nonprofits that provide either scholarships for students to attend private schools or education materials to teachers in public schools, but not both.

Brian Gottlob, author of PolEcon’s study, believes the plan is fiscally promising.

“In order for the program to have no cost to the state … the tax revenue lost as a result of the contributions to CESFs from individuals and businesses must be offset by lower expenditures for educating public school students,” Gottlob said. “The way New Mexico saves money is that while it may cost them anywhere from $1,000 to $3,500 in tax credits for every scholarship, it will save over $5,300 for every student that leaves public school to attend an independent school.”

Migration Won’t Hurt Schools

Gottlob’s calculation is based on a conservative estimate of student migration from public to private schools. In the first year, about 1,700 students will need to transfer from public to private schools; by the third year, about 1 percent (fewer than 4,000 students) will need to migrate for the state to achieve an even fiscal break.

“I think the numbers of public school migrants we are forecasting, while saving the state money, is likely to be small on a percentage basis and should allay fears of tax credit critics that the proposal would somehow decimate public schools,” Gottlob said.

The study suggests the predicted level of migration is not unreasonable because parents will likely treat the scholarship as a limited form of income, and with the rise of income comes increased movement to independent schools, according to PolEcon’s analysis of U.S. Census data from 2000.

Natural Balance

Gottlob’s research indicates New Mexico stands to benefit fiscally if at least 60 percent of the scholarships are awarded to students who qualify for the free- and reduced-price lunch program. He notes “the 60 percent rule” could bring balance to the entire program.

“In order to meet the 60 percent criterion, CESFs will have to provide scholarships to a large number of students currently enrolled in public schools, thus ensuring a savings to the state,” Gottlob said, referring to the fact that most low-income students are not currently enrolled in independent schools. “The final implication is that in order to meet the 60 percent rule by inducing migration from public schools, you will have to offer scholarships of a larger dollar value because lower-income students will require a greater subsidy to migrate. When you offer higher dollar value scholarships you will be able to give fewer of them, so it acts as a check on migration.”

The optimal scholarship would be $1,750, Gottlob said. Even though that would cover only half the cost of annual tuition at the average New Mexico private school, Williamson said most families would gladly make up the difference to give their kids a better education, given the number of private school applications he sees every year.

“Families,” he said, “are standing in line to pay for what is being offered them for free down the street.”

The New Mexico Education Association did not respond to interview requests.

Kate McGreevy ([email protected]) is a freelance education writer from Indiana and formerly worked with the Cesar Chavez Public Charter High School for Public Policy in Washington, DC.

For more information …

Brian Gottlob’s April 2005 study, “The Fiscal Impact of Tuition Tax Credits in New Mexico,” is available online at

More information on Educate New Mexico is available online at