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Education | School choice advances under the banner of tax credits

Issue: "The Da Vinci craze," May 20, 2006

Reformers in some states have moved from pushing vouchers to emphasizing educational tax credits, which seem more palatable to both liberals (because no money is taken from public-school coffers) and conservatives (because private schools are less vulnerable to state regulation than if they become dependent on voucher payments).

Pennsylvania rejected voucher legislation but welcomed a tuition tax credit in 2001, much to the joy of Pittsburgh-area residents Kenneth and Renee Konias. Two years ago, Mr. Konias left his job as a maintenance engineer after he ruptured two discs in his neck, and medical bills left him and his wife unable to come up with all of the $6,000 in tuition their 10th-grader Ken needed at Serra Catholic. Their son was able to attend, though, thanks to a $1,250 scholarship made possible through Pennsylvania's Educational Improvement Tax Credit (EITC) program.

EITC provides companies with a tax credit equaling up to 90 percent of contributions to nonprofit scholarship funding organizations (SFOs). The annual result: Over 15,000 low-income students receiving scholarships through over 100 SFOs, and a satisfied Mrs. Konias, who said of her son, "I always wanted to provide better schooling for him than in the public school. I know when I went to school, they didn't care if their students did their homework or anything."

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Parental dissatisfaction is the driving force nationwide behind tuition tax credits, yet progress at the federal level has been slow. Every year since 2002 President George Bush's budget plans have included a federal tax credit of up to $2,500 for private-school tuition paid by low-income families with children in failing public schools, but Congress has said no. Meanwhile, six states-Pennsylvania, Iowa, Arizona, Minnesota, Illinois, and Florida-are trying out the concept.

Programs differ widely from state to state. Arizona and Florida both offer dollar-for-dollar credits for money sent for scholarships, but Arizona offers them only to individuals and they are limited to $500, while Florida gives tax credits to corporations only and they cannot exceed 75 percent of a corporation's tax bill. Two months ago, Arizona expanded its program by making corporations eligible.

In Minnesota, families making less than $33,500 a year can take advantage of a 75 percent credit, while families making between $33,000 and $37,500 get less. Illinois has a 25 percent credit on qualified educational expenses over $250, with a maximum of $500 per family. Iowa recently increased its credit from 10 percent to 25 percent of the first $1,000 spent.

Taxpayers generally seem pleased. "I think that many are surprised at how successful (EITC) has been," says Pennsylvania state Rep. Sam Rohrer, the Republican who authored the bill creating credits in his state. He opposes vouchers and their inherent threat of government control, and says that a credit "eliminates the government fingerprints on the money [and] eliminates the normal accusation that tax dollars are being given to religious entities. It's private money. It's money that's never gone to the state."

In the courts, tuition tax credits have met with consistent success. Last year, a federal district court upheld Arizona's scholarship program as constitutional, despite the ACLU's claim that it violates the Establishment Clause in benefiting more religious than secular schools. In the decision, U.S. District Court Judge Earl H. Carroll characterized the tax credit as a "neutral, secular" program and said "multiple layers of private choice ensure that the State itself does not aid recipients with regard to their religion."

Gary McCaleb, senior counsel for the Alliance Defense Fund, which defended Arizona's program, says that as long as a program does not discriminate between schools with regard to religious affiliation, and as long as private choice rather than public decree drives the flow of money, the courts will uphold it.

The Pennsylvania branch of the ACLU has hesitated to call tax credits unconstitutional. Larry Frankel, the branch's legislative director, says the Arizona defeat has influenced his strategy: "While we continue to think this is not a sound approach to real educational reform, we have decided against challenging the program in the courts."

But People For the American Way is challenging the accountability of tax-credit programs and bolstering its positions by alleging fraud among Florida's scholarship funding organizations. One SFO, the Silver Archer Foundation, purportedly collected donations without incorporation or registration in Florida, which the law requires. Tampa-based Islamic Academy of Florida lost funding after its founder was said to be the North American leader of Islamic Jihad, a Palestinian terrorist group.

Responding to such concerns, four SFOs formed the FLA-SFO, an umbrella organization with strict guidelines. FLA-SFO members now administer 98 percent of the state's corporate tax-credit scholarships.

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