Every Nebraska child deserves an excellent education. Some families can simply move to a new neighborhood or find a local private school if a child is not succeeding in a traditional public school. For generations, families across the U.S. have relied on these options to help their child achieve in the classroom.
However, these choices are not available to every family.
One out of every three Hispanic children in Nebraska aged 17 or younger lives in poverty.1 Meanwhile, the “unauthorized immigrant” population in Nebraska rose between 2009-2012, making the state 1 of only 7 to see such an increase.2 The Nebraska Department of Economic Development finds that the net migration of Nebraskans out of the state has outnumbered incoming residents in every decade except one (1990-2000) since 1930.3
What do these data points mean for residents? The state’s demographics are changing. More students are entering state schools that may not speak English as their first language and may need help catching up to their white peers. The College Board reports that approximately one-third of Hispanic high school freshman will not graduate in four years.4
The consequences of any student not finishing high school are dire. The unemployment rate for individuals without a high school diploma is almost triple the rate for those with a bachelor’s degree (11 percent vs. 4 percent).5 Minority individuals, in particular, struggle without a quality K-12 education: black men without a high school diploma are more likely to be in prison than employed.6
Lawmakers should start by giving more children access to a high-quality education. Today, nearly every state (except Nebraska) has a charter school law that allows parents, teachers, and community leaders to create independent public schools. Policymakers in 18 states, Douglas County, Colorado, and Washington D.C. allow families to use education savings accounts, school vouchers, or tax credit scholarships to choose a private school. Research finds that these options have a positive effect on graduation rates, college entrance and even college persistence.
This brief outlines how a tax credit scholarship program would provide great educational choices for more Nebraska families. These flexible learning opportunities help students from disadvantaged backgrounds to enroll in high-performing schools that they would not otherwise be able to access. The scholarships can also help students who are outpacing their peers in a traditional school to stay ahead and be prepared for success after graduation.
All students should have the chance to succeed. Nebraskans should give this generation and future generations the chance to do so.
Matt Figueroa knows that he’s attending a great school. “I feel the curriculum is better, and it requires you to think about your answers,” Matt says about Brophy College Preparatory Academy, located in Phoenix.
But Matt also knows that he would not have the chance to attend a challenging school if not for a scholarship from Brophy Community Foundation, an Arizona tax credit scholarship organization. “The amount of money I was gifted was substantial,” Matt says, adding, “Clearly without their help, I would not be where I am right now.”
As a senior, Matt is a leader both in and out of the classroom: He is a part of the school’s Big Brother/Little Brother program that helps incoming freshman adjust to the rigors of high school, and Matt has already been accepted to Arizona State University. He set his sights on being a broadcast journalist.
“I’m going to have to make my own way with that,” Matt says, “but I’m looking forward to getting my foot in the door.”
Brophy Community Foundation is one of 62 school tuition organizations, or STOs, that provide private school scholarships to Arizona students.7
Individuals and businesses make charitable contributions to the STOs, and donors receive a dollar-for-dollar tax credit for their donations. Last year, STOs awarded nearly 40,000 scholarships to students.8 As this brief will show, many of these scholarships help students from disadvantaged families attend high-quality schools that they would not otherwise be able to afford. In fact, under one of Arizona’s three tax credit scholarship laws, STOs must award all of the scholarships to students from low income families.
Lawmakers in 14 states have enacted tax credit scholarship systems.9 This brief will describe the different laws and explain the ways in which certain provisions help students find great schools and succeed in the classroom.
Currently, Nebraska does not offer parents any private alternatives to their local public school, and the state does not even have a charter school law. These options are important to families because traditional public schools are a good fit for some students, but not for all children. Every child is different, and for generations public schools have struggled to provide an array of different services for students that have fallen behind their classmates, or may be well ahead of their peers, or others that have special needs such as cerebral palsy or fall on the autism spectrum. Yet these children matter, too.
In an international comparison, if Nebraska was considered its own country, 29 other European and Asian nations would outperform the state in math.10 If only the test scores of Nebraska students from families where at least one of their parents has a college education were used for comparison, 26 other nations, including Poland, Germany, and Estonia would still outperform Nebraska students.
In reading, an achievement gap persists between white students and minority students: A national comparison finds a 27-point gap between white and black students in the state.11 Notably, this gap has not changed significantly since 1992, when the U.S. Department of Education began keeping track.
Nebraska families need more access to high-quality schools. Not every family will use these new options, but for those students that will seek a scholarship, these scholarships and other flexible learning opportunities will be life-changing.
Matt Figueroa knows how impactful his tax credit scholarship is. “It’s meant the world to me,” Matt says.
What Is a Tax Credit Scholarship?
“Tax credit scholarship” is the phrase used to describe laws governing three different student opportunities. One such law allows individuals to make charitable donations to non-profit organizations that use the contributions to award private school scholarships to students. In Arizona, the non-profit organizations are called School Tuition Organizations (STOs). In other states, the organizations are sometimes referred to as Scholarship Granting Organizations (SGOs) or Student Scholarship Organizations (SSOs). Donors to the organizations receive a tax credit for their donation. Arizona donors receive a dollar-for-dollar credit for their contributions, with certain limits (see “Arizona’s Tax Credit Scholarships” below). Tax credits in other states are lower and, in some cases, only worth a portion of the total amount contributed. In Indiana, for example, donors receive a tax credit worth 50 percent of their contribution.12
The second type of tax credit scholarship is similar to the individual-donor program, except corporations make the charitable contributions and receive credit. The difference between the two types of programs is important because some states, such as Florida, do not have an income tax law for individuals. Florida lawmakers enacted what has become the nation’s largest corporate tax credit scholarship program (for more on how corporate tax credit scholarship programs work, see “A Case Study: Arizona’s Tax Credit Scholarships” below).13
Additionally, under individual tax credit scholarship laws, lawmakers set the programs’ limits based on how much an individual donor is allowed to contribute to a scholarship organization. The state puts a cap on contributions. In corporate tax credit scholarship programs, lawmakers typically set a cap on the statewide total monetary figure denoting how much the state will award each year in tax credits to businesses.
Corporate and individual contributions fund Indiana’s tax credit scholarships, mentioned above.14 Indiana’s program is an example of one in which the state limits the total amount of tax credits the state will award to all donors. The state limits tax credits to $7.5 million in awards annually.15 Again, donors can take a 50 percent credit on their taxes for their charitable contributions to state SGOs.16
Indiana students eligible for the scholarships must be from families where the household income is not greater than 200 percent of the income level that qualifies students for the federal free and reduced priced lunch program.17
While there are no academic achievement results for Indiana’s scholarships, the program has grown rapidly. Since inception in 2009-10, the program has grown from 386 scholarships to 11,067 in 2015.18
The third type of tax credit is less common and called a personal use tax credit. With a personal use tax credit, individuals pay for private school tuition and fees, report the expenses on their taxes, and receive a credit for their expenses. Personal use tax credits address a complaint commonly heard from private school parents: Parents must pay both property taxes (which are often used to fund local public schools) and private school tuition for their children. As a result, private school families pay twice for their child’s education.
Personal use tax credits’ shortcoming is that parents must have the money up front in order to afford private school costs. Low income families or families of children with special needs often do not have enough money ahead of time to pay for private school tuition without assistance. In other cases, a child may have additional needs that parents cannot afford to meet—such as education therapy services—in addition to paying private school tuition.
As Figure 1 indicates, tax credit scholarship laws are different from state to state. The laws differ not only on who can take a credit—individuals or businesses—but also based on which students lawmakers chose to make eligible for the scholarships. The American Federation for Children reports that 10 states have scholarship programs for children with special needs, including Arizona, South Carolina, and Oklahoma.19 Students must have an Individualized Education Plan (IEP) in order to qualify for these scholarships.
In most of the other programs operating in states around the country, lawmakers based scholarship eligibility on a student’s family income (also known as a “means test”). In Iowa, for example, scholarships are available to students from families where household income is not greater than 300 percent of the federal poverty line.20 In Alabama, eligible students’ family income cannot exceed 200 percent of the poverty line.21
A Case Study: Arizona’s Tax Credit Scholarships
Arizona operates three tax credit scholarship programs for students. As mentioned above, individuals and married couples may donate money to STOs. The organizations use the contributions to award students with scholarships to private schools. Under current law, individuals receive a dollar-for-dollar tax credit for donations worth up to $1,000.22 STOs can use the first $500 according to the organizations’ criteria for scholarship awards, but the next $500 must be used for students switching from a public school to a private school.23 Married couples can contribute up to $2,000, and the first $1,000 can be used to award scholarships based on the scholarship organizations’ discretion, while any contribution above $1,000 and up to $2,000 must be used for a student switching from public to private school.
Under the individual/married couple scholarship law, STOs can develop their own rules for choosing students for their scholarships—under certain conditions: Arizona law stipulates that STOs must consider applicants’ financial need, and STOs may reserve up to 10 percent of their revenue for administrative costs.24 In 2013, Arizona STOs collected more than $55 million in contributions from individuals/married couples.25 Arizona STOs collected $20 million in “switcher” donations, or contributions between the $500-1,000 mark for individuals and $1,000-2,000 for married couples.
In 2006, Arizona lawmakers enacted a provision that allows businesses to receive a dollar-for-dollar tax credit for contributions to STOs (Florida’s program, mentioned earlier, is also a corporate tax credit program).26 These scholarships have specific rules governing STOs’ award criteria. The organizations must award all scholarships funded by corporate donations for students switching from public to private school. In addition, in order to be eligible, students’ family income cannot exceed 185 percent of the income limit for students eligible for the federal reduced-priced lunch program. Children from active-duty military families stationed in Arizona are also eligible for scholarships funded through corporate donations.27
Scholarship awards funded with corporate donations are capped at $5,000 for students in grades K-8 and $6,300 for high school students.28 For FY 2014-15, the statewide cap on corporate tax credits for donations to Arizona STOs is $43 million. This means that Arizona will provide all businesses that made contributions to STOs no more than a total of $43 million in tax credits for their donations. This figure increases by 20 percent each year.29
Lawmakers enacted the state’s third tax credit scholarship law, Lexie’s Law, after the Arizona Supreme Court ruled a school voucher program unconstitutional in 2009.30 In a special session, lawmakers created a corporate tax credit scholarship program for students with special needs and children in the state foster care system. Students that met these criteria were eligible for vouchers before the state supreme court’s decision.
The law was named for Lexie Weck, a then-7-year-old girl diagnosed with multiple needs, including autism.31 Lexie was using a voucher to attend a private school, but the tax credit scholarships allowed her to remain at her new school even after the voucher program ended.
Like corporate scholarship awards for students from low income families, Lexie’s Law awards are subject to limits under the law. Scholarships must be the lesser of 90 percent of the state aid that would have funded a scholarship student in the traditional public school system or the cost of tuition at the selected private school.
In September 2013, Gabe Alba-Rivera enrolled in MIT, and a company that works with 3-D printers offered him an internship.32 The college acceptance and job offer are a remarkable chapter in Gabe’s story. He grew up in León, Guanajuato, Mexico, where he played with broken pieces from his school’s roof at recess. With these broken tiles as his only source of amusement, he used them to draw hopscotch squares in the playground.
Gabe says he used to carry a bucket of water as his bathroom pass—and the water was then used to flush the toilet. When he moved to the U.S. and earned a scholarship to Brophy Preparatory Academy, he says he had “’pinch me’ moments when the toilets at Brophy just ‘know’ when to flush.”
While at Brophy, Gabe created and coached a robotics team for Loyola Academy Middle School, a school that sends many of its graduates to Brophy. Today, Gabe has the opportunity to work with cutting-edge technology at one of the world’s most prestigious universities.
“I’ve done so much already, and not just academically,” Gabe said in October 2013 about his experience at MIT.
School Choice and Student Success
Matt and Gabe’s success stories are not unique. For nearly 20 years, social science researchers have studied the results of parents’ and students’ choices to attend private schools using scholarships and school vouchers. To date, researchers have conducted 13 studies using the most rigorous form of statistical evaluation, random assignment, to document student achievement in private school choice programs.33 Twelve out of the 13 studies find that student achievement improved based on a child’s receipt of a school voucher or scholarship, while the remaining study found no significant impact. Thus, researchers have demonstrated that at the very least, school choice does no harm to participating students and in most cases, scholarships and vouchers help students succeed.
As the name suggests, a random-assignment evaluation randomly assigns students to use a scholarship to attend a private school using a lottery system. Researchers can then compare student and school results such as graduation rates and test scores, and a study’s results will not be biased because of a participant’s choice. A parent’s decision to choose a private school outside of a lottery system is a variable that makes a study’s results less reliable.
In the most recent study of a school choice program using random assignment, Matthew M. Chingos and Paul E. Peterson found, “Minority students who received a school voucher to attend private elementary schools in 1997 were, as of 2013, 10 percent more likely to enroll in college and 35 percent more likely than their peers in public school to obtain a bachelor’s degree.”34 This study is one of the first to document the longitudinal impact of school choice on student success. In 2012, Chingos and Peterson found that African American students using private school scholarships were more likely to attend college.35
Researchers studying school vouchers in Milwaukee and Washington, D.C. have found similar results. In Milwaukee, the School Choice Demonstration Project found that using a voucher had a positive effect on whether a student graduated from high school.36 Researchers found that “enrolling in a private high school [with a voucher] increases the likelihood of a student graduating from high school, enrolling in a four-year college, and persisting in college by 4-7 percentage points.”37 This team also found higher graduation rates among students using a school voucher in the Nation’s Capital.
In Florida, state law requires schools enrolling students using a tax credit scholarship to report students’ scores on a nationally norm referenced test of the school’s choice.38 Schools must also report the scores to an independent researcher of the state department’s choosing, and the researcher must make regular evaluations of student progress. Florida’s law is a model of legal provisions that allow lawmakers and the public to follow student academic scores and still preserve private schools’ autonomy over what they teach and how they measure student progress.
In 2011, David N. Figlio conducted the fourth required study of Florida’s scholarships and found
The best possible statistical estimates (using a tool called regression discontinuity design) of the effects of program participation indicate that participation is associated with small improvements in reading and mathematics, relative to public school students who applied for participation in the program, though these differences are not always statistically significant. The results are consistent with a finding of small but positive differences between program participants and non-participants.39
Here again, similar to the random-assignment results referenced earlier, a rigorous empirical study—this time of students using a tax credit scholarship—found that the scholarships positively impacted student achievement. To date, no empirical evidence suggests that private school scholarships negatively impact a student’s education.
Economic Impact Studies
Student test scores are not the only results of school choice programs that impact families and state lawmakers. Tax credit scholarships are generated by, as the phrase suggests, forgone state revenue in the form of tax credits. In Arizona, scholarships are worth less than the average funding per student, which means that when a student leaves a public school for a private school using a scholarship, state taxpayers benefit from a cost-savings.40
As shown in Figure 4, average scholarship awards are less than $2,000 for mainstream students and under $4,000 for students with special needs. The average per student funding in Arizona is $8,907 for mainstream students and $18,700 for children with special needs.41