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Boon or ‘black hole’? Pa. private school scholarship program considered for major expansion

Listen 1:46
Students at Lansdale Catholic High School in a 2017 file photo. (Emily Cohen/for NewsWorks)

Students at Lansdale Catholic High School in a 2017 file photo. (Emily Cohen/for NewsWorks)

A tax-break program that routes millions to Pennsylvania private schools could grow much larger if a new bill becomes law.

The proposal has powerful support in the State Senate, but Governor Tom Wolf’s spokesman calls it an “unfunded mandate.”

At issue is one of the state’s signature school choice programs, one that already provides nearly 50,000 students with scholarships to attend private schools.

Through the Educational Improvement Tax Credit (EITC) program and the Opportunity Scholarship Tax Credit (OSTC) program, Pennsylvania offers a maximum of $210 million in tax credits.

The recipients of these credits — which include businesses and individuals — donate to organizations that dole out scholarships or run educational “improvement” programs. The donors can then deduct between 75 and 90 percent of that amount from their state tax bills. So someone could donate $1000 to a scholarship organization, and then pay between $750 and $900 less in state taxes as a result.

The value of available tax credits has increased sevenfold since Pennsylvania started its first tax-credit program in 2001. But some say the demand for these credits — and the scholarships they provide — still exceeds supply.

“The problem is the program isn’t growing fast enough,” said Elizabeth Stelle, director of policy analysis for the Commonwealth Foundation, a think tank that supports the tax credit. “We need more than just incremental increases year after year.”

That’s where Senate Bill 299 comes in.

Under the recently introduced proposal, the amount available in each tax credit program would increase 25 percent annually if donors claimed at least 90 percent of the available credits in the prior year. Supporters call this an “escalator” clause, meaning the amount would go up automatically.

The tax-credit program has been a political bargaining chip during past budget seasons. If the Senate proposal passes, the program could grow unencumbered.

“That’s a very important part of it,” said State Sen. Mike Regan (R-York), the bill’s primary sponsor. “It takes the politics out of it.”

The bill is modeled off of a similar idea in Florida, whose tax credit program boomed after the state instituted an “escalator” clause in 2011.

Before then, Pennsylvania organizations distributed more scholarships through its tax-credit program than Florida, according to data collected by the Commonwealth Foundation. Today, Florida hands out 107,000 scholarships — more than double what Pennsylvania distributes. The dollar cap on Florida’s tax-credit program has skyrocketed from $140 million to nearly $700 million.

Pennsylvania could follow a similar path under the arrangement laid out in Regan’s bill. If demand exceeds the 90% threshold for five consecutive years, Pennsylvania’s tax-credit cap would rise from $210 million to $641 million.

Backers say the demand will be there.

They believe businesses will take advantage of added philanthropic tax breaks and say families will eagerly accept scholarships. Scholarship organizations rejected over 50,000 applicants in 2016-17, according to data from the Pennsylvania Department of Community and Economic Development that was collected and collated by the Commonwealth Foundation through a right-to-know request.

School choice proponents say tax-credit programs allow money to follow the student, and empower families to pick the schools they think will work best for their children.

“I think it’s a better way than just throwing countless millions of dollars into failing schools that don’t seem to be getting any better,” said Regan, whose bill is co-sponsored by Senate President Pro Tempore Joe Scarnati (R-Jefferson).

Backers also paint the tax-credit programs as a financial boon for Pennsylvania.

Although scholarship amounts vary from organization to organization, the average scholarship in 2016-17 was less than $3,000. If a student leaves the public system thanks to a modest scholarship, their home school no longer has to pay to educate them. That means more money left over for students in public schools, where per-pupil costs run much higher than the average scholarship award.

Only a small percentage of state funding for schools is distributed based on current enrollment numbers.

“It is a net savings,” said Stelle with the Commonwealth Foundation.

That logic only holds, though, if students receiving scholarships would have otherwise gone to public schools.

Susan Spicka, who heads Education Voters of Pennsylvania, doubts that’s the case. She worries the state is simply subsidizing the tuition of families who would have attended private school regardless.

If that’s the case, she says the program needlessly deprives Pennsylvania of potential tax revenue that could be used on roads, social services, or traditional public schools.

“This is an incredibly expensive program,” said Spicka, who opposes the senate measure.

“It’s very possible that this will just become a subsidy for middle class and wealthy families who are already sending their kids to private school.”

Pennsylvania doesn’t publish data on whether the families who receive these scholarships previously attended traditional public schools or would have without the scholarship money. Nor does it release information on the wealth of families who receive scholarships.

A legislative review of the tax-credit program, conducted ten years ago, found that the average family who benefits from the program made $29,000 a year. However, the income threshold has gone up considerably since then.

A family with two children can now earn up to $116,000 and still be eligible for a scholarship funded through the tax-credit programs. In 2009, the eligibility limit for that family would have been $70,000.

Among the 17 educational tax-credit programs run by states, only six allow families who earn more than the state’s median household income to receive scholarships, according to a recent review by the federal government. Pennsylvania runs two of those six programs.

The ambiguity around who receives tax-credit scholarships points to another criticism of the program: lack of transparency.

The state does not track academic outcomes for students who receive scholarships, or publish a list of what schools those students attend. Spicka worries many attend religious schools where curricula doesn’t meet state standards.

“Once the money goes into the [tax-credit] program it goes into a black hole,” said Spicka.

Only Florida and Arizona have tax credit programs that deliver more scholarships to students than Pennsylvania.

Regan believes his bill is better positioned than a similar measure that was introduced at the end of last session.

“Nothing’s easy, but we’re going to be fighting for it,” said Regan. “I’m hopeful.”

Governor Wolf has approved multiple increases to the tax-credit ceiling, which has gone from $150 million to $210 million under his watch.

He says this proposal, though, goes too far.

“Governor Wolf has compromised with the legislature on manageable increases to this program in the last few years,” said Wolf’s spokesman, J.J. Abbott. “However, he is opposed to an unfunded mandate for these programs, as it would drive up the deficit and take resources away from our public schools.”

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