Tax Credits For Private and Faith-Based Based Education: Lessons From Pennsylvania

Some people believe that tax credits and vouchers are the same thing when it comes to new ways of funding education.

They’re not.

While they both have an effect on the State’s budget, the source and processes regarding those funds are completely different.  With vouchers, state monies go directly to benefit families who would qualify for the voucher.  Then that voucher could be used as payment in full for educational services at schools which choose to accept them.  However, one must read the words that are used in deciding whether or not to accept vouchers.  Private and faith-based schools usually have other “soft costs” that go beyond tuition – such as uniforms, or the expectation that parents will participate in fundraisers to help the school further enhance its income needs.  Voucher families, however, are exempt from that expectation.  “Payment in full” means “payment in full.”  And if the tuition is more than the amount of the voucher, the difference must be accounted for in some other way.  A voucher is not financial aid nor is it a scholarship.  It’s a voucher.

Tax credits, on the other hand, reduce the tax liability of an individual or a corporation.  Monies are donated to a scholarship organization, and, if approved, the individual or corporation receives a tax credit.   Monies don’t flow into the State’s coffers, and then out to the schools or their parents.  Those who have donated receive a tax credit, and the determination of eligibility rests on the scholarship/educational improvement entity, as does the amount of funds to be awarded.

Pennsylvania’s tax credit program was the first to be signed into law in 2001, and today, other states, like Florida, Arizona and Iowa have similar programs.  Illinois just enacted legislation to offer this type of funding to help struggling faith-based and private school families.

The reasons why the program works are pretty straightforward.  Of course, parents of children in faith-based and private schools receive relief from the ever-escalating costs associated with tuition and fees at these schools, but allowing families to have help with these funds can reduce the number of students in the public school without having a significant effect on the funding the school receives.  If public school classrooms currently overcrowded, the closure of a faith-based or private school with no other choice in educational environment only adds to the population of the public school.  Further, a faith-based or private school education doesn’t take the entire cost of education away from the public school which is what happens when a child is enrolled in a cyber and/or charter school as approved by the state.  Recently, our local public school district found itself with a $3 million+ deficit for the coming school year.  It was blamed on early retirement packages that needed to be funded, as well as other line items in the budget.  However, what was glazed over was the fact that a couple hundred students in the district are enrolled in cyber-charter schools.  If the cost of education in the district is $15,000 per student, multiplied by a couple hundred, well, do the math.

With that in mind, the coronavirus pandemic has caused financial upheaval.  Businesses have shut down and laid off individuals as their businesses were shuttered and then, possibly, reopened gradually.  A question being considered by every organization that offers tax credit scholarship this year is what will happen to the pool of scholarship fund, since if businesses don’t make a profit, they pay no tax.  No taxes means no tax credits, and no tax credits means no scholarships!  Further, with schools opening virtually this year due to the pandemic, a number of parents are choosing to home school their children or choose charter schools,  causing the public schools to lose all the revenue associated with a student since ALL the funding allocated to that child by the state will be forfeited.  Public schools could find themselves in an even worse financial condition, and may have no choice but to cut programs AND raise taxes.

Be careful what you wish for…because it’s a system, and each element of the system has an impact on every other element in the system.