choice history

The rise of tax credits: How Arizona created an alternative to school vouchers — and why they’re spreading

PHOTO: U.S. Department of Education

With its recent adoption of a tax credit scholarship program, Illinois became the 18th state to adopt an innocuously named — but highly controversial — policy that critics have described as a “backdoor voucher.”

In some sense, the description is apt. But by injecting a middle layer into the government’s support of private school tuition, tax credits help avoid some of the legal and political obstacles that have dogged efforts by advocates, like Education Secretary Betsy DeVos, to promote school choice through vouchers.

Perhaps as a result, more students now use tax incentive programs than vouchers to attend private schools in the U.S. A federal tax credit is also seen as the Trump administration’s favored approach for promoting school choice at the federal level, though its immediate progress looks increasingly unlikely.

The 20-year history of this approach offers insights into why it has taken hold: resistance to legal challenge; limited government oversight, appealing to among free-market advocates of school choice; and a more politically palatable branding than vouchers.

This is far better than vouchers — it is easier to pass and easier to uphold,” Trent Franks, a conservative activist and now a U.S. congressman, said in 1999 after Arizona’s state supreme court upheld its tuition tax credit program. “I think this is the direction the country will go in.”

He proved largely right.

The number of students participating in private school choice programs over time, including tax credits (green) and vouchers (orange). (EdChoice)

Arizona’s pioneering approach

The first tax credit program was passed in Arizona in 1997. Arizona’s constitution, like most other states’, bars public dollars from going to religiously affiliated schools. Proponents knew any plan to promote private school choice would likely end up in court.

So they landed upon an ingenious approach that would make the initiative more likely to survive legal challenge. Instead of issuing vouchers for private school tuition — like Milwaukee had done since 1990 — the state would outsource that role to nonprofits. Those groups would get their money from donations, encouraged by generous tax credits.

It worked like this: An individual could donate up to $500 to a nonprofit, then get a tax cut for the exact amount they donated. The nonprofit would take the donated money and use it to offer tuition stipends — essentially vouchers — to families who met certain conditions. That system allows the state to promote the tuition subsidy, losing $500 in revenue for each maxed out donation, without paying for it directly.

Arizona’s program has since grown, and the state has created a number of other tax credit programs. (This approach is distinct from programs that give individual families tax breaks for educational spending on their own children; Illinois has had such an initiative since 2000, while Minnesota has had one since 1955.)

Arizona’s and Milwaukee’s policies look similar. In both places, students can receive a subsidy to attend a private school, and it comes at the expense of state revenue. But crucially, in Arizona, the government never had the money to begin with.

“The point was in part to ensure that these were not government-run programs,” Lisa Graham Keegan, who was Arizona’s school superintendent when the tax credit program passed, told Chalkbeat. “Those scholarships are completely separate, both for legal reasons and for philosophical reasons.”

Tax credits: the legal survivors

Private school choice across the country have been inundated with legal challenges, but tax credits have proven remarkably resilient.

Although voucher programs have continued to grow and were upheld by the U.S. Supreme Court in 2002, they have also faced legal challenges in state courts. Colorado’s top court, for example, struck down a voucher program in 2015. (The case is currently being reconsidered in light of a recent Supreme Court decision.)

But tax credits have never ultimately lost in state or federal court, prevailing in Arizona, Alabama, Florida, Georgia, New Hampshire, and the U.S. Supreme Court.

Tax credits “grew up as a result of saying we need a different vehicle than vouchers in states that have legal issues,” said Robert Enlow, the president of EdChoice, an Indianapolis-based group that backs both vouchers and tax credits. (EdChoice is a funder of Chalkbeat.)

Often, cases have been thrown out before substantive arguments can be made, amounting to a win for the programs: Some courts have ruled that private organizations or individuals do not have legal standing to challenge tax credits, since they aren’t government expenditures.

That was the decision in the 2010 Supreme Court case Arizona Christian School Tuition Organization v. Winn, in which the majority said equating government spending and tax credits was “incorrect.”

“When Arizona taxpayers choose to contribute to [scholarship organizations], they spend their own money, not money the State has collected,” Justice Anthony Kennedy wrote.

Light regulatory touch proves a blessing and a downside

To Arizona conservatives skeptical of both regulation and the education establishment, the system had an additional benefit.

“The point was in part to ensure that these were not government-run programs,” said Graham Keegan, and additionally that “these don’t become government dollars.”

Nationwide, tax credit scholarship programs appear less regulated than voucher programs, some of which require private school students to take state tests or for schools to undergo financial audits.

Free-market oriented supporters “see ‘neovouchers’ as much less likely to be regulated and have restrictions — the government strings attached — than a traditional voucher law,” said Kevin Welner, a University of Colorado professor who wrote a book on the rise of tax credit programs and is generally critical of them.

A 1998 essay published by the Mackinac Center, a conservative Michigan think tank, made this case explicitly: “Tuition tax credits also create very different effects than vouchers. … Vouchers are more likely to be viewed as a rationale for regulating the entity that receives the subsidy.”

This has played out in practice. One analysis compared several voucher programs to a number of tax credit programs and found that, in almost all cases, vouchers were more regulated. Most tax credit systems had few, if any, financial reporting or disclosure requirements. (Notably, Florida’s program, the largest in the country, was the most regulated tax credit initiative.)

Many tax credit programs do not require participating students to take state exams, and if they do, the tests are rarely comparable to the assessments taken in public school. This means that while voucher programs have been widely studied, there is little research on the effect of receiving a tax credit scholarship.

Supporters of this approach argue that such requirements discourage private schools from participating.

Limited oversight, however, has proven something of a political liability, insofar as it has allowed for financial malfeasance. National media have drawn attention to how one prominent politician and advocate for Arizona’s program was also able to profit personally from it, for example.

“I think [limited regulation] is a feature that has some bugs,” said Enlow of EdChoice. “We need to have transparency. The programs, like Florida, which are very transparent and very open to data collection, I think are very important.” He declined to name any tax credit programs that, in his view, lacked sufficient transparency.

The use of the tax code has also raised another concern: Under some tax credit systems, “donors” can actually earn a profit by taking advantage of both state and federal tax breaks.

Selling tax credits

How exactly to brand tax credit programs has been the subject of fierce debates. Opponents have called them “neovouchers” and “voucher schemes,” while supporters sometimes portray them as entirely distinct from vouchers.

Tax credits tend to poll better than vouchers, and Welner thinks that may be because it’s less clear to most people what they are.

“People’s eyes get bleary and they tune out when people start talking about tax credits,” he said. “That helps to avoid a situation where they respond to it the same way they respond to a voucher proposal.”

Tax credits are essentially a tax cut, which can be a selling point for some, especially conservatives. Advocates sometimes also downplay the costs of tax credits to the government.

“Is it foregone revenue? Sure, but it doesn’t mean it’s the state’s revenue,” said Enlow.

The distinctions between vouchers and tax credits, though, may ultimately matter less to lawmakers in states where they are being debated. In Illinois, critics connected tax credits to vouchers, and Democrats were largely opposed to the tax credit initiative that ultimately passed.

“In my experience the arguments have been the same whether it’s a tax credit bill or a voucher bill when you’re talking with legislators,” Enlow said. “There’s some nuances, but it’s still the same.”

Correction: An earlier version of this piece misstated the name of a free-market Michigan think tank, which is the Mackinac Center.

voices of the vote

Meet Denver teachers who voted yes to a strike, no to a strike — and just aren’t sure

PHOTO: PHOTO: Andy Cross/The Denver Post
Skinner Middle School math teacher Peter English walks out of the Riverside Baptist Church with his son, Landon, left, and daughter Brooke strapped to his chest after voting on whether to go on strike ()

Throughout the day, the parking lot of Riverside Baptist Church filled up as Denver teachers made their way into a meeting organized by their union, the Denver Classroom Teachers Association.  

Months of negotiations that failed to produce a deal between top leaders of Denver Public Schools and the union had given way to individual teachers facing a choice: To strike or not?

Along with reporting the news of the day — which you can read about here — Chalkbeat spent time visiting with teachers to get a sense of what was shaping their decision-making.

Most teachers we spoke with, both in depth and in passing, said they voted “yes” to strike. Union officials have said two-thirds of those who vote Saturday and in a second session Tuesday must sign off on a strike for it to proceed, and the prevailing wisdom among teachers we interviewed was that support is strong.

The decision, though, is far from black and white for many teachers, regardless of where they ultimately land.

Here are the stories of three teachers, all at different places:

Krista Skuce, Slavens K-8 school: Yes to strike

At the urging of teachers and parents, Slavens K-8 students turned out early on a few recent mornings to show support for their teachers. They wore red in solidarity and posed for pictures.

They also brought questions. “Why are you doing this?” was one.

Krista Skuce, a physical education teacher and 14-year Denver Public Schools employee, would tell students that she lives 40 minutes from the school because she can’t afford to live in Denver.

Krista Skuce

But there is more to her story. Her spouse, she said, is no longer able to work, beset by medical issues, unable to draw disability benefits, and in need of costly care including massage therapy, chiropractic appointments, neuromuscular therapies, and more.  

At the same time, Skuce said her pay “doesn’t seem to be going anywhere.” So she hustles, earning extra pay by driving across town to coach softball and basketball.

Skuce, like many teachers who stopped to talk about their votes on Saturday, believes the district can do more to boost teachers’ base pay — before bonuses and incentives.  

She said her salary has only increased $4,000 or $5,000 in the past 14 years, even though she has been teaching 27 years, has a master’s degree, and is National Board Certified.

Skuce said she knows that by voting to strike, she could very well end up taking money out of her own bank account. Striking teachers don’t get paychecks.

“I am hoping the district and the DCTA do the right thing and recognize the fact that there are some people here who are on the edge,” she said. “We are on the edge emotionally, financially. We know these are good people. And I think teachers are people who wake up every morning with forgiveness.

“You have to take a stand and say what you are for at some point in time in your life — and this is it,” she said. “I’m willing to do it, scary or not.”  

Jason Clymer, John F. Kennedy High School: No to strike

An English teacher at John F. Kennedy High School, Jason Clymer stands with his fellow union members in the belief teachers aren’t paid enough. He finds fault with what is asked of teachers through LEAP, the district’s growth and performance system for teachers.

“Teachers at my school feel extremely micromanaged and can’t catch a breath,” he said.  

But in the end, after being one of the first teachers in the door Saturday and attending an information session, Clymer said he voted against the strike.

“Going on strike is very hard,” said Clymer, whose wife works in human resources for the district’s central office. “And I think the agreement DPS came to was close enough.”

Clymer questioned picking a fight now because of the limited scope of the negotiations. That would be the current agreement governing ProComp, the pay system that provides teachers one-time bonuses for things like teaching in a high-poverty school, getting strong evaluations, having students who earn high test scores, or teaching in a high-performing school.

He said he’d like to save some political leverage to focus on other issues covered by the district’s main contract with the union.

“It’s really unfortunate these things can’t all be negotiated together,” he said. “If the district came out and said, ‘We want to give you more money, not as much as you like, but we want to devote more to things like mental health services,’ I really think that would be a winning argument.”

In opposing a strike, Clymer said that he did not want to divide his fellow teachers

“Although I voted no, I believe in the union,” he said. “And if the union voted to strike, I will absolutely support the union.”

Paula Zendle, Denver Green School: Undecided about strike

Paula Zendle is dreading the moment that is appearing increasingly likely: standing before her students at the Denver Green School and explaining why she won’t be there to teach them.

“I tell them constantly, ‘Don’t miss school, don’t miss school. Don’t be absent, don’t be absent, don’t be absent,’” said Zendle, her eyes welling up with tears as she waited on a friend. “I have been fighting to avoid a strike. I hate this. It’s utterly and totally agonizing to me.”

Paula Zendle

Zendle said she left a career in the corporate world for the classroom and has been teaching eight years. She teaches English language acquisition and Spanish at the Green School, a popular and highly-rated middle school option in a district that celebrates choice.

 Zendle said she has done her research and written to the district’s chief financial officer. What bothers her is a system she believes rewards younger teachers and underpays teachers in terms of the cost of living.  

The average Denver teacher currently earns about $51,000 in base pay and $57,000 with incentives, according to data from the state education department and the district. That’s less than teachers in districts like Boulder Valley, Cherry Creek, and Littleton.

District officials have agreed to put $20 million more into teacher compensation and defended their most recent offer on Saturday as “compelling.”

For Zendle, the prospect of facing her students — and that she works in a supportive school environment — is contributing to her struggle in deciding whether to vote “yes” to strike.

So if the moment does come, what will she tell her students?

“We have the right to protest unfair taxpayer spending,” she said. “This is not only unfair, it’s unconscionable. Their priorities have been wrong for 10 years.”

Then she paused and made clear that her decision had not been made. She considers herself a person of principle, and that will guide her in making a decision.

lesson plan

Denver hopes to keep its schools open in a strike — and the union wants you to send your kids

PHOTO: Kathryn Scott Osler/The Denver Post
Students eat lunch in the cafeteria at Dora Moore K-8 School in Denver.

Superintendent Susana Cordova says she is committed to keeping Denver schools open and continuing to educate students in the event of a strike.

In Los Angeles, where a teacher strike is entering its second week, many students are watching movies and playing games. Cordova said she plans to do more for the 71,000 students in district-run schools if teachers vote to strike and state intervention does not lead to a deal. The 21,000 students who attend charter schools will not be affected.

“We want to assure parents school will stay open,” she said. “We know it is critically important that we focus on the education of our kids. Sixty percent of our kids qualify for free and reduced-price lunch. We know they depend on school not just for their meals but for their access to opportunity.”

Negotiations broke down Friday between the district and the Denver Classroom Teachers Association, the union that represents teachers and special service providers such as nurses, school psychologists, and counselors. A strike vote is taking place in two sessions, one Saturday and another Tuesday. The earliest a strike could start is Jan. 28.

This would be the first strike in 25 years in the state’s largest school district. In 1994, the district used more than 1,000 substitutes to keep schools open, though many parents kept their children at home, something union leaders encouraged.

It’s not clear yet how high teacher participation in a strike would be. During the final week of bargaining, some teachers reported near universal support in their buildings, while others said some of their colleagues were uncertain. Some teachers have said they disagree with the union position in the negotiations and won’t participate as a matter of principle.

Teachers who strike do not get paid while they are not at work.

Cordova said the district is “in the process of building out our sub pool” and offering higher pay to those willing to work during a strike. But she declined to say how many substitutes the district could call on, and some teachers say they already have a hard time finding subs for routine absences.

Substitutes who work during a strike will earn $200 a day, double the normal rate, and “super subs” who work more than a certain number of days a year will get $250.

Many central office staff who have past teaching experience will be sent to schools to work with students. Cordova said the district is working on pre-packaged lesson plans for every grade and subject area so that learning can still take place, and officials will prioritize placing qualified staff members with special education and preschool students, those she deemed most vulnerable.

Students who get free or reduced-price lunch will still be able to eat in school cafeterias.

For its part, the union is encouraging parents to send their children to school, but with a different purpose.

“One major goal of a strike is for school buildings to be shut down as a demonstration of the essential labor performed by educators,” the union wrote in an FAQ document. “To this end, we encourage parents to send their students to school if their school building remains open. Student safety is paramount for all district schools, therefore the district will be obliged to close schools if safety becomes an issue due to limited staffing.”

Union officials said they were working to establish alternative daytime care with community partners like churches and Boys and Girls Clubs should schools close.