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.

Charter Churn

New York City charters burn through principals faster than district schools, report finds

PHOTO: Getty Images / Spencer Platt
A charter school rally in New York City

As the principal at Renaissance Charter School, Stacey Gauthier’s job extends well beyond supervising teachers. She manages fundraising, lobbies elected officials to support charter schools, and even responds to issues raised by the teachers union.

“We are basically our own district,” she said, noting that the work of running an independent charter school can be a challenge without the infrastructure that comes with a school system or even a large charter network.

Despite that heavy workload, Gauthier has stayed in her role for 11 years, making her an outlier among charter principals. According to a first-of-its-kind report released earlier this month by the Manhattan Institute, a conservative-leaning think tank, the city’s charter schools generally churn through principals at a much higher rate than traditional district schools.

Last school year, 25 percent of the city’s charter school principals were new, more than double the turnover rate at district schools. That level of turnover represents something of a paradox: Studies show principal turnover can hurt student achievement, but research has also shown the city’s charter schools generally have higher state test scores than district schools do.

“If the research is right” about the consequences of principal turnover, said Marcus Winters, a Manhattan Institute fellow and the report’s author, “by addressing it, [charter schools] could improve even more.”

But it’s not clear why turnover is so much higher at charter schools, which also often churn through teachers at a higher rate.

One reason could be differences in student demographics. Since charter schools enroll a greater share of low-income students and students of color than district schools on average, that could make for a more challenging environment that contributes to churn. But controlling for differences in student demographics — including proportions of English learners, students with disabilities, those coming from poor families, and race — the report found no meaningful effect on turnover.

Another possible reason: Charter principals are easier to fire than district principals who typically have more union protections. A charter principal who runs a school that is seen as low performing is easier to replace, the theory goes, explaining higher levels of turnover. But the data don’t back up that theory. Even after taking into account differences in school performance as measured by school quality reports, higher turnover “was not driven by overall school performance,” Winters found.

It’s also possible charter schools are just more difficult work environments in ways that are difficult to measure, including some schools’ adoption of a “no excuses” ethos that tells educators that a student’s life circumstances should never excuse performance issues at school. (The report does not include breakdowns of individual charter schools or networks.)

James Merriman, CEO of the New York City Charter School Center, said there could be some truth to the idea that charter schools are tougher work environments, but added that some of the turnover could be related to fierce competition for leadership talent.

“There’s such a huge supply-demand imbalance for high-quality principals,” he said.

The report includes another puzzling trend — turnover in district and charter schools fluctuates significantly over time. Over the past 10 years, turnover at district schools ranged from 8.7 to 14 percent each year. At charters, turnover ranged from 7 to nearly 34 percent. Those swings meant that in two of the last 10 years, district turnover was slightly higher than it was at charters.

Winters, the report’s author, didn’t come to a firm conclusion about why the turnover rates seemed to shift significantly from year to year.

“I left this paper with more questions than answers,” he said.

Speaking Up

Letters to J.B.: Here’s what 10 Illinois educators said governor-elect Pritzker should prioritize

PHOTO: Keri Wiginton/Chicago Tribune/MCT via Getty Images

As governor-elect and national early childhood education advocate J.B. Pritzker assembles his transition team and builds out his early agenda, we asked educators to weigh in with items he should consider.

Here are 10 of their responses, which range from pleas for more staffing to more counseling and mental health services. Letters have been edited only for clarity and length. Got something to add? Use the comment section below or tell us on Twitter using #PritzkerEdu.

From: A non-profit employee who works with schools in the city and suburbs

Letter to J.B.: I work with a number of students from the City of Chicago and sadly most of them lack basic skills. Most of the students lack the ability to read and write properly, and perform below grade level. It is alarming how many students don’t have critical-thinking and analytical skills. The lack of education in low-income and minority population will hurt our city and state in years to come.

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From: A youth organizer at Morrill Elementary, a K-8 school on Chicago’s Southwest Side

Letter to J.B.: Morrill School has suffered from constant turnover due to an unstable Chicago Public Schools environment that cares more about upholding its own self-interest than the people it should be serving. We need representatives that will advocate for what communities say they need!

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From: A music teacher at a Chicago charter school

Letter to J.B.: I work at a charter school and I don’t think we are doing the best we can for our kids. Our school’s policies are too harsh and dehumanizing.

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From: A Chicago charter school social worker

Letter to J.B.: We’ve cut mental health services throughout the city and that has crippled us. Parents have a hard time getting jobs and having enough money to supply basic needs.

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From: A Chicago principal

Letter to J.B.: My school is 100 percent free- and reduced-price lunch-eligible, or low-income population. We are a middle years International Baccalaureate school. Our children were once were the lowest performing in the area and now we are a Level 1-plus school. Our school was on the closing list back in 2005 when I took over.

But now we are an investment school. Teachers are dedicated and work hard. We need funding for a new teacher to keep classes small and additional funds to purchase multiple resources to continue and strengthen overall academics. We have a vested interest in educating all of our children!

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From: A teacher at A.N. Pritzker Elementary in Chicago’s Wicker Park neighborhood

Letter to J.B.: Great kids. Great staff. No librarian. Extremely poor special education services. No substitute teachers. No time for planning. No time for anyone to provide mental health services for those in need.

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From: A teacher at Whitney Young High School on Chicago’s Near West Side

Letter to J.B.: Every teacher knows that well over 90 percent of the students with academic problems have serious problems at home and in their neighborhoods. In the suburbs, social worker and psychologist staffing levels are often five to 10 times what they are here in the city, where kids are dealing with way more challenges, not less. If you’re looking for bang for your buck, fund psychologists and social workers!

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From: A teacher in the Galesburg CUSD 205

Letter to J.B.: Our school is diverse in all definitions of the word. We have a diverse population in terms of race, money, and ability. We currently don’t have the money to keep all of the schools in our district open and are in the process of closing some of the buildings in order to get the others up to code and comfortable; many of our schools don’t even have air conditioning.

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From: A teacher at Kiefer School, a Peoria school that educates children with severe behavioral and learning challenges

Letter to J.B.: We work with students with behavioral and mental challenges who need more help getting mental health services. We’ve had children deflected from being hospitalized due to no beds being available.

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From: A teacher at Unity Junior High School in Cicero

Letter to J.B.: People often think that our school is “bad,” but the truth is, we have so many staff and students that work hard every day to bring positive change.