Last month was a busy one for school choice in the states. Let our state and legal teams help you stay up to date on the latest in our monthly brief.
On Feb. 20, Leslie Hiner testified before lawyers at the Internal Revenue Service in opposition to a regulation proposed by the Department of Treasury that has resulted in thousands of children losing scholarships from tax-credit scholarship programs, threatening the future of similar education programs. Treatment of Payments to Charitable Entities in Return for Consideration, 84 Fed. Reg. 68,833 (Dec. 17, 2019) combines a prior regulation plus “safe harbor” clarifications. The regulation treats state tax credits as “quid pro quo,” meaning when a person gives a donation to a scholarship-granting organization and receives a state tax credit for all or part of that donation, the donor must deduct the entire value of the state tax credit before claiming any part of the charitable contribution as a federal charitable deduction. While seemingly reasonable, if examined in a policy bucket, the immediate real world harm has been to disincentivize giving to scholarship-granting organizations—which also tramples on federalism, ignoring the right of states to determine state tax policy without the federal government negatively impacting that policy long after education programs reliant on tax policy are in operation and serving the educational needs of children. The long-term harm of upending how state tax credits are treated by the federal government is inestimable. The public comment period has ended; regulation is pending.
LEGISLATION AND LITIGATION IN THE STATES
The Arizona Senate passed SB 1224, a bill that would allow families to use education savings accounts (ESAs) to pay tuition at schools located outside of Arizona but within two miles of Native American tribal land. As noted in last month’s brief, the bill is intended to address an issue raised last year when the Arizona Department of Education demanded that some Navajo families stop using their ESA funds at a private school located within tribal boundaries but just over the New Mexico border. As it is, Arizona students already regularly obtain an education using resources produced outside of the state, such as public school students using online instruction. The bill is now pending before the Arizona House Appropriations Committee.
On February 26, Save Our Schools Arizona (SOSAZ) PAC filed an Application for Initiative Petition with the Arizona Secretary of State. The proposed language, if passed by voters, would significantly alter and limit Arizona’s education savings account program and would prohibit legislation creating any new school choice programs after Feb. 26, 2020.
The SOSAZ initiative seeks to cap total enrollment in the ESA program at only 1 percent of district school enrollment—a cap that would be reached in just two years if the current rate of growth continues. Moreover, because the initiative prioritizes some new applicants over certain categories of existing ESA students, some ESA children may lose their ESAs, including military orphans and dependents, foster children, Native Americans, and children assigned to D- or F-rated district schools. Additionally, families would no longer be allowed to roll over unused funds to save for later expenses. Unused ESA funds would revert to the state.
The SOSAZ initiative’s declaration of purpose states that, “state-funded private education options are meant to be used, if at all, under limited circumstances,” and that, “state-funded private education should be a rarely used option for a small number of Arizona students with special needs.” Lawyers are evaluating the filing.
HB 20-2014, a bill introduced in late January creating tax credits for contributions to scholarship-granting organizations, was postponed indefinitely in Colorado’s House Committee on Finance.
Colorado lawmakers introduced a new school choice bill in February, HB 20-1269. The bill would create “Child Safety Accounts” allowing students who are the victims of qualified “safety incidents” in public schools to use his or her state funding at their school of choice as well as for various homeschooling expenses.
Connecticut legislators filed SB 115, a bill that would permit municipalities to offer tax credits against local property taxes for contributions to scholarship organizations. The bill is currently pending before the Joint Committee on Planning and Development.
In a vote of 13-8, the Florida Senate Appropriations Committee passed SB 1220, a bill that would expand eligibility for the state’s Family Empowerment Scholarship program. The bill would expand income-eligibility from 185 percent of the federal poverty line ($47,638 for a family of four in 2019–20) to 300 percent of the federal poverty line ($77,250 for a family of four in 2019–20), in line with the eligibility requirements for Florida’s tax-credit scholarship program, which serves over 100,000 low-income students. Students from lower-income families will still be given priority. The bill previously passed the Florida Senate Education Committee and is currently pending consideration of the full state Senate.
Iowa has two school choice related bills to follow. An education savings account (ESA) bill SF 547 is back from last year and is currently with the Appropriations Committee. This ESA would serve students with special needs. The second is SF 2260, which is a bill that, as written now, would open School Tuition Organization Tax Credit program to any Iowa nonpublic school (accredited or not).
The Kansas House K–12 Education Budget Committee passed HB 2465, a bill that would expand eligibility for the state’s tax-credit scholarship program. Currently, the program has some of the most restrictive eligibility requirements in the nation, limiting scholarships only to students who are assigned to one of the 100 lowest-performing district schools in the state and who are from low-income families who qualify for a free lunch (but not a reduced-price lunch) under the federal free and reduced-price lunch program ($33,475 for a family of four in 2019–20). HB 2465 would eliminate the “failing schools” requirement and raise the income eligibility to be the same as the qualifications for the free and reduced-price lunch program ($47,638 for a family of four in 2019–20).
Two companion ESA bills in Maryland received legislative attention in February. HB 1552 and SB 418, which would have created a nearly universal pilot education savings account for use at private schools, higher learning institutions and private tutoring services, were withdrawn after being introduced in early February.
HF 3790, introduced and referred to Minnesota’s House Taxes committee, would create the state’s first tax-credit scholarship program. Eligible students include those coming from households earning up to 200 percent of the free and reduced-price lunch threshold, various students with special needs and those receiving a state transportation scholarship. Participating schools would be required to administer the state test, and corporate and individual tax credits would be limited to 10 percent of a person’s adjusted gross income. Public and charter schools would also be able to receive funds from foundations receiving tax credit donations.
In addition, Minnesota lawmakers introduced a pair of bills that would impact the state’s existing K–12 Education Credit Program. SF 3747 would amend the tax credit into a tax refund, which would allow eligible families who have no or limited tax liability the ability to benefit from the credit, while SF 3495 would introduce inflation adjustments to the credit’s income eligibility levels.
HB 1267 would create the Mississippi Child Safety Account Act. This bill would create an education savings account (ESA) for an amount equal to the state share of adequate education program payments for children involved in a safety incident. These safety incidents include, but are not limited to, incidents of bullying, sexual harassment, gang activity, fighting, drug use, for a shooting occurring on grounds of a child’s public school. The bill would also authorize an income tax credit for donations to a scholarship-granting organization for Supplemental Education Scholarships for children who receive the Mississippi Child Safety ESA.
HB 621 would create a tax-credit scholarship program for low-income families. If passed, the tax-credit scholarship could be used to purchase school supplies, textbooks, pay for fees, tuition, uniforms, education software and tutoring services. Taxpayers could receive a tax credit against state income taxes in an amount not to exceed 50 percent of the taxpayer’s income tax liability.
We continue to watch SB 2594 in Mississippi. The ESA originally passed in 2015, and is set to sunset in June of 2020. SB 2594 would extend the ESA in Mississippi to 2024. It does make changes to the ESA program including requiring eligible schools to be special purpose schools or schools servicing a student’s disability, removing virtual and out-of-state schools as options for ESA recipients, requiring parents or schools that are taking ESA children to reimburse a school district if an ESA student receives any services at district schools, and require schools to administer pre and post assessment to be reported to the Department of Education.
In 8-5 votes, the Missouri House Elementary and Secondary Education Committee and the Missouri House Appropriation Committee each passed HB 1733, a bill that would create a tax-credit funded “Empowerment Scholarship Account” program for students living in most non-rural areas. Additionally, in an 8-6 vote, the Missouri Senate Elementary and Secondary Education Committee passed HB 2068, which would create the “Show Me a Brighter Future Scholarship” program that would leverage tax credits and 529 plans to expand K–12 educational opportunities.
New Jersey lawmakers introduced SB 1624, which would create a tax credit for certain homeschooling expenses. The credit would be worth $1,000 per child, up to $3,000 total, and could be used by families earning less than $150,000. The bill was referred to the state’s Senate Education Committee.
The New Mexico House of Representatives introduced the Equal Educational Access Scholarship Act (HB 346). The tax-credit scholarship would be used by students qualifying for free and reduced-price lunch and who attended a New Mexico public school the previous year. Taxpayers would receive a dollar-for-dollar tax credit for donating to qualified tuition scholarship organizations.
HB 7695 would provide changes to Rhode Island’s tax-credit scholarship program. Enacted in 2006, Rhode Island offers a 75 percent tax credit to businesses that donate to scholarship-granting organizations or 90 percent if donated to two consecutive years and the second year’s donation is worth at least 80 percent of the first year’s donation. HB7695 would allow an increase in the tax credit cap by 15 percent following any fiscal year in which applications by eligible business entities exceed approved contributions by 10 percent.
HB 3681 and SB 556 remain alive in South Carolina. Both of these bills would create an education scholarship account. These accounts would be able to be used by low-income families, children with special needs, children in foster care or recently adopted, or children of active duty military parents or guardians.
On Feb. 6, Tennessee’s newest school choice program was challenged in court. Metro Nashville and Davidson County, Metro Nashville Board of Education and Shelby County, Tennessee filed a lawsuit against the Tennessee Department of Education and Gov. Bill Lee in the Chancery Court for Davidson County; Case No. 20-0143-I. Nashville and Memphis litigants allege that Tennessee’s Education Savings Account Pilot Program violates the “Home Rule” Amendment in Tennessee’s Constitution, Article XI, Section 9, which prohibits legislation applicable to a particular county unless the legislation requires local approval. Tennessee’s voucher applies only to children zoned to attend a school in the achievement school district, or in an LEA with ten or more schools identified as priority schools in 2015 and 2018 or among the bottom ten percent of schools academically; in Tennessee, such schools are found in Metro Nashville and Shelby County. It is also alleged that the program violates equal protection guarantees in Article I, Section 8, and Article XI, Section 8, and that it violates Article XI, Section 12, which requires the State to “provide for the maintenance, support and eligibility standards of a system of free public schools.” The Institute for Justice has filed a motion to intervene on behalf of parents, and Liberty Justice has filed a motion to intervene on behalf of parents and schools. Pending.
Utah lawmakers read HB 332, which would create an additional special needs school choice program in the state. Unlike Utah’s Carson Smith Scholarship, the Special Needs Opportunity Scholarship would be funded by donations to qualified scholarship-granting organizations, although eligible students (those with IEPs) would not be able to use both scholarships concurrently. The program would be capped at $12 million in tax credit donations.
SB 515 would create an education savings account in West Virginia. Elementary or secondary students in households with incomes less than $150,000 would be eligible to apply for the program if they were in a West Virginia public school the year immediately prior to application into the program. The funding amount would be 90 percent of the prior year’s statewide average net state aid allocated per pupil based on net enrollment, adjusted for state aid purposes. Families could use program funds to pay for tuition at a private school, tutoring, services contracted by district schools, educational therapies, transportation and more.
HB 4140 was referred to House Education committee, and if passed would create a $500 personal income tax credit per child to parents or legal guardians who provide home school or private school education for their children. The tax credit would be become due upon completion of the school year, and the schooling must meet the educational requirements set by the State Board of Education for primary and secondary programs and standards. Similarly, HB 4053, if passed, would create a $3,000 personal income tax credit for parents or guardians who provide home schooling or private schooling for one or more children.
HB 2002 was referred to the House Education committee. If passed, if would create an education savings account for children with special needs. Funding could be used for private schools, virtual schools, services contracted with district schools, text books, educational software, transportation and more.