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BTC Report: New tax credit House bill could decrease available funding for public education

A House bill would offer corporate income tax credits for donations to scholarship funding organizations that reward students for attending private versus public schools, a new report said, a policy that could decrease available funding for public education.

The Scholarship Funding Corporate Tax Credit (House Bill 1104) would create a dollar-for-dollar tax credit for corporations that donate to organizations that grant scholarships to eligible students to attend private schools rather than public schools, according to a new report by the Budget & Tax Center, a project of the NC Justice Center. Under the bill, the Division of Nonpublic Education would certify scholarship-funding organizations, which would then be able to accept corporate donations eligible for the credit. The organizations could award scholarships of no more than $4,000, and eligible students would have to be entering kindergarten or first grade and belong to a household with an income not in excess of 225 percent of the federal poverty level.

Supporters argue that the tax credit program could save state money by enabling students who would otherwise attend state-funded district or charter schools to attend private schools. Unfortunately, the promise of state savings as a result of shifting students to private schools is unlikely to be realized, the report said. Per-pupil spending figures will not decrease proportionally for every student that leaves public schools for private schools, and unless a significant number leave public and charter schools for private institutions, savings are unlikely to materialize.

The experiences of other states that have instituted corporate tax credits for private school scholarships have been costly and, in some cases, contrary to the stated policy purposes of the programs, the report said. Arizona, Florida, Pennsylvania, Rhode Island, Georgia, Indiana, and Oklahoma all offer corporate income tax credits for donations to scholarship funding organizations. Four of the states experienced steady growth in public school enrollment over a five year period, while all but one experienced a drop in estimated private school enrollment. In Arizona, analysis of the credit controlling for other school choice factors estimated that private school enrollment increased by just 1 percent as a result of the scholarships generated by the credit, reducing public school enrollment by just 0.05%, with the sum effect of the credit being a net cost to the state.

“All North Carolina’s children are entitled to a quality education,” said Brenna Erford Burch, public policy analyst with the Budget and Tax Center and author of the report. “That promise is undermined when resources are diverted in ways that decrease, rather than increase, all students’ access to a quality education.”

To view the full BTC Brief, visit http://www.ncjustice.org/?q=node/1418.