The final compromise that allowed Illinois to implement a new, more equitable education funding formula included a surprise—a 5-year pilot of tax-credit scholarships, which allow individuals and businesses to donate money to help low-income families pay for private schools.
Though the scholarships hadn’t been part of the education funding deal until the last minute, the Catholic Conference of Illinois had been pushing the program for the last two years.
Exactly how they will work, especially when it comes to how corporations can direct their donations, has yet to be fully fleshed out. While individuals can give to particular schools or groups of schools, corporations may only be able to give to the third-party nonprofits that control the scholarship dollars.
“The rules are going to matter here,” says Bobby Otter, budget director for the Center on Tax and Budget Accountability, a bipartisan think tank on Illinois economic policy issues.
Though they are new to Illinois, they have already been established in 17 other states and have survived court challenges. Here’s some basic info on what they are and how they work.
1. Tax-credit scholarships aren’t vouchers.
In a traditional voucher system, the state government directly issues checks to eligible parents, who then use the money to pay for private schools. But in a tax-credit scholarship program, the state never receives the money in the first place. Taxpayers—both individuals and corporations—donate to nonprofit organizations.
The nonprofit manages giving out the scholarship money to parents and the donors receive tax credits. In Illinois’ new program, they get tax credit for 75 percent of whatever they donate, up to $1 million.
Also, because Illinois is one of a number of states that prohibit state money from directly funding religious education, a traditional voucher program would be likely to lose a court challenge. But because tax-credit scholarships put money into a third-party nonprofit, not a state-run pool of funds, they avoid the legal challenge. In June, Georgia’s state Supreme Court ruled its tax-scholarship program constitutional.
2. Tax credits still reduce state revenue.
Though tax credits don’t directly pull state money away from public schools, they do reduce overall state revenue at a time when Illinois is in a severe fiscal crisis. If Illinois can’t dedicate revenue to pay for the tax credits, the state may have to borrow a little more to pay for them, Otter says.
Chicago Board of Education President Frank Clark supported the compromise bill, saying that the potential negative effect of tax-credit scholarships would be outweighed by the new money for Chicago under the new funding formula. Otter agrees that in the short term there’s a net gain for Chicago.
The new money offers a good chance the district will make it through this school year without the drastic mid-year cuts of last year, when money tied to pension reform failed to materialize.
But the longer-term balance between the positive impact of the education funding formula and the negative impact of tax-credit scholarships is not as clear, Otter warns. If the district loses students to private schools, the effect of new money in the education formula could be offset by the loss of enrollment.
If the tax-credit scholarships reduce the amount of money the state can put into the new formula, Chicago could face a double whammy: less money for equity plus the loss of per-pupil money for every student leaving the public schools.
However, evidence in Florida suggests tax-credit scholarships can actually save a state money, because private school tuition is sometimes less expensive than the cost of educating a student in public school. A nonpartisan study of Florida’s program showed that the state saved $1.49 for every $1 donated to the program.
3. The poorest families get top priority.
Under the new program, students from a family of four with income of up to $24,600 could have their entire tuition and fees paid for by the new scholarships, provided that tuition and fees does not exceed $12,280 per student.
However, gifted students, English learners and students with special needs could receive more money, regardless of family income. Families with incomes of up to $98,400 could receive up to half the cost of tuition and fees for each child.
4. Expect a wait for effect on student achievement.
Historically, research on programs that give poor families the money to try private schools has produced mixed results. The most recent studies of Indiana and Louisiana suggest that initially, students lose ground, but eventually catch up if they stay put. However, in Louisiana, learning losses persisted in math.