April 17, 2016

A Small but Growing State Tax Credit That Channels Funds to Private Schools

Print More

SGO Photo5

School choice advocates lost a bid this legislative session to channel more public funding to private schools through education savings accounts, a form of vouchers.

But a little-known existing program has succeeded at doing that in an indirect way and, while still relatively small, is growing.

Taxpayers have received more than $1.4 million in tax credits over two years for donating to a program that gives tuition scholarships to private school students.

The Oklahoma Tax Commission issued tax credits of $570,000 in 2013 and $854,000 in 2014 to taxpayers who donated to nonprofit organizations created to channel the money to private preK-12 schools. The nonprofits are known asscholarship granting organizations,” or SGOs, and were enabled in 2011 by the Oklahoma Equal Opportunity Education Scholarship Program.

Tax credits claimed in 2015 are not yet available, but there are signs of further growth. One of the three SGOs in the state, the Opportunity Scholarship Fund, announced in late December that it had received more than $800,000 in donations in 2015, more than three times the amount reported on its 2014 tax return. Among the gifts were two from corporations totaling $300,000, said the organization, which has 48 participating schools. The SGO did not name the corporations.

The $1.4 million redirected to private schools in 2014 – most of them religious – still pales in comparison to the $1.8 billion appropriated for public schools this fiscal year. But it was significant enough to spur two legislative proposals this session to kill or suspend the program: Senate Bill 920, which would have ended the program after 2017, and SB 977, which sought a moratorium on a number of tax credits, including this one. Neither bill advanced out of committee.

The state is facing a projected $1.3 billion budget shortfall in fiscal 2017.

Sometimes called “neovouchers,” the tax credits have drawn fire from critics who say they siphon off public school funding without improving education outcomes or providing a fiscal benefit to the state.

Private school scholarship programs have sparked controversy in other states, including Arizona, where the first tax credit scholarship program has ballooned to $140 million a year while enrollment in private schools has actually fallen.

Oklahoma’s law includes stipulations intended to limit growth of the program.

First, there is a $3.5 million annual cap on total tax credits that the state can award.

Credits are worth 50 percent of the donation amount, unless a donor makes a two-year commitment, in which case the credits are worth 75 percent. Tax credits are capped at $1,000 for single filers, $2,000 for married filers and $100,000 for businesses per year. Donors can earmark a school, but not a particular student.

Scholarship recipients are limited to those below a certain income, but the threshold is relatively high: three times the limit for free and reduced-price lunch eligibility, or about $134,588 for a family of four and $157,676 for a family of five. Once a student becomes eligible, the student and all of his or her siblings are automatically eligible until high school graduation or they turn 21, whichever comes first. Thus, a family need only qualify once.

More than half of the program’s funds were given to students eligible for free and reduced-price lunch programs, said Rob Sellers, executive director of the Opportunity Scholarship Fund.

“We are (and will see) an impact of reaching students that now have a choice to attend a private school when they are economically not in a position to do so on their own,” Sellers said.

He expects donations to grow as public awareness increases.

Taxpayers can use the program to reduce their state income tax liability and, if the credits exceed taxes owed, can be carried over for up to three years. Taxpayers who itemize deductions on their federal tax forms also can deduct donations to the nonprofit SGOs, lowering their tax bill.

Some schools promote the tax credit, with one Oklahoma City school, Crossings Christian School, telling prospective donors that “by redirecting your tax dollars, you can directly support scholarships … at little, and sometimes NO, net cost to you.”

Another SGO, the Catholic Schools Opportunity Scholarship Fund, which is operated by the Catholic Foundation of Oklahoma, encourages tax-credit donations as a way to promote the Catholic faith.

“Today you have the power to pass along the Catholic faith to children who wouldn’t ordinarily have the opportunity, and the power is in your hands,” the foundation’s website states under a “Donate Now” button. According to Guidestar, which tracks nonprofit organizations nationwide, the Catholic scholarship fund in Oklahoma is a religious organization and does not have to file a nonprofit tax return with the IRS.

GO for Catholic Schools Inc., another SGO, reported donations totaling $283,838 on its 2014 tax return; the fund provides scholarships to students attending one of a dozen Catholic schools in the Tulsa area.

Just over 30,000 K-12 students in Oklahoma attended a private school in 2011-2012, the latest year for which survey data is available from the National Center for Education Statistics. The survey showed an overall national decline in private school enrollment over a decade, particularly at Catholic schools.

Nearly 1,200 taxpayers claimed the credit in 2014, state records show. More than a third of those, or about 450, received credits of $100 or less; that was more than the number who claimed the full amount.

SGOs gave scholarships to 904 Oklahoma students in the 2015-2016 school year; scholarships averaged $1,129, according to the Friedman Foundation, an Indianapolis-based group that promotes school choice.

Tax credit programs are one of several initiatives being pushed by school choice proponents. Education savings accounts, which would allow parents to redirect per-pupil funding to private schools, drew a strong endorsement from Gov. Mary Fallin this year, but the program was rejected by the Legislature.

  • Jason Bedrick

    This article fails to consider the full fiscal impact of tax-credit scholarships.

    The average scholarship value is barely more than 1/10th of what is spent per pupil in the district schools, and since the tax credits are worth only 50% to 75% of the donations, the savings per pupil are even greater. Any time a student switched out of a district school to use a tax-credit scholarship somewhere else, the state would save a significant amount of money. Indeed, the disparity between the two is so great that the state would still save money even if a high percentage of scholarship recipients were going to attend private school anyway.

  • BrandonDutcher

    As a board member of one of these scholarship-granting organizations, I appreciate the publicity for this excellent scholarship program. But I am disappointed in your characterization of Oklahoma citizens’ own money as “public funding.”

    In Arizona Christian School Tuition Organization v. Winn et al, the Supreme Court of the United States considered an Arizona law very similar to Oklahoma’s. Regarding the argument that a tax credit is best understood as a governmental expenditure, the Court said quite succinctly: “That is incorrect.”

    The Court went on to say: “When Arizona taxpayers choose to contribute to STOs, they spend their own money, not money the State has collected from respondents or from other taxpayers. … [C]ontributions result from the decisions of private taxpayers regarding their own funds. … Like contributions that lead to charitable tax deductions, contributions yielding STO tax credits are not owed to the State and, in fact, pass directly from taxpayers to private organizations. Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. That premise finds no basis in standing jurisprudence. Private bank accounts cannot be equated with the Arizona State Treasury.”

    I doubt we’ll ever see a story headlined “A Small but Growing Diversion of Public Funds to Oklahoma Watch.” Nor should we. Your donors are giving their own money; it doesn’t belong to the tax collector. Similarly, there is no “diversion of public funds” to my church whenever I place my check in the offering plate.

    Oklahoma Watch does a lot of good work. But it’s no secret that—based on your story selection, narrative framework, funders, and membership in an organization that includes Mother Jones and other lefty news sites—that you have a particular orientation. That’s fine. It’s a free country. But please note that you published this story on the same day the Associated Press reported that only 6 percent of Americans trust the news media.

    The late Andrew Coulson noted that in 2011 he shared the ACSTO v. Winn ruling with the standards editor of the Associated Press, “who ultimately agreed that it was a misrepresentation for journalists to call these private donations ‘public money.’” Here’s hoping Oklahoma Watch will restore trust by acknowledging the same.