After investing $2.8 billion over 20 years, the state’s own Independent Fiscal Office can make no claims about the economic or educational benefits of the Educational Improvement Tax Credit program. The legislature designed the law that way.
On January 24, 2022 a report from the Pennsylvania Independent Fiscal Office (IFO) charged with answering the simple question, “Did the tax credits accomplish their legislative intent?” concluded it is “not possible to reliably assess” (IFO, 2022, slide 2) due to minimal data.
The PA Independent Fiscal Office (IFO) Main Findings are:
1. Concentration: Top 10 EITC orgs receive 47% of contributions
2. Little Turnover: 99% of firms under 2-yr commitment, can renew early
3. Donor Waitlist (Excess Supply): $137 million untapped | ~1,000 firms
4. Modest State Savings: ~$350 per student that switches to private school
5. No Published Data: academic outcomes, income and demographics
(IFO, 2022, slide 11)
What does this mean for Pennsylvanians?
Pennsylvania has the second largest subsidized school choice tax credit program in the country.
enrollment in private schools has declined over the period of investment,
scholarship dollars are concentrated and controlled by a small number of organizations,
businesses and individuals are effectively shut out of the program,
generous family income limits reduce the impact on low-income families by spreading the funding to families that would enroll in private schools even without the tax credits, and
average scholarship amounts are far below the average tuitions, and
Education Improvement Organizations became disproportionately underfunded over time.
The Education Tax Credit (ETC) has been operating for two decades, costing taxpayers over $2.8 billion and data shows it accomplishes few if any of its goals. Despite an annual investment of $280,000,000 in the Pennsylvania Education Tax Credit (ETC) program, the Independent Fiscal Office (IFO) can’t tell whether the program substantially enhances educational opportunities available to all Pennsylvania students. One of the few documented outcomes is that enrollment in private schools has declined both in terms of actual students and as a portion of total k-12 enrollment since the program began in 2001. There is no data to make claims around whether enrollment among low-income families has increased or decreased.
The IFO identified three goals of the program. However, the Education Tax Credit’s design obscures the results and undermines the program’s ability to meet those goals.
The first program goal is to “subsidize private school tuition for ... students from low- and middle-income households,” (IFO, 2022, p. 7). The PA ETC is much more generous than every other state. A PA family with one child can earn $113,693 and qualify for scholarships; if the child has a disability, they can earn up to $340,283. These amounts are approximately 500% of the Federal Poverty Level (FPL) and increase for each child. This generous limit reduces the funds available to the neediest students. It is unclear how many students from low- and middle-income households benefit.
The IFO reports average scholarship awards of $2120 per student in 2019-20, while estimating the average tuition that year to be $11,600. There is a substantial gap that is unlikely to be closed for students from low-income households. In fact, evaluations from the ETC in 2001 revealed that scholarships in the same range were insufficient to enable the enrollment of low-income students.
The second goal is to “support students that reside within the boundaries of a low-achieving public school by providing scholarships that subsidize tuition at a school of the student’s choice,” (IFO, 2022, p. 7). This is through the Educational Opportunity Scholarship Tax Credit (EOSTC). The EOSTC prioritizes students in families with incomes at or below 185% FPL but still awards about a third of the scholarships to students in families with household incomes above that 185% FPL. Data in the report are encouraging showing a growing portion of students receiving the awards are in low-income households. Yet, scholarship award amounts in this program have limits that the general scholarships do not have. The PA ETC does less to focus scholarship dollars on students who financially need it than programs in all other states with income limits.
The third goal is to “provide financial support for innovative education programs in Pennsylvania public, charter and private schools,” (IFO, 2022, p. 7). This element has the greatest potential to benefit all PA students, the purpose of the program. However, legislators have disproportionately funded the scholarships over education innovation since the program began. In 2001, two-thirds of the tax credits were for scholarships and one-third was for educational innovative programming, a 2:1 ratio. By 2020-2021, the ratio had shifted to 6.5: 1 which translates to $242.5 million for scholarships and only $37.5 million for innovative educational programming. Limiting the growth of tax credits for educational improvement severely restricts the program’s ability to reach all students, particularly since most PA students are enrolled in traditional public and charter schools. The Educational Improvement Organizations produce and submit annual impact reports that show how funds are spent and the effects of this program, yet spending on innovative education programs is dwarfed by the scholarship programs.
In 2020-2021, private school enrollment was 229,197 while public school enrollment was 1,744,725 (PA Department of Education, 2021). Tax credit scholarships primarily flow to private schools, and education innovation tax credits primarily flow to public schools. The figure below shows the distribution of funds compared to student enrollment.
Figure 1
2020-2021 Distribution of Tax Credit Dollars and K-12 Student Enrollment
The smallest portion of ETC funds is for Education Improvement and limits the program’s ability to improve education for all. The largest portion of ETC funds is concentrated within a smaller portion of students attending private schools.
A limited number of companies and organizations control most of the money. Companies that receive the tax credits get preference in retaining those credits each year, so the ETC essentially blocks new companies from participating. In 2015-16, ten organizations controlled 26.2% of ETC dollars (IFO, 2022, p. 14). By 2019-20, the top 10 nonprofits increased their control to 46.9% of the funds or $90.7million dollars (IFO, 2022, p. 14). Two-hundred sixty k-12 Scholarship Organizations and 891 Educational Improvement Organizations compete for the remaining funds (IFO, 2022, p. 12). Concentrating funds creates barriers to access for students and companies across the state.
Since the IFO could not attest to the effectiveness or efficiency of the state’s largest tax credit program, why does it exist and who does it serve?
The Education Tax Credit program, officially created by legislators as the Educational Improvement Tax Credit, is primarily a school choice subsidy program. School choice advocates argue that choice alone provides economic benefits to the state. However, the IFO found only modest savings ($350 per student “switcher” from public to private schools) (IFO, 2022, p. 25). Recall, private school enrollment is not increasing. Further, the IFO estimates that other parts of the state economy must fall by $241 million in FY 2020-21 to make up for the $219 million in private school tuition for switchers (IFO, 2022, p. 26). Economic benefits are minimal at best and more data is needed to accurately assess the effects.
School choice advocates also claim improved educational outcomes for students enrolled in private schools compared to those in public schools. Interestingly, only two states in the IFO report even mention academic outcomes (PA does not). After six years, the Alabama Accountability Act (AAA) provided “no evidence that the scholarship program has resulted in academic achievement that is superior to Alabama public schools, and majorities in both groups fail to meet academic benchmarks” (IFO, 2022, p. 21). In Florida, the annual report on the Florida Tax Credit Scholarship Program (FTC) does not compare the performance of FTC students to public school students. The PA EITC specifically prohibits the collection of student academic performance data.
Some ETC proponents argue that business organization demand alone is proof that the tax credit is successful and should be expanded. This argument is not supported by the Independent Fiscal Office report. The IFO recommends changing the statute to allow for data collection that would enable a review of the effectiveness and efficiency of this program. Participation and academic data are needed.
Pennsylvania legislators proposing automatic tax credit increases (SB 527), additional education scholarships, savings accounts, tax credits or other mechanisms to address education should heed the recommendations in this report if their goals are legitimately to help vulnerable populations such as military families (SB 999), exceptional students (SB 733), pandemic emergencies (SB 1015), low-income and students enrolled in low-achieving schools (ETC) to access high quality educational programs (Skinner, 2022).
The practical effect of this program and proposed legislation for choice subsidy expansion is the creation of two separate publicly funded education systems: one that operates within the traditional fiscal and legislative process and one that operates outside the bounds of education funding, legislation, transparency, and accountability. Meaningful data collection is essential to inform policy. All legislators and residents in the Commonwealth should advocate to ensure any program focused on Educational Improvement can measure and report academic impact to help parents and legislators with the difficult task of making sound educational decisions for students.
After 20 years and an investment of $2.8 billion, the state’s own Independent Fiscal Office can make no claims about the economic or educational benefits of the Education Tax Credit program. We can, and need to, do better,
References:
Independent Fiscal Office, Commonwealth of Pennsylvania. (2022, January 24). File download. Tax Credit Reviews. Retrieved February 6, 2022, from http://www.ifo.state.pa.us/download.cfm?file=Resources%2FDocuments%2FTC_Board_Hearing_Jan_24_2022.pdf
Independent Fiscal Office, Commonwealth of Pennsylvania. (2022, January 20). Pennsylvania Educational Tax Credits, An Evaluation of Program Performance. Retrieved from http://www.ifo.state.pa.us/releases/518/Educational-Tax-Credits/
Pennsylvania Department of Education, (2021). Public School Enrollment Reports, Enrollment Public Schools 2020-2021. [Data file] Retrieved from https://www.education.pa.gov/DataAndReporting/Enrollment/Pages/PublicSchEnrReports.aspx on 9/16/21
Pennsylvania Department of Education, (2021). Private and Non-Public Schools Enrollment Reports, Enrollment Private Nonpublic 2020-2021. [Data file] Retrieved from https://www.education.pa.gov/DataAndReporting/Enrollment/Pages/PrivateNPEnrRpts.aspx on 9/16/21
Skinner, V. (2022, January 18). Lawmaker proposes school choice for Pennsylvania students in poor-performing districts. The Center Square Contributor. Retrieved from https://www.wfmz.com/news/state/lawmaker-proposes-school-choice-for-pennsylvania-students-in-poor-performing-districts/article_0b2ec51d-5d45-5629-860d-d5b983e5dff7.html
Skinner, V. (2022, January 19). Bill to increase caps on school-choice tax credit programs clears Pennsylvania Senate committee. The Center Square Contributor. Retrieved from https://www.thecentersquare.com/pennsylvania/bill-to-increase-caps-on-school-choice-tax-credit-programs-clears-pennsylvania-senate-committee/article_37d3bbfe-795f-11ec-9731-734b6d754a57.html