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Live Free and Learn: A Case Study of NH’s Scholarship Tax Credit Program

By Jason Bedrick

In 2012, the New Hampshire Legislature passed the Opportunity Scholarship Act (OSA), the first scholarship tax credit program to allow scholarships to cover certain homeschooling expenses. Section III details the OSA’s program design and outlines the legislative and legal challenges to the program.

The OSA’s first-year implementation is discussed in Section IV, including the results of a survey of the parents of scholarship recipients. Since the OSA went into effect, the Network for Educational Opportunity, New Hampshire’s first and so far only active scholarship organization, distributed $128,340 in scholarships to 103 students for the 2013-14 school year. Ninety-one percent of those recipients are from families with income low enough to qualify for the federal “National School Lunch” program.

The survey found that 97 percent of parents of scholarship recipients are satisfied with their chosen private or home schools, 68 percent noticed measurable academic improvement since receiving the scholarship, and 74 percent of private school parents reported that they would have been unable to afford tuition without the scholarship. These findings are consistent with previous research and demonstrate once again the promise of educational choice programs.

Click here to read the full report, published by the Show Me Institute

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Why Lynch is wrong and The Washington Post right

 

 Charlie Arlinghaus

June 27, 2012

As originally published in the New Hampshire Union Leader

In what can only be a sign of the coming of the apocalypse, the single best piece written on school choice over the last year was a Thursday editorial in the normally quite liberal Washington Post. On Veto Day in New Hampshire, legislators ought to ignore the hand-wringing of our current governor and instead read the Post’s article extolling the importance of the D.C. Opportunity Scholarship Program.

The importance of educational opportunity was summed up by the reliably liberal Post: “the opportunity to send their children to better schools — a choice taken for granted by many Americans, including some who are in Congress and the White House — is something beyond measure.”

This one sentence explains why a liberal newspaper would wax poetic about school choice and why many of us in New Hampshire are pushing for a School Choice Scholarship Program. In New Hampshire, rich people have choices, poor people do not. The Post points out that the privileged in Washington — the children of most senators in both parties for example — have a variety of options and rarely are sent to the school assigned by their zip code.

New Hampshire has better public schools than Washington has. Yet no one seriously argues that every school is the best choice for every child in its zip code. Those who have the means are able to make choices. Sometimes they choose the local school, sometimes an alternative school. Families of lesser means are left out.

In their criticism of a very modest school choice program, Gov. John Lynch and his fellow naysayers argue that this is some sort of attempt to “weaken our public school system.” The Post faced similar arguments to the D.C. scholarship program. It points out that “studies have shown its success in boosting graduation rates of its participants, and contrary to the fiction of its critics, it doesn’t drain resources from public education. Giving parents a choice and improving public schools are not mutually exclusive.”

New Hampshire’s program remains a very mild experiment from the standpoint of school budgets. No school district sees any reduction in state aid unless it has fewer students. Even then, its loss is fractional. To alleviate any concern an individual district might have, the total amount of money reduced as a result of this program is capped at a minute 1/4 of 1 percent of its budget. In a state where 5 percent swings in enrollment are commonplace, no one can be expected to believe that 99.75 percent of funding plus the increases every district sees normally is somehow catastrophic.

Opponents also disingenuously claim the scholarships won’t actually help anyone who needs one. The bills are limited to lower-income students. As the governor pointed out last week, “these bills do limit eligibility to students from families at 300 percent of the federal poverty level.” Opponents admit that aid is targeted but claim the scholarship amount — required to average $2,500 — isn’t enough to help with tuition. What they don’t tell you, although surely they know, is that virtually no one pays sticker price for tuition. Every school in New Hampshire has some kids who pay zero and some who pay a small amount. Scholarships of $2,500 will allow more kids to attend for free and more kids to attend for nominal amounts.

The Washington Post wrote that a deal on the D.C. scholarship program “will allow more D.C. families to attend better schools.” The same is true in New Hampshire. More students will have more choices in a modest step forward in educational opportunity.

As modest as the program is for the overall budget, we can’t lose sight of those for whom the program is not modest in the least: students who will have new opportunities. The Post concluded the editorial it titled “The Right Answer” with a call for budget writers to remember what’s important: “What shouldn’t get forgotten in this seemingly endless fight are the people with the most at stake: parents who simply want what’s best for their children.”

In New Hampshire, what will be a modest step for the state and localities and have a negligible impact on what they do and how they do it can have a profound impact on the lives of individual students and the opportunities they don’t currently have.

Today, legislators have a rare opportunity to make an enormous difference in the future of individual students.

 

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School Choice Scholarship Program Saves $8 million over next two state budgets

Charles M. Arlinghaus

 March 2012

A proposed School Choice Scholarship Act under its proposed configuration would not start during the current budget cycle but would save the state budget $8 million over the next two budgets. This is not the primary consideration in any debate over school choice or a motivating factor for most supporters. But the budgetary impact of any bill is one of the technical considerations in any current debate.

The precise savings to be realized for the state budget of any school choice scholarship program depend on the exact scholarship amounts, take up rates, tax credits, and aggregate amounts available. This analysis takes as its starting point the details put forth by Sen. Jim Forsythe and Sen. Chuck Morse in the amended version of Forsythe’s proposed Senate Bill 327 in the 2012 session. The House version is quite similar but there are slight differences.

At its base, the School Choice Scholarship Act would allow businesses to make deductions to an approved scholarship organization and receive a credit against their BET or BPT obligation[1]. Scholarships would then be given to students in needy families (below 300% of the poverty level) to use at any approved non-public school or at another public school. Scholarships could also be used for some approved home school expenses (textbooks, for example).

The idea behind the proposal is to allow students greater opportunity by giving them more choices. Upper income students generally have multiple educational choices. This bill would extend those opportunities to lower income students.

Because the scholarship amount per student is less than the state aid cost per student, the state would save money for each student. The state budget would save more money if a student elected homeschooling because of the smaller scholarship available. The exception to budget savings would be students moving from one non-public school to another – which is why that group is limited in current proposals[2].

Consider three students and the budgetary impact of each: (1)a student moving from a public school to a nonpublic school, (2)a student moving from a public school to a home school, and (3)a nonpublic school student. For each of the first two categories, the state would save money previously spent on per pupil student aid. The state saves more money for the homeschool student because that scholarship is more limited. For the third category, the state wouldn’t save money because it wasn’t paying aid to begin with.

 

  Public to Nonpublic Public to Home School Nonpublic to Nonpublic
Avg. Scholarship[3] $2500 $725 $2500
Tax Credit Cost[4] $2125 $616 $2125
Budget reduction[5] $4312 $4312 $0
Saving per student $2187 $3696 ($2125)

With at least 70% of students mandated to be in the first two categories and no more than 30% in the third, you can easily see how the state budget saves money.

To estimate the aggregate amount saved, we have to make some assumptions. Of students who currently don’t go to public school, 22% of them opt for homeschooling and 78% go to a nonpublic school. So for a statewide aggregate, I’ve used a more conservative 80/20 split to estimate an average scholarship of $2145.

Finding the total cost and savings each year is a matter of doing the calculations above and applying the different caps on types of students (switching from public school v. already in private school) and size of program. In addition, I’ve added administrative costs both for the state and scholarship organization to the costs as well as a small secondary impact the credit structure causes on the BPT[6].

My calculation and its assumptions are attached for each of the four years of the next two budgets. I haven’t carried out calculations beyond four years because before too long you get into esoteric arguments about whether or not someone is counted as a “switcher” once they’ve been in the program for five or six years. In addition, the percentages and caps are certain to be tweaked once the state has a few years’ experience under its belt.

 

Projected Savings in Current Budget: ZERO (program not yet in effect)

 

Projected Savings in Budget for FY2014-FY2015: $3.96 million

 

Projected Savings in Budget for FY2016-FY2017: $4.33 million

 

Total Four Year Budget Savings: $8.3 million

 

Click here to view the companion spreadsheet

 

Click here to read the full report

 

[1] Both SB 327 and HB 1607 (the similar House version) give business a credit worth 85% of their donation to the scholarship organization

[2] The proposal in SB327 would require 70% of recipients to be coming from a public school. Currently 89% of students attend public school, 9% nonpublic school, and 2% are homeschooled.

[3] Scholarships granted by approved scholarship organizations will average $2500 across non-homeschooling students. Homeschool students are calculated separately and can receive up to $725 for approved expenses.

[4] Although the scholarship is drawn from donated funds, the donor receives a credit for only 85% of the amount donated. So the cost to the state budget of each scholarship is 85% of the average amount.

[5] State per pupil aid for each student includes a number of categories. Because only students at 300% FPL or below are eligible, I’ve included the base amount of $3450 for all students and the additional aid for free and reduced lunch eligible students of $1725 for 50% of students but nothing else.

[6] Because of the format of our tax reporting, the credit will also reduce the size of taxable income for some filers paying the Business Profits Tax. In the spreadsheet analysis, I estimate these filers as about 2/3 of the total credits (in practice it will likely be a smaller number) and calculate the additional lost BPT revenue.

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