Bill would give donors tax credits for funding school choice accounts

Parents sending children to private school or educating them at home would be eligible for funding from nonprofits fueled by donors given tax credits under a bill being considered by Arkansas legislators.

The Arkansas Parental Empowerment for Education Choice Act of 2017 by Rep. Jim Dotson, R-Bentonville, would allow nonprofits to establish education savings accounts for eligible students. Donors to those nonprofits could make donations that would be tax deductible on their state taxes. The nonprofits would be qualified by the Department of Finance and Administration (DFA). Contributors could not designate recipients.

Parents could apply to those organizations to establish those accounts and be funded equivalent to each academic year’s public school foundation funding, which is $6,646 in fiscal year 2017. The money could be used for tuition and fees at a private school, textbooks, contributions to a college savings account or for college classes, and other expenses. Parents could even contract with school districts to take courses or extracurricular activities. Funds could be carried over from one year to the next and into the student’s college-going years.

Tax credits would be granted on a weighted lottery the first year. After that, students who received funding the previous year would get first dibs, followed by their siblings, students on a waiting list, and those on a weighted lottery.

The percentage of students receiving the funds would have to be at least equivalent to the percentage of students on free and reduced lunch prices, which was 62% in 2014-15.

The program would be limited to $10 million in tax credits in tax year 2017, though nonprofits can raise more money that would not be tax-credited. The number then could grow by 10% each subsequent year, or it could be reduced year by year if not enough students apply for the $10 million.

Dotson said in an interview that funding $10 million of credits would pay for expenses for about one-third of one percent of all eligible students.

Gov. Asa Hutchinson indicated support for school choice in general but is not ready to provide his position on the bill.

“I’ve always been in support of parents and students having choice in education,” he said in a statement provided to Talk Business & Politics. “As for this particular piece of legislation, I am concerned that the use of tax credits will have a significant, negative impact on the budget. I’m currently awaiting additional information from DFA on the budget impact. I will continue to review the legislation.”

Five states have education savings accounts with direct state funding. No states do it the same way as Dotson’s bill by using tax credits for gifts to nonprofits to fund the accounts, and none of the five make the scholarships available to all students, according to a University of Arkansas report.

The bill is in the House Education Committee but is awaiting a fiscal impact study by DFA. An analysis released Tuesday by the University of Arkansas – Department of Education Reform projected the bill would increase available net funding to the state by about $2.8 million, or about one-tenth of one percent of the state’s overall education budget, because parents rather than schools would shoulder part of the cost of educating each student. About half (50.6%) of districts would financially benefit. The positive fiscal impact on the state would be $914 per participating pupil.

Rep. Clarke Tucker, D-Little Rock, opposes the bill, saying it would have a negative impact on the state’s budget in the next fiscal year, followed by unknown costs in later years. He said the bill would have the effect of eroding support for public schools by sending some public school students to private school.

“The infrastructure of the public school system has been set up based on a certain expectation of how many kids are going to attend that system, and so we know, just from a business standpoint, that when you have a large infrastructure and a large overhead, and then you don’t have the revenue to support that infrastructure and overhead, that that’s an unsustainable model,” he said.

Dotson said he is “a strong supporter of public schools. I’m an advocate for children, and so I want children to have the best available learning environment that suits the needs of that child. I believe that the parent knows their child the best and is best suited to direct the educational funds to help enable their child to have the best possible outcomes for their education.”