New Pa. budget injects $125M into private school tax credit program that lacks basic accountability

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HARRISBURG — When Gov. Tom Wolf and the Republican-led legislature hammered out the $45.2 billion budget deal in early July, they delivered a historic windfall to a popular tax credit program that underwrites scholarships for Pennsylvania students to attend private schools.

The additional $125 million in the state budget for Pennsylvania’s educational tax credits represented the largest onetime funding boost for the program since its inception nearly two decades ago, according to state data. And it was quickly hailed by GOP legislators who insisted on the increase, calling it a win for low- and middle-income students who attend low-performing schools.

But the program as recently as this year was singled out for a fundamental lack of transparency and accountability that makes it impossible to determine whether it’s actually improving outcomes for students. At the same time, bills to remedy its secrecy, or to make it more efficient, have languished in the legislature.

“We have zero quantitative data to see if it’s effective,” said state Sen. Lindsey Williams, a Democrat from Allegheny County who also spoke out against the program’s funding increase when lawmakers voted on the budget. “And we don’t even get additional accountability in exchange for the largest increase to the program.”

Republicans who control both chambers said in statements to Spotlight PA that they supported the historic increase, not just for the educational tax credit, but also for public education. But they sidestepped questions about whether they had reservations about supercharging funding for a program whose effectiveness is difficult to evaluate.

Wolf has said that he believes the program needs to be more accountable. When asked why the governor signed off on its biggest funding increase ever, spokesperson Beth Rementer said: “Unfortunately, Republicans refuse to move legislation that would adequately address this [accountability] and they insisted on this increased funding in the budget.”

In 2001, under Republican Gov. Tom Ridge, the legislature voted, without debate, to create the Educational Improvement Tax Credit, or EITC. At the time, some lawmakers and public education activists viewed it as a backdoor way for Ridge, an advocate of government-funded tuition vouchers, to get a school choice program in place in Pennsylvania.

The EITC program, however, was structured differently. Instead of government-funded vouchers, it created a system for businesses to donate money to educational nonprofit organizations, which in turn would distribute those dollars to help offset tuition costs for students wanting to attend a different — often private — school. Participating businesses were rewarded with state tax breaks of up to 90 cents on every dollar they contributed.

The EITC law also allowed for some money to go to public schools for innovative programming — including academic summer camps or author visits to classrooms — that wouldn’t otherwise be funded by a local district.

That first year, the EITC program was capped at $30 million, but legislators have negotiated increases to it nearly every year since. With the additional $115 million in this year’s budget deal, the cap now stands at $340 million.

The tax credit program has been expanded since 2001 to include so-called opportunity scholarship tax credits, or OSTC, which provide tuition assistance specifically to students who live within the boundaries of Pennsylvania’s worst-performing schools. OSTC also received a $10 million boost in this fiscal year’s budget, bringing the total for the educational tax credit to $125 million.

Nathan Benefield, senior vice president at the Commonwealth Foundation, a conservative think tank based in Harrisburg, said the funding increases directly reflect the popularity of the program, both in the business community and among parents.

“The need is clearly there,” said Benefield, whose organization supports increases to the program.

Indeed, the program is in demand. In the 2019-20 fiscal year, the latest data available, there were roughly 164,500 applications for tuition assistance, a 36% increase from the previous year, according to data collected by the state’s Independent Fiscal Office, which analyzes the state’s budgetary and economic landscapes.

Despite the influx of applications, only about 68,400 scholarships — or roughly 42% — were awarded, although the IFO noted in a recent report that students weren’t turned away solely because the program didn’t have enough money to meet demand.

That report, published in January of this year, concluded that a thorough review of the educational tax credit program was impossible, given the dearth of information about it. The educational tax credit law sharply limits the data the state can collect from the scholarship organizations that dole out tuition dollars and the schools that host those students.

Instead, the state receives largely aggregate information, including the number of applications received, the number of scholarships awarded, and the average amount of tuition assistance.

But officials from the state Department of Community and Economic Development, which oversees the educational tax credit program, told Spotlight PA that they do not know how many scholarships went to students who already attended private schools, as opposed to students who switched from public schools.

Nor is the department able to collect data on the income levels of families whose children benefit from the program. Students can apply for tuition assistance if their families have a maximum household income of about $96,600, plus $17,017 per dependent, according to the IFO report. The report noted that Pennsylvania has the highest income limitations among states that offer such educational tax credit programs.

The IFO’s analysts recommended the legislature amend the law to permit the state to collect student performance and demographic data so that the program can be meaningfully evaluated.

“Across states, Pennsylvania has one of the largest tax credits, but collects and publishes the least amount of outcome data,” the IFO report noted.

Yet the legislature has not taken action on legislation seeking such changes.

One bill, introduced by state Sen. Tim Kearney (D., Delaware) would, among other changes, require more information on the students and families that receive scholarships and their educational outcomes. Another measure, championed by state Rep. Chris Rabb (D., Philadelphia), would require similar information, but would also lower the income threshold to qualify for assistance.

Neither has received a committee vote, the first step in moving a bill forward.

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