choice history

The rise of tax credits: How Arizona created an alternative to school vouchers — and why they’re spreading

PHOTO: U.S. Department of Education

With its recent adoption of a tax credit scholarship program, Illinois became the 18th state to adopt an innocuously named — but highly controversial — policy that critics have described as a “backdoor voucher.”

In some sense, the description is apt. But by injecting a middle layer into the government’s support of private school tuition, tax credits help avoid some of the legal and political obstacles that have dogged efforts by advocates, like Education Secretary Betsy DeVos, to promote school choice through vouchers.

Perhaps as a result, more students now use tax incentive programs than vouchers to attend private schools in the U.S. A federal tax credit is also seen as the Trump administration’s favored approach for promoting school choice at the federal level, though its immediate progress looks increasingly unlikely.

The 20-year history of this approach offers insights into why it has taken hold: resistance to legal challenge; limited government oversight, appealing to among free-market advocates of school choice; and a more politically palatable branding than vouchers.

This is far better than vouchers — it is easier to pass and easier to uphold,” Trent Franks, a conservative activist and now a U.S. congressman, said in 1999 after Arizona’s state supreme court upheld its tuition tax credit program. “I think this is the direction the country will go in.”

He proved largely right.

The number of students participating in private school choice programs over time, including tax credits (green) and vouchers (orange). (EdChoice)

Arizona’s pioneering approach

The first tax credit program was passed in Arizona in 1997. Arizona’s constitution, like most other states’, bars public dollars from going to religiously affiliated schools. Proponents knew any plan to promote private school choice would likely end up in court.

So they landed upon an ingenious approach that would make the initiative more likely to survive legal challenge. Instead of issuing vouchers for private school tuition — like Milwaukee had done since 1990 — the state would outsource that role to nonprofits. Those groups would get their money from donations, encouraged by generous tax credits.

It worked like this: An individual could donate up to $500 to a nonprofit, then get a tax cut for the exact amount they donated. The nonprofit would take the donated money and use it to offer tuition stipends — essentially vouchers — to families who met certain conditions. That system allows the state to promote the tuition subsidy, losing $500 in revenue for each maxed out donation, without paying for it directly.

Arizona’s program has since grown, and the state has created a number of other tax credit programs. (This approach is distinct from programs that give individual families tax breaks for educational spending on their own children; Illinois has had such an initiative since 2000, while Minnesota has had one since 1955.)

Arizona’s and Milwaukee’s policies look similar. In both places, students can receive a subsidy to attend a private school, and it comes at the expense of state revenue. But crucially, in Arizona, the government never had the money to begin with.

“The point was in part to ensure that these were not government-run programs,” Lisa Graham Keegan, who was Arizona’s school superintendent when the tax credit program passed, told Chalkbeat. “Those scholarships are completely separate, both for legal reasons and for philosophical reasons.”

Tax credits: the legal survivors

Private school choice across the country have been inundated with legal challenges, but tax credits have proven remarkably resilient.

Although voucher programs have continued to grow and were upheld by the U.S. Supreme Court in 2002, they have also faced legal challenges in state courts. Colorado’s top court, for example, struck down a voucher program in 2015. (The case is currently being reconsidered in light of a recent Supreme Court decision.)

But tax credits have never ultimately lost in state or federal court, prevailing in Arizona, Alabama, Florida, Georgia, New Hampshire, and the U.S. Supreme Court.

Tax credits “grew up as a result of saying we need a different vehicle than vouchers in states that have legal issues,” said Robert Enlow, the president of EdChoice, an Indianapolis-based group that backs both vouchers and tax credits. (EdChoice is a funder of Chalkbeat.)

Often, cases have been thrown out before substantive arguments can be made, amounting to a win for the programs: Some courts have ruled that private organizations or individuals do not have legal standing to challenge tax credits, since they aren’t government expenditures.

That was the decision in the 2010 Supreme Court case Arizona Christian School Tuition Organization v. Winn, in which the majority said equating government spending and tax credits was “incorrect.”

“When Arizona taxpayers choose to contribute to [scholarship organizations], they spend their own money, not money the State has collected,” Justice Anthony Kennedy wrote.

Light regulatory touch proves a blessing and a downside

To Arizona conservatives skeptical of both regulation and the education establishment, the system had an additional benefit.

“The point was in part to ensure that these were not government-run programs,” said Graham Keegan, and additionally that “these don’t become government dollars.”

Nationwide, tax credit scholarship programs appear less regulated than voucher programs, some of which require private school students to take state tests or for schools to undergo financial audits.

Free-market oriented supporters “see ‘neovouchers’ as much less likely to be regulated and have restrictions — the government strings attached — than a traditional voucher law,” said Kevin Welner, a University of Colorado professor who wrote a book on the rise of tax credit programs and is generally critical of them.

A 1998 essay published by the Mackinac Center, a conservative Michigan think tank, made this case explicitly: “Tuition tax credits also create very different effects than vouchers. … Vouchers are more likely to be viewed as a rationale for regulating the entity that receives the subsidy.”

This has played out in practice. One analysis compared several voucher programs to a number of tax credit programs and found that, in almost all cases, vouchers were more regulated. Most tax credit systems had few, if any, financial reporting or disclosure requirements. (Notably, Florida’s program, the largest in the country, was the most regulated tax credit initiative.)

Many tax credit programs do not require participating students to take state exams, and if they do, the tests are rarely comparable to the assessments taken in public school. This means that while voucher programs have been widely studied, there is little research on the effect of receiving a tax credit scholarship.

Supporters of this approach argue that such requirements discourage private schools from participating.

Limited oversight, however, has proven something of a political liability, insofar as it has allowed for financial malfeasance. National media have drawn attention to how one prominent politician and advocate for Arizona’s program was also able to profit personally from it, for example.

“I think [limited regulation] is a feature that has some bugs,” said Enlow of EdChoice. “We need to have transparency. The programs, like Florida, which are very transparent and very open to data collection, I think are very important.” He declined to name any tax credit programs that, in his view, lacked sufficient transparency.

The use of the tax code has also raised another concern: Under some tax credit systems, “donors” can actually earn a profit by taking advantage of both state and federal tax breaks.

Selling tax credits

How exactly to brand tax credit programs has been the subject of fierce debates. Opponents have called them “neovouchers” and “voucher schemes,” while supporters sometimes portray them as entirely distinct from vouchers.

Tax credits tend to poll better than vouchers, and Welner thinks that may be because it’s less clear to most people what they are.

“People’s eyes get bleary and they tune out when people start talking about tax credits,” he said. “That helps to avoid a situation where they respond to it the same way they respond to a voucher proposal.”

Tax credits are essentially a tax cut, which can be a selling point for some, especially conservatives. Advocates sometimes also downplay the costs of tax credits to the government.

“Is it foregone revenue? Sure, but it doesn’t mean it’s the state’s revenue,” said Enlow.

The distinctions between vouchers and tax credits, though, may ultimately matter less to lawmakers in states where they are being debated. In Illinois, critics connected tax credits to vouchers, and Democrats were largely opposed to the tax credit initiative that ultimately passed.

“In my experience the arguments have been the same whether it’s a tax credit bill or a voucher bill when you’re talking with legislators,” Enlow said. “There’s some nuances, but it’s still the same.”

Correction: An earlier version of this piece misstated the name of a free-market Michigan think tank, which is the Mackinac Center.

working toward proficiency

Maine went all in on ‘proficiency-based learning’ — then rolled it back. What does that mean for the rest of the country?

PHOTO: Shaina Cavazos
Students work on English and math skills. Hawthorne Elementary School, in Warren Township, Indiana has adopted a "competency-based" learning model where kids can move on to other material once they've shown they have mastered a skill or concept.

When Ted Finn first heard about the new way of running a high school, he was excited.

Forget students squeaking by with Cs and moving on without truly understanding math or biology. Throw out the idea that a student has to pass a collection of classes to earn a diploma — instead, tell them what essential skills they need. Instead of letting a bad test grade derail a student, give them multiple chances to demonstrate what they know.

“The idea of having an identified set of standards and expectations that would be put out there, so that … everybody would know that if you had earned credit in, say, an Algebra I class, you did in fact meet specific identified standards — at first I was thinking, this is great,” said Finn, a longtime Maine educator and the principal of Gray-New Gloucester High School, about 20 miles from Portland.

For the last several years, he has been part of an ambitious experiment to take that approach, known as proficiency-based education, statewide. In 2012, Maine passed a law changing how high school diplomas were awarded. To earn one, students would have to demonstrate that they had mastered material in eight subjects. This advocates said, would better prepare students to compete in the future economy.

But the latest developments suggest that Maine may become a cautionary tale rather than the successful proof point advocates had hoped for.

Across the state, districts struggled to define what “proficiency” meant and teachers struggled to explain to students how they would be graded. Those challenges, plus strong backlash from parents, caused the state to scrap the experiment earlier this year, allowing districts the choice to return to traditional diplomas.

“If you don’t have the buy-in of your community, you’re in for a world of hurt,” Finn explained.

Maine’s meltdown matters because the ideas at the core of the state’s efforts are influencing states and school districts across the country. Forty-eight states have adopted policies to promote “competency-based” education to varying degrees, often at the urging of a constellation of influential philanthropies, including the Nellie Mae Foundation, which poured at least $13 million into Maine’s effort.

Meanwhile, new research documents the challenges that beset the effort seemingly from day one. And there remains little evidence that proficiency-based education has boosted student learning, in Maine or elsewhere.

“A lot of folks are looking closely at what’s happened in Maine and trying to draw lessons from it,” said Charlie Toulmin, the policy director of the Nellie Mae Foundation.

Maine schools quickly faced hurdles

Earlier in 2012, the Massachusetts-based Nellie Mae Foundation awarded nearly $9 million to two of Maine’s largest school districts, Portland and Sanford. The money was meant to help them adopt what the organization calls “student-centered” approaches. That includes what’s called mastery, competency, or proficiency-based learning, which means that students progress at their own pace, moving on only when they demonstrate they’ve learned a certain topic.

Those districts quickly got to work. “Parents may ultimately stop seeing report cards with A, B, or C grades on it and instead start seeing what it is that their student can do,” the Sanford superintendent said.

Those district’s moves made what came next seem less radical than it might otherwise have. With bipartisan support, Maine lawmakers passed the bill revamping graduation requirements statewide, titled “An Act To Prepare Maine People for the Future Economy.” It required all districts to begin awarding diplomas based on student proficiency in several years.

Then it fell to districts and schools to make sense of the new rules — a complicated endeavor that sometimes meant scrapping key elements of how high school traditionally worked.

Each district was tasked with determining what it meant for a student to be “proficient” in the subjects Maine required. Officials knew that if they set standards too high, an unprecedented number of students could fail to graduate. Too low, and it would defeat the purpose of the whole exercise.

Those questions reverberated in schools, too. Schools weren’t required to change their grading systems, and some held onto their A-Fs. Teachers in many others starting awarding students scores of 1 through 4, with 3 equalling proficient, for each of the key standards.

The law required that students be able to demonstrate that proficiency in a variety of ways, whether through a traditional exam, a portfolio of work, a project, or a performance. But what that meant varied widely between classrooms, creating headaches for students.

Many let students take and retake tests to prove they were proficient, and some stopped grading homework or classwork altogether.

“Each teacher has their own system,” Ellie Roy, a senior at Gray-New Gloucester High School, told the Hechinger Report last year.

Evan Cyr, a high school teacher in Auburn, Maine, said the changes forced him to get “really explicit with students” about the connection between the work they were doing in class and the standards that they would actually be tested on.

At the same time, teachers began evaluating students on things like being a critical thinker or an informed citizen — qualities that were included in the new graduation requirements.

The shifts left plenty of students and parents confused and frustrated. Proficiency was the goal, but doesn’t 3 out of 4 equate to a C? Would out-of-state colleges be able to make sense of the new and confusing transcripts? And how did any of these scores translate into the information that undergirds many of the traditional trappings of high school, like sports eligibility, class rankings, and a valedictorian?

Research, including a series of papers released by the University of Southern Maine and a  study funded by Nellie Mae released this month, has examined how a number of districts responded to those challenges.

They found that most teachers continued using traditional exams, not portfolios or performances. Some teachers remained overwhelmed by the prospect of helping struggling students clear the bar without more guidance.

“We’re only till the end of quarter one, and they’re already not able to meet the standards from quarter one of that class, so it’s very concerning,” one special education teacher told researchers. “How is this going to work? And to be honest, nobody really … has a good answer for us.”

Others remained concerned that allowing students to demonstrate proficiency whenever they wanted could have unintended consequences. Cyr said this was the most controversial aspects with parents in his district. “Some of our students have developed some bad habits that are really going to plague them about deadlines,” said one teacher.

A few students agreed. “I just feel like I’m not getting challenged enough because I know if I don’t pass it, I can just do it again and do it again,” one 10th-grader told researchers.

Concerns began mounting among district leaders, too, about how the changes might affect their graduation rates. Since 2011, Maine, like virtually every other state in the country, has seen its graduation rate climb.

“We heard school administrators indicate that their graduation rate wasn’t going to plummet — because they would just change their definition of proficiency,” said Erika Stump, one of the researchers.

Then there was the issue of funding. Districts got a 0.1 percent boost in state funding to implement the law, which in most cases amounted to just a few thousand dollars. This ran headlong into some of the ramped-up graduation requirements, like proficiency in a foreign language. One Maine district resorted to purchasing the Rosetta Stone program after being unable to find French or Spanish teachers.

Nellie Mae tried to fill in some of that funding gap. The foundation has given nearly $9 million since 2010 to the nonprofit Great Schools Partnership to help schools implement the law and to build support for the policy. The state department of education was also supposed to provide support; it created a help website, including a best practices page also funded by Nellie Mae.

But the foundation’s outsize role has drawn criticism. “The proficiency-based diploma law has created a niche market for a special group of education ‘consultants’ with financial backing, mostly from the Nellie Mae Foundation, to dictate to policymakers what a diploma should mean,” one skeptical Republican state legislator wrote in March.

Toulmin of Nellie Mae said the philanthropy wasn’t the driving force some made it out to be. “There was already some energy in different places of the state to do this before any of our support came along,” he said.

It’s unclear whether Maine’s new approach led to better results

Did all of that change help students?

The patchwork of local policies mean it’s difficult to measure just how much instruction in Maine high schools changed. The recent Nellie Mae-funded report found that across 11 high schools, most students still weren’t experiencing much “personalized” instruction.

It did find that students who were exposed to more of the approach had slightly lower SAT scores but a higher feeling of engagement in school, though the study couldn’t show whether the proficiency-based approach was the cause of either one.

As for educators, a survey found that only 18 percent of high school teachers believed that the new graduation requirements “increase academic rigor.” But some did say it pushed them to focus more intensely on struggling students. In a number of places, schools added tutoring and after-school programs to help kids who were behind.

“I want them to meet the standard, and the only way to meet some of those kids is to sit down one-on-one,” one math teacher told researchers. “I’ve done a lot more conferencing, and a lot more walking around the room, and a lot more helping them than I have before.”

Any educational successes, though, weren’t enough to keep the experiment from becoming a political failure.

Earlier this year, talk of changing the law attracted hundreds of comments from parents and teachers, sometimes spurring fierce protest.

The state legislature soon conceded. Lawmakers repealed the requirement that districts issue proficiency-based diplomas in June — before a single class of students statewide was required to earn them. Maine Governor Paul LePage, who backed the 2012 law, signed off on the changes in July.

A few districts quickly jumped at the chance to scrap the proficiency-based diplomas.

“Student achievement will be recognized as it has historically been recognized with honor roll, with valedictorian, salutatorian, top 10 percent of the class, some of the historical things that we’re familiar with will be in place,” explained a principal in York, Maine.

Other districts have announced they’re going to keep going. The state department of education says it doesn’t have a count on how many districts have moved back to the traditional system.

Finn, the principal at Gray-New Gloucester High, is still optimistic. He wants his district to continue working to get proficiency-based education right, particularly after the time and money that’s already been invested.

“Can you imagine shifting gears?” he said. “We’ve got kids right now, members of the class of 2020, who are under the new graduation requirements.”

Advocates push forward

Proponents of proficiency-based learning argue that none of this reflects flaws in the concept. Maine struggled, they say, because they didn’t introduce the concept thoughtfully enough, moving too quickly and requiring change rather than encouraging it.

“When there was poor implementation — and there was poor implementation — then of course the parents and the community members start saying, hey, we don’t like this competency-based education,” said Chris Sturgis, co-founder of CompetencyWorks. “But it wasn’t really competency-based education.”

“It is a lesson on the perils of putting a mandate in place and not having organized for the necessary clarity and guidance for the field,” said Toulmin, Nellie Mae’s policy director.

Those lessons matter far beyond Maine. Competency-based education and other related approaches, like “personalized learning,” are spreading across the country, catalyzed by prominent advocates and influential funders. They include the U.S. Secretary of Education Betsy DeVos, as well as philanthropies like the Chan Zuckerberg Initiative, Laurene Powell Jobs’ Emerson Collective, and the Bill and Melinda Gates Foundation. (Chalkbeat is funded by CZI, Emerson via the Silicon Valley Community Foundation, and Gates.)

Many have made arguments strikingly similar to the ones Maine lawmakers used to push for the new graduation requirements — that schools haven’t changed in many years and they need to in order to prepare students for a rapidly changing economy.

Neither of those claims is nearly as clear-cut as advocates contend, and there remains limited research on whether competency-based or personalized approaches boost students’ success in school. Existing studies have often focused on schools that are best poised to implement such changes and have generally found small to moderate learning gains.

“A lot of it says: The reality is that there is some initial early results, and that we don’t know enough,” said Eve Goldberg, the director of research at Nellie Mae.

Today, almost every state support proficiency-based education in some way — a number that has increased dramatically since 2012, according to CompetencyWorks. Fifteen districts in Illinois are participating in a competency-based high school graduation pilot program. In Arizona, students can opt to earn a proficiency-based diploma. Examples of schools and districts trying the approach also exist in Indiana and Colorado, among others.

The concept has particularly taken hold in the Northeast, often with funding from Nellie Mae, which focuses on the region. New Hampshire now requires districts to base academic credits on mastery of content.

Most similar to Maine is Vermont, which is set to require students to earn proficiency-based diplomas in 2020. That’s causing pushback there too.

“We are leapfrogging everyone,” one resident said at a Vermont house committee hearing in April. “We are running an educational experiment on our kids based on theory, not proof that this has worked in another state.”

Election 2018

It’s not just the governor’s race. Here’s what Tennessee’s big legislative turnover could mean for education.

PHOTO: TN.gov
Gov. Bill Haslam receives an ovation during his final State of the State address in January before a joint session of the 110th General Assembly, cabinet members, and guests.

The battle to replace term-limited Gov. Bill Haslam has consumed the spotlight for Tennessee’s education-minded voters, but more than a hundred legislative races will decide who the new governor will work with on school policy for the next few years.

In addition to either Democrat Karl Dean or Republican Bill Lee as the state’s new chief executive, at least a fourth of the General Assembly’s members will be new to Capitol Hill in January. That’s because of an unusually high number of legislative departures, due mostly to retirements or the pursuit of other government jobs.

Incumbents aren’t running to fill 25 out of 99 seats in the House of Representatives and six out of 33 seats in the Senate — setting the stage for the biggest turnover since at least 1995, according to legislative librarian Eddie Weeks.

Among those opting against re-election bids are the leaders of three of four House education panels — Harry Brooks, John Forgety, and Roger Kane — all East Tennessee Republicans who have wielded considerable power in controlling the flow of bills in their committees or subcommittee. The fourth chairman, Rep. Mark White of Memphis, has been in office since 2010 and faces Democrat Danielle Schonbaum on Election Day on Nov. 6.

“It’s like getting Jupiter, Mars, the Earth, and the sun all lined up at the same time. It’s a ton of change,” said Kane of getting a new governor, a new education commissioner, and a critical mass of freshman legislators, in addition to administrative staff turnover.

At stake is whether Tennessee will stay the course on a massive school improvement plan launched in 2010 under former Democratic Gov. Phil Bredesen and continued since 2011 by the current Republican governor. The overhaul, spurred by Tennessee’s $500 million federal Race to the Top award, is grounded in higher academic standards; a new test to measure student growth and proficiency based on those new standards; and policies that hold students, teachers, and schools accountable for results.

The years since the overhaul have coincided with student gains on national tests, but also major headaches in administering the state test known as TNReady, now entering its fourth year. Technical glitches disrupted two years of giving the new computerized assessment, while scoring and score delivery problems marred another year.

“I hope we don’t try to reinvent the wheel,” said Rep. John DeBerry, a Democrat and education committee member who is running unopposed in his Memphis district. “We’ve laid a very good foundation that’s been proven by a lot of measurable factors.”

Kane, who serves on the other side of the aisle, agrees.

“I worry that you could see a total change in philosophy and literally everything we have done the last 10 years could become unwound,” he said. “When you have people coming in who are totally against any kind of testing but the ACT, as well as people who want to test everything, that’s a wide disparity.”


Read why Haslam worries that TNReady problems could unravel Tennessee education policy


Both gubernatorial candidates want to take a closer look at testing, but the next General Assembly will have a lot to say about steps moving forward.

“We’re the ones who pass the laws,” said DeBerry. “The governor has tremendous influence, but he doesn’t cast votes either in committee or on the floor.”

Still, uncertainty about legislative turnover, especially in the House, was on the minds of members of the State Board of Education on Thursday as they discussed how to make TNReady work better this school year, as opposed to just gutting the test and starting over.

“That’s the big unknown at this point that quite honestly nobody has control over,” said Wayne Miller, the former state superintendents chief whom Haslam recruited to facilitate his recent statewide listening tour on testing.

 “If we start to slide off track, it will be important for this group and others to speak loudly that this is not where we want to go,” Miller told the board.

A lot will depend on new legislative leadership, especially in the House which, like the Senate, has a lopsided majority of Republicans that likely won’t change significantly.

The speaker of the House decides committee appointments, both for membership and leadership, but that job is up for grabs too due to the exit of Nashville Republican Beth Harwell after her unsuccessful bid for governor. The Republican caucus is scheduled to elect a new speaker on Nov. 20, and candidates thus far are Reps. Glen Casada of Franklin, David Hawk of Greeneville, and Curtis Johnson of Clarksville.

The next speaker is expected to maintain Harwell’s two-committee system for education legislation because of the large number of bills on K-12 and higher education. Kane said the system has worked well.

PHOTO: Grace Tatter/Chalkbeat
Rep. Roger Kane of Knoxville is the retiring chairman of the House Education Instruction and Programs subcommittee.

“Last year there were 400 education bills alone,” Kane said. “That number would be grueling for one committee in the House. We have more members than the Senate committee and therefore more discussion.”

The Senate is less likely to see any kind of fruit basket turnover, and Dolores Gresham is expected to continue chairing her chamber’s education committee. The Somerville Republican has served in the legislature since 2002 and is not up for reelection this year.

But the huge turnover in the House will mean a significant loss of institutional knowledge on education policy. At the same time, the handoff presents an opportunity to gain fresh and innovative ideas, according to Brooks, the powerful committee chairman who is retiring after 16 years in office.

“I’m not worried,” Brooks said. “This legislature has been around for over a hundred years, and it’s managed to pick up and go after huge shifts in the past. There’s a lot of quality people returning, and there will be a lot of good folks who are going to be elected.”