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.

Spread the wealth

A few Colorado charter schools won ‘the lottery’ in this year’s round of school construction grants

Samantha Belmontes, 7, tries to keep a foam ball rolling in the center of her tennis racket for as long as she can in a class at Ricardo Flores Magón Academy in 2011. (Photo By Helen H. Richardson/The Denver Post via Getty Images)

Five Colorado charter schools are among the nearly three dozen schools getting new roofs, HVAC systems, or even entire new buildings courtesy of state land proceeds, lottery funds, and marijuana tax revenue.

The State Board of Education this month approved $275 million in grants through the Building Excellent Schools Today or BEST program, with schools and districts contributing an additional $172 million for $447 million in total construction projects.

This is the largest award the state has ever given, a 60 percent increase from the nearly $172 million given out last year. It’s also likely to be the largest award for some time to come. With this grant cycle, the board that oversees the BEST program used up its existing ability to issue debt, similar to the limit on a credit card, and next year’s grants will be limited to cash awards of roughly $85 million.

Charter schools traditionally have not done well in the competition for BEST grant money – a sore point for advocates because the schools can’t bond off property tax revenue like school districts can –  but this year, with more to spend overall, the committee that distributes the money also gave more of it to charter schools.

In a typical year, the grant program funds about half of the requests that come in, after prioritizing them based on a number of criteria, including health and safety concerns. This year, almost 70 percent of requests were funded.

Jeremy Meyer, a spokesperson for Colorado Department of Education, said officials in the capital construction program also made a deliberate effort to reach out to charter schools and explain the requirements of the grant program. Some of the successful applicants had applied before and were able to make refinements to this year’s applications. Representatives of charter schools, meanwhile, said this iteration of the BEST board seems more receptive to their needs.

“A lot of it was a function of them having more resources to distribute,” said Dan Schaller of the Colorado League of Charter Schools. “It’s a very positive development, but it’s important to keep it in context that over the last five years, charter schools have received in aggregate less than 1 percent of the funding.”

About 13 percent of Colorado students attend charter schools, which are publicly funded but independently run and exempt from some rules.

Legislation passed in the 2018 session increases the amount of marijuana tax money going to the grant program to 90 percent of all recreational marijuana excise tax revenue. Before, it had been capped at $40 million a year, even as the state took in far more pot tax money than was originally projected. Of this money, 12.5 percent will be set aside for charter school facilities needs.

However, state lawmakers balked at allowing the BEST program to borrow off of marijuana revenue, given the uncertain regulatory future under President Donald Trump and Attorney General Jeff Sessions, who is hostile to legal marijuana.

Without the ability to issue new debt, future awards are more likely to go to roof replacements and new heating and cooling systems than to new buildings, like the new elementary school approved in Adams 14 or the new buildings for Ricardo Flores Magón Academy in northwest Denver and Swallows Charter Academy in Pueblo.

Having the state fund a new building for a charter school is “like winning the lottery,” said Jane Ellis, who works with charters to find low-cost financing for their facilities.

This was Flores Magón Academy’s third attempt at getting a BEST grant. The state-authorized charter school serves roughly 300 students from kindergarten through eighth grade, most of them from low-income families. The school sits in a pocket of unincorporated Adams County at West 53rd Avenue and Lowell Boulevard, near Regis University, and most of the school’s families live in Denver.

In 2011, the school bought the Berkeley Gardens Elementary building, which had been shuttered for a decade. The school was built in 1906 and has several additions.

“Each add-on is very unique and reflective of its decade and comes with its own delightful challenges,” said Kaye Taavialma, a former executive director of the school who is working as a consultant on the building project. “We have to be very cognizant and aware of any precipitation.”

The roof leaks, the pipes leak, there aren’t enough bathrooms, and there’s asbestos in the walls and in the glue that holds down multiple layers of carpet. Portions of the school have been blocked off due to mold problems. The office is in the center of the building, without a clear line of sight on the entrances, creating security concerns. During one storm, a window blew out in a classroom. Fortunately, no students were injured, Taavialma said.

The school got $15.5 million from the BEST program and through a waiver only has to contribute $818,000 to the total project cost, rather than the $3.3 million that would normally be required under a state matching formula. The new building will be built on the site of the play fields and should open to students during the 2020-21 school year.

“For our school, this is tremendous because coming up with $3 million would have been darn near impossible,” Taavialma said. “As we see charters continue to proliferate and they’re being asked to move into buildings that either weren’t constructed to be school buildings, or like we experienced, a school building that has been sitting vacant for a long time, I hope this is a trend that continues.”

You can see the full list of grant winners here.

Cut off

Michigan’s third-grade reading law could penalize bilingual programs

PHOTO: Koby Levin
Elementary schoolers in an English class at Academy of the Americas in Southwest Detroit. More than 70 percent of third-graders at the school could be held back starting in 2020.

The grocery store down the street from Academy of Americas blasts Mexican pop music over the radio. A few blocks away, a taco truck takes orders in English and Spanish. On the Academy’s playground, third-graders go about the business of play using whichever language happens to land on their tongues.

Back in the classroom, kindergartners learn to add, subtract, and find the United States on a map using Spanish. Third-graders sit through English class, then walk across the hall for science class with a teacher who addresses them only in Spanish.  The school, like the Southwest Detroit neighborhood that surrounds it, is truly bilingual, and it has the support of parents and experts who argue that “language immersion” at an early age helps English- and Spanish-speakers effectively learn two languages for the price of one.

But dual-language immersion programs like this one are about to run smack into a controversial state law. Beginning in 2020, third-graders at Academy of the Americas won’t be able to move on to the fourth grade until they pass a state reading exam — in English.

Critics have raised a wide range of questions about the 2016 law, which would have caused nearly half of Michigan students to be held back a grade if the law took effect last year.

But perhaps most puzzling is that a law designed to improve literacy in Michigan could penalize the small handful of programs with a track record of teaching students  — especially English learners — to read in not one, but two languages.

When 89 third-graders at the Academy took the test in 2016, only a single student met state standards. If the law had been in effect, almost every one would have repeated the third grade.

While the school is among the most highly sought programs in the district, the low reading scores were not terribly surprising. Kindergarten classes at the academy are conducted in Spanish for 90 percent of the school day. By the third grade, students hear  Spanish for 60 percent of the day. Experts in bilingual education say students in such programs typically fall behind their English-only peers in reading, then catch up around middle school.

But under state law, third-graders in Michigan’s roughly 10 bilingual programs could be held back anyway.

“I can’t wrap my head around it,” said Norma Hernandez, the district’s former director of the Office of Bilingual Education. “Our kids are going to be left behind.”

Academy of the Americas was founded by Hispanic parents determined to help their children hold on to their native language. Learning English, they knew, was both inevitable and necessary in the United States. But why couldn’t a school also help children master the language spoken at the family dinner table?

As it turns out, dual-immersion schools like the Academy are backed by solid research showing that students who learn more than one language from an early age tend to catch up to their monolingual peers in English reading. This holds true even for students who speak Spanish at home, and it also helps them maintain their native language. More than 1,000 similar programs are in place across the country.

“They’re learning to read and write in both languages,” said Cecilia Jungo, a parent at the school, speaking in Spanish. “They’re totally bilingual,” she added.

Earlier this month, folders were propped up on every desk in a third-grade social studies classroom at the Academy, forming a barrier in case students felt tempted to scan their neighbors’ tests. As some began to fidget, the teacher slipped in a vocabulary lesson.

“If you are already finished with the test,” she said, speaking in Spanish, “just put your head on the — what?”

“The table!” the students shouted — also in Spanish.

In the hallway outside, Principal Nicholas Brown said that this minilesson will eventually improve the students’ performance on language tests, in English as well as Spanish.

“We’re teaching kids to read and write,” he said. “When they learn to read in Spanish, they are able to transfer those skills to English, so that when English is introduced they’re able to attack it.”

He admits that this approach won’t pay dividends on English reading tests right away, but says they will catch up by middle school.

But this model of reading is “not the same theory that the lawmakers were adhering to when they developed the law,” said Paula Winke, a professor at Michigan State who studies bilingual education. Legislators pointed to a different body of research — studies showing that students who don’t learn to read English well by the third grade are less likely to graduate high school.

Both models may hold some truth, Winke said, but the law only makes room for one. The learning patterns of bilingual students, well-established by researchers, were apparently “not considered,” she added.  

Researchers at Michigan State are studying how the law will affect all students in immersion programs, including native English speakers. But they have already concluded that third-graders who speak English as a second language could be held back at disproportionate rates. According to Winke’s analysis of previous years’ test data, some 70 percent could be flunked.

Those projections are forcing dual-language programs to make tough decisions, especially when most of their students arrive in kindergarten speaking a language other than English.

Escuela Avancemos!, a charter school that stands only a few blocks from the Academy, offers some of its students a similar dual-language program. Kindergartners – most of whom speak Spanish at home — hear and speak Spanish for 90 percent of the school day. The proportion of English rises in each subsequent year.

But thanks to the reading law, that could change. “We’ve had to play around with those percentages,” Principal Sean Townsin told Chalkbeat during a school visit last month. “We’ve had to tweak it a little bit, especially in anticipation of the third-grade reading law.”

Townsin acknowledges that an extra hour or two of English instruction per day might not be enough to save his students from repeating the third grade. Last year, 39 of the 47 students tested in reading would have flunked. He also plans to assemble samples of students’ work, taking advantage of a section of the law that allows students to prove their reading ability to the state by submitting a portfolio instead of taking a test.

Brown, principal at the Academy, also plans to send portfolios to the state, but he won’t reduce the amount of Spanish students hear in class. He thinks the bilingual program is largely responsible for the school’s enrollment growth of 50 percent in the last two decades, no small accomplishment in a city where schools compete fiercely for students.

What’s more, he says parents would revolt if  he watered down the immersion program.

“At the end of the day, our parents are very clear” in their support for the program,” he explained. “The school was created as a direct response to a community need.”

The Academy was founded in 1992 by a group of Hispanic parents who wanted a school that wouldn’t alienate the children of Southwest Detroit from the language of their grandparents. They believed that hearing teachers and classmates speak Spanish would help students stay connected to their culture and make them more employable.

Brown, the son of a Venezuelan and a Louisianan, knew first-hand that in traditional schools, English can replace a student’s native language rather than complement it. He says he rejected Spanish as a teenager and refused to speak it for seven years, relenting only after a visit to Venezuela made clear that the language was a link to his family.

These days, when students say “hello” in the halls, he responds in Spanish.

But he knows that these students could soon pay a price for their bilingualism. Flunking a grade can have severe emotional consequences, and there is little evidence that repeating a grade is beneficial to a child’s learning in the long-run.

“If students are retained because they didn’t pass a reading test, that’s going to hinder their education,” said Diane Rodriguez, a professor at Fordham University who specializes in bilingual education. “If those legislators went to another country, and they were given three years to pass an exam in a second language, I’m wondering if they’d be able to pass it.”

Brown, for his part, is waiting for clarification about the law before it goes into effect in the 2019-2020 school year.

“I have more questions than answers,” he said, adding that he would like to see the law changed: “I hope the program will speak for  itself.”

Barring a change in course from the Legislature, his hopes rest with parents and with Superintendent Nikolai Vitti. Under the law, parents can request an exemption if their child fails the third-grade reading test, but the request must be approved by the superintendent for the child to move on to the next grade.

deysi martinez
PHOTO: Koby Levin
Deysi Martinez, president of the PTA at Academy of the Americas, says the state should test third-graders there in Spanish.

Parents at the Academy, however, argue that the state shouldn’t use its resources to grade student portfolios and process exemptions to the law.

Deysi Martinez, PTA president, noted that some states, like California and Colorado, allow students in immersion programs to prove their reading skills by taking additional reading tests in Spanish.

“In third grade, they’re reading mostly in Spanish,” she said of students at the Academy. “It doesn’t make sense for the test to be in English.”