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The Tax Credit that Saves the State Money

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Democrats in the Virginia State Senate are holding the state budget hostage over their bruised feelings following November’s losses.  The Washington Post reported February 23 that “Democrats have tried to use the state budget to regain power in the evenly split Senate, which Republicans have been able to control with help from Lt. Governor Bill Bolling’s tie-breaking votes.”

But Senate Democrats are likely to figure out real soon that the public has a low tolerance for hostage-taking over what many voters consider petty political issues, so expect them to shift gears and start claiming policy differences over the budget.

One of their targets is likely the Education Scholarship Improvement Act, approved by both the House and the Senate and soon to be on its way to the Governor for signature.

Because the tax credits are capped at $25 million per year, Senate Democrats are already professing that “It’s a new $25 million program!”  True enough.  The only problem is it’s a $25 million program that doesn’t cost the state any money.

This is a tax credit that works like no other:  It actually saves Virginia state taxpayers money.

Under the bill, a 65 percent state tax credit would be awarded to individuals and corporations donating to scholarship organizations.  These scholarship organizations in turn grant scholarships to students from families earning less than 300 percent of the poverty level, so those children can attend the private school of their choice.  Ninety percent of the funds raised through the tax credit must be used for scholarships; administrative costs are limited to ten percent.

The bill has been carefully calibrated by its sponsors (Delegate Jimmie Massie in the House, Senators Mark Obenshain and Bill Stanley in the Senate) to save the state money.  As the accompanying chart demonstrates, for every $100,000 in donations made to scholarship organizations, the state would lose $65,000 in foregone tax revenue.  But because those donations are used for children who then choose to leave the public school system, $90,000 in state education costs are saved.  The result is a $25,000 gain to the state coffers from funds that no longer have to be spent for educating students who have left the public school system.

To keep the funding balanced, the size of the scholarships a student can receive is limited to the amount the state pays in any given school division.  This might be as little as $2,000 in wealthy Falls Church City, or as much as nearly $7,000 in impoverished Lee County.   And to keep it further balanced, a taxpayer can’t use the tax credit until the scholarship is given the next year, ensuring that the revenue loss comes in the same year as the expense reduction.

Even the House and Senate fiscal impact statements conclude that if the program is carefully executed the scholarship program will slow down the overall increases in state spending.

Florida has operated such a program for ten years.  Florida’s Office of Program Policy and Governmental Accountability calculated a net savings of $38.9 million, estimating that the state saved $1.49 in education funding for every dollar loss in income tax revenue due to scholarship contributions.  Even so, from 1999 to 2007, Florida spending per-student went from $7,355 to $11,270 – a 53 percent increase exceeding inflation by some $2,000.  In short, students received scholarships for the education that best suited them, AND public schools saw increased funding on education.

Which, at the end of the day, is the real value of this program.  The issue isn’t about saving the state money, spending more on public schools or giving tax credits to individuals and corporations.  It’s about helping low-income and working-class parents provide their children the same opportunity to succeed that upper income parents already have.

Eight other states have similar tax credit programs, and in each of them there is a long waiting list of parents waiting to get that opportunity and help their children receive a better education.  Virginia’s children deserve the same.

Providing more educational options for parents isn’t about raising one educational model above all others, nor is it about doing away with public schools.  It’s about making education better.

And better education will come from giving children choices in finding the education program that fits their needs best.  The Educational Scholarship Improvement Act will give them those choices…..… and it is surely no excuse for voting against the budget.

Click HERE to download a chart that explains the act.
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