Individual success stories facilitated by the Educational Improvement Tax Credit (EITC) program are abundant. The same students, from the same socioeconomic backgrounds, and with the same level of inherent ability, often achieve a greater level of accomplishment when removed from a traditional one-size fits all public school system and are placed into the school of their parents’ choice. Academic and personal growth are enhanced in environments best suited to each student’s individual needs – whether that atmosphere is a private, parochial, charter school, cyber charter or even home school.

Accounts from school administrators, parents and students alike credit the EITC program for allowing the expansion of a child’s horizons and these faces and stories are seen and heard throughout Pennsylvania.

There are many social programs enacted with the best interest of the people in mind. Traditionally, if more public taxpayer funds are allocated to a cause, those affected by said cause will be helped in some way. What makes the EITC program unique, however, is that these expenses to the general fund of the state are not sunk costs. Given the distinctive elements of the program, including a public-private partnership and injection of market-driven capitalism into a public service, a strong argument can be made that the funding allotted to the EITC program actually saves the state and its taxpayers money. In fact, continuing to expand the EITC program will provide a unique way to further invest in the educational futures of the Commonwealth’s children while saving taxpayer money and providing relief to high growth school districts.

Background

Enacted in 2001, the EITC program allows private businesses to donate up to $200,000 to a registered and approved 501 (c)(3) Scholarship Organization (SO) or Educational Improvement Organization (EIO) of their choice. The state then provides each donating business with a tax credit of 75% of their donation amount (or 90% if they pledge the donation for two consecutive years). This program allows businesses to contribute to organizations directly in their local community. These organizations either provide scholarships for students to attend a school that meets their individual educational needs or to provide innovative educational programming in traditional public schools.

Originally, the cap for the program was set at $30 million annually, with two-thirds allocated to SO’s and one-third given to EIO’s. While this division of funds has remained constant, the total cap has been increased several times to its total current level of $75 million (including $8 million allocated to pre-K scholarships). This means that of the $67 million available under the EITC program for the 2007-08 school year, $44.7 million will go towards private scholarships and $22.3 million will go towards innovative educational programming. During the 2006-2007 school year, over 33,000 students used EITC funds to attend the school of their choice.

Relative Size

While 33,000 students utilizing EITC funds to attend the school of their choice may seem like a significant number, it pales in comparison to the general population of students in the state. There are currently over 1,850,000 students enrolled in Pennsylvania’s public schools, compared to less than 285,000 attending forms of nonpublic schools. This means that roughly 15% of students in the Commonwealth attend nonpublic schools. Furthermore, the 33,000 using EITC scholarships represent only 1.8% of total students in the state. This means that for every one family with the ability to have the choice between learning environments for their child, more than 50 families are unable to do so, instead forced into the public school determined solely by the district in which they reside.

This wide disparity between public schooling and the EITC program is also witnessed in terms of funding allocated to the two options. The total amount dedicated to pre-K through 12th grade education in the 2006-2007 PA State Budget was $8.7 billion. Within this pot of funding, the $59 million apportioned to the EITC program represents less than 1 percent (0.68%) of the monies allocated to total primary education within the state. For each 100 dollars spent by the General Assembly on primary education, only 68 cents is apportioned to the EITC program. Moreover, one-third of all EITC funds are assigned to EIOs for the purpose of bringing innovative educational resources to public schools.

Program Savings

As was covered previously, the EITC program does not represent sunk costs within the General Fund of the state. The public school districts and taxpayers alike realize savings as the program has been implemented and expanded. The funding for one public school student to attend a government-administrated school comes from three sources: the Federal, State, and Local governments. The Federal funding is by far the lowest portion of this total, followed by State Funding, and finally, the Local funding – in the form of property taxes – which represents the largest percentage of the total amount designated to one student. Within the parameters of the EITC program, the school loses its funding on a Federal and Local level when a student moves from a public school to one using a scholarship. However, the State funding is not taken away from the district experiencing the loss. Thus, the difference in the amount allocated to a public school student and one that has used an EITC scholarship to exit his/her public school is retained by the original district and allocated to the remaining students, raising per pupil expenditures without increasing taxes or other means of funding. The average amount allocated to one public school student within the Commonwealth to educate him/her for one academic year is approximately $11,000.

The average scholarship amount awarded to one student for use outside the system for one academic year is $1,090. This means that the average amount the state designates for one student in the public school system is roughly ten times the amount awarded to a student utilizing an EITC scholarship to attend a school outside the system. The difference between these two figures is $9,910, which indicates how much less is allocated to one EITC scholarship for a family to realize school choice versus how much is given to a district to educate one public school student. If one multiplies the difference ($9,910) by the number of students receiving EITC scholarships during the 2006-07 school year (33,000), it is determined that over $327 million is saved by awarding this relatively small percentage of students with EITC scholarships. That is also to say that if each of these students reentered the public school system, that figure would also be the amount necessary to educate this population of less than 2% of the total number of PA public school students.

During the 2005-2006 academic year, the average annual tuition cost for parochial schools was $2,607 for elementary grades and $5,870 for secondary grades. When a student is awarded an EITC scholarship at the aforementioned average of $1,090, families must then account for $1,517 for elementary students and $4,780 for secondary students on their own. Despite the relatively low income cap on those eligible for EITC funds, Pennsylvania families readily accept this significant financial burden in order to provide their children with what they believe to be the most appropriate and beneficial learning environment.

Program Expansion

In the six years since the program’s inception, it has more than doubled in total size, from an original $30 million cap to the current $75 million level, including a $8 million allotment to pre-K scholarships not present under the original design. While this expansion represents noteworthy progression along the path of true choice for Pennsylvania families, the program still impacts far too few students.

The recently passed FY 2007-08 budget contained a $13 million increase to the EITC program. Under the current total structure of the program of $67 million, one-third ($22.3 million) would be directed to innovative EIOs, while two-thirds ($44.7 million) would go directly to EITC scholarships. At the average scholarship amount of $1,090 per scholarship per student, that would allow nearly 8,000 more students to attend a school better suited for their educational needs. This relatively small number of the total student population represents a considerable savings to the state General Fund. 8,000 students at a cost savings of $9,910 would equal a cost savings of just over $79.2 million. Similarly, if $25 million was added to the program, an extra 15,290 students would be awarded EITC scholarships, at a savings of over $150 million. If $50 million was added to the program, 30,581 new students could receive scholarships, at a savings of over $300 million. Finally, if $100 million in new funding was added to the EITC program, 61,162 students could receive scholarships, and save the Pennsylvania General Fund over $600 million in one year – only $35 million less than the annual public school system K-12 budget.

Despite the fact that businesses and families alike have tempered their participation due to the current cap on the program, it is undoubtedly clear that there exists desire to expand the EITC program by both the suppliers of the funding and consumers of the scholarships. The EITC program saves the Commonwealth and taxpayers money, provides choice in education to students and families across the state, and allows businesses to donate to a worthwhile cause within their own community. Parents, students, businesses, and taxpayers have already benefited from this relatively small program. With its retention and expansion, Pennsylvania will continue to meet the needs of all its citizens through the Educational Improvement Tax Credit program.

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Nate Bohlander is the Program and Outreach Coordinator and Andrew T. LeFevre is the Executive Director of the REACH Foundation located in Harrisburg, Pennsylvania. For more information or a printable version of this Issue Analysis, visit www.paschoolchoice.org.