Opportunity Denied

On June 22, Gov. Wolf signed a budget that included a $25 million expansion of Pennsylvania’s Educational Improvement Tax Credit (EITC) program. This will allow up to 15,000 additional students to receive scholarships. While helpful, the recent expansion falls far short of the demand for scholarships. 52,857 student tax credit scholarship applications were denied last year—52 percent of all applications. The only way to resolve this problem is with a demand-based funding model that annually increases tax credit caps when available credits are depleted.

Current Tax Credit Scholarships Fail to Meet Demand

Each child deserves an education that fits their unique needs. For hundreds of thousands of low- to moderate-income Pennsylvania students, tax credit scholarships have offered an educational lifeline. But arbitrary tax credit caps on these immensely popular programs limit the supply.

In 2017-18, a $10 million increase brought EITC K-12 credits to $85 million. The 2018-19 state budget includes a $25 million increase for EITC K-12 scholarships, matching the second largest increase in the EITC program’s history. This will serve up to another 15,000 students. In total, the EITC and Opportunity Scholarship Tax Credit (OSTC) programs now provide $210 million in tax credits.

Tax credit scholarships aren’t just good for students, they also benefit taxpayers. In fact, EITC alone saved taxpayers more than $1 billion from 2002-2014, according to an EdChoice audit.

The Florida Model

Like Pennsylvania, Florida enacted tax credit scholarships in 2001. The two states followed similar paths until 2011, when Florida adopted “demand-based” tax credit scholarships. Now, in Florida, the tax credit cap increases by 25 percent when at least 90 percent of available credits are used the previous year. Florida now awards twice as many student scholarships as Pennsylvania, and their average scholarship amount is significantly higher. Conversely, Pennsylvania’s $25 million EITC increase in 2018 is likely to resolve just one-fourth to one-third of the surplus demand.

Impact of Demand-Based Tax Credit Scholarships

• If the EITC cap increases by $25 million each year, the EITC would not reach Florida’s current level of funding until 2041.
• If the program cap increases by 10 percent each year, the EITC would not reach Florida’s current level of funding until 2035.
• Automatic increase legislation, as proposed in the House and Senate this year, could match Florida’s current level of funding by 2026.

Program caps are trapping tens of thousands of students in schools that don’t meet their unique needs. The best way to ensure no more students get left behind is to promote demand-based scholarship legislation.