Cost of Private School Tax Credits

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A new analysis of private school tax credits finds the estimated cost of the existing private school tax credit program is $10,000 per student, far more than what the state pays for students in public schools. The Grand Canyon Institute report also finds that enrollment in private schools in Arizona has decreased. David Wells, research director of the institute, will tell us more.

Ted Simons: Coming up next on Arizona Horizon, a new report on the cost of the state's private school tax credit program. And also tonight, learn about an underwater robotics contest held over the weekend, and an ASU choreography teacher who helps other professions through dance. Those stories next on Arizona Horizon.

Video: Arizona Horizon is made possible by contributions from the friends of Arizona PBS. Members of your PBS station. Thank you.

Ted Simons: Good evening and welcome to Arizona Horizon. I'm Ted Simons. Republican state Senator Carlyle Begay announced today he's running for Congress, he joins six other Republicans and three Democrats in competing for the seat being vacated by Representative Ann Kirkpatrick, who is running for U.S. Senate. If elected Begay would be the first Navajo to serve in the United States Congress. A new Grand Canyon institute report finds that the estimated cost of Arizona's private school tax credit program is far more than what the state pays per student in public schools. The report also finds that enrollment has decreased. Here is David Wells, the Grand Canyon institute research director.

David Wells: Great to be here.

Ted Simons: All right, let's define the terms. What are prior to school tax credits?

David Wells: Well, individuals can now donate through two programs up to 1,000 as an individual or 2,000 as a couple, to a tuition scholarship organization, and corporations can also deduct, and this is dollar for dollar, so you are taking it right off your taxes, also to these scholarship tuition organizations, and the limit for the next year for corporations will be $62 million.

Ted Simons: And how much in general do we know that they cost the state of Arizona?

David Wells: Well, until we did this report, there really wasn't any information about it. You would hear legislators say, the private schools cost less or only that the typical scholarship is $1800, so we're, obviously, saving money, and the point was however that it's costing us more, about $10,000 a student.

Ted Simons: And over all, like 140 million was -- that's what it cost the state to program itself?

David Wells: Yeah, it keeps growing, largely because of the corporate tax credits because that increases 20% per year, and they have met the cap every year. The individual tax credits have been about 50 million, although they have added this other, another element of it, which increased that in the last few years.

Ted Simons: You mentioned $10,000 per student, an estimated cost, and how did you arrive at that figure?

David Wells: If you look at the private school enrollment, when they first started this program, there were 44,000 kids in prior to schools, and the estimate we have got for 2013 and 2014 is 43,000, and there are two factors that affect that. One is charter schools, when charter schools, when they started this program, they took up 5% of the kids in our school systems, and now, it's over 13%. And charter schools are a substitute for private schools. Around the country we see as more kids go into charter schools, private schools go down, but then we also have this scholarship program, which now has over 50,000 scholarship says, even though we only have 43,000 kids.

Ted Simons: I want to get to that point in a second, and you just explained, gave a good reason why enrollment is dropping in these private schools but the $10,000 figure --

David Wells: We look at regression, which is to control variables, and by that, we try to identify how much are the charter schools hurting private school and the scholarships helping. And the regression analysis provided an estimate of what the effect of the private school scholarships were, and you look at the cost of the program is, and that's how you come up with the per student cost.

Ted Simons: And take it from there. $10,000 per student, what about public schools? What kind of numbers are we looking at there?

David Wells: The public schools typically, the legislature gives $4,000 per student, and we have an equalization formula, in Arizona, so there is about local funds that come into it, but it's $4,000 on average for students, in the year I was looking at, so that's a $6,000 per student difference, which would be $60 million, if they were a typical student?

Ted Simons: And that's a big difference there. Were you surprised by that difference?

David Wells: Well, they can get smaller because there is a local savings. There is another $4,000 from the local funds, so they, the total cost is $20 million extra, over what, you know, state and local funds would go. But, it's important because our general fund is running on an austerity basis so every dollar going somewhere else is affecting public schools.

Ted Simons: So when people are saying private schools, we're seeing this with the voucher debate happening, and private schools, send them there, it's cheaper than public schools. You say, no?

David Wells: No, it's not because before we started this program, there were 43, 44,000 students in private schools, without any of the public money going into help the scholarships, and now, we have 43,000, and, in private schools, so it's pretty clear that they had enrollment before, so the idea is you want to estimate what would it be if we did not have the scholarship program. And I estimate it would be 33,000, instead of 43,000 in the private schools.

Ted Simons: And now, are there more students than -- are there more scholarships than students? Is that what I heard you say?

David Wells: Yeah, we don't track things very well. But, we have always speculated that students might be getting multiple scholarships, but we don't know for sure. Now it's obvious because there are only 43,000 private school students, and there are 54,000 scholarships, so it's evident a number of students are getting at least two scholarships, and who knows, maybe some are getting three.

Ted Simons: So deductive reasoning, we don't know who is -- which students, where they are that are getting these?

David Wells: No, we don't have very good information about tracking things. The individual tax credits are not means tested but the STOs do report back, who gets the money. This is not the same as scholarships. But, about, you know, roughly one-third, one-third, one-third. One-third going to kids who qualify for free and reduced lunch, and one-third up to $79,000 for family income, and one-third for families that are above that. But, we really don't know, and how many kids are benefiting fully.

Ted Simons: And as far as the impact on low income students, any way to measure that? Or did you try to measure that?

David Wells: Well, we don't really have enough information.

Ted Simons: That's impossible --

David Wells: You can sort of watch how the percentages of the money go, but if they are giving twice as much money to low income kids, which is what you would expect they might be doing, again, you cannot tell from the Department of Revenue report, then, they are serving half as many kids in the low income area.

Ted Simons: And the report also mentioned a similar expansion to this program in Nevada, and compare what happened there with what's going on here?

David Wells: Well, Governor Brian Sandoval in Nevada, we all heard of him. When he floated to the Supreme Court nominee, and one of the things that they want to do in Nevada is to increase their funding to public schools, and so just like in Arizona you have got to get a two-thirds majority in the house and Senate there, and so, and they did, they passed this tax increase that was 1.1 million, or billion dollars over a two-year period that makes sings permanent, and it's going to increase the public school funding by 16%, but part of the deal, to get the Republicans to come on board and vote for it. They passed the same bill that the legislature is considering here. The expanded educational accounts private school vouchers could qualify all kids in Nevada, if they enroll first for 100 days in the public schools.

Ted Simons: So they agreed to the voucher-like program up there, but with a caveat? I had to increase the tax.

David Wells: Yeah, it's part of a broader deal, and that's better than Prop 123 because Prop 123 is getting us up to a legal amount of funding for the k-12 schools, not really increase it go by 16%. It's playing up, in part, for the fact that we were breaking the law, so it's a different context entirely.

Ted Simons: So what do we say from this, take from this study?

David Wells: The lawmakers need to be thankful about thing because, again, if you keep putting more money at this, my concern is that the money will continue to go into private school students, but it's not necessarily going to go to the students who would otherwise be in private schools, and therefore, the cost of the program for every student enrolled is going to keep going higher, and I talked about the fact I was assuming our current scholarship accounts for the disabled students actually is not having an effect on enroll because if I do that the cost goes above 10,000.

Ted Simons: And real quickly, the Grand Canyon institute, give us an idea?

David Wells: We were founded in 2011, and our goal is to provide some, hopefully thoughtful advice on fiscal policy matters, for the state of Arizona.

Ted Simons: All right, and David, good to see you and thanks for joining us.

David Wells: Good to see you.

Video: In Northwest Arizona, just off state route 95, stands a peculiar monument to the town of Oatman. Oddly, the marker is 15 miles from the town it honors. West into the mining town, it was established at the turn of the century. By the 1930's, nearly 32 million-ounces of gold were extracted from the surrounding mines. The price of gold and World War II forced the closure of the mines in the 1940s. The town was delivered another blow when in 1952, a stretch of interstate 40 opened, siphoning off Oatman's life blood, Route 66 traffic. It quickly became a ghost town. Route 66 is again, the life blood. Nostalgia for the mother road and the Old West, brought tourists from all over the world. They walk the boardwalks, and hanged with the local gun fighters, and are followed around by Oatman's most famous residents, the burros, descendants of those set free by miners years ago. Being closer to Nevada, than the count itself, Oatman's misplaced monument is long forgotten, but the town is remembered daily.

David Wells, research director of Grand Canyon Institute

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