Increasing the scholarship tax credit hurts public schools and benefits affluent Oklahomans

Correction 4/1/19: This post has been updated to correct information about the income eligibility for scholarship recipients. 

In 2011, the Legislature passed the Oklahoma Equal Opportunity Education Scholarship Act, which grants tax credits to individuals or corporations who make a donation to a scholarship granting organization (SGO) or an educational improvement grant organization (EIGO). SGOs award scholarships for students to attend participating K-12 private schools, and while much less utilized, an EIGO awards grants to qualified public schools. Currently, the total amount of tax credits that donors can claim per fiscal year is $5 million; however,  SB 407 (Sen. Rader) and HB 2621 (Rep. Echols) would increase this amount to $20 million and $60 million respectively. Both bills passed through committee during the second week of session. 

Despite their name, these tax-subsidized scholarships to private schools do not promote equal educational opportunity. Instead, they channel tax money that could be used to fund public schools to pay private school tuition. Passing SB 407 or HB 2621 would mean backtracking on progress made last session, which increased tax dollars for public education. Today, public schools have 54,000 more students than they did in 2008, but due to tax cuts and budget shortfalls, they have $180 million fewer dollars to serve those students. Last year’s teacher pay raise was a great step forward, but Oklahoma schools still have far to go to be properly funded. Quite simply, this is not the time to take tax money away from public schools, and increasing the cap on scholarship tax credits would do just that. 

SGOs and EIGOs collect private donations and award scholarships 

In short, the tax incentive favors Oklahoma’s wealthiest families and businesses under the guise of helping those most in need.

Individuals and business have donated significantly more to opportunity scholarship funds over the years and have benefited from the tax credit. From 2013 to 2017, donations to SGOs skyrocketed from $570,000 to $5.1 million, compared to roughly $300,000 donated to the EIGO last year, according to estimates cited during the Senate committee debate on SB 407. The largest SGO in the state is the Opportunity Scholarship Fund, closely affiliated with The Oklahoma Council of Public Affairs, which primarily grants scholarships to Christian schools, but others include the Catholic Schools Opportunity Scholarship Fund and the Islamic School Foundation.

The state’s only EIGO is administered through the Oklahoma Public School Resource Center, an organization which largely supports rural and charter schools that pay a $2,500 membership fee. While the EIGO allows individuals to donate money to public schools, many districts already have foundations that receive private donations for their schools. Donations to public school foundations are eligible for a charitable deduction, but not the scholarship tax credit. Individuals and business who donate to SGOs or EIGOs are eligible for both tax credits and deductions. Additionally, SGOs and EIGOs may keep up to 10 percent of donations to pay for administrative costs

Scholarship tax credit benefits Oklahomans who have the means to give 

SB 407 and HB 2621 would increase the total amount of tax credits that can be claimed by donors, but the amount an individual, couple, or business can claim remains the same. Therefore, both bills would allow more individuals to claim the tax credit and increase the total amount of tax credits claimed by individuals. Advocates for opportunity scholarship funds are not sheepish about advertising how donors can profit from scholarship donations, and some private schools explicitly market these generous tax incentives. A Christian school in Oklahoma City told prospective donors that, “’by redirecting your tax dollars, you can directly support scholarships … at little, and sometimes NO, net cost to you.’” And this is true.

Individuals and businesses receive a 50 percent tax credit for a one-time donation, and a 75 percent tax credit for a two-year donation on top of the standard state and federal charitable tax deduction. Individuals can claim up to $1,000, married couples can claim up to $2,000, and businesses can claim up to $100,000. As such, the law benefits affluent Oklahomans who have the means to donate thousands of dollars and take full advantage of the tax credit. A couple can make a one-time donation of $4,000 and receive the full $2,000 tax break from the state and claim a charitable deduction. Currently, a perk in federal tax law allows families earning over $200,000 a year to actually make a profit on their donation by getting more in tax credits and deductions than they donate. In short, the tax incentive favors Oklahoma’s wealthiest families and businesses under the guise of helping those most in need.

There is no evidence that the scholarships serve low-income eligible students

While proponents argue that the scholarship tax credit is designed to expand school choice for low-income students, families who earn up to three times the income limits for free and reduced priced lunch (a family of four earning $139,000 a year) are eligible for scholarships. The law stipulates that a percentage of scholarships (“in an amount equal to or greater than the percentage of low-income eligible students in the state”) should be awarded to low-income students, but there is no provision that requires SGOs to report who actually receives the scholarships or how much they are awarded. This lack of transparency puts into question how far within reach private schools really are for low-income students.  In 2017-2018, the state’s three main SGOs granted scholarships averaging $1,800. With private school tuition and fees that can exceed $10,000, it is unclear how much low-income families must contribute to make up the difference.

Need for greater oversights, transparency, and data  

Because opportunity scholarship funds lack basic oversight, there is a lot we don’t know about the program. This dearth of information should call into question any claims that scholarship tax credits benefit the state or students. SGOs do not have to report the total amount of donations they receive or how much they award to participating schools. Nor do SGOs report the number of students receiving a scholarship who previously attended a public school.

This information is particularly important because proponents of the scholarship fund rely heavily on a study by Dr. Russel Evans, which claims that the state earns $1.39 for every dollar in tax credit it issues. Unfortunately, Dr. Evans’ conclusions rest on a number of shaky assumptions, including how many students were served by public schools before they left for private ones, along with a likely overestimation of the cost savings for students taken out of the public system.

If Indiana’s program is any indication, the number of students utilizing the scholarship fund who previously attended a public school is far less than the 75 percent Evans assumed. Finally, unlike Florida which requires scholarship students to take a norm-referenced test to track performance, Oklahoma has no idea if private schools adequately serve scholarship tax-credit recipients. The state does not require a similar test or that participating private schools report student achievement data.

The tax credit depletes public school funding and the promise of equal opportunity 

Proponents of SB 407 and HB 2621 claim that the Opportunity Scholarship Fund provides a lifeline for students forced to attend a struggling public school. However, the solution to this problem is not to siphon off tax dollars that could be invested in Oklahoma’s woefully underfunded public school system.  These bills could divert up to $60 million in tax dollars each year to pay for private school tuition. Ensuring that all Oklahoma children have the opportunity to receive a high-quality education begins with adequate and equitable funding, and increasing the Opportunity Scholarship Fund tax credit would chip away at this promise. 

Our Suggestions

  • The tax credit cap should not be raised until tax payers know if students who receive the tax subsidized scholarships are making academic gains and if low-income students are benefiting
  • Restrict SGOs and EIGOs from using the other’s tax credit limit if they exceed the cap on their side 
  • Establish requirements to ensure greater transparency and data reporting
    • HB 1247 (Rep. McBride) would require SGOs and EIGOs to submit audited financial statements to the Oklahoma Tax Commission along with information detailing the benefits, successes, or failures of the program
    • HB 1012 (Rep. Rosecrants) would require private schools that receive scholarship tax credits to report information about services provided to students with disabilities
  • Decrease income eligibility so that scholarships support those most in need
    • HB 1857 (Rep. Fugate) proposes to lower the income limit to 200 percent above the federal poverty line or $60,000, whichever is more 

ABOUT THE AUTHOR

Rebecca Fine joined OK Policy in July 2018 as the education policy analyst. Originally from New York, she began her career in education as an Oklahoma teacher. Rebecca proudly comes from a family of educators, and spent four years teaching middle school in Tulsa and Union Public Schools. She graduated magna cum laude with a B.A. in political science from the University of Rochester and received an M.A. in Educational Policy Studies from the University of Wisconsin-Madison.

2 thoughts on “Increasing the scholarship tax credit hurts public schools and benefits affluent Oklahomans

  1. Thanks for the post. A pretty clear case that expansion is unlikely to redirect money to help with equity. Having worked in private and public schools, I usually see that public schools (especially when well funded and adequately staffed) do more for special need students. Let’s keep funding our district foundations and ask our legislators to boost funding for all classrooms so we can meet class size mandates we’ve put on suspension since 2010.

  2. Nice work, Rebecca. I read this really quickly. I will have a closer look later. I have noticed one other thing that is happening. which you may or may not have caught. Some private schools are encouraging their current students to apply for these scholarships. Those students are currently costing the state nothing. If this happens is costs the state far more money than proponents claim.

    Message me and I will send you the link. Or you can search for it and others like it.

    “Partnering with the Opportunity Scholarship Fund, ******** Christian School announces the opening of a need-based scholarship fund for current and incoming students. If you or a business wish to help with the growth of the scholarship fund and desire an Oklahoma tax credit, please visit osfkids.org or contact ******** at 918-***********.

    Click here for your Donor Form

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