Private school tax credits will give everyone’s taxes to people who don’t need our help

It’s August, and for many Oklahomans that means it’s back-to-school time. While it’s a new year, it’s really a matter of routine for most children and parents: Reviewing the school supply list, understanding bus routes and dropoff traffic patterns, figuring out lunch plans, meeting the teacher, and so on. This year, though, will be different. That’s because for the first time, Oklahomans can get government subsidies to leave their local public schools and enroll their children in private schools or teach them at home.

Earlier this year, Oklahoma’s legislature approved House Bill 1934, which was authored by House Speaker Charles McCall, Senate President Pro Tem Greg Treat, and others. This bill created a voucher-like tax credit to help families pay for home or private schooling. Unlike existing vouchers in Oklahoma, this program will be universal and without income limits to participate. Those already paying for private or home school are eligible for these private school subsidies as soon as they take effect in January 2024.

Expanding private school vouchers has been a priority for conservative advocacy groups across the country in recent years. In Oklahoma and elsewhere (including Arizona, Florida, Iowa, and Utah), they’ve found plenty of legislators — the very people we expect to improve our public schools — willing to allot unprecedented public resources to private schools. The only Oklahoma twist is the tax credit. Other states use vouchers, where the state credits a family’s account and pays the bills based on the family’s choices, with some prior review of the spending. In Oklahoma, families will manage the spending directly with little front-end oversight, leaving the Oklahoma Tax Commission to collect any misspent funds after the fact.

While this program could make private and homeschooling more practical or affordable for a few families, taxpayers will mostly be paying for people to do what they were willing to pay for on their own. As a result, we’ll be handing millions of tax dollars to the most well-off among us while propping up private schools, whose enrollment has stagnated in recent years. 

Use and cost of the credits will be low at first, but could grow quickly

The credits are up to $7,500 per student for private school and up to $1,000 for homeschool. These credits are also refundable, meaning that if the credit is more than the taxes due, the difference comes back to the family as a tax refund. Private school credits are on a sliding scale — the maximum credit is available at low and middle incomes and phases out as incomes increase — and can’t exceed the family’s actual expenses. When families apply to the Oklahoma Tax Commission and provide documentation of enrollment, they can request to receive half of the credit upfront to pay the first semester’s costs. Lawmakers have capped the state’s total for these private school credits to a maximum of $255 million per year.

Because the credit first becomes available for the 2024 tax year, families can’t get the credit (or an advance) for the fall 2023 semester. Families with children in private school or homeschool this fall would have to pay for the first half of this school year without state subsidies. That means few families can switch to private schools this year. Most cannot afford the $3,000-10,000 tuition for the fall 2023 semester, and few schools will have space for new students in spring 2024. As a result, most families who can claim the tax credit during the 2023-24 school year will be those with children already in private school or homeschooled.

Once the private school tax credits are available for a full school year (beginning fall 2024), we should expect steady growth in families who are utilizing these credits. We should also expect a slight shift of students out of public schools. Growth could be limited by the capacity of private schools, the additional time and economic burdens of both private and homeschooling, and satisfaction with public schools. Both history and program design suggest that both credits could reach the maximum level in three or four years. First, vouchers can be expected to double in cost in just one to four years, as they have in Oklahoma’s voucher for disabled children, Wisconsin, Indiana, and Arizona, which saw its program participation double in just nine months. Second, the $255 million cap set by lawmakers is only enough to fund current private school students and likely fewer than 1 in 5 current homeschoolers. If every one of these families applies immediately, we’ll reach the overall limit without funding any additional students.

The overall cap on costs is costly, and it could be difficult for students and families

With the $255 million limit on private school tax credits, legislators have at least temporarily limited the program’s cost and reach. However, limited impact on the budget isn’t the same as no impact. Here are a few ways to understand what $255 million is worth to the state:

  • The amount of the private school tax credits would exceed the budget of all but seven state agencies, costing roughly what we spend on Career Tech and the Department of Public Safety combined.
  • The private school tax credits total more than the basic state aid to Oklahoma’s 309 smallest public school districts in total, and they would be similar in size to aid allocated for the three districts receiving the most state aid (Oklahoma City, Tulsa, and Moore) combined.
  • These tax credits are more than double what it would cost to increase our Sales Tax Relief Credit so more than a half million Oklahomans get the help they need to afford groceries.
  • Since spending on public schools is about a third of the state’s annual budget, the tax credits will cost our neighborhood public schools over $80 million each year) once they reach the limit. 

Once the cap is reached, families will be in a difficult position. Families who got credits in previous years could find themselves shut out; in some cases they may have to take their children out of private school or jeopardize their financial health by trying to afford paying for private school entirely on their own. There’s even more uncertainty considering that the credits must be reduced in the middle of a school year if a financial downturn causes the state to declare a revenue failure, which has happened nine times since 2000. Further, inflation will decrease the fixed value of the credits even if tuition rates stay flat, which is unlikely to happen. This law adds to inflation by putting more cash into the private school market; more demand usually means higher prices. A middle-income family getting a $7,500 credit this year could be in trouble in a couple years when tuition is a thousand dollars higher, especially if the tax credit is reduced due to revenue failure. 

Future discussion of raising the cap should be informed by data while considering the best interests of all Oklahomans

It could be a few years before Oklahoma reaches the point when legislators are asked to increase or remove the cap. That will be a tough fight for fiscally responsible Oklahomans who  support public schools and wise use of tax funds. To prepare for this future debate on the cap, we need to demand transparency. Because the vouchers are structured as tax credits, individual data can’t be released due to privacy concerns. Oklahomans must demand thorough, independent, annual evaluations of the cost, effectiveness, and budget impacts of the tax credits in the aggregate. At a minimum, this includes:

  • the cost of the credits and the number of students using each type,
  • credit use by income bracket,
  • amount of credits that are refunded because they exceed what users owe in taxes, 
  • a breakdown of students by private school they attend and the school district in which they live,
  • data on students who are denied the credit, both due to the cap and other reasons, including fraud, and
  • a report on audits of the credit, including the percentage audited, the percentage of audits where errors were found, the number with apparent fraud or misrepresentation, and the amount recovered from taxpayers.

Legislators should carefully study the data, and they should not change the credit until our Incentive Evaluation Commission has completed at least one full analysis. The Commission contracts with highly respected economists and management consultants who will work with the Oklahoma Tax Commission and State Department of Education to examine the program, identify any issues with how it operates, and compare Oklahoma’s credits to similar unrestricted vouchers programs, which will be operating in at least four other states in the next two years. 

All Oklahomans should demand that legislators thoroughly understand how the credits work and  who uses them; how the tax credits have reduced state services, particularly public schools; what, if anything, these credits contribute to improve educational opportunities and outcomes; and how these fiscal choices affect our economy. Advocates must be relentless — both inside and outside the capitol — about why this law is folly and how it undermines our public schools. 

This push for increased private schooling — combined with the current chaos surrounding our State Department of Education — should prompt community-minded Oklahomans towards change. These actions should be a clarion call to identify and support candidates — from both parties in urban, rural, and suburban areas — for legislative and statewide offices who are committed to fighting for all of our state’s children, not just a select few. 


Paul Shinn

Paul Shinn served as Budget and Tax Senior Policy Analyst with OK Policy from May 2019 until December 2021. Before joining OK Policy, Shinn held budget and finance positions for the Oklahoma House of Representatives, the Department of Human Services, the cities of Oklahoma City and Del City and several local governments in his native Oregon. He also taught political science and public administration at the University of Oklahoma, University of Central Oklahoma, and California State University Stanislaus. While with the Government Finance Officers Association, Paul worked on consulting and research projects for the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and several state agencies and local governments. He also served as policy analyst for CAP Tulsa. He holds a Ph.D. in Political Science from University of Oklahoma and degrees from the University of Oregon and the University of Maryland College Park. He lives in Oklahoma City with his wife Carmelita.

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