Tax credit education savings accounts?

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Education Savings Accounts are considered the way of the future for school choice, but there’s a problem.

If states start using ESAs to let parents customize their education, they risk running into some of the same legal pitfalls that have tripped up school vouchers, including so-called Blaine amendments that stop most states from steering public funding to religious institutions.

A new report from the Cato Institute explores a potential path around these legal obstacles: Funding ESAs through tax-credited donations. Like with tax credit scholarships, states could offer donors a 100 percent credit for contributions to scholarship organizations that help manage the money, which parents could use for educational expenses from tuition to private tutoring.

In Florida, Step Up For Students, which publishes this blog, administers both tax credit scholarships for low-income students, and ESA-style Gardiner Scholarships for special needs students.

No state currently combines the two concepts in a single program, though Missouri may consider such legislation this year.

The Cato report posits that such a plan would combine the best elements of tax-credit scholarships and education savings accounts. They would allow parents to fully customize their children’s education, while making the programs less vulnerable to the kind of legal challenge that has snared a nascent, near-universal ESA program in Nevada.

One benefit of this approach is philosophical. While donors would receive state tax credits, their contributions would be voluntary. “Unlike government spending,” the authors, write, “no one would be forced to financially support anything against his or her will.”

The other potential benefit is legal. State-funded school vouchers have a mixed constitutional record. Courts overturned programs in Arizona, Colorado and Florida, but programs in Indiana, North Carolina and Wisconsin have survived. While a court injunction has halted Nevada’s state-funded education savings accounts program (at least temporarily), Arizona’s ESAs withstood a legal challenge.

The different legal outcomes may be chalked up to differences state constitutions, but to date, courts in Arizona, Alabama and New Hampshire, along with the U.S. Supreme Court, have all dismissed lawsuits challenging tax credit scholarships. A still-pending lawsuit takes aim at Florida’s tax credit program. A Leon County circuit court judge dismissed the case last year, but the statewide teachers union appealed.

The Cato authors contend their proposal could land on firmer legal ground than any of the programs above, because it “combines the two features that have been proven most resistant to Blaine amendment challenges.” That’s because a tax-credited education savings account would be “neither an appropriation of public funds nor a form of aid limited only to private or religious schools.”

Tax-credit programs may have a better chance at surviving legal challenges, but their clear downside is a lack of scalability. Florida’s tax credit scholarship program, the largest in the nation, raised $446 million to fund 78,142 scholarships this year. Those numbers represent little more than rounding errors in a state that spends more than $20 billion public dollars educating more than 3 million preK-12 students.

In short, while they may open the doors of private schools to tens of thousands of students who couldn’t otherwise afford them, it’s highly unlikely that tax-credit programs in any form could ever approach the scale of existing public school systems in Florida or elsewhere.

Cato’s compelling proposal should prompt school choice advocates to think about their ambitions. If their goal is to maximize educational choice for thousands of parents while minimizing legal risks, tax-credited ESAs could be the answer. If the goal is to one day give all parents near-total control of education funding for their children, it may be time to set their sights on Blaine Amendments and other outdated legal barriers to what some see as the education system of the future.