Appendix II. Questions and Answers Regarding the Universal Tuition Tax Credit

During the development of the Universal Tuition Tax Credit, the proposal was presented to numerous education, business, and government leaders and organizations. Below are answers to specific questions commonly asked about the UTTC.

How will the UTTC impact non-educational expenditures in the state budget?

The UTTC will reduce state revenues in two areas. Some of the loss will be of revenues dedicated for the state School Aid Fund, including revenues from 6-mill education property tax and the state Individual Income tax. The remaining revenue loss will be of unrestricted revenues which are used to pay for non-educational programs. The UTTC, however, provides significant savings to the School Aid Fund. This savings means that less unrestricted funding will be required to supplement the School Aid Fund, therefore providing more overall resources that may be applied to non-educational expenditures or used to lower taxes for citizens and businesses.

How will the UTTC impact local property tax revenue?

The UTTC will not affect local property tax revenue in any way. Since the passage of Proposal A in 1994, not all property taxes are local taxes. In addition to local property taxes that are levied by cities, counties, townships, villages, and school districts, there is also a 6-mill education property tax levied by the state (which is collected as part of the local property tax bill). The UTTC affects only this state property tax. It does not affect the local property tax revenue of cities, counties, townships, and villages. Also, since the state is required to provide public schools a minimum per-pupil foundation allowance, the UTTC will not affect the per-pupil revenue of public school districts.

The UTTC sounds too good to be true. How can we expand parental choice in education and save significant money at the same time?

The UTTC is a carefully crafted plan that is both simple and effective, yet it will, without a doubt, draw opposition from many in the education establishment who are fearful of giving parents the ability to choose alternative schools. This is the main reason why expanded parental choice has been such a long time in coming and why even common-sense proposals like the UTTC have been outside our reach. However, with nearly every state in the nation now considering expanding parental choice, the climate of public opinion will support further innovation. With barriers to reform removed, the UTTC simply takes advantage of lower-cost alternatives to the traditional public school system. Since alternative schools charge roughly half of what public schools receive to educate a student, and since the tax credit is limited to 50 percent of public school per-pupil revenues, each student who transfers to an alternative school saves the state money. As long as enough students transfer to alternative schools during the UTTC phase-in period, the program will result in significantly lower state educational expenditures. The estimates in this study are very conservative and indicate that sufficient transfers will indeed occur to produce net savings to the state.

How do you know how many students will migrate from traditional public schools to alternative schools?

There are two ways. First, the model used to project enrollment trends incorporates a widely accepted method of calculating consumer demand for services and uses a conservative estimate of this demand. The model also takes into account the availability of alternative school capacity. Secondly, we have experience with the demand for parental choice. CEO Michigan, the private foundation that gives $1,000 scholarships to low-income children to attend an alternative school, currently has 3,000 students on their waiting list. This reflects considerable demand even for this modest amount. Also, in two years of experience with Michigan’s charter school law, and with only 50 schools operating, parents of more than 14,000 students chose the new schools. When Michigan’s first charter school opened in Detroit, over 5,000 students applied for the 300 openings. Given the fact that there are over 1,090 private schools alone, the estimates provided in this study are very reasonable.

The above may be true, but during the first part of the phase-in period the maximum credit is quite small. Is it sufficient to allow and motivate parents to choose alternative schools?

Yes. There is ample evidence to show that even a slight reduction on the penalty of paying twice for education allows parents to choose alternative schools. For example, a Mackinac Center for Public Policy study of nonpublic schools in inner-city Detroit showed that even very low income parents sacrifice to pay $1,000 tuition to send their children to these alternative schools. Many parents care deeply about their children’s education and want them to have the best opportunity to learn; they are willing to sacrifice.