A 2016 Cato Institute report posited the idea of creating a tax credit scholarship mechanism to fund K-12 education savings accounts. Five years later, Kentucky adopted the Education Opportunity Account Program, the first of its kind. Lower-income students throughout the state can use donated funds for various educational services of their choice, while those in select populated counties can also pay for private school tuition from their accounts.
Not to be outdone, neighboring Missouri created the nation’s second tax credit-funded ESA a few months later. The statewide annual limit of $50 million in credits is twice as large as Kentucky’s authorized cap, but it only funds scholarships for students in St. Louis and four of the state’s most populous counties. Priority for Missouri’s Empowerment Scholarship Accounts is given to students from families below a middle-income threshold and students with disabilities.[*]
There are two primary benefits to using private donations and tax credits as a funding mechanism for educational choice. First, the funds never enter government coffers. That creates a layer of separation between regulatory agencies and private education providers, weakening the case for placing more red tape on private schools due to this state-authorized financial aid.[†] Second, it encourages the role of private philanthropy in education. Individuals and businesses have greater incentive to donate scholarship funds that are broadly available to eligible students, and thus are more likely to take direct interest in seeing students served well. In short, it offers a more direct and less bureaucratic form of both funding and accountability.
For their part, ESAs offer a more flexible approach to using funds meant to support learning opportunities. The allowable range of uses for these accounts varies to some degree among the different state programs. Most commonly, though, it authorizes both private school tuition payments and spending on textbooks, curricular materials, testing fees and therapy for children with special learning needs. Some authorizing statutes specifically stipulate that the funds can be saved and used for college or other postsecondary education programs.
A program that combines tax credit funding with ESA flexibility offers the potential to reap the benefits of philanthropic investment, ground-level innovation and family-centered decision-making. But a major challenge lies in growing such programs, as funds must be raised privately, requiring trust between donors and various scholarship-granting organizations. A slower growth curve, however, may be worth the price of a more flexible, dynamic and organic system.
The Let MI Kids Learn ballot initiative represents the latest rendition of this newer model of private school choice. If adopted, it would make Michigan the first state to adopt a tax credit ESA program accessible to eligible students and families no matter where they live in the state.
Michigan voters and policymakers may appreciate the benefits afforded to students and families from these scholarship accounts yet still have concerns about the program’s fiscal impact and level of oversight. Informed by the experiences of other states that have enacted similar programs, the analyses that follow only strengthen the case for Michigan to embrace this policy.
[*] “HCS HB 349 – Relating to Empowerment Scholarship Accounts” (Missouri House of Representatives), https://perma.cc/5QCS-FPWN; Susan Pendergrass, “House Bill 349: Empowerment Scholarship Accounts in Missouri,” Testimony Before the Senate Education Committee (Show-Me Institute March 23, 2021), https://perma.cc/9KRE-R3E4. Missouri’s four charter counties are Jackson, Jefferson, St. Charles and St. Louis. See “County Classifications in the State of Missouri” (Missouri Association of Counties, 2013), https://perma.cc/CFQ5-6MZ4.
[†] Drew Catt, “Breaking Down 'Public Rules on Private Schools” (EdChoice, May 30, 2014), https://perma.cc/H6KA-74J8. Catt’s research found that most regulations on private schools preexist the enactment of private school choice programs and that tax-credit-funded scholarship programs on average face about one-third of the regulatory burden of directly funded programs.