Enacting a private school tax credit – as proposed in HB 205 – will harm Kentucky’s school districts by depriving them of vital funding and leaving the General Assembly with less General Fund resources to appropriate for schools and other public priorities going forward. This dangerous proposal comes at a time when Kentucky is already cutting our public schools deeply.
The national EdChoice group, which advocates for private school tax breaks across states, authored an analysis claiming HB 205 will save the state and school districts money. Their alleged savings are based on, in their own words, “two key factors:” school districts’ variable costs per student and the share of students switching from public to private schools, or the “switcher rate.” But the data behind both these factors are deeply flawed.
Districts can’t reduce costs by more than they lose in state revenue
One basic assumption in EdChoice’s analysis is that local districts can make up for what they lose in state funding when students leave public for private schools by reducing expenditures on variable costs, which refers to costs that change based on how many students are enrolled. But in a hearing on March 5, 2019, testimony was provided to the House Appropriations and Revenue Committee by superintendents that when enrollment declines in the manner projected under HB 205, schools’ fixed and stranded costs remain the same. As a result, they are not able to adequately offset the loss in state revenue with cost reductions. An independent analysis from the National Education Policy Center (NEPC) suggests EdChoice’s use of national average variable costs – comprised of three aggregated types of spending – is too blunt a tool to measure the fiscal impact of losing individual students with varying characteristics who are spread across grade levels, schools and districts.
Program will subsidize students already in private schools
The way EdChoice calculates the so-called “switcher rate” is also deeply flawed. As noted above, the term refers to the share of scholarship recipients that switch from public to private schools as a result of the subsidy. It matters because if the state subsidizes private school for students who were already enrolled in private schools or who would have gone anyway – then that portion is an unquestionable direct subsidy to the private school. The lower the switcher rate, the higher the cost to our public schools.
EdChoice’s analysis of HB 205 assumes that 90 percent of students participating in Kentucky’s program will switch from public schools; And for a neutral fiscal impact, it finds the “break-even” switcher rate would need to be at least 81 percent. Given EdChoice’s erroneous assumptions about districts’ variable costs, these switcher rates would need to be even higher (and even a 100 percent switcher rate could still result in losses). But there are many reasons Kentucky’s switcher rate would very likely be lower:
- HB 205 does not require that scholarship recipients be previously enrolled in public schools. It does not require them to be switchers.
- The program would allow kindergarteners to participate, and there is no way to determine whether a kindergartener would otherwise have gone to public school.
- Relatively well-off families are eligible for subsidies and would receive an increasing share of them over time under HB 205 – families who are more likely to be able to pay for private school without a scholarship.
The higher the income eligibility threshold, the lower the switcher rate we can expect. If passed this legislative session, at least 33 percent of scholarships in the first year would be available to relatively well-off families – for instance, a family of four with about $95,000 in annual income (30 percent above the median family income in Kentucky). The share will actually be more than 33 percent, though, because even among those eligible for the other 66 percent of scholarships – families with special needs students, foster care kids, or whose income doesn’t exceed reduced price meal eligibility – there is no limit on what share of these awards go to families in the higher income range but who qualify based on having kids with special needs. These measures will lower the switcher rate and thus increase the cost of HB 205 to our public coffers, further diminishing public schools’ ability to serve students with special needs.
Furthermore, the switcher rate will worsen as time goes on because the scholarship awarding process in HB 205 gives scholarships first to past recipients and their family members, regardless of family income – even if it has grown beyond the original income eligibility threshold.
Research does not support EdChoice claim of savings
EdChoice’s hypothetical 90 percent switcher rate in Kentucky comes from a 2010 analysis of Milwaukee’s school choice program, the author of which says: “unlike other data, this figure cannot be readily measured but only estimated from one source or another…with the best estimate available derived from the choices of lottery winners and losers in other low-income voucher programs … There is uncertainty regarding the estimate.”
In addition to this general uncertainty, at the time of the analysis, Milwaukee’s program was much more targeted to low-income students than is proposed under HB 205 – meaning its switcher rate was likely much higher than Kentucky’s would be. Under the Milwaukee program, a student’s family income couldn’t exceed 175 percent of poverty upon initial eligibility nor could it grow past 220 percent. But HB 205’s initial income-based eligibility threshold is 370 percent of poverty, and there is no upper limit for growth in family income. This huge and important difference means it is inappropriate to use data from Milwaukee to estimate what would happen in Kentucky under HB 205.
A peer-reviewed study in the Journal of Public Economics finds that voucher and tax credit programs providing subsidies to families without restricting access based on income or some other criteria, do not change private school enrollment. And if private school enrollment doesn’t go up – because many of those subsidized are already enrolled – then public school enrollment doesn’t come down, and nor do public school costs.
In a program such as that proposed by HB 205 with income eligibility criteria so generous that a full 72 percent of Kentucky kids would be eligible, it’s a fair extrapolation to say that enrollment changes will likely be suppressed. It follows that a high switcher rate is unlikely, and we’ll have substantially less, rather than more, revenue available for our public schools.
NEPC calls EdChoice’s method for calculating switchers “haphazard” and the net fiscal savings claim “untrustworthy.”
Legislature’s own fiscal analysis reinforces concerns
The LRC’s fiscal note on HB 205 estimates the program will cost $50 million in just 4 years. While it says there “may be other impacts which would produce savings,” they call those savings “indeterminable” and begin their explanation of these other hypothetical impacts with a caveat: “HB 205 does not provide a requirement that the scholarships be granted to students transferring from public school systems.”
An additional analysis has been undertaken by the Office of the State Budget Director, and though it was mentioned during committee, it has not been made available to the public.
The claim private school tax credits will save Kentucky money is based on erroneous and inappropriate data. If the legislature moves forward with this proposal, it is a choice to begin appropriating monies to a separate and privately-controlled system of schools at a time when public schools have been experiencing a decade of cuts.
