CO Lawmakers Consider 529 Flexibility (Again)

 

Colorado is once again in the middle of a debate over 529 college-savings account flexibility. This time around, the biggest topic of debate is HB19-1123. That bill, sponsored by Representative Colin Larson and Senator Jim Smallwood, is set for a hearing before the House Education Committee at 1:30 p.m. on Thursday, February 14.

As the sponsors wrote in a recent column for the Denver Post, HB19-1123 would make a simple change to Colorado’s outdated law that would allow parents to utilize their 529 funds for K-12 tuition at public or private schools without fear of heavy tax penalties. If lawmakers fail to act on the issue, parents could begin seeing those penalties as early as this year.

Issue Recap

For those just tuning in, here’s some quick background on the issue. In 2017, Congress expanded the acceptable uses of 529 savings to include K-12 tuition expenses at public and private schools. That new flexibility acknowledged the fact that many families need to access their savings to meet educational needs long before their students go to college. For instance, a student might:

  • Need a more rigorous academic environment
  • Want access to a specialized program or field of study
  • Need a school closer to their parents’ home or work
  • Need a safer environment free from bullying or other issues

The main advantage of 529 accounts has always been that they allow money to grow in a tax-advantaged environment. Colorado has taken those advantages a step further by providing state tax deductions and credits for 529 contributions made individuals and corporations, respectively. Those extra state tax advantages are designed to incentivize increased saving for students’ educational futures.

Here’s where it gets complicated. While federal law now recognizes K-12 tuition as an acceptable withdrawal from 529 accounts, Colorado law has not been brought up to date. As a result, state law considers withdrawals for K-12 tuition to be “unqualified”—a designation that can carry all sorts of consequences for who ignore it.

In practice, this misalignment between state and federal law means that parents who try to utilize 529 funds in accordance with federal law could still be subject to hefty state tax penalties. These penalties will most often take the form of “recaptures,” in which the state forces parents to repay any credits or deductions taken for relevant contributions to the account.

Why Should You Care?

The recaptures mentioned above could amount to hundreds or even thousands of dollars. If a parent were to pull the maximum $10,000 for K-12 tuition, that parent could trigger a state deduction recapture amounting to $463. If a parent’s employer has also taken tax credits for contributions to the account, which can amount to up to $500 per year, the recapture of those credits could result in even higher tax bills.

Considering that the Federal Reserve has found that nearly half of American households would be unable to handle an unexpected expense of $400, these recaptures could be crippling for many families. Is that really how we want to treat parents who save for their children’s futures?

What Can I Do?

You may remember that last year’s legislative debate ended in a partisan stalemate. This legislative session, Colorado lawmakers have a chance to get it right and ensure that parents aren’t treated like tax criminals for accessing their own educational savings.

If you’d like to make your voice heard on this important issue, click on the button below to contact members of the Colorado House Education Committee. If you would like to testify in person or in writing at the February 14 hearing, please email Katrina Yoshida at kyoshida@acescholarships.org no later than Tuesday, February 12.

 

 

State Legislatures Kick Off Across U.S.

 

The beginning of January is a relatively quiet time for most folks. They settle into the new year slowly, spend time planning out the first quarter, and generally work on getting their professional sea legs back after the break.

Not so for those who work in public policy. For them, January is the first quarter of legislative game time.

ACE Scholarships works on a variety of policy issues across our eight states each year, all of which are related to existing or prospective parental choice policies. Our involvement could include conducting analysis of various policies, working with legislators and other organizations to design programs, educating various audiences about policy issues, and engaging in advocacy efforts.

If you want to know when legislative season kicks off in your state, here’s a rundown of regular legislative session start dates in all eight ACE states:

Arkansas: January 14 (biennial session)

Colorado: January 4

Kansas: January 14

Louisiana: April 8

Missouri: January 9

Montana: January 7 (biennial session)

Texas: January 8 (biennial session)

Wyoming: January 8

As always, ACE will be closely following choice-related conversations in these states throughout their legislative sessions. If you would like to follow along in real time using the same tools we do, check out our Bill Tracker page. You can use that page to access bill text, track progress, see sponsor information, and more. You can also track our latest policy releases and alerts by state here.

Please do not think that the only role for you is as a passive observer! In addition to the other tools, you can use our Action Center to make your voice heard on various issues by clicking the Take Action button below. We will update that page with new campaigns as issues emerge.

 

MT Supreme Court Disappoints, but It’s Not All Bad News

 

There’s a first for everything, including state supreme court decisions striking down well-established scholarship tax credit programs.

Last week, the Montana Supreme Court issued a sweeping ruling against the state’s scholarship tax credit program in Espinoza v. Montana Department of Revenue. (You can read ACE’s press release about the ruling here.)

The Espinoza ruling breaks with logic applied in previous U.S. Supreme Court precedent, as well as with state supreme court rulings in Arizona, Alabama, Florida, Georgia, Illinois, and New Hampshire. It marks the first time in American history that a state supreme court has struck down a scholarship tax credit program.

There is an awful lot about this ruling that should make choice advocates and legal scholars frown, but it’s not all bad. Here’s a rundown of the positives and negatives of the Espinoza decision.

The Bad

  • It breaks with widely accepted legal logic to argue that tax-incentivized private donations to private nonprofits somehow constitute taxpayer money.
  • It strikes down the entire scholarship program, even for students who have chosen to take their scholarships to secular schools.
  • Despite attempts at rationalization, it comes down on the side of Montana’s state constitutional Blaine Amendment. Found in 38 state constitutions, Blaine Amendments are deeply rooted in a history of discrimination against religious minorities and immigrants.
  • It makes no effort to accommodate current scholarship students under the tax credit program, who stand to lose their funding as early as this school year.

The Good

  • Ironically, the program’s restrictive design softens this ruling’s impact. With donors only able to receive a tiny $150 tax credit per year, the program was only able to scholarship a small number of students. Hopefully, this will mean that any scholarship students who lose their funding as a result of the ruling will still have access to other scholarship assistance.
  • ACE Scholarships does not participate in the credit program, which means that Montana’s nearly 1,000 ACE scholars will not be affected.
  • As it is written, this decision provides a clear path to a U.S. Supreme Court appeal—an appeal that could finally finish what the high court started in Missouri and Colorado by addressing the constitutionality of Blaine Amendments themselves. A ruling against these relics of a darker time would unshackle hundreds of thousands of children across America.

The Institute for Justice, which has represented plaintiff families in support of the tax credit program since the beginning, has already declared its intention to appeal the decision to the U.S. Supreme Court “immediately.” It is not clear how long that process will take, particularly because the high court accepts only a small percentage of the requests it receives. But the conversation is most certainly coming. In fact, it’s already underway.

As several Montana private school leaders argued in an op-ed earlier this year, the true strength of Montana’s private school community comes from its diversity. If the state wants to support a great education for all students, the best thing it can do is allow parents to choose the educational environments their children need. Here’s hoping SCOTUS will instruct state leaders to do exactly that by reversing this decision.

The Trojan Horse of False “Improvements”

 

Can you improve a scholarship program by gutting it? The Center for American Progress (CAP) seems to think so. The organization recently published a brief laying out a handful of policy ideas to “improve” K-12 private school scholarship programs. Not surprisingly, nearly all of these suggestions would harm rather than help these programs and the kids they serve.

There’s a lot to swallow in the CAP report, so you can read through their entire list of “improvements” at your own leisure. For now, let’s just focus on a few big argumentative rocks.

“Voucher Program” is an inaccurate description of many choice programs. The CAP brief states in the fine print that “For the purposes of this issue brief, references to private school voucher programs are referring to all programs subsidizing private education.” And sure enough, the author uses that label to cover every K-12 scholarship program, regardless of form or mechanism.

The problem with this generalization is that it is objectively inaccurate from a policy perspective. Actual voucher programs use directly appropriated government money to fund K-12 private school scholarships. Scholarship tax credit programs, on the other hand, rely on tax incentives to encourage private giving to private nonprofits that fund scholarships. There is no government money involved. Don’t take my word for it, though. Ask the U.S. Supreme Court or the numerous state supreme courts that have tackled this issue.

Why bring up this point? Because it speaks to the intent of the brief. Someone seriously interested in improving or expanding K-12 scholarship programs would have at least ventured the effort to distinguish between radically different types of programs.

Phasing out programs and choking off scholarship funding is literally the opposite of improvement. CAP acknowledges that hundreds of thousands of students currently make use of private school choice programs (nearly 470,000, to be more precise), and that these families might be upset if someone cut their scholarships in the name of “improvement.” Their solution? Just don’t allow new kids into the programs and let natural attrition run its course.

This suggestion might be worth considering if we had reason to believe that a) we have already met all the current need for expanded access to private options, and b) every single student has access to a high-quality public school. Of course, neither of those things is true. Demand for scholarships exceeds availability by orders of magnitude in most places, and the public school system has made exceedingly little meaningful progress in the past decade.

Throw into the equation the fact that parents choose schools for a huge variety of reasons that may not even involve academics, and you can plainly see that this proposal serves only to neuter opportunity. Disadvantaged families would be hardest hit, as a policy shift like this would effectively trap many of them in schools they are actively trying to escape. Does that sound like progress to you?

Forcing draconian accountability measures onto private providers is both unnecessary and counterproductive. CAP argues that “If private school voucher programs are to receive public support, then the participating private schools should be on level footing with public schools.” It fails to mention, however, that choice programs categorically do not put private schools on equal footing with public schools.

Most programs cap scholarship values at an amounts significantly lower than state per-pupil funding—a design decision that has generated billions of dollars in savings for state governments across the country. Similarly, scholarship students typically make up only a percentage of students in any given private schools. If a school serves only a relative handful of scholarship students and receives only a tiny fraction of resources given to the public system, does it make sense to place it on “level footing” with the public system in terms of regulatory burden?

More importantly, rigid accountability and excessive regulation can have the counterintuitive effect of decreasing the quality of available private options. You can read in detail about this phenomenon here, but here are the CliffsNotes: Heavy regulation often leads high-quality, financially stable providers to decline participation in scholarship programs. Less stable providers, on the other hand, are often more than willing to swallow some extra rules for an infusion of scholarship cash. That’s not exactly a recipe for quality.

There’s a lot more to address in the CAP report, but that will have to wait. For now, I’ll leave you with this advice: Considering what just happened in Florida, lawmakers would be wise to stay away from underhanded attempts to cripple support for disadvantaged families. Instead, they should focus on real solutions designed to help more children achieve their dreams. And hey, if they need a road map of how to truly improve scholarship programs in their states, they could always start by doing exactly the opposite of what the CAP brief suggests.

 

 

 

School Choice Swings Florida Governor’s Race

 

If you need evidence of how powerful parent voices can be in American government, look no further than Florida’s recent gubernatorial contest.

There were a lot of nail-biters during the 2018 elections, but few were as closely watched by school choice advocates as the fight between Republican Ron DeSantis and Democrat Andrew Gillum. That race was so tight—and so fraught with controversy—that Gillum did not fully concede until November 17. (Technically, he conceded on election night, then re-entered the race when a recount was ordered.)

In the end, DeSantis won by a margin of .4 percent, or about 32,000 votes out of more than 8.2 million ballots cast. For that victory, a recent article in the Wall Street Journal by William Mattox argues that Governor-Elect DeSantis should thank the roughly 100,000 African American women who voted for him because they support school choice.

Mr. Gillum, on the other hand, has to consider the possibility that his bid to become the state’s first black governor was torpedoed by his opposition to K-12 private school scholarship programs.

For those who don’t know, Florida operates the nation’s largest scholarship tax credit program. Enacted in 2001, that program serves more than 100,000 students attending around 1,500 private schools across the state. The Sunshine State is also home to a large special-needs voucher program, an ESA program, and now the anti-bullying Hope Scholarship Program.

The vast majority of students participating in the scholarship tax credit program come from minority families, with roughly 42 percent coming from African American families alone. Most of these students’ parents are registered Democrats, which means a very large portion of the 100,000 African American women who voted for DeSantis broke with their partisan preferences to do so. According to Mattox, this “ticket-splitting” occurred because DeSantis supported the scholarship programs on which their families depend. Had Gillum done the same—or had he at least not so publicly opposed choice policies—the outcome of the race might have been very different.

The data generally support this conclusion:

  • About 18 percent of African American women voted for DeSantis, while only 9 percent voted for Republican Senate candidate (and outgoing governor) Rick Scott.
  • That 18 percent represents more than double the GOP’s national average of 7 percent with African American women.
  • Despite general leanings toward the Democratic side of the aisle, strong majorities of African Americans support scholarship tax credits and other forms of private school scholarship programs.

It’s important to note that election behavior is complicated stuff, and there could be other issues that partially explain DeSantis’s higher-than-average support from a constituency that normally would not stand behind him. However, it’s hard to deny the fact that support for choice policies played a major role in the election, particularly with so many tens of thousands of families benefiting from expanded educational opportunity in Florida.

The moral of this story is that elected officials on both sides of the aisle would do well to remember the “school choice mom” vote. Parents deeply value opportunity for their children, and opposing the programs that make that opportunity possible can have serious consequences for those seeking office.

Feeling inspired? If you’d like to share your school choice story with your elected officials, you can do so in seconds by clicking the button below.  

 

 

2018 Election Day Impacts (Part 2)

 

Last week, we covered the likely federal impacts of the 2018 elections. As promised, we’ll now turn our attention to state-level impacts in a few key ACE states.

ACE Scholarships currently serves about 7,000 students across eight states. We don’t expect the elections to have a major impact on parental choice policy in some states, but others have seen some pretty significant shifts that are worth watching. Below you will find a brief overview of the highlights. Wherever you live, it’s always a good time for your elected officials to hear from you. If you’re a parent, student, or educator, take a few minutes to tell your legislators what school choice means to you using the button below.

Colorado

Colorado has turned from purple to dark blue. The Colorado State Senate changed partisan hands and will now be controlled by Democrats, and Democrats held a strong majority in the already-blue State House of Representatives. With Democrat Jared Polis as governor and every statewide office won by Democrats, conversations about expanded parental choice may be more difficult. That said, the issue of educational opportunity does not and should not fall neatly along partisan battle lines. Support for parental choice policy, and especially for scholarship tax credit programs like those ACE facilitates in two states, remains strong across both political parties nationwide.

Colorado has a very strong public charter sector as well as extensive public school open enrollment, but tens of thousands of students still find themselves unable to access the schools they need. Choice supporters will need to work hard to educate elected officials about why access to private options matters to their communities. A great place to start would be getting familiar with the amazing ACE partner schools in each state legislative district.

Kansas

The defeat of Republican gubernatorial candidate Kris Kobach by Democrat Laura Kelly could complicate conversations about expansions to the Kansas scholarship tax credit program, which ACE helps facilitate. Kobach was a strong supporter of the program, but Kelly’s position remains to be seen. The program is one of the most restrictive in the nation when it comes to student eligibility: Scholarship students must be eligible for free lunch (household income of 130 percent of federal poverty guidelines or less) and attend one of the state’s lowest-performing 100 public schools. Partially as a result of these restrictions, the program served just 292 students as of January 2018.

Revisiting student eligibility requirements to bring the program more in line with other programs nationwide could vastly improve its ability to serve Kansas families. In the meantime, ACE will continue working to serve its hundreds of scholarship families who do not participate in the scholarship tax credit program.

Texas

Texas saw no major partisan shifts statewide or in either state legislative chamber. However, the margins in a number of key races—including the U.S. Senate race between Ted Cruz (R) and Beto O’Rourke (D)—were much closer than many had anticipated. Whether those margins are evidence of a coming political shift or the result of a temporary surge is not immediately clear. In either case, narrower-than-usual margins could cause some Texas Republicans to avoid political risks despite maintaining strong grasps on all areas of the state government. Then again, some Republicans may be feeling confident about having survived the “blue wave” of 2018. We will have to wait and see how these tighter margins will impact efforts to expand parental choice for the state’s roughly 4.7 million public school students heading into the 2019 legislative session.

Wyoming

Wyoming has historically been one of the most politically stable states in the country in terms of state legislative control, and 2018 was no exception. Republicans maintained control of both state legislative chambers this year. The state does, however, have tendency to swap partisan control of the governor’s office regularly. It seems to have broken that pattern this time, electing Republican Mark Gordon to replace term-limited Republican incumbent Matt Mead. Continued Republican control of the governor’s office could factor significantly into future policy conversations in the state.

 

2018 Election Day Impacts (Part 1)

 

Every election is wild, but the 2018 midterm was particularly heated. As the dust settles, a number of folks have asked us how we expect the results to impact parental choice in ACE states. Obviously, that’s a big question. There are always a thousand nuances involved in legislative politics, and we won’t know for certain how the elections will affect policy debates until the new folks officially take office and get to work. That said, we can make some high-level predictions in some areas.

To keep things a little more manageable, we’ll split this analysis into two separate posts: One on federal impacts and one on state legislative impacts in ACE states. We’ll tackle federal impacts today.

As anticipated, Democrats gained control of the U.S. House of Representatives. The party needed 23 seats to flip the chamber. As of this morning, they had gained 31 net seats. Check out this handy informational page from Politico if you want to dive into more detail. The U.S. Senate, however, remained Republican, which sets up an interesting divided-government situation that will force both parties to compromise if they want to move legislation.

From an education perspective, the most notable impact of the House power shift is that Democrats will now control the House Education and Workforce Committee, which is responsible for oversight of federal education policy. The make-up of that committee will also change substantially, as several GOP incumbents lost their re-election bids.

The changing of the guard in the House will also flip control of the House Ways and Means Committee, which is widely considered the single most powerful elected committee in the United States. While that committee typically does not tackle education issues, it does play a critical role in funding and tax conversations that could directly or indirectly impact education policy and programs through the Tax Cuts and Jobs Act. In particular, altering the new limits on local tax deductions (SALT) could impact scholarship tax credit programs across the country.

(NOTE: ACE is currently monitoring the SALT issue, and the associated IRS rulemaking process, very closely. If you’d like to engage in that conversation and connect with your federal elected officials, you can do so using the button below.)

Take Action

In practical terms, here is what we can expect at the federal level as it relates to ACE:

  1. Congressional fixes for issues related to the SALT deduction cap are less likely. Under the committee’s new leadership, which will take over in January 2019, legislative action to exempt scholarship-granting organizations from onerous new IRS rules on charitable contribution deductions seems unlikely. It is not impossible that the Republican-held Congress could try to act before then, but that seems unlikely given that is has other priorities before January and has made no such move to date. ACE argued in its official public comment on the rule that Congress is better positioned to handle this largely statutory issue than the IRS itself.
  2. But that doesn’t mean changes won’t be considered. It is not impossible that members of the newly Democratic Ways and Means Committee would advance legislation to heavily modify or even repeal some provisions of the Tax Cuts and Jobs Act in 2019. Given that the IRS proposed rule largely seeks to address workaround schemes in blue states, it is well within the realm of possibilities that we could see the issue of charitable contribution deductions revisited in the House. Whether or not any changes made could survive the Republican Senate is another matter.
  3. A national parental choice policy probably isn’t coming any time soon. Choice supporters should not expect to see much progress on the idea of a national K-12 scholarship program in the near future. In fairness, that was also largely true when Republicans held the House. The good news is that we can and should expect widespread and successful efforts continue in state legislatures across the country.
  4. We could see increased scrutiny and “oversight” of parental choice policies and programs. We’ve seen similar federal efforts before, though these efforts have been led by executive agencies and have come to naught. Whether or not this activity would continue or intensify under a new committee structure is an open question. If it does, it could create interesting dynamics between Congress, the U.S. Department of Education, and state governments.