Will Arkansas legislators offer parents and students more educational choice — or will they be content to accept the status quo?
That’s the question members of the House Education Committee will decide soon.
The Arkansas Parental Empowerment For Education Choice Act, filed last week by Rep. Jim Dotson, would create education savings accounts (ESAs) to subsidize the cost of a K-12 student to attend nonpublic schools or a nonpublic online program.
These ESAs would be funded by donations from private businesses and individuals who would receive a tax credit in exchange for their donation.
Donations would be sent to qualifying nonprofits approved by the Department of Finance and Administration, according to the legislation.
A student is eligible for this type of assistance if he or she is eligible to attend public school. The major sticking point for some lawmakers — and Gov. Asa Hutchinson — is the tax credit aspect of the legislation. The legislation puts a cap of $10 million on the amount of tax credits to individuals and businesses who donate to fund these ESAs in the first year of the program.
Opponents of this legislation say this would put a strain on a tight state budget.
Hutchinson told the media yesterday:
I will oppose the bill based upon that revenue hit because that’s not in budget. I’m a strong proponent of choice. As everyone knows, I’ve had children go to public school, private school, Christian school, homeschool, and those are choices that parents make, but we have an obligation for the public school system of Arkansas to make sure it’s adequately funded.
Hutchinson was referring to the “revenue hit” of $10 million cited in the Department of Finance and Administration fiscal impact statement released yesterday.
However, Hutchinson and other opponents are apparently ignoring the other side of the ledger: there’s also a spending cut paired with the “revenue hit” from the creation of this tax credit.
It’s important to keep in mind that these savings accounts would be funded through private dollars, not taxpayer money. Therefore, if a student uses an ESA to switch from a public school to a private school, the financial burden of educating the student is also no longer on the state.
A recent paper released by the University of Arkansas found that HB 1222 would actually be budget neutral, or possibly even be a net gain to the state, depending on the makeup of scholarship recipients. To summarize: if approximately 65 percent of ESA recipients are students moving from a public school to nonpublic school, the program will be budget-neutral to the state.
Julie Trivitt, one of the authors of the paper, told The Arkansas Project:
We agree revenue will be $10 million lower as a result of the tax credit. Our paper says the net effect will be a positive $2.8 million because the reduction in education funding needed will be $12.8 million. The DFA report shows a $10 million reduction in revenue and ignores the reduction in education funding needed.
The DFA report estimates a $10 million revenue reduction from $10 million in contributions which would fund 1504 ESAs. We estimate the $10 million in tax credit will generate $13.3 million in contributions because part of the contributions will be made by corporations, which will have their tax credit reduced by their federal tax savings. This contribution level would fund 2006 ESAs the first year.
Here’s the bottom line: elected officials shouldn’t just take into account the lost revenue from the $10 million tax credit. They should also look at the savings this program would bring if they want to get a better idea of the overall effect on the state budget.