Private School Tax Credits: Bad in Principle, Worse in Practice?
When Oklahomans send our tax dollars to be spent on public services, whether at the state, local or national level, we have certain expectations. We expect to know what the money is being spent for, what results we are getting for our dollars, and to be assured that the money is being spent as intended. This is especially true of money spent on our children’s schools, the largest recipient of state and local dollars, which are subject to extensive rules and regulations and are under the control of democratically-elected representatives. But that’s in the process of changing.
Last session, after a fierce and protracted fight, the Oklahoma legislature passed HB 1934, the Oklahoma Parental Choice Tax Credit Act, providing taxpayer dollars to parents who choose to send their children to private schools. Under the bill, parents may receive from $5,000 - $7,500, depending on their household income, in refundable tax credits for each child attending a private school, or up to $1,000 to cover educational expenses if their children are homeschooled. The Legislature set a $150 million fiscal cap for the private school program in 2024, with that amount rising to $200 million in 2025 and $250 million thereafter.
Supporters of the bill, many of whom fought for this kind of school choice legislation for decades, contend that it will expand educational opportunities for children. In his 2023 State of the State address, Governor Kevin Stitt stated that, “every child deserves a quality education that fits their unique needs, regardless of economic status or background.” In recent years, school choice proponents have emphasized the need to “fund students, not systems.”
Critics of providing taxpayer dollars for private schools, whether in the form of vouchers, education savings accounts or tax credits, counter with several major criticisms. Most fundamentally, making public dollars available for a child’s religious education is a violation of the core constitutional principle of the separation of church and state. Oklahoma’s Constitution is clear on this point: Article 2 states, “No public money or property shall ever be appropriated, applied, donated, or used, directly or indirectly, for the use, benefit, or support of any sect, church, denomination, or system of religion, or for the use, benefit, or support of any priest, preacher, minister, or other religious teacher or dignitary, or sectarian institution as such.”
Recent federal and state court decisions have blurred the lines separating public dollars from sectarian institutions. Now, under HB 1934, public taxpayer dollars can be spent on institutions that teach religious beliefs, such as a literal interpretation of the Bible or that Jews are God’s chosen people, or that use a curriculum derived from the teachings of Scientology founder L. Ron Hubbard, or that defend slavery.
Another fundamental concern with using public dollars to fund private schools is that private schools are not held to the basic rules of the game that we expect of public schools, whether it is to accept all students regardless of any disability, or to require that teachers have degrees in the subjects they teach, or to report on their students’ academic performance, or dozens of other laws and regulations meant to ensure fairness, accountability, transparency, and quality in schools funded with taxpayer dollars. As the House Education Committee Chair stated in regards to school voucher proposals, “We have to answer to our taxpayers. You can’t answer to the taxpayer when you’re giving public dollars to a private entity and you don’t know exactly how that’s being spent.”
While these criticisms are inherent to any private school funding proposal, the Legislature made some particular choices with HB 1934 that raise additional concerns. Even though the rhetoric of the movement to provide public funding for private schools focuses on expanding opportunities to low-income students who are attending failing public schools, HB 1934 is designed in ways that make it likely that it will primarily benefit wealthier families whose children are already attending private schools.
The new tax credit is universal, meaning there is no income eligibility cut-off although families with income below $250,000 will receive larger tax credits and those with income below $150,000 will enjoy preferential consideration in case the credit exceeds its total fiscal cap.
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In addition, unlike Oklahoma’s Lindsay Nicole Henry scholarship program for children with special needs, which is limited to children previously enrolled in public schools who transfer to private schools, students already attending private schools in Oklahoma can claim the new parental choice tax credit.
Now that HB 1934 is the law, a major priority is to ensure that the new tax credit program, which takes effect January 1, 2024, is run smoothly and honestly. Unfortunately, there are reasons for concern. The Oklahoma Tax Commission (OTC) recently released proposed rules to implement the private school tax credit. A careful review of the rule - laid out by Oklahoma Appleseed in a public comment that we submitted to the agency - helps identify several problems primarily related to “recapture”. HB 1934 will allow taxpayers to be issued tax credits to cover qualified expenses (tuition and fees, in the case of private schools) for eligible students. The proposed rule identifies four instances in which OTC is expected to recapture tax credits that have been improperly issued, for example because the credit was claimed for educational expenses that were not qualified expenses, or because the credit was claimed for a student who no longer attends a private school. But the rule does not specify a clear audit procedure for OTC to follow to determine when credits are improperly claimed, even though the enabling legislation refers to an audit being conducted for this purpose. In instances when students who receive the private school tax credit are no longer attending the school, the rule does not clearly indicate when the credit is to be refunded, by whom (the school or the family?), or in what amount. Determining the correct amount to be recaptured may be especially challenging if private school tuition is covered through a combination of the tax credit and private payments.
Just as problematically, the rule, following the law, is silent as to any penalties or sanctions for violations of the provisions of the act that lead to recapture. While recognizing that some credits may be improperly claimed unintentionally, there need to be clear penalties established for intentional fraud committed by schools and by parents.
While not addressed in our public comments, the OTC rule also heightens the expectation that parental choice tax credits will serve primarily to subsidize students already enrolled in private schools rather than assist the transfer of children currently enrolled in public schools. That is because, as a result of how the law was written, the tax credit is designed to run on a calendar year beginning in January, when most students are already midway through the school year, rather than a school year beginning in August. The application period for the credit begins in December and eligibility decisions will be made beginning in late January. This timetable strongly favors families with children already attending private school who will be eligible to receive credits for tuition at the school their children are already enrolled in. The entire $150 million tax credit amount may be allocated to families with children already enrolled in private schools long before families whose children are currently attending public schools may be in a position to apply for and be accepted to a private school for the upcoming year.
One of our recommendations to OTC is that the agency collect and report key data about who is claiming the parental choice tax credit. Specifically, OTC should report the income breakdown of families claiming the credit, which is information that will be easily available based on the application process. In addition, OTC should include a question asking whether students for who the private school tax credit attended a private school, public school, was homeschooled, or attended no school during the school semester immediately prior to the one for which the credit is being claimed. This information would shed light on the critical public policy question of whether parental choice tax credits are supporting parents who were already sending their children to private schools or whether it is assisting parents in transferring their children into private schools.
The bottom line is that Oklahoma taxpayers will be allocating $150 million - $250 million every year to fund schools that are not subject to the same rules and expectations as the democratically-governed public schools that the vast majority of our children attend. At the very least, we should have clear expectations that those dollars are being spent only as intended. Based on the language of HB 1934 and the Oklahoma Tax Commission’s proposed rules, there is good reason to fear that these expectations will not be met.
Written by David Blatt, Ph.D.
