Choice trumps: Supporting state success by expanding education options

Editor's note: This post is a submission to Fordham's 2017 Wonkathon. We asked assorted education policy experts to explain how President Trump should structure his highly anticipated $20 billion school choice proposal. Other entries can be found here.

Should the federal government get involved in school choice? The question pits support for federalism and a limited federal role in education against our desire to expand options for kids. It’s a close call. Could this be viewed as a Race to the Top for school choice? Will private school autonomy be appropriately respected? These concerns are real and should remain front of mind, but they can be appropriately addressed while expanding choice for the millions of U.S. students who are languishing in assigned schools that aren’t meeting their unique needs.

In this case, choice trumps.

To navigate the increasingly complex politics surrounding how—and if—such a significant federal investment in school choice should be made, we encourage the Administration to follow three guiding principles responsible for the growth of existing federal and state school choice programs:

  • Focus on supporting and expanding the immense success of school choice in the states;
  • Do no harm to existing state choice programs; and
  • Extend access to high-quality education options as broadly as possible while prioritizing students with the greatest needs.

The combination of (1) creating a federal tax-credit scholarship program; (2) expanding the allowable uses of 529 college savings accounts—while sunsetting little-used Coverdell Education Savings Accounts; and (3) increasing funding for the federal Charter School Program (CSP) could embody these guiding principles.

Although school choice in its various forms has broad support among public and state legislators, any federal initiative supporting school choice faces great political obstacles including—regrettably—advocates’ in-fighting and a tight party-line vote. In other words, school choice legislation getting sixty votes in the U.S. Senate is about as likely as Donald J. Trump and Michael J. Petrilli both shutting down their Twitter accounts.

Thus, including school choice legislation in a tax reform bill passed through budget reconciliation—which would require fifty-one votes in the Senate—appears to be the clearest political path for Congress to create new lanes of educational opportunity for some of our neediest students.

A federal tax-credit scholarship program could provide federal tax credits to individuals and businesses that contribute to Scholarship Granting Organizations (SGOs), which in turn grant scholarships to low-income children. Scholarships would not necessarily have to be limited to private school tuition and could also help eligible children pay for transportation to another public school, tutoring, an industry certification, or summer enrichment activities. Such a program could expand the reach of existing state tax-credit scholarship programs and, depending on how it’s structured, could also provide students with scholarships in the thirty-three states currently without programs.

When creating a multi-billion-dollar federal tax-credit scholarship program focused on our key principles of supporting state programs while expanding options as broadly as possible, Congress and the Administration must address key questions including:

How are eligible SGOs defined and authorized, especially in states without existing state programs?

As school choice advocates know, the more that is left to the states, the more states can serve as laboratories of innovation. One solution could be for a state legislature to empower a state agency to authorize SGOs that could then receive federal tax-incentivized contributions and administer scholarships. This approach would have the dual benefit of allowing states to tailor programs to fit their unique educational landscapes while also providing an incentive for more states to enter the school choice arena. Since taxpayers could receive a credit for donations to SGOs nationwide, states would have plenty of motivation to approve SGOs for the program to keep their residents’ contributions in-state, and possibly even create their own state tax-credit scholarship programs. Uncle Sam need not compel states to act in their own self-interest.

How is student eligibility defined?

To expand school choice options to the greatest number of families, the income eligibility cap should include the middle class. At a minimum, student income eligibility requirements should include families at three times the poverty level ($72,900 for a family of four), as many means-tested state tax-credit scholarship programs—including Iowa, Nevada, New Hampshire, and Virginia—have established. Should a broader student income eligibility requirement be adopted, states and SGOs should have the freedom to prioritize serving lower-income students.

How are eligible education expenditures defined?

Advocates know most innovative reforms happen at the state level. As such, it is imprudent to lock in a federal regulatory system knowing the future in states is likely to change. For example, Arkansas and Missouri are considering tax credit-funded Education Scholarship Account (ESA) programs that allow for multiple education expenditures beyond private school tuition. To best support the success of school choice in the states, federal regulations should not preclude states from including broader eligible education expenditures.

Such a federal tax credit program is likely to consume much of the $20 billion federal school choice pie, but we would like to see it complemented by two additional reforms designed to expand options across the income spectrum and support the great work going on in states.

First, to expand education options for the middle class, federal tax-credit scholarship programs could be coupled with expanding the allowable uses of 529 college savings accounts to encourage private savings for a designated beneficiary’s K–12 expenses. Currently, Coverdell Education Savings Accounts (ESAs) allow savings for a designated beneficiary’s higher education and K–12 expenses to grow tax-free until distributed. Unfortunately, Coverdell ESAs are only available to families below a specified income level and total contributions for a beneficiary are capped at $2,000 per year. These ill-advised limits have resulted in the underutilization of Coverdell ESAs.

On the other hand, 529 college savings accounts do not restrict account beneficiaries or contributors by income, and the annual federal gift tax exclusion encourages contributors not to exceed $14,000 in contributions to a beneficiary in a year. According to the Investment Company Institute, Americans own approximately 12.7 million 529 plan accounts totaling $266.2 billion in assets. This is a 5 percent increase in funds saved since last year and the popularity of these plans continues to grow. An expansion of 529 accounts to K–12 expenses coupled with sunsetting Coverdell ESAs makes practical sense and is an attractive option that fits Speaker Paul Ryan’s overarching goal of tax code simplification.

And finally, this Administration should consider increasing funding for the Charter School Program (CSP), which provides federal grants to start new charter schools and to replicate and expand high-performing existing charter schools nationwide. Increasing the CSP appropriation from $333.1 million to $700 million or even $1 billion would empower the charter community to expand its reach to more students, including the more than one million student names on waiting lists. (Note that although the CSP appropriation is mandatory spending, funding could be increased in tax reform through budget reconciliation should the additional cost be offset elsewhere in the bill and should the education committees be given instructions.)

Expanding options for as many kids as possible while respecting state-level school choice programs is no easy task, but it is certainly worth the risk. That’s why ExcelinEd recommends a judiciously structured combination of federal school choice reforms combining a federal tax-credit scholarship with expanding the allowable uses of 529 college savings accounts and increasing the CSP appropriation.

All authors work as part of the Foundation for Excellence in Education team. McKenzie Snow is a policy analyst in educational choice, Claire Voorhees is the director for K–12 reform, Adam Peshek is the director of education choice, and Patricia Levesque is the chief executive officer.