Tax credit scholarships are a vehicle for individuals and businesses to fund the education of students. Tax credit scholarship donors receive an offsetting credit from the state for their donation. In Pennsylvania the credit amount is 90 percent of the donation. Donations are collected by non-profit scholarship organizations, which in turn issue scholarships for children to receive a private education of their parents’ choice.
Pennsylvania has two private school choice programs that allow low- and middle-income students to access scholarships to attend private schools. The Pennsylvania Legislature enacted and launched the Educational Improvement Tax Credit Program (EITC) in 2001. The EITC awarded 45,882 scholarships, with an average value of $1,990, in the 2018-19 school year. In 2012, the state legislature enacted and launched a second program, the Opportunity Scholarship Tax Credit Program (OSTC), which is open to students in the lowest-performing schools in the state. The OSTC awarded 14,505 scholarships, with an average value of $2,499, in the 2018-19 school year. Students from households with incomes less than $90,000 plus $15,842 for each child in the family are eligible for scholarships from either program. Students with special needs are eligible if they come from households that earn up to 150 percent of the baseline income eligibility level. Students with severe special needs are eligible if they come from households that earn up to 299 percent of the baseline income eligibility level.
Pennsylvania’s two private school choice programs combined awarded 60,387 scholarships, or about 3.5 percent of the state’s K-12 population, to students in the 2018-19 school year. However, 42,918 scholarships were denied to students during that year because of arbitrary caps on allowable donations for the programs. At the same time, millions of dollars in potential donations are turned away each year because of these caps. In 2018–19, $100 million in K-12 scholarship donations were waitlisted because of the program caps.
BUSINESS DONATIONS WAITLISTED
Each year, millions of dollars in donations are turned away due to tax credit caps.
In response to the high demand for scholarships and waitlists, the General Assembly has increased the budget for EITC and OSTC several times throughout the years. The last two budget cycles saw overall, cumulative increases of $35 million, which resulted in 11,410 additional student scholarships. But these increases haven’t been enough for every child to have access.
THE UNTAPPED POTENTIAL OF EXPANDED TAX CREDIT SCHOLARSHIPS
To solve for the continued lack of educational access, lawmakers have proposed Senate Bill 1, which would provide for an “automatic escalator” to increase the scholarship caps by 25% when at least 90% of credits are issued the prior year.3 Similar plans have been adopted in Florida and other states.
This report projects the impact of Senate Bill 1 on the Pennsylvania economy. The preponderance of the most rigorous evidence suggests that access to private school choice programs could lead to better academic and behavioral outcomes, which could translate to higher lifetime earnings, higher high school graduation rates, and reductions in crime (e.g. DeAngelis & Wolf, 2019c; EdChoice, 2020; Foreman, 2017). Recent research also suggests that these kinds of academic and non-academic benefits of school choice could have substantial positive effects on state economies over time (e.g., DeAngelis, 2020; DeAngelis & Flanders, 2018; Flanders & DeAngelis, 2018). Using the preponderance of evidence linking school choice to academic achievement, educational attainment, and crime reduction, this study forecasts the economic impacts of the two private school choice programs in Pennsylvania.
Applying cautious estimates from each outcome to the participating students, this study finds that a $95 million increase in scholarship funding, coupled with a 25% escalator, could allow 229,337 students (including 168,950 new scholarship students) to use the programs in the 2025-26 school year, which could provide the following long-run economic benefits:
- $7.4 billion in economic benefits from higher lifetime earnings associated with increases in academic achievement.
- $2.3 billion from increased economic output and reductions in social costs associated with additional high school graduates.
- $260 million from reductions in the social costs associated with crimes.
- These potential economic benefits should not be combined and should be assessed separately because of overlap. For example, higher academic achievement increases the likelihood of high school graduation and receiving a high school diploma reduces the likelihood of incarceration. It is also possible that Pennsylvania’s private school choice results will differ based on context, geographic location, time, and implementation. As such, readers should exercise considerable caution when assessing these types of forecasts of economic impacts because they are based on evaluations from other locations.
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