Would Shutting Down Tax-Credit Scholarships In Georgia Help Public Schools Financially?



Lyrics from Gladys Knight’s “Midnight Train to Georgia” perhaps best summarize what will happen if the Southern Education Foundation (SEF) succeeds in overturning Georgia’s tax-credit scholarship program to “return” $58 million to public schools: They’ll “(find) out the hard way that dreams don’t always come true.”

For those unfamiliar with tax-credit scholarships, the state-authorized school choice programs offer direct tax relief in exchange for donations to nonprofits that provide tuition assistance to kids enrolling in private schools. In Georgia, the tax credit is worth 100 percent of the donation, with limits on the amount of credit any individual taxpayer may earn ($1,000) and an overall limit on the number of tax credits the state will grant (currently set at $58 million annually).

Although the plaintiffs argue the program is unconstitutional in that it provides public funds to private, religious entities, the SEF’s expressed interest in the case is that the tax-credit scholarship program harms public schools by diverting funds away from public education.

The SEF’s position is that the public schools would be better off if the $58 million in tax credits were repealed and those tax collections were instead appropriated to K-12 public education.

But, critically, that argument fails to account for the additional cost of educating the kids that would have to return to public schools once their tax-credit scholarships were revoked.

The Georgia program’s design requires that students had been previously attending a public school to be eligible for a scholarship (with only a few narrow exceptions allowed). Therefore, it’s a pretty safe bet that if their scholarships are taken away, most of these kids will re-enroll in public schools.

With that in mind, more than 13,000 Georgia students are using tax-credit scholarships to attend private school. Let’s say—and this is being cautiously optimistic—one-fourth of these parents come up with a back-up plan to continue to pay tuition absent the tax-credit scholarship program. That means about 10,000 students would flow back into the public schools upon the program’s repeal.

Georgia public schools currently spend about $10,000 per student, on average, even when costs for maintaining buildings and paying off debt are excluded. At that rate, 10,000 new students in the public school system would cost $100 million.

In fairness, some of a school’s non-capital costs don’t vary much with enrollment, such as administrative overhead, grounds maintenance, and even utilities to a degree. But many other school costs are tightly aligned with enrollment—looking only at those costs, for instruction and other direct support services for students, Georgia public schools spend about $7,000 per student.

If only those variable costs rise as students flow back into the public schools, repealing the tax-credit scholarship program will cause Georgia public schools to spend $70 million on such things as additional teachers, teachers’ aides, classroom supplies, testing materials, student clubs/activities, guidance counseling, and the like.

So even if repealing the tax-credit scholarship program freed up $58 million for public schools, which is far from certain, I wouldn’t want to be the public school business official that got stuck with this deal! If I truly need $10,000 to educate a student in public school, I’m out some $42 million for all those returning students; if the number is closer to $7,000, I still need a good $12 million.

But let’s even suspend reality momentarily and look at the “best case scenario” for Georgia’s public schools: The tax-credit scholarship program is repealed and, miraculously, all of the donations to tuition-providing nonprofits continued allowing all the kids currently enrolled in private schools to stay. Only difference is, those donors no longer get a tax credit from the state.

Because those donors still would qualify for a tax deduction, they’d avoid paying Georgia’s 6 percent state income tax on the amounts donated. That’s $3.5 million. In this scenario, repealing the tax credit would yield $54.5 million in additional income tax collections for the state (which the SEF wants to go to public schools).

Unfortunately for the SEF, because the public schools would see no enrollment growth—remember, we’re assuming all the kids using the tax-credit scholarship program will stay put in private school—public schools will not automatically get any funding increase through the state school funding formula. Thus, public school advocates would have to convince the Georgia legislature to appropriate more money from the $54.5 million in freed up income tax collections. Easier said than done!

If we look at how the Georgia legislature distributes state income tax revenue, 43 percent now goes to fund K-12 education. Being generous, let’s assume the legislature gives 43 percent of that $54.5 million in additional revenue to the public schools—about $23.4 million—even though the public schools would not be serving any more students. With about 1.6 million students enrolled in Georgia’s public schools, even this best case scenario yields less than $15 per student in additional funding statewide. It would be pretty hard to make a noticeable dent in the educational services offered to students with that extra money (but it certainly would provide schools with a little more cash for pay raises).

After examining the numbers, either the SEF didn’t do its arithmetic or its real motivations are not the financial concerns they’ve cited publicly.

Should the plaintiffs in this case be successful, and the Georgia tax-credit scholarship program is repealed, then one of two outcomes would have to occur: Either A) Georgia’s public schools would have to get more cost efficient very quickly to accommodate all the new students they’d be receiving; or B) they’ll be back in front of the legislature asking for even more money.

If the latter, and the state legislature comes calling for more tax dollars, Georgia residents might also be singing another line from Glady’s Knight’s number-one hit: “I got to go!”


By Jeff Spalding

serves as the Director of Fiscal Policy and Analysis at the Friedman Foundation for Educational Choice. The purpose of this fiscal analysis work is to clarify and elevate the understanding of the financial impacts of school choice initiatives on state and local governments, public school corporations, taxpayers, and families of school-age children. Prior to joining the Foundation, Spalding served as Controller/Chief Financial Officer (CFO) for the City of Indianapolis.

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