Scholarship Funding Corporate Tax Credit: Reducing Available Funds for Educating All North Carolina’s Children

KEY FINDINGS:

• House Bill 1104, Scholarship Funding Corporate Tax Credit, would create a dollar‐for‐dollar tax credit for corporations that make donations to organizations that grant scholarships to eligible students to attend private schools rather than public schools.
• The most likely fiscal impact of this policy would be to decrease available funding for public education.
• Seven other states offer corporate income tax credits for donations to scholarship‐funding organizations: Arizona, Florida, Pennsylvania, Rhode Island, Georgia, Indiana, and Oklahoma. Out of these seven states, four experienced steady growth in public school enrollment between FY2007‐08 and FY2011‐12, and all but one experienced a drop in estimated private school enrollment between FY2006‐07 and FY2008‐09.
• Further analysis of the credit in Arizona shows that it may have increased total private school enrollment in that state by just 1 percent, or 468 students, as a direct result of the scholarships generated by the credit. That number of students represented only a 0.05% drop in Arizona’s total public school enrollment – an amount insufficient to generate state savings given fixed costs implicit in per‐pupil expenditure figures.
• Estimates of the fiscal impact of this program that utilize per‐pupil expenditures must control for the fact that fixed costs included in per‐pupil spending figures will not decrease proportionally for every single student that leaves public schools for private schools. Unless a very significant number of students leave public schools – and charter schools – for private schools, savings are unlikely to materialize.