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IFO Report Raises Serious Concerns About Education Tax Credit Programs

by Pennsylvania State Education Association

Jan 27, 2022

PSEA president says lawmakers should take a close look at findings before expanding credits

A report from Pennsylvania’s Independent Fiscal Office (IFO) has identified serious concerns with two state tax credit programs benefiting businesses that support private and religious school scholarship programs.

The report comes just days after the Pennsylvania Senate Education Committee voted on a bill that would divert hundreds of millions of taxpayer dollars in the coming years to dramatically expand the state’s Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC).

A major concern in the IFO report is the lack of performance data available for students who have received EITC and OSTC scholarships. State law actually prohibits the collection of this information. As a result, the report states, “the IFO is unable to determine if the tax credit substantially enhances educational opportunities available to all Pennsylvania students.”

Meanwhile, Senate Bill 527 would increase funding for the EITC and OSTC by 25% each year starting in 2022-23, provided at least 90% of available tax credits are used the year before. Over time, state funding for these programs would rise dramatically — from $280 million annually this year to $854 million annually within five years to $2.6 billion annually within a decade.

“It is deeply troubling that the state is prohibited from collecting data to assess the effectiveness of these tax credit programs, yet some state senators want to provide them with 25% funding increases each and every year,” said PSEA President Rich Askey.

“Some of the same senators supporting this expansion of the EITC and OSTC advocated for ‘performance-based budgeting’ practices in order to better assess the effectiveness of state programs. Yet, here we are told by the Independent Fiscal Office that Pennsylvania is statutorily prohibited from collecting the data needed to evaluate the performance of these tax credit programs.”

In addition to the lack of student performance outcomes, the IFO report identifies several other areas of concern, including:

  • High overhead allowances. Scholarship organizations receiving tax credit-eligible donations from corporations may spend up to 20% on administrative overhead costs. This far exceed what is permitted in other states. Florida, for example, has an administrative overhead cap of 3%.
  • Family income eligibility. The income threshold for scholarship recipients in Pennsylvania is $130,710 for a family of four, which is 500% of the federal poverty level and far out of step with other states. According to the IFO report, states generally tie their income threshold to some percentage of the federal poverty level. The state closest to Pennsylvania’s threshold is Florida, at 375% of the federal poverty level or $103,048 for a family of four. Pennsylvania’s income threshold is unlike all of the other states. It is set at $90,000, with additional income allowances for each dependent. In Pennsylvania, the income threshold for a family earning $90,000 with three dependents is more than $130,000. This raises questions about the extent to which these scholarships are reaching students from families who are truly in need and to what extent they are subsidizing families who can afford private school tuition – a point raised by the IFO.
  • The same businesses are pocketing bigger tax credits. As funding for these programs increased between 2015-16 and 2019-20, the number of businesses receiving tax credits actually declined, while the tax credit waitlist grew. The IFO notes that this is likely because businesses receiving credits in one year are given first access to the next year’s credits, effectively excluding other businesses from participating. As funding for the credits increase, the lucky few already in the program reap bigger and bigger rewards.
  • Educational improvement organizations excluded. The report makes clear that between 2015-16 and 2019-20 nearly all of the funding increases for the EITC went to scholarship organizations over educational improvement organizations, the only component of the EITC that supports innovative programs in public schools.

“The IFO report paints a troubling picture of these tax credit programs,” Askey said. “Starting with the lack of transparency, the prohibition on data collection, and questionable accountability, there are many questions that need to be answered before anyone should consider expanding it.

“Lawmakers would do well to take a close look at this report and the concerns it raises before dramatically expanding the EITC/OSTC. Senate Bill 527 will blow a hole in our state budget, and ultimately take money away from public schools, which educate nine out of every 10 Pennsylvania students. We need to focus on the needs of those students rather than padding the pockets of businesses and organizations that have zero accountability to Pennsylvania’s students or taxpayers.”

Askey is the president of PSEA. An affiliate of the National Education Association, PSEA represents about 178,000 active and retired educators and school employees, student teachers, higher education staff, and health care workers in Pennsylvania.

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