INDIANAPOLIS – The state’s School Scholarship Tax Credit is helping both lower-income and rich Hoosiers alike.
State-certified scholarship granting organizations, or SGOs, have provided $31 million in aid to thousands of youths to attend private schools in the last four years.
And more than 66 percent of the tax credit benefits related to the contributions are going to Hoosiers making more than $500,000 annually.
"The program is increasing exponentially because people try it out to see if it works. When they go from owing state taxes to getting a refund they give more and then they tell their friends about it," said Jon Dize, administrator of the Lutheran Scholarship Granting Organization of Indiana. "It’s almost too good to be true."
Lawmakers created the tax credit in 2009 in conjunction with nonprofit scholarship granting organizations who funnel contributions from private citizens and businesses to those lower-income Hoosiers wanting to attend private schools.
It is separate from the state-paid voucher program for private schools created in 2011 though the two initiatives are becoming more entwined.
Betsy Wiley, president and CEO of the Institute for Quality of Education, called the tax credit the entrée into school choice for Indiana. The institute is one of five SGOs operating in the state.
"I think for the most part legislators are pretty pleased with it," she said. "They like the public-private partnership aspect of it."
And while she acknowledged the tax credit costs the state some revenue the state also isn’t paying the educational costs for the students who might otherwise be in public school.
The tax credit is worth 50 percent of whatever someone gives to an SGO – one of the most generous credits in the state. There is a state cap on the total that be claimed during a fiscal year. Last year was the first time the credit was exhausted at $7.5 million, which equates to $15 million in private donations.
In the latest budget, legislators raised that cap to $8.5 million this fiscal year and $9.5 million next.
Similarly the number of scholarships given has grown from 2,890 in 2012 to 9,127 in the recently ended fiscal year 2015. More than $12 million in scholarships was given that year – the highest in the program’s history – at an average of $1,361 per student.
Two of the five SGOs are in northeast Indiana. The other three are in Indianapolis and Elkhart.
Generally it is the private schools themselves that do the fundraising and then the SGOs handle the distribution of it to eligible students whose families make up to 200 percent of the amount to qualify for the federal free or reduced-priced lunch program. That is up to $89,725 for a family of four.
The Lutheran SGO works with 49 schools around the state – most of them Lutheran, Dize said. Last year it received $2.6 million and gave $1.4 million in scholarships to more than 1,300 students.
The Scholarship Granting Organization of Northeast Indiana covers all 42 schools in the Roman Catholic Diocese of Fort Wayne-South Bend.
The diocese SGO collected $1.4 million in contributions last year and gave $1.3 million in scholarships to more than 1,000 students.
A recent Legislative Services Agency review of the tax incentive found it is working in terms of encouraging investment.
Wiley also said some changes the legislature made are helping too.
A big reason is that in 2013 the law was changed to allow SGOs to help create a pathway to a virtually free private school education for students.
Right now a student generally has to attend public school for one year before being eligible for a state voucher. There are some exceptions – for instance if the student would otherwise go to a failing public school.
But if a kindergarten student receives an SGO scholarship then that student is automatically eligible for a voucher the following year, provided the student still meets the income qualification.
The LSA report said donors may designate a specific school or group of schools for their donations.
For example, a donor could give $1,000 to an SGO to provide one kindergartner a scholarship to the school of the donor’s choice. That student is then eligible to receive up to $36,000 in state tuition assistance over the next eight years through the voucher program.
Wiley said almost 18 percent of all SGO scholarships last year were given to kindergartners. Every other grade fell between 6 percent and 8 percent.
She said this change and by allowing donors to specify a school is where the two programs have partnered from a policy perspective.
"Private schools are definitely taking advantage of the program," Wiley said. "They are saying ‘we can help you in kindergarten and that is a pathway for the rest of the 12 years.’ "
Another way the SGO scholarships are used is to cover gaps. Dize noted that sometimes a voucher doesn’t cover the full cost of private school tuition.
Wiley isn’t surprised by the fact that higher-income Hoosiers are giving more to the program since they often have more discretionary income. There also are additional tax advantages since the federal income tax is graduated.
She said that nearly half of the donations given to all SGOs in the state were between $1 and $1,000. An additional 44 percent were up to $10,000.
And only 9 percent of the contributions were more than $10,000.
"It’s a great story," said Sen. Brandt Hershman, R-Buck Creek. "People are giving greater amounts of money over multiple years. They are interested in seeing their dollars go to helping lower-income students have access to school choice."
Hershman runs the Senate Tax and Fiscal Policy Committee and said the program has appropriate restrictions – from the cap on credits to the means-testing of the scholarships themselves.
"It feels like we are doing the right things," Hershman said. "It is a lucrative tax credit for the person, but it pays a benefit to the state as well."