As the 2002 legislative session unfolds, lawmakers are grappling with what appear to be competing priorities: balancing the budget and improving education. Faced with an estimated $1.5 billion budget shortfall, legislators must rein in spending.1 Yet the need to reform Arizona's K-12 education system is also urgent. Results from the National Assessment of Educational Progress show that one out of four Arizona eighth graders can't read and one out of three hasn't mastered basic math skills.2 This proposal offers legislators a way to improve educational opportunities for students while achieving fiscal savings.
Common wisdom holds that the private sector runs businesses more efficiently than does government, and experience generally bears that out. Educational services are no exception. Studies show that private schools provide a better education for students for roughly half the cost of a public school education.3 If parents could make better use of local private schools, the cost of Arizona's education system would decrease, and more students would receive a chance at a first-rate education.
Education scholarships can make that happen. Arizona's current scholarship tax credit has already assisted 19,000 children and is expected to save taxpayers millions of dollars in coming years as participation increases.4 But there is room for improvement. Whereas Arizona's scholarship credit is available to individual taxpayers only, Pennsylvania and Florida recently adopted scholarship legislation aimed at the business community. That legislation is expected to raise scholarships for an estimated 25,000 students this year and save taxpayers money. This study draws lessons from those successful programs and proposes that Arizona adopt a similar corporate income tax credit to complement and improve on its original scholarship legislation.
Under this plan, businesses could donate funds to any charitable organization that gives scholarships to students from low-income families to attend private elementary and secondary schools. Participating businesses could take a dollar-for-dollar credit against their corporate income tax. Therefore, the scholarship tax credit would not be a new cost to businesses; instead, it would give businesses an opportunity to redirect a portion of their regular tax liability to student scholarships.
Since scholarship eligibility would be restricted to low-income public school students, the program guarantees that scholarships will deliver school choice to a great number of the neediest children in the state. In 1998, the Department of Education found that students who were eligible for the free and reduced school lunch program scored substantially lower than noneligible students on the National Assessment of Educational Progress reading exam.5 Though every student deserves the best possible education, this scholarship program is a starting point for reform, designed to assist the neediest students in public schools first.6
The credit would be phased in over a five-year period, starting at $10 million in year one and capping out at $50 million in year five. If adopted during the 2002 legislative cycle, this plan could generate an estimated 4,500 student scholarships worth $2,000 apiece by fall 2003 and 22,500 scholarships by 2007. Although the state will forgo revenue when businesses use the credit, the state will save money when students use the scholarships to transfer from public to private schools. Moderate projections show the plan saving Arizona taxpayers nearly $11 million in the first year and creating $53 million in savings by 2007.
Yet the true value of this scholarship plan cannot be measured on the state's ledger. More valuable than the fiscal savings is the plan's promise to infuse the state education system with dynamic, competitive forces.7 When families have the ability to choose schools-when they can easily remove their children from failing schools and enroll them in successful ones-educators respond by improving their services to attract and retain students. That process raises the quality of education in all schools-whether public, charter, or private-thereby improving educational opportunities for all students.