By S.L. Hansen

(SNR) - A bill proposed to the Nebraska State Legislature is growing in popularity among Catholic parents and others who believe in the freedom to choose the best school available to meet their children’s needs.

LB 50, which was introduced by Senator Bob Krist of District 10 in Omaha and co-sponsored by Senator Tony Fulton of District 29 in Lincoln, helps support school choice by providing an income tax credit for individuals and businesses who contribute to scholarship funds managed by Scholarship Granting Organizations (SGOs).

An SGO, according to LB 50, would be a new non-profit organization that has the sole purpose of using at least 95 percent of their annual revenue to award scholarships that would help offset the costs of private-school tuition for Nebraska children.

"LB 50 is going to give more parents the choice to send their kids to private education with financial assistance via scholarships," said Nebraska Federation of Catholic School Parents President Jim Stolze.

Mr. Stolze currently has two children attending Daniel J. Gross Catholic High School in Omaha. He believes that Catholic education is worth the investment.

"We think it creates a well-rounded person, spiritually and academically," he said. "It’s also been proven that in private schools – especially Catholic schools – graduation rates are higher and test scores are higher."

Unfortunately, there are many families in the state who cannot afford private school tuition. Those are the families that will be helped by this bill.

LB 50 would limit the qualifying SGOs to those that award scholarships based on financial need. The SGOs would also be required to provide scholarships to students of at least two different schools that meet state standards for legal operation, including non-discrimination.

"From our perspective, LB 50 is about enabling more Nebraska children to be educated in privately operated schools, in accord with the wishes and desires of their parents," said Jeremy Murphy, associate director for Education Issues for the Nebraska Catholic Conference when he addressed the Unicameral on February 16.

"Low- and limited-income families have very limited options to enroll their children in private schools," Mr. Murphy pointed out. "Many families are underprivileged, struggling financially, and really need more assistance than our schools can provide to them and still operate effectively."

At Sacred Heart School in Falls City, principal Douglas Goltz is keenly aware of the sacrifices that families make to send their kids to parochial school.

"The economy is tough," he said, "We’ve got people who are making big sacrifices. They’ve got to eliminate some of the things they’d like to do, those extra things that you have to do without."

According to a survey released in September of 2009¹, "More than eight out of ten likely voters in Nebraska would choose some form of private education if they could."

By passing LB 50, the Nebraska Unicameral can help make private education possible for many families who currently can’t afford it, even if it is the best school choice for their children.

Statewide, a little more than 11 percent of Nebraska kids in grades Kindergarten through twelfth grade are being educated in private and parochial schools. In some counties, the figure is nearly 30 percent. When LB 50 becomes law, those percentages will rise.

This could be helpful to the state, because the cost of educating students in public schools would be lessened, even with the tax credit for scholarship contributions.

The bill caps the total amount of tax credits for the first year to $10 million. It also caps the total tax credit that can be received at 65 percent of the contribution made.

For example, if a donor made a qualifying contribution of $100, they would receive a $65 tax credit from the State of Nebraska. The reason the LB 50 tax credit is capped at 65 percent is because such a donation might also earn an itemized deduction on the donor’s federal tax return.

Many parents who currently send their children to Catholic schools are happy about LB 50, because it’s an opportunity to get tax relief related to education. The reality is, parents who choose parochial and other private schools ease the state’s financial obligation to public education in two ways.

First, by enrolling their kids in private schools, the state has fewer children to educate. Second, these families still have to contribute to public education with their tax dollars. Collectively, families who opt for private schools save the state millions of dollars by using these privately funded institutions.

According to the Nebraska Catholic Conference, "If the 38,098 children being educated in other-than-public schools were instead enrolled in public schools, additional state and local revenue in excess of $375 million would be needed each year to maintain the same per-pupil spending levels."

Mr. Stolze is optimistic about the long-term effects of LB 50.

"It will stabilize some schools that have been losing students, and in many cases increase attendance in private schools," he predicted. "There may even be new schools opening."

He also believes that strengthening private education in Nebraska will be good for the public schools.

"Competition helps everyone," he said.

Mr. Goltz would like to see families get some financial relief.

"Even though our tuition is low, it still adds up," he said. "Any way they could get some assistance would be great."

Anyone who wishes to support LB 50 can sign the online petition at http://www.gopetition.com/petition/42550.html and/or attend the Educational Freedom Rally on Tuesday, March 22 (see information on page 16).

For more information about LB 50, including a link to the full text of the bill, please go to http://bit.ly/dVhh3R or visit www.nebcathcon.org and click on "Education."

1. Survey conducted by Strategic Vision, an Atlanta-based polling agency, surveying 1,200 likely voters with a margin of error of +/- 3 percent. The survey is available for viewing at www.nebcathcon.org.

What would LB 50 do?

It would establish a state income-tax credit for a portion of donations made to any state-certified, non-profit organization that provides private school tuition scholarships for children from low- and moderate-income families. This will encourage individuals and businesses an additional incentive to financially support scholarship programs.

Why should we want this tax credit?

Many Nebraska families want to choose private education, but they can’t pay tuition costs. More privately-funded scholarships would give more families the freedom to make educational choices.

How much of a tax credit could an individual or business claim?

The available income-tax credit would be limited to 65 percent of total contributions made to certified Scholarship-Granting Organizations during the tax year. It’s limited to 65 percent because these donations are also typically eligible for federal tax deduction.

How is a tax credit different from a deduction?

A tax deduction lowers the amount of gross income that is taxed. A credit reduces the total amount of tax owed.

Why does LB 50 propose a tax credit rather than a tax deduction?

Tax deductions for charitable contribution only provides a small benefit compared to a tax credit. Because the scholarship programs authorized by LB 50 are entirely privately funded, the incentives to contribute must be as meaningful as possible or the program will not raise enough revenue to make a real difference.

Is LB 50 good for the State of Nebraska?

Private-school enrollment reduces costs for state and local government, so providing strong incentives for scholarship contributions is in the best interests of taxpayers, as well as children who would receive scholarships.

How would LB 50 affect state revenue?

State government would forego the tax revenues claimed by the eligible credits, up to the ceiling established by the legislation. The lost revenue would be offset by the savings of not having to pay the per-pupil state aid for children who use scholarships to attend private school. This program could result in a significant net cost savings annually – even millions of dollars over a 10 year period.

What is a Scholarship-Granting Organization (SGO)?

An "SGO" would be a special-purpose, nonprofit, charitable organization that would have tax-exempt status. Each "SGO" would obtain charitable contributions and award scholarships to eligible applicants.

Why not authorize a state agency to administer the scholarship programs?

These would be privately-funded scholarship programs, which would have to do their own fundraising. Government agencies do not administer private charities.

What would prevent an SGO from raising a lot of money and then not using much of it to award scholarships? What controls administrative costs?

The policy established under LB 50 would require each SGO to distribute at least 95 percent of its annual revenue as scholarships for eligible students. Only five percent of revenue could be set aside for paying administrative costs.

Since SGOs would be private programs, what would prevent them from discriminating in awarding scholarships?

Each SGO would be required to have obtained 501(c)(3) tax-exempt status from the Internal Revenue Services. Thus, all federal prohibitions against discrimination by such federally tax-exempt organizations would apply.

Who would qualify for a scholarship from an SGO program?

Each Scholarship-Granting Organization would set its own overall eligibility standards, subject to requirements set forth in the legislation.

What would be the monetary value of a scholarship awarded to an eligible student?

Each SGO would establish its own scholarship amounts based upon its revenue and its particular approach for helping families. Experience in other states shows that SGOs really focus on scholarships as a leg-up for families, not often full-ride support.

Where and how would families use these scholarships?

Scholarships awarded through this program could be used in any private school located in the state that is non-profit and approved or accredited under regulations administered by the Nebraska Department of Education. Each SGO would determine the qualifying schools for which it would provide scholarships. The legislation would require that each SGO must award scholarships to at least two different schools.

No. Vouchers involve a direct appropriation or transfer of government funds to pay the costs of private education. The tax-credit-supported scholarship program would be funded by private donations, not public funds.

Won’t this scholarship program take funding away from public schools?

Nothing in LB 50 would require the state to reduce funding to a particular public school district or on a statewide basis. To the extent that state aid is distributed on a per-pupil, cost-of-education support model, school districts would have some reduction in funding for children who enroll at a private school, but that would be the case with or without the LB 50 scholarship program. What’s more, the loss of some state aid notwithstanding, local school districts would have an enhanced potential to do more per enrolled student with local resources. This program can be a win-win for all Nebraska students.

Doesn’t this represent public support for religious institutions?

No. LB 50 proposes a student-based scholarship program that would be funded through voluntary, private, charitable contributions. The state tax credit would operate as an incentive for voluntary, private participation in a worthy public good, i.e., educational choice and opportunity. This is like allowing tax deductions for charitable contributions to churches and other private charities, which help meet the needs of the common good. Courts have considered the issues and have consistently upheld the legal basis for such programs.

Would this program impose more regulations or limit the autonomy of private schools?

No. For one thing, no private school would be required to participate in the program or accept scholarships. For schools that do participate, there might be some reporting requirements to the SGO—not to the state—and these requirements are not expected to be significant. In addition, a provision of LB 50 explicitly prohibits the Act from being construed as granting any expanded or additional authority to the State to control or influence the governance or policies of any participating private school.

Do these types of tax-credit scholarship programs exist in other states?

Yes. Seven states have similar tax-credit scholarship programs, which vary by the amount of credits, program caps, and eligibility criteria. For instance, Iowa’s program raises $7.5 million per year and provides scholarships to 9,624 students per year. Iowa authorizes the 65 percent state tax credit similar to what is proposed by LB 50. Programs also exist in Arizona, Florida, Georgia, Indiana, Pennsylvania, and Rhode Island. Oklahoma most recently passed an SGO program, which is still in the implementation stages.