Summary of
Pennsylvania Independent Fiscal Office: Pennsylvania Educational Tax Credits: An Evaluation of Program Performance (2022)
Pennsylvania’s Educational Tax Credits (ETC) program, created in 2001, is a tuition tax credit program. Businesses that contribute to scholarship or educational improvement organizations receive a tax credit equal to between 75% and 100% of their contribution. The scholarship organizations then use the contributions to award private school vouchers to students in preK through grade 12, and to fund “innovative educational programs” in public, charter, and private schools. Pennsylvania’s Independent Fiscal Office is tasked with producing studies reviewing all tax credit programs, including the ETC. Below are the Office’s findings and recommendations for the ETC program.
Key Findings:
Pennsylvania’s ETC program lacks transparency and oversight measures. State law limits data collection about this program, so it is impossible to evaluate.
Pennsylvania’s ETC program is a ripe target for waste, fraud, and abuse. The program permits scholarship organizations to spend 20% of funds on administrative expenses–more than double any other state–yet ensures no oversight or accountability for how these funds are spent.
Families who could likely afford private school tuition without a voucher are getting funds from the ETC program. This contradicts the stated goal of the program: to enhance educational opportunities available to low- and middle-income families.
Pennsylvania’s ETC program lacks oversight.
Article XX-B of Pennsylvania’s Public School Code expressly prohibits data collection about the ETC program to only data points specifically laid out in the authorizing legislation. As a result, the program lacks any quality oversight.
Pennsylvania’s ETC program does not evaluate students’ outcomes or academic achievement before and after receiving a voucher to attend private schools. The program does not collect data about the number of vouchers awarded by household income, the share of private school tuition offset by the voucher, the public school district where the student resides, or outcomes for students who applied but were not accepted to the program (i.e., did they attend private school regardless).
In comparison to other states, Pennsylvania publishes the least amount of public data on contributions, participating businesses, and scholarship applications. The Independent Fiscal Office recommends that the state publish annual reports.
Pennsylvania’s ETC program is a target for waste, fraud, and abuse.
Pennsylvania’s ETC program allows scholarship organizations to retain 20% of contributions to pay for their administrative costs. Yet, the state law authorizing the ETC program provides no guidance or limitation on how these funds may be spent, and state agencies are not permitted to request documentation of expenditures.
The Independent Fiscal Office found that even a 10% retention rate “still reflects substantial leakage from the program.” The average share retained by scholarship organizations was 8-9% over the past several years, but some organizations did in fact retain the full 20%.
Most other states with similar tax credit programs allow scholarship organizations to retain 5 to 10% of contributions to pay for administrative costs. Pennsylvania’s allowance, at 20%, is double that of any other state and is a “clear outlier in this regard.”
Many families who receive a voucher from Pennsylvania’s ETC program could likely afford private school anyway.
Pennsylvania’s income limits for voucher recipients are 500% of the federal poverty level for a family of four–higher than all other states that have an income limitation in their voucher programs. For that reason, it is likely that “some portion of [participating] families could likely afford private school without a” voucher.
The share of students who switch from public school to private school in Pennsylvania solely due to the voucher is likely lower than in other states, “because the families of some students that receive [vouchers] have more financial resources and are more likely to attend regardless.”
The average voucher amount in Pennsylvania is $2,400–significantly less than similar programs in other states. As a result, the offer of a voucher is less likely to entice low-income students to switch from public to private schools, and the “decision would not solely rest on the offer” of a voucher.