EITC: No Credit to PA

While our legislators are busy looking under their sofa cushions for spare change to fund the state budget, they might want to consider the $75 million that just walked out the front door. That’s how much the Education Improvement Tax Credit (EITC) program costs us taxpayers every year.

The misnamed EITC program has nothing to do with educational improvement and everything to do with funneling what would have been state budget dollars into private schools, while increasing profits for corporations. Here’s how it works: corporations can get an EITC tax credit by contributing to a Scholarship Organization, which channels the money to private schools. The companies receive up to 90% of their contributions as a tax credit, worth up to $300,000 per year, and can get a federal tax write-off as well, making the program highly attractive.

Not only do corporations get a tax write-off, but they also receive good publicity and increased access to legislators. For example, gas driller XTO Energy (now owned by Exxon) donated $650,000 over the past three years allowing it to stage ceremonies all over the state at the time when its fracking technique was coming under intense scrutiny. The New York Times reported last week that a state official credited XTO with going “ ‘above and beyond’ its duty” when “[i]n reality, as much as 90 percent of XTO’s donation was underwritten by taxpayers.” [unless otherwise noted, all quotes from New York Times, May 21, 2012]

And don’t underestimate the benefit corporations receive in cozying up to legislators through the program. Two of Pennsylvania’s biggest Scholarship Organizations are run by lobbyists who turn to lawmakers for “advice” in deciding which schools should receive the money. As the Times concluded, “The arrangement provides a potential opportunity for corporate donors seeking to influence legislators and also gives the lobbying firms access to both lawmakers and potential new clients.”

For instance, XTO made its tax-payer funded donation to the Bridge Educational Foundation chaired by Peter Gleason, a Harrisburg lobbyist. Bridge’s advisory board includes two other XTO lobbyists and the chief of staff to Pennsylvania’s Speaker of the House Sam Smith. And it gets worse: “Bridge’s director, Natalie Nutt, whose husband ran the campaign of Gov. Tom Corbett…said all of the group’s board members were selected for their devotion to school choice.” One of Bridge’s founders was John O’Connell, another lobbyist who embezzled over $200,000 from a Pennsylvania non-profit group promoting tort reform.

O’Connell was also a partner at Bravo, another large Scholarship Organization, and he tried to use his connections to both groups as evidence of his charitable work in arguing for a lesser sentence. Federal prosecutors disagreed, saying, “As a lobbyist, O’Connell’s involvement in the Bravo Education Foundation and later in the Bridge Foundation was very beneficial to him in a business sense in that it afforded him excellent opportunities to cultivate new corporate clients and relationships with legislative leaders.”

Now full disclosure here. I am on the board of a non-profit early childhood education center in Pittsburgh that has received EITC scholarship money. There is no doubt this has been helpful for our organization and the families we serve. But we are talking about $75 million a year in taxpayer money that is walking out the door at the same time the Governor proposes slashing about that same amount from the Accountability Block Grant program. That would be the program that funds early childhood education and Kindergarten programs across the state.

And there is no accountability for that $75 million. The Keystone Research Center analyzed the EITC’s K-12 component (the program also funds pre-K scholarships and ‘educational improvement organizations’ that work with public schools) and found that “schools benefiting from the EITC scholarships are not required to report on student progress or document school quality.” [Keystone Research Center report, April 7, 2011]

In fact, the legislature outlawed any attempts to collect such information and the program is actually managed by the Department of Community and Economic Development – not the Department of Education.

With practically no state oversight, the public has almost no financial information on the organizations receiving tax credits or distributing scholarships. The Keystone report warns, “Experiences in Arizona indicate that a lack of financial accountability opens the door to the misuse of public funds.” And we’re talking about a program that provides scholarships to over 38,000 students to attend private and religious schools – that’s more than the number of students in the Pittsburgh Public School District.

If all this weren’t enough to make you concerned about the program, the Times report noted that there is a nationwide movement for EITC-like programs backed by the voucher-touting American Federation for Children and its ALEC allies. (For the back-story on these organizations and their connection to efforts to privatize education in Pennsylvania, see “It’s All About the Money, Money, Money” and “There’s Nothing Smart About ALEC.”) A spokesman for the American Federation for Children boasted to the Times, “Scholarship legislation was approved in Virginia this year and is gaining traction in other states, including New Hampshire and New Jersey.”

The EITC program has been operating as a backdoor voucher program in Pennsylvania since it was founded in 2001. In eleven years, it has cost over $300 MILLION in lost revenue. Those are real dollars that are not available to fund the state budget so it can support things like, oh, you know, public education. Revoking the EITC program would put millions of dollars back into the state’s coffers without raising taxes one dime. It’s time for legislators to get their heads out of their couches: the Education Improvement Tax Credit is not improving education and it’s certainly no credit to the state of Pennsylvania.