The well-deserved national praise for SB302, which created the nation’s best school choice program, has overshadowed the second school-choice program that lawmakers created during the 2015 Legislative Session.
As part of his original education agenda, Gov. Brian Sandoval proposed AB165, the Nevada Educational Choice Scholarship Program, which gives firms tax credits for funding scholarships.
AB165 passed weeks before SB302. While the program is structurally well designed, it is capped at $5 million a year with a 10 percent yearly escalator.
As the scholarships are worth up to $7,755, in the first year the size of the program is limited to about 650 children.
That doesn’t mean the program shouldn’t be utilized, however.
Unlike with vouchers, in this program parents and schools receive no money directly from government. Instead, nonprofits, commonly called Scholarship Granting Organizations, receive donations from businesses or private individuals, and the SGOs distribute those funds as scholarships for private schools.
To incentivize the contributions, the government offers businesses a dollar-for-dollar tax credit.
Every Nevada business that donates to an SGO receives a dollar-for-dollar credit against the modified business tax — until the $5 million cap is reached.
Say that ACME Corporation is scheduled to pay $50,000 under the Modified Business Tax. Instead, ACME makes a $30,000 donation to an SGO and receives a $30,000 tax credit against the MBT. Then ACME will send the state a $20,000 check and redeem its $30,000 tax credit.
The total cost to the business remains the same.
So the choice facing interested businesses is this: Do you want to send your money to state government as a MBT payment or would you like to make a donation to a scholarship granting organization and receive a dollar-for-dollar credit for your gift and know you’re improving education?
It may sound too good to be true, but similar program are law in other states. Companies choosing to help students with these scholarships just redirect the taxes they otherwise would pay.
The law also lets businesses carry the MBT credit balance forward for up to five years.
The Nevada Department of Education has just released its list of approved SGOs, available here.
While every company interested in donating to an SGO should do their own research, the only SGO with Nevada-specific information online, as of the writing of this article, is the Academic Achievement Accessible (AAA) Scholarship Foundation. AAA has experience running SGOs in five other states.
[Editor's note, July 30, 2015: The Education Fund of Northern Nevada also has a website up at http://www.efnn.org/.]
Because only $5 million in tax credits is available this tax year, companies wishing to donate to a SGO should contact that SGO immediately. If the $5 million cap hasn’t yet been hit, the Nevada Department of Taxation will issue the credits within 20 days and companies then have 30 days to make the donation.
Note that SGOs aren’t able to award scholarships until they have the funds in hand. So securing those donations soon is important.
The scholarships differ in several ways from the Education Savings Account funds. Eligibility is the first difference. To qualify for an Opportunity Scholarship, families must earn less than 300 percent of the Federal Poverty Level. For a family of four, that means earning less than $69,775 in 2014. The full guidelines are here.
Unlike with ESAs, children currently in private schools are eligible immediately.
The second difference lies in the selection criteria, which are set by the scholarship organizations. Established organizations such as AAA operate on a first-completed-application, first-served basis. Other groups, however, may favor students wanting to go to a particular school or have other criteria.
Amount is the third difference. SGOs set the amount of the scholarship, up to $7,755. ESAs will be around $5,100 for most students or $5,700 for students with special needs or that qualify for free and reduced lunch.
The fourth difference is structure. Opportunity Scholarships allow a student to attend a particular school. ESA funds go into a parent-controlled account and can be used for a variety of educational purposes, not just private school tuition. Unlike with ESAs, unused scholarship funds cannot be rolled over, year to year.
Families who meet the income requirement, who want an Opportunity Scholarship and, perhaps want to exit from their current public schools, should apply to the SGOs immediately.
There’s only a limited pool of funds, and once the 650 scholarships are gone … they’re gone.
Victor Joecks is Executive Vice President at the Nevada Policy Research Institute, a nonpartisan, free market think tank.