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A new federal tax credit is designed to unleash a spigot of funding for school choice, particularly private schools. But getting those dollars may, ironically, require spending a great deal of money. That’s because individual taxpayers must be convinced, one by one, to redirect a portion of their tax bill toward this effort.
Staff at American Federation for Children, a school choice group, have said that it could cost $300 or more in marketing to persuade each taxpayer to donate, according to three school choice supporters who described this estimate to me.
If accurate at a national scale, these figures suggest that billions of dollars could be required to get a large swath of Americans to participate. In other words, it could be harder and pricier to grow the program than many realize.
This new tax provision, adopted in the Trump-backed tax-and-spending bill passed last year, serves as a complicated way to subsidize school choice.
Starting next year, the federal government will reimburse taxpayers who donate to nonprofit scholarship-granting organizations, or SGOs, which issue educational stipends for students. Both private and public schools can receive these grants, although the uses in public schools are more limited since they don’t typically charge tuition.
States must opt in for SGOs within their boundaries to receive the tax-credit subsidy. Virtually all Republican-led states have done so, while most Democratic governors have not made a decision either way.
“Donations” of up to $1,700 — for people who owe at least that amount in income taxes — cost nothing on net to the taxpayer. The federal government effectively foots the whole bill.
But most Americans don’t know much about this obscure new tax provision. And even if they learn about it, some will be wary of handing an SGO what amounts to an interest-free loan. That’s why SGOs and their allies are preparing marketing efforts to educate people about the program and persuade them to participate.
The American Federation for Children, which was co-founded by former Education Secretary Betsy DeVos, was an advocate for the tax credit and recently started its own SGO. The group said it has already raised over $10 million for an “ambitious national awareness campaign.”
Brian Jodice, a spokesperson for AFC, declined to comment on the organization’s internal estimate of $300-plus per donor. But he said that AFC is aiming to match “industry standards” of $1 in spending to generate $5 in donations. For a $1,700 donation that would be $340. Jodice emphasized that “it’s too early to pinpoint donor acquisition costs.”
Estimates vary widely on how much money will be raised via the tax credit. The Trump administration recently pegged the figure at $24 billion, based on the assumption that 30% of eligible taxpayers, about 14 million people, will donate. If each donor requires $300 in marketing, then it would cost over $4.2 billion to reach that benchmark — roughly twice what the state of Wyoming spends on its public schools.
Marketing costs may come down over time as awareness grows about the program.
By law, SGOs are limited to spending 10% of the money they raise through the tax credit — or $170 on a $1,700 donation — on expenses outside of scholarships. This indicates that the AFC figure of $300 or more could not be supported through tax credit money alone. Organizations may be able to raise separate dollars for marketing.
Some in the school choice community believe that will be necessary. “Ten percent is not a lot to do what people would imagine it would take to scale the program up a ton quickly,” said Derrell Bradford, president of 50CAN and an advocate of school choice.
Some public school districts and their allies are also considering raising money through the tax credit to support after-school and tutoring programs, among other things. They may also find that this requires a significant up-front investment.
Darla Romfo, president of the Children’s Scholarship Fund, an SGO, said she’s looking at a variety of approaches to share information about the tax credit without a large marketing budget. She wants to keep overhead low to ensure as much money goes to scholarships as possible.
Jim Blew, an adviser to a coalition working to implement the tax credit, thinks it may cost more like $100 in marketing per donor.
Blew and Romfo have heard the AFC acquisition cost estimate. So did a third school choice advocate who did not want to be named to share a private conversation.
An obvious concern is that SGOs’ marketing efforts will amount to time and resources that detract from the main purpose of the scholarship program and drive up overhead costs.
Blew doesn’t see it that way. In his mind, a marketing campaign is a way to cultivate political support for school choice and the tax credit. “I don’t think we look at it as wasted money,” he said. “This is part of a larger effort to change the culture around education in this country.”
The marketing cost is also the price of trying to avoid government regulation.
That’s why school choice supporters and Congressional allies favored the more convoluted tax-credit over a voucher program in which the federal government issues grants to parents and schools.
Schools that receive direct federal funding must comply with various rules including civil rights laws. School choice supporters say this shouldn’t apply to private schools that receive tax credit scholarships, even though they are 100% subsidized by the federal government.
This argument may prevail. But the upside of direct government funding is that money doesn’t need to be spent persuading individual taxpayers to participate.
Matt Barnum is Chalkbeat’s ideas editor. Reach him at mbarnum@chalkbeat.org.
