2011TaxCreditsforChildrenwithDisabilities

North Carolina General Assembly: 2011-2012

House Bill 344 Tax Credits for Children with Disabilities Benefits of Providing Parents with Choice Representative Paul Stam

Understanding the Bill Voters’ positions on this issue

Support from all Backgrounds

Fiscal impact of tax credits

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Comparable Programs Programs in FL & AZ Who will qualify?

Who will not qualify?

Allocation of education funds

Case Study #1

Fiscal impact of tax credits

Case Study #3

Case Study #2

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Understanding the Bill HB 344 gives parents of children with disabilities the ability to choose which school is best for their child.

The bill creates an individual nonrefundable income tax credit for part of the expense of each eligible child who is educated in a home school, private school or in a public school that charges tuition. The education expenses credit is equal to the amount paid for tuition and other educational and therapeutic expenses, not to exceed $3000 per semester. If requested, the parent must provide supporting documentation to the Department of Revenue. The credit would apply to semesters for which it is claimed beginning on or after July 1st, 2011.

Using the annual state funds that are saved as a result of these tax credits, the bill also creates a new Fund for Special Education and Related Services. This fund, under the control of the State Board of Education, will be used for special education and related services for children with disabilities in the public schools and to help reevaluate children who receive the tax credit to determine continued eligibility every three years.

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Voters’ positions on this issue January 2011 Pulse Opinion Research Statewide Survey of likely Democratic Voters “The state of Florida has a special needs scholarship that is provided to families with children who have special physical or learning disabilities to attend a private school that will meet their needs. Would you favor or oppose such a scholarship or tax credit program in North Carolina?”

Favor Oppose Not Sure

82% 12% 6%

Parents for Educational Freedom in North Carolina

Favor

Oppose

Not Sure

82%

12%

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6%

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Voters’ positions on this issue According to a Public Policy Polling May 2008 Statewide Poll, “Cutting across all demographics – gender, race and party lines –

80% of North Carolinians polled are in favor of a bill allowing tuition tax credits for parents of special needs children.”

If a private school offered the best education available for a child with special needs, would you favor allowing parents to claim a tax credit to send their child to that private school?

76%

80%

60% 40%

23%

20% 0% Favorable

Very Favorable 49%

Somewhat Favorable 27%

Parents for Educational Freedom in North Carolina

Unfavorable

Somewhat Unfavorable

Very Unfavorable

13%

8%

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Neutral/ Unsure 2%

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Voters’ positions on this issue According to a Public Policy Polling May 2008 Statewide Poll, “Cutting across all demographics – gender, race and party lines –

80% of North Carolinians polled are in favor of a bill allowing tuition tax credits for parents of special needs children.”

The North Carolina legislature is currently debating a bill that would allow parents of children with special educational needs to claim a tax credit for sending their children to a private school. Would you say that you are personally favorable or unfavorable to this approach of allowing parents of children with special needs to send their children to the school of their choice?

Very Favorable 52%

Somewhat Favorable 28%

Parents for Educational Freedom in North Carolina

100%

80%

80% 60% 40%

20%

20% 0%

Favorable Unfavorable

Somewhat Unfavorable

Very Unfavorable

11%

6%

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Neutral/ Unsure 3%

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Fiscal impact of tax credits Determining whether allowing tax credits for parents of children with special needs is an economically feasible option requires answering key questions:  Is the tax credit less costly than educating the student in public school?  What percentage of eligible students will take advantage of the tax credit?

 Will North Carolina state and local governments save money by giving parents educational options?

Legislative Fiscal Note

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Fiscal impact of tax credits NC General Assembly Fiscal Research Estimated Fiscal Impact on State and LEAs -- MIDPOINT ESTIMATE Eligible Student Pool* Usage Percent Tax Credits Granted** Cost of Tax Credits (lost State Rev.) Tax Credits Carried Forward*** State Exp. Per Eligible Student Reduced Public School Expenditures **** Transfer OUT of General Fund Transfer IN to Special Education Fund Transfer out to LEAs for Reevaluations Net Fiscal Impact on State LEA Exp. Per Eligible Student Reduced LEA Expenditures**** Cost of Reevaluations Reimbursement from Special Ed Fund Net Fiscal Impact on LEAs

2011-12***** 130,000 1.5% 1,000 ($1,350,000) $0 $8,160 N/A

2012-13 131,781 1.5% 2,027 ($5,472,900) ($405,000) $8,160 $8,160,000

2013-14 133,587 1.5% 2,055 ($5,548,500) ($910,935) $8,160 $16,540,320

2014-15 135,417 1.5% 2,084 ($5,625,450) ($1,014,705) $8,160 $16,768,800

2015-16 137,272 1.5% 2,112 ($5,702,400) ($1,028,768) $8,160 $17,001,360

N/A N/A $0 ($1,350,000)

($4,054,000) $4,054,000 $0 $2,282,100

($4,110,000) $4,110,000 ($921,750) $9,159,135

($4,167,000) $4,167,000 ($1,084,500) $9,044,145

($4,224,000) $4,224,000 ($306,000) $9,964,193

$1,931 N/A $0 $0 $0

$1,931 $1,931,000 $0 $0 $1,931,000

$1,931 $3,914,137 ($921,750) $921,750 $3,914,137

$1,931 $3,968,205 ($1,084,500) $1,084,500 $3,968,205

$1,931 $4,023,239 ($306,000) $306,000 $4,023,239

*Grows by 1.37% per year to reflect the 10-year average growth in allotted ADM **For FY11-12, number of tax credits granted is discounted by 50% to account for limited public awareness of program. ***Assumes turnover rate of 15%. ****Because allotted ADM is based off of the higher of projected ADM or prior year actual ADM, savings from reduced expenditures are not realized until the 2012-13 school year. *****Assumes average tax credit in FY11-12 is $1,350. Assumes tax credit in all future years of $2,700.

Legislative Fiscal Note

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Allotment of educational funds State and Local Base Funding Discrepancies $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0

$8296 $10,091

$4168.19

$6,937

$4909

Average Child in System Special Needs Child

A child with special needs is devoted about $3,000 more in state and local base funds than a child without special needs.

When other funding requirements are brought into consideration, such as additional funding to students falling behind grade level achievement, the actual cost to educate a child with special needs in our public school system can soar to more than $14,500/year, over twice what a child with no additional needs requires at $6,937/year.

Legislative Fiscal Note

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Fiscal impact of tax credits The most recent estimates by Fiscal Research show that, after the first two years, a tax credit will save the state of North Carolina about $9.1 million per year and will save counties about $3.9 million per year, a net gain to state and local governments of approximately $13 million per year.

Using the middle range of estimates, about 2,055 students with special needs will be provided alternative education through this program. The public school system will be able to save time, energy and resources. In addition, taxpayers will see their tax dollars more efficiently spent.

The new “Fund for Special Education and Related Service� will be used for special education and related services for special needs children in the public schools. It will be funded at the end of each fiscal year (after the first year) with $2000 for each credit given that year. Revenues from this fund will also be used to reimburse LEAs for revising IEPs and reevaluating students every three years to determine continued eligibility for the tax credit.

Legislative Fiscal Note

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Fiscal impact of tax credits $8,160 is the predicted operational “savings� to the State that results from each student with an IEP transferring from the public schools, with $1,931 saved in local expenditures.

Public School Student without IEP Elligible Public School Student with IEP Participating Student with IEP The number of eligible students participating in the program will determine how much state and local governments will save each year. As more parents take advantage of the program the long term savings will continue to increase.

Legislative Fiscal Note

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Fiscal impact of tax credits We currently fund nearly 172,000 children with special needs in our schools. This headcount leaves out a number of children with special needs who are not in the public school system. The state has an obligation to assist these children who have a right to be enrolled in public education.

Allowing tax credits for children with disabilities will provide a small reprieve for those children whose circumstances have drawn them away from a public school system to which they are entitled.

This bill will assist parents who are not able to easily afford alternative means of education. If a family is struggling financially, the family may be able enroll their child in a public school for a year before transferring them to a school that is better equipped to suit their child’s needs.

Legislative Fiscal Note

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Other States with comparable programs Florida, Ohio, Utah, Arizona and Georgia all have programs that provide scholarships for children with special needs.

Ohio’s Autism Scholarship Program, Utah’s Carson-Smith Special Needs Program, Arizona’s “Lexie’s Law” Program and Georgia’s Special Needs Scholarships Program provide scholarships, vouchers or tax credits ranging from $2,000 to $20,000.

Programs allowing school choice have been so successful that nearly 30 states have considered school choice legislation within the last several years.

Allowing parents the freedom of school choice is proving to be an effective way to address the needs of the exceptional students in our country.

Florida’s program stands out as one of the most effective and best performing and is similar to the proposed North Carolina tuition tax credit.

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Florida’s Scholarship Program The McKay Scholarship Program for Students with Disabilities Any student with an IEP is eligible for the scholarship. Of the 370,000 eligible students, 21,054 are participated during the 2010-2011 school year.

The scholarships range from $4,500 to $19,000.

The average McKay scholarship in 2010-2011 was $6,627, just $627 more than the proposed tax credit for special needs children in North Carolina.

47.1% of McKay students are eligible for free or reduce-priced lunches.

McKay November 2010 Quarterly Report

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Florida’s Scholarship Program The McKay Scholarship Program for Students with Disabilities School choice opponents claim that minority students are not served by these programs. The McKay Scholarship Program shows the fallacy of this argument.

53.3% of McKay students are Black/African American, Hispanic/Latino or of other nationality and decent.

McKay November 2010 Quarterly Report

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Arizona’s Tax Credit Program Lexie’s Law Corporate Tax Credits Arizona’s “Lexie’s Law” program provides scholarships to students with disabilities and foster care children. Enacted in 2009, it is a combination of two previous school choice programs.

The scholarship provided under this program is equal to the the “base support level” of state funding that would go to the student if they remained in public school. However, the value of the scholarship cannot exceed the actual tuition and fees paid to the private school.

The average scholarship for special needs students in 2008 was $8,238.

Like the proposed North Carolina plan, students are eligible only if they have been enrolled in public school for the previous school year and have an IEP.

ABCs of School Choice

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Georgia’s School Choice Program Special Needs Scholarships Georgia’s Special Needs Scholarship program was enacted in 2007. The awarded scholarship is equal to the cost of the educational program the student would have received in public school.

Just like the proposed eligibility requirements for North Carolina, an eligible student must have an IEP and is required to attend public school for one year.

In the 2010-2011 school year, 190 private schools participated in the program.

Of the 199,500 eligible students in the state, 2,550 students are enrolled in private schools with an average annual scholarship amount of $6,271.

Individual scholarship range from $2,453 to $14,287.

ABCs of School Choice Georgia Dept. of Education

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Who will qualify?

These requirements must be met in order to qualify for the North Carolina tax credit: 

The student must be certified with an IEP* (Individual Education Plan)



Must receive special education or related services on a daily basis



Must have been enrolled in public school the previous year (i.e. Fall Semester then Spring Semester or Spring Semester then Fall Semester) OR have been receiving special education or related services through the public schools as a preschool child with disability



Must be under the age of 22.



Must receive a revised IEP and be reevaluated to determine continued eligibility every three years

*An IEP specifies: the services the student will receive modifications the student requires for classes or testing whether the student needs alternate assessments which regular education classes the student will take how much of each school day the student will spend with non-disabled peers

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Who will not qualify?

A student will be ineligible to receive the North Carolina tax credit if: They have graduated from high school prior to the end of the semester They have been placed in a nonpublic school or facility by a public agency at public expense They have spent any time enrolled as a full-time student taking at least 12 hours of academic credit in a postsecondary educational institution They were 22 or older for the entire semester

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Program Beneficiary – Case Study 1 A young adolescent male from Charlotte is having difficulty getting along with students in his class at school. He was diagnosed with Oppositional Defiance Disorder (ODD), is on medication for his condition and has to see a behavior specialist daily. Being prone to behavioral problems, he is often unable to cooperate with his teachers and fellow students, and is frequently removed from the classroom because the teachers do not know how to handle his temperament.

His parents are concerned that he is not learning to his grade level, and that his problems cannot be addressed in the classroom.

With a tuition tax credit his parents could afford to send their child to a school that understands his specific needs.

Within their county is The Keys of North Carolina School, designed to address behavioral deficiencies in adolescents. If the parents were able to afford this option, their son would have already been enrolled. With a tuition tax credit they will finally be able to enroll their son in a school where he will be understood.

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Program Beneficiary – Case Study 2 The Smith family in Raleigh has a daughter who has recently been diagnosed with autism. Like one out of every 73 children in North Carolina, she suffers from the effects of this disability.

Their daughter was enrolled in first grade last year in a public school. They are worried about keeping their daughter in public school after hearing about a number of cases where autistic children were bullied and were unable to keep up in their classes.

In Cary, North Carolina, Mariposa School recently opened.

Mariposa’s service is dedicated specifically to autistic children.

After learning about the tuition tax credit, they are excited about the possibility of enrolling their daughter in a school where her special needs will be directly addressed. This would allow them to avoid placing their daughter in a classroom with special needs students who require vastly different treatments.

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Program Beneficiary – Case Study 3 Parents of special needs children like the Petruks in Charlotte are examining their educational options and are finding out that they have very few. Their son’s placement in a classroom with 23 other special needs children leaves little time for the one-on-one instructional needs that are necessary for his specialized learning requirements.

He has an average IQ but has difficulty learning when there are more than a handful of people in a room. It is disheartening for their family to know that there are nonpublic educational opportunities and services that are structured specifically for their child’s particular disability but they are unable to enroll their child because of financial limitations. The price is simply too high.

With the proposed tax credit the Petruk family, along with potentially hundreds of other families, will be provided the freedom to choose the best educational environment for their son.

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Contact Information Rep. Paul Stam House Majority Leader North Carolina House of Representatives 2301 Legislative Building Raleigh, NC 27601-1096 (919) 733-2962 Paul.Stam@ncleg.net

Christin Danchi Legislative Assistant Office of Rep. Paul Stam (919) 733-2962 stamla@ncleg.net