Missouri lawmakers passed a tax credit program to fund school choice. How will it work?

Questions persist about how the program will function as lawmakers await whether Gov. Mike Parson will sign or veto the legislation

Student studying at desk in classroom
Photo credit: Ariel Skelley/Getty Images

Missouri is on the cusp of creating a program that directs donations funded by tax credits to help parents offset the cost of sending their kids to private school.

Lawmakers laid out the parameters of the program, like who qualifies and where they must reside. But weeks after school choice advocates scored their historic legislative victory, questions persist about how the program will actually work if the bill is signed by Gov. Mike Parson.

Has Missouri hit the transportation funding threshold that triggers the program’s start? Can eligible students use funds to transfer to public schools outside of their district? And how soon will the nonprofits be finalized, rules for applying be set and the program be up and running?

The bill provides a broad outline of the education savings account program, but many of the details have yet to be fleshed out and won’t be until decisions about the program’s implementation are made, primarily by the state treasurer’s office.

“It’s obvious that there’s a lot of dominoes that have to fall to figure out what’s going to happen in this program,” said Evan Rhinesmith, the director of research and evaluation at the Saint Louis University PRiME Center, which researches education issues in Missouri.

Susan Pendergrass, the director of research and education policy at the Show-Me Institute, a conservative think tank, said it’s like anything that’s done for the first time and reminiscent of issues with accessing the Missouri Course Access and Virtual School Program, or MOCAP, after it was expanded in 2018.

“You get it passed, and then you go, ‘Oh, shoot, we’re gonna need to fix that,’” Pendergrass said, later adding: “You figure out where all the problems are and then after that you get better at it.”

Parson has not yet indicated whether he plans to sign the bills governing the program. Rep. Phil Christofanelli, a St. Peters Republican and the bill’s sponsor, said he’s confident he will do so.

Transportation trigger

Rep. Phil Christofanelli, R-St. Peters, sponsor of HB 349, speaks during the third reading of his legislation/
Rep. Phil Christofanelli, R-St. Peters speaks during House debate on Feb. 25, 2021 (Photo by Tim Bommel/House Communications).

The passage of House Bill 349, sponsored by Christofanelli, marked a major victory for school choice advocates who have tried to pass significant legislation for the last decade in Missouri.

The bill would create the “Missouri Empowerment Scholarship Accounts Program,” and allow residents to receive a tax credit for donating to certain educational assistance organizations. Those nonprofits would then dole out scholarships to eligible students, prioritizing students with special needs and students from low-income families.

As part of a concession to win support for the program’s passage, provisions were added onto a separate bill, Senate Bill 86, that would cut the program in half to start — from $50 million in tax credits issued in its first year to $25 million.

But one of the biggest sections giving observers and advocates pause is the trigger governing when the program goes into effect.

In order for scholarships to be issued and the program to launch, the state must appropriate at least 40 percent needed to fully fund state transportation aid for fiscal year 2021. If lawmakers fail to reach that threshold in subsequent years, then no new scholarships would be issued for newly qualified students those years.

School districts are reimbursed from the state for a portion of their costs to transport eligible students to and from school, but the state has failed to meet the maximum rate of 75 percent. According to the Missouri Budget Project, a left-leaning think tank focused on fiscal issues, the state’s share of reimbursement has been on the decline since the nearly 50 percent it funded in 2003.

The bill’s sponsors and the Department of Elementary and Secondary Education believe the 40 percent threshold has been met.

“I believe we hit that number, and we will continue to hit that number into the future,” Christofanelli said. “So I think the transportation trigger has been satisfied.”

A fiscal analysis of the bill places that 40 percent threshold at $111.56 million based on the estimate that it would cost about $278.9 million to fully fund the transportation formula.

Under the budget bill for the Department of Elementary and Secondary Education (DESE), lawmakers appropriated nearly $114 million toward transportation.

Mallory McGowin, a spokeswoman for DESE, said based on the governor’s recommended budget request, the department believes the appropriated amount is sufficient to meet the bill’s requirements.

But on the final day of the legislative session last month, Rep. Peter Merideth, D-St. Louis, said he believed the trigger was broken as written.

Merideth noted the bill states that the program will go into effect if 40 percent “of the projected amount necessary” to fully fund transportation aid is met.

Under DESE’s Oct. 1 budget request, it was projected it would require a little over $315 million to fully fund transportation aid. Under the budget request that included Parson’s recommendations, that projected figure dropped to roughly $278.9 million.

McGowin said the department’s budget request used data available as of September 2020, while the governor’s request utilized more current data.

“So as a result, we appropriated 40 percent of that lower projected estimate,” Merideth said on the House floor last month. “But that’s not really a projected estimate anymore. It is a mostly actual estimate. So if in fact the law would be interpreted to mean the ‘projected’ when it was projected, and not actual, well then it should be based on $315 million, and we’re nowhere near 40 percent of transportation costs in this state.”

Merideth questioned: which projection is the accurate one to go off of when there are multiple?

What’s more, Meredith noted the transportation trigger’s language is tied to fiscal year 2021, which he said is an anomaly because fewer students were riding buses to attend school in person because of the COVID-19 pandemic.

Merideth said lawmakers may have thought they were voting to fund at least 40 percent of transportation costs for each subsequent fiscal year, rather than tying it to just one set year impacted by the pandemic.

Merideth said there was “wide confusion” over how the trigger would apply and that it could potentially prevent the bill from going into effect.

But Christofanelli said the trigger is written as intended.

“There shouldn’t have been a transportation trigger at all. Every kid in the state should receive an empowerment scholarship, regardless of how much the state spends on transportation. That’s my position,” Christofanelli said. “In order to pass this particular bill, I made compromises with people who don’t support school choice. And this was one of those compromises. But that’s as far as I’m willing to go with it as things currently stand.”

Pendergrass said 2021 was “completely an anomaly” and is not the right year to use as a base.

“That’s something that needs to be fixed,” Pendergrass said, noting that if transportation projections were to decrease in future years — like if more families choose to pursue hybrid schedules or homeschooling — the trigger would be tied to a year that could be relatively more expensive.

Sen. Andrew Koenig, a Manchester Republican who was the bill’s handler in the Senate, said he believes the intent was that the threshold is “not stuck in 2021 numbers.” He said he didn’t think the trigger’s language necessarily needed to be adjusted, but wouldn’t be opposed to clarifying its language if legislators’ wanted to do so.

The entity that would likely make the determination on whether that trigger was met is the Missouri Treasurer’s Office. Under the bill, the treasurer oversees most of the program’s administration and would be able to use up to $1 million in donations from the fund in its first year to do so.

“We are reviewing the legislation and determining next steps should the bill become law,” said Mary Compton, a spokeswoman for the Treasurer’s Office.

Possible uses

Koenig said that even with the transportation trigger met this year it would still likely be another year until scholarships are issued. Christofanelli said he hopes scholarships would be awarded for children to be able to attend the school of their choice by August 2022.

Until then, if the bill is signed into law, the Missouri Treasurer’s Office could begin to promulgate rules and begin the process of establishing the nonprofits that will serve as the educational assistance organizations.

In order to be eligible for a scholarship, students must live in a county with a charter form of government or a city with at least 30,000 residents — limiting the bill to the state’s major metros, like St. Louis, Kansas City, Columbia, Cape Girardeau, Jefferson City, Springfield and Joplin. They must also have attended public school full-time for at least one semester in the last year or be starting kindergarten or first grade.

Students who will receive first priority under the bill are special needs students with an approved individual education plan, or IEP, and those who fall below 100 percent of the income standard used to qualify for free and reduced price lunches — which is a little over $48,000 for a household of four in Missouri.

From there, students who fall below 200 percent of that standard — nearly $97,000 annually for a household of four — would be prioritized ahead of any remaining qualified students.

While population levels restrict whether a student is eligible, the bill’s sponsors said it would not restrict where scholarships could be used — meaning the funds could go to paying tuition at a private school in a city with less than 30,000 residents.

Under Senate Bill 86, only 10 such nonprofits could operate each year, with the counties of Jackson, St. Charles, St. Louis, Greene and St. Louis city only permitted to have six of those organizations. The bill sponsors said they envision a student would be able to apply to multiple organizations across the state, but only receive one scholarship.

The number of scholarships available will depend on a number of factors, like the amount of donations received, how much is used to cover administrative costs and the amounts students are awarded. 

The maximum amount a student could receive would be capped by the state adequacy target, a measure of the average spending per student of the top 25 percent of school districts, which is $6,375 for fiscal year 2021.

Assuming both House Bill 349 and Senate Bill 86 are signed, then going off the formula in the bill’s fiscal note, the $25 million program would translate to roughly 3,400 scholarships if each student received the maximum amount.

Experts said private school tuition tends to be the primary way voucher and education savings accounts programs are used in other states.

“What we know from the research that’s been done on other states is that the majority of money and the majority of families go to private school,” said Michael McShane, the director of national research at EdChoice, an Indiana nonprofit that advocates for school choice nationwide.

Even once the limit on tax credits is reached, donors would also likely be able to continue to donate to the educational assistance organizations directly and receive a deduction like they would any other nonprofit, McShane said.

“I would envision those funds being used not within the program — because within the program there’s strings attached,” Koenig said. “But there’s nothing prohibiting a non-for-profit or EAO from handing out additional scholarships with that money.”

There’s also a chance students could use scholarship funds to attend a public school outside of their district of residence — essentially a limited open enrollment program.

If a public school accepted students that way, Koenig said parents would still likely have to pay some out-of-pocket costs to do so.

The financial impact of students transferring out of public schools won’t be fully realized until after a five-year period is up where schools can continue to receive funding for students who choose to leave. 

With questions around the transportation trigger, it remains to be seen when exactly the clock on the five-year period would start ticking. Whether the five-year grace period begins when the bill becomes effective on Aug. 28 or when students start transferring out of public schools is unclear.

Calls to veto

Missouri Gov. Mike Parson at a bill signing in St. Louis in October 2020 (photo courtesy of Missouri Governor’s Office).

Some groups are urging Parson to veto the bill. At least one group in opposition fears it could be used at unlicensed youth residential facilities that have been the subject of recent allegations of abuse and neglect.

Melissa Randol, the executive director of the Missouri School Boards’ Association, said the organization is concerned that unlicensed reform schools could be eligible to receive funds under the bill.

In a letter to Parson urging a veto, Randol specifically referenced Circle of Hope Girls Ranch, a religious reform school whose owners were charged with 102 crimes, in what Attorney General Eric Schmitt described as “one of the most widespread cases of sexual, physical and mental abuse patterns against young girls and women in Missouri history.”

Randol argued that a provision of the bill that stipulates it “shall not be construed to permit any governmental agency to exercise control or supervision over any qualified school in which a qualified student enrolls” other than a public school, may prevent the state from exercising oversight over such facilities — including measures like background checks that House Bill 557 aims to put in place. That bill also awaits Parson’s signature or veto.

“Instead of providing more protections for children, HB 349 provides even less protections and provides the private institutions the legal tools to escape oversight,” Randol wrote in the letter.

Rep. Rudy Veit, a Wardsville Republican and one of HB 557’s sponsors, said he had not heard that concern and did not believe such facilities would qualify as an eligible school under the bill. Rep. Keri Ingle, D-Lee’s Summit, said she did not believe that provision would bar oversight of such facilities.

Koenig noted room and board at a residential facility would not be an eligible expense under the bill and that if facilities are breaking the law, they can be fully prosecuted.

McShane said while he believes Missouri’s program is on strong legal ground, similar programs have often been met with legal challenges. That could be a possibility here, because of the bill’s lack of clarity, Randol said.

The constitutionality of Tennessee’s ESA program is being weighed before the state Supreme Court over the issue of it being applied to just the state’s two largest counties.

“History doesn’t repeat itself, but it often rhymes, and I imagine that something like that could be in the cards,” McShane said.

Researchers who have studied similar programs said they hope to see data ensure transparency in its outcomes, and urged the state to take into account lessons learned from other states.

“Keep it small until you have the evidence in for Missouri. If the bill is designed to bring in data that legislators think is important, then bring in the data, analyze the data, see if the program is doing what they hoped it would do,” said Kevin Welner, the director of the National Education Policy Center and a professor at the University of Colorado at Boulder School of Education. “And if it’s working miracles then expand it. If it’s harming kids, then end it.”