Private School Scholarships: Money Laundering for the Masses

Welcome to the United States of Scam-erica. Or Griftopia, as Matt Taibbi calls it in his book on the Wall Street meltdown. “There are really two Americas,” Taibbi writes. For the grifter class, government is “a tool for making  money,” while “in everybody-else land, the government is something to be avoided.”

Not anymore. Here is the lesson Americans gleaned from the financial meltdown on and bailout of Wall Street: If the feds won’t prosecute ‘em, join ‘em. Corruption has trickled down.

Now the government haters have their hands out, too. One Georgia Christian school, for example, instructs parents in how to use a state scholarship program to launder their taxable income and turn it into tax-free tuition money. Georgia’s private school scholarship program launched in 2010 diverts about $50 million a year from state school budgets by giving “dollar-for-dollar tax credits” of up to $2,500 a couple for donations to nonprofit scholarship organizations that help needy students access private schools. As the New York Times reports:

That was the idea, at least. But parents meeting at Gwinnett Christian Academy got a completely different story last year … A handout circulated at the meeting instructed families to donate, qualify for a tax credit and then apply for a scholarship for their own children, many of whom were already attending the school.

Once the scholarship bill passed, the Times continues, “parents of children in private schools began flooding public school offices to officially ‘enroll’ their children.” To enroll, but not to attend. Rep. David Casas, one of the bill’s sponsors, explained why in a YouTube video (the video has been taken down; transcript by the Southern Education Foundation):

“Some people felt a little bit weird about that; felt it was a little dishonest that they would take their child, enroll them in a public school and not have them actually attend, but all of a sudden they actually qualify for a scholarship. I’m telling you, we deliberately put the wording in there for that.”

Georgia House Bill 325 is a reverse Robin Hood, a legal document worthy of the pay-day loan industry. Even Casas’ audience for the video worried that his scheme was a scam, but the Georgia Department of Education accepts his interpretation. Nevertheless, Johnathan Arnold, headmaster of Covenant Christian Academy in Cumming, Ga. views using the program to discount tuition for existing private school students “unethical.”

Similar back door voucher programs like Georgia’s are already in place in eight states, and recently approved in Virginia. Of course, these bills owe their parentage to the American Legislative Council (ALEC), and draw heavily on its model bill, The Family Education Tax Credit Program Act. Most of the private schools are religious, according to the Times, receiving what public school officials consider “poorly disguised state subsidies.” Because Georgia’s student scholarship organizations (SSOs) have been slow to award scholarships, money has piled up to be rolled over to future years. The Southern Educational Foundation found that instead of saving the state money in the short term, “the state government incurred an additional cost of $7,510 in financing a partial scholarship in a private school above and beyond what it would have paid in 2009 for the education of the same student in a public school.” That is, assuming all students who receive SSO scholarships had actually moved from struggling public schools to private ones (presumably better, but often not).

The Southern Education Foundation found that the low-income students are not the ones being helped by Georgia’s SSO scholarships. The highest growth in Georgia’s private school enrollment is in the 1/3 of schools located in rural areas. SEF concludes that “most of the private schools currently working with SSOs to receive tax funds to finance student scholarships are in the five counties that also have Georgia’s higher performing public high schools.” The report further suggests that most of the students receiving scholarship money to attend private schools had followed Casas’ strategy and had not actually transferred from public schools. Between 2007, the year before enactment, to 2009, the first full year of implementation, “private school enrollment increased only by about 1/3 of one percent in the Georgia metro counties where more than two out of every three private schools affiliated with an SSO are located.” And because they were already in private schools, these students are costing the state money it was not spending on them before.

North Carolina is preparing to join Georgia, Arizona, Florida, Indiana, Iowa, Oklahoma, Pennsylvania, Virginia and Rhode Island. The Asheville Citizen-Times reports this week that North Carolina House Majority Leader Paul Stam, R-Wake introduced a bill that would give state corporations a tax credit worth up to “their entire yearly state tax debt” in exchange for contributions to funds run by nonprofit scholarship-funding organizations. Scholarships of up to $4,000 per year are allowed for pupils attending private schools. If passed, the law would allow the tax credit to be spread out over five years. Up to $40 million in credits are allowed starting in 2013, potentially increasing by 35 percent following each year in which donors claim 90 percent of the previous year’s credits. If successful, the program in theory could expand by 35 percent per year until consuming North Carolina’s entire state revenue stream for funding K-12 education. That makes State Board of Education Chairman Bill Harrison’s description of the bill as “the latest effort to dismantle public education” a modest understatement.

WRAL Raleigh observed that the U.S. Supreme Court “validated that middle-man approach” to funding vouchers in a ruling last year “against an Arizona lawsuit claiming violation of constitutional church-state separation requirements.” Scholarship funds avoid church-state separation issues by having donations collected and disbursed by the nonprofit groups. The money never passes through state hands.

At a rally organized to support the bill, Stam told several hundred people, “It is a beginning and it will be funded by corporations that believe in educational access for everyone.”

There’s the money quote. If you believe corporations contribute because they believe in “educational access,” watch how many turn up as investors in for-profit private schools, charters and virtual schools — partaking of both the middle-man profits and the corporate tax breaks. Now that’s the kind of government reform conservatives can get behind.

In confirmation, the Times recounts how over the past three years, working through the Bridge Educational Foundation, XTO Energy donated $650,000 in Pennsylvania — “as much as 90 percent” underwritten by taxpayers — to ingratiate itself with Pennsylvanians concerned about its hydraulic fracking operations and with politicians that regulate them. In Pennsylvania, Georgia and Arizona, it is industry lobbyists, politicians and staffers, not educators, running the largest scholarship funds. Because it is not about education reform, it is about the money.

Reagan taught that government is the problem. In post-financial meltdown America and in the absence of Wall Street prosecutions, with presidential candidates and major corporations hiding profits offshore to avoid taxes, with tech billionaires renouncing their U.S. citizenship rather than pay theirs (and being hailed as heroes in the financial press for doing it), scamming the taxpayers to subsidize your child’s private education seems like pretty acceptable behavior, even for churches. But it is not arising from dogmatic anti-governmentism. Small-time players have simply discovered what the big-time grifters already knew — that government is the enemy only so long as public tax dollars are going into someone else’s pockets. Thus, conservatives, fundamentalists and others have gotten behind the movement to “reform” public education by diverting public tax dollars into their own pockets in the name of providing more choices for the underprivileged.

Rep. Paul Stam, too, is selling his proposal as a way to help children from low-income families. Yet, one of his supporters at the rally, Michael Pratt, principal of Victory Christian Center School in Charlotte reports that his operation is suffering from low income of its own. The vaunted free market? Not so forgiving. Enrollment is off by 17 percent and contributions towards tuition are down in this recession. So as in other states with similar scholarship programs, North Carolina private schools with and without affiliated churches are looking to dip Scotch-taped fingers into the public collection plate, fishing for tens and twenties.

(Cross-posted from Scrutiny Hooligans.)