School Choice Tax Credit Under Fire in New Hampshire

There’s a battle under way in New Hampshire to erase the gains made by school choice advocates last year, reports. The target is the tax credit put into effect last year that allows companies to take an 85% tax break on donations towards scholarships that parents can use to pay for alternative schooling for their kids.

Nearly a dozen states have now put into effect similar scholarship programs, although New Hampshire’s is unusually limited. The tax credit that can be claimed by all companies statewide is limited to between $3 million and $5 million per year.

The scholarships are generally successful; in Florida, one study showed the presence of students receiving such scholarships improves the performance of public schools in those students’ neighborhoods. The Friedman Foundation for Educational Choice tracks the performance of all variety of school choice programs. Its 2013 report [pdf] notes that the nascent New Hampshire program “has considerable room for growth,” pointing out that the scholarship is capped at 19 percent of what New Hampshire spends per public school student, and that the annual cap (which does grow automatically) limits the scholarship’s availability to less than 1 percent of students in the state.

According to the law’s original sponsor James Forsythe, the enemies arrayed against the measure are the usual suspects: the teachers union. Their efforts have already borne fruit in one chamber of the New Hampshire Legislature. The repeal of the tax credit was passed in the House last year, even after five Democratic lawmakers voted against the rest of their party to oppose the repeal.

The picture looks brighter in the Senate. Already one former opponent of the tax credit measure, Republican Nancy Stiles, has testified in its support, leaving the current vote count at 12-12. A majority is needed for the repeal to pass.

That’s good, because the state’s governor, Maggie Hassan, opposes the law and has said she’ll sign a repeal if it comes to her desk. Yet she supports a similar scholarship program for college students—a law the teachers unions do not have an incentive to oppose. (The governor’s office did not respond to a request for comment.)

Now, 7 New Hampshire taxpayers with assistance from the ACLU have filed a lawsuit saying that the program violates the separation of church and state by allowing the use of public money to fund religious initiatives, citing that the scholarships can be used towards tuition at parochial and other religious schools. According to the the executive director of Americans United for Separation of Church and State, Barry W. Lynn – another group who is party to the lawsuit – the tax credit scheme represents “a back-door voucher program.”

He added that regardless of the name, the outcome is the same – public money is being used to pay for religious instruction.

Joining in the lawsuit as intervenor-defendants are several parents taking advantage of their program. They’re being represented by the Institute for Justice, a libertarian public interest law firm. The lead attorney on the case, Don Komer, says the argument that the tax credit is the functional equivalent of the government giving money “ignores all the private decision making involved,” from the businesses who decide to donate to the scholarship organizations that decide to whom to award the money, to the parents who decide where to send their children. (Thus far, only one scholarship organization has been approved by the state.) Komer notes that the federal establishment clause has long permitted these kinds of tax credits to support charitable activity. The dispositive hearing is set for April 26.

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