Making the Exceptional Needs Scholarship Tax Credit a Permanent Program

UPDATE: The bill has been amended to include an additional requirement for qualifying schools, namely that they must provide a specially designed program or learning resources center or onsite educational services or supports to meet the needs of exceptional needs students, or be a school specifically geared only toward exceptional needs students with documented disabilities. This is a vague requirement that could affect parents’ freedom to place their children in the educational facility that the parents deem best suited for meeting their child’s educational needs. 

H.4537 would turn the exceptional needs scholarship tax credit program from a proviso that must be renewed annually into a permanent standing program. Under the permanent program an individual would be entitled to an income or bank tax credit for a donation made to a qualifying non-profit scholarship funding organization if the contribution is used to provide grants for tuition to exceptional needs children enrolled in eligible schools. The grants would be limited to $10,000 per child.

Individuals would also be eligible for an income or bank tax credit, up to $10,000, for direct tuition payments to an eligible school on behalf of an exceptional needs child in their care.

Tax credits for both programs combined would be capped at $12 million annually. The credit for direct tuition payments is capped at $4 million annually.

For purposes of the act an eligible school is an independent school where:

  • The state’s compulsory school attendance law can be met
  • The educational curriculum includes courses set forth in the State’s diploma requirements
  • The students attending are administered national achievement or state standardized tests, or both, at progressive grade levels to determine student progress
  • And which is a member in good standing of the Southern Association of Colleges and Schools, the South Carolina Association of Christian Schools, or the South Carolina Independent Schools Association

A qualifying non-profit scholarship organization:

  • is exempt from federal tax pursuant to Section 501(a) of the Internal Revenue Code by being listed as an exempt organization in Section 501(c)(3) of the code
  • allocates, after its first year of operation, at least ninety-seven percent of its annual contributions and gross revenue received during a particular year to provide grants for tuition to children enrolled in an eligible school meeting the criteria of this section
  • allocates all of its funds used for grants on an annual basis to children who are exceptional needs student
  • does not provide grants only for the benefit of one school

There is a strong body of research showing the ability of school choice programs to improve academic achievement. For all the children who currently participate in the proviso version of this program and for the children who may participate in the future permanent version of it, this bill would be a boon.

However, the tax credit scholarship program this bill proposes to make permanent could be improved by making more independent schools eligible to participate (by removing the requirement eligible schools belong to an association), by allowing more scholarship organizations to participate (by allowing for administrative expenses at these organizations to exceed three percent), and by removing the cap on tax credits for donations.

Beyond those improvements lawmakers should strongly consider extending tax credit scholarships – or other forms of school choice – to all South Carolina k-12 students. Making school choice widely available could improve academic achievement for all South Carolina students and save the state money.

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