Pennsylvania budget woes affecting school choice funding
Lincoln Charter School celebrates National School Choice Week on Tuesday, Jan. 24, 2016
Logos Academy is still recovering from financial hardship caused by the lengthy state budget impasse two years ago, and delays in implementation of a state tax-credit program this year are threatening further harm.
Aaron Anderson, CEO of the private K-12 York City school, said this is the third consecutive year the state Department of Community and Economic Development has delayed approving tax credits that serve as the bulk of his school's operating revenue.
The Educational Improvement Tax Credit program, which began under Gov. Tom Ridge in 2001, grants tax credits to businesses in exchange for contributing up to $750,000 to local scholarship or educational improvement organizations.
The program, which helps fund a majority of the state's private schools, was started after several failed attempts by Ridge to implement a taxpayer-funded school voucher program.
The tax credits, granted through the DCED, are worth up to 75 percent of the business's contribution or 90 percent if the business agrees to provide the same amount for two consecutive tax years.
Needed revenue: Anderson said contributions through this program — and another similar program called the Opportunity Scholarship Tax Credit program — typically account for about 40 percent of his school's operating revenue, and this year they had received commitments for nearly $1.5 million from local businesses.
By comparison, Logos Academy — which primarily serves students whose families are at or below the federal poverty line — received about 17 percent of its operating revenue from tuition, Anderson said.
The other 43 percent of Logos' revenue comes from fundraising and other sources.
The private school has historically received contributions through this program in September and, thus, has budgeted for that money to be there, he said.
That influx of revenue is needed each year, Anderson added, because the preceding summer months are often weak in terms of school fundraising.
The contributions didn't come during September 2015, though, because the state was locked in the budget impasse that extended into March 2016.
State battle: The DCED delayed sending out approval letters to businesses applying for the tax credits, with Gov. Tom Wolf and his administration claiming it did not have the authority to approve those credits without a completed budget.
Republicans argued that Wolf did have authority to send out the approval letters and that he was using the program as a means of applying pressure on lawmakers to finish the budget.
The DCED eventually sent out conditional approval letters to eligible businesses in late December 2015, according to Anderson.
State Rep. Seth Grove, R-Dover Township, said he believes Wolf's administration is attempting the same tactic this year as the House and Senate continue negotiations to pass a revenue package.
David Smith, spokesman for DCED, wrote in an email that his department is working to be prepared to issue award letters, but allocations have not yet been approved by the Legislature.
Smith added that "there are no plans to release any letters, conditional or otherwise, until the allocations of the amount of tax credits have been approved by the Legislature as part of a final budget agreement."
A spokesman for Wolf's office did not reply to questions about the status of the tax-credit program.
Grove co-sponsored a bill last year that would have required the DCED to send out approval letters for the EITC program by Aug. 15 each year, but the bill never moved out of the House Finance Committee.
The Legislature did include a provision in the state's Fiscal Code last year that EITC program participants would receive tax credits for the tax year in which they applied.
Discouraged donors: Kervin Myer, a partner at the York City-based accounting firm Baker Tilly and participant in the program, said the program is a great way for local businesses to leverage their contributions to a worthy cause, but the delays have added a level of aggravation that could cause larger businesses to look for tax credits elsewhere.
Anderson said Logos has already lost about $100,000 in contributions from donors who complained that the program was becoming too much of a hassle.
Myer, who also serves as Logos Adademy's treasurer, said businesses rightfully don't want to be worrying during Christmas break about whether their contributions are going to be approved by the state before the end of their fiscal year.
"It's such silly games (the state) is playing," Anderson said. "And (private) schools serving low-income students are taking the biggest hit."
Though the budget was approved earlier last year, Anderson said DCED again delayed sending letters because of a reported backlog.
Financial strain: Between last year and 2015, Anderson said Logos has burned through its reserve funds and had to take out lines of credit to keep the school operational. More lines of credit — which result in thousands of dollars in interest payments — will have to be opened this year, Anderson worried, if the state continues to delay sending out approval letters.
The financial strain has already contributed to a reduction in students, Anderson said, after the school was forced to eliminate one of its two kindergarten classes this year, despite a lengthy waiting list.
Aside from private schools such as Logos and Christian School of York, the program helps fund educational improvement organizations, including Martin Library and Leg Up Farm.
Jen Hitz, development director at Leg Up Farm, said the program typically accounts for about 3 percent of the nonprofit's annual revenue, and they've had to look to donors to fill the funding gap the last couple years during the delays.
"The alarm bell isn't fully ringing just yet, but it does put a strain on our cash flow," Hitz said of this year's delay. "The longer it goes, the worse it is."
— Reach David Weissman at email@example.com or on Twitter at @DispatchDavid.