Vouchers versus SGOs: the facts

See those storm clouds? No, those clouds aren’t going to bring a storm. At least not the clouds I’m looking at. The clouds I’m seeing are directed at recent school-choice legislation in Indiana.

While the program is a model for any state looking at choice as an option for its schools (words used by researchers at a school-choice conference earlier this month at Notre Dame), those opposed to school choice are rallying their troops to attack the policies and the school-choice schools with their messaging of the evils of vouchers and scholarship granting organizations (SGOs). School-choice advocates have been relatively silent on the negative information being shared. However, please accept the following as information gathered about the funding and accountability of choice legislation.

One thing you may have heard: SGO scholarships are the same as choice scholarships (vouchers). That’s wrong. SGOs are funded by private donors; no state dollars are used to fund these scholarships. The funding of these scholarships is the major legal and practical difference between SGOs and vouchers. Also, eligible students get funding only if there are sufficient donations to provide the scholarships, which are provided by SGOs such as our Lutheran SGO of Indiana, and not through the state of Indiana. (As an aside, if you’re not using the benefits of donating to our Lutheran SGO, please contact Jon Dize at info@lutheransgo.org.)

So what about choice scholarships (vouchers)? Where does the money come from for choice scholarships (vouchers)?

Technically, the voucher money comes from the State General Fund. Collections from a wide array of taxes flow into the State General Fund, but the big three are sales tax (48 percent), individual income tax (35 percent), and corporate income tax (7 percent). Numerous other taxes (e.g., gaming taxes, inheritance tax; etc.) account for the remaining 10 percent. Gas tax and vehicle license fees revenues (along with numerous other taxes and fees) are not deposited in the State General Fund. These revenues flow into other, dedicated funds that aren’t used to fund the voucher program.

The only public-school funding “bucket” substantially affected by school choice is the School General Fund. This is the bucket from which classroom instruction costs are paid. The primary revenue source for each public school’s general fund is the State General Fund. The amount of State General Fund monies that go to each public school district are determined by the State School Funding Formula. Local property taxes for public schools now primarily support public-school building costs and student transportation costs … not classroom instruction costs.

Participation in the voucher program is estimated in essentially the same manner as enrollment in each public school district is estimated. Using these estimates, the General Assembly then appropriates enough funds to cover: a) the cost of the voucher program; along with b) all of the distributions to public school districts required through the State School Funding Formula (which is defined in law).

How does the choice scholarship (voucher) program affect public-school funding?

The voucher program does not change how public schools are funded. All public school districts continue to be funded based on enrollment. If a district’s enrollment grows, its funding increases; if enrollment declines, funding decreases.

If school choice causes more K-12 students to enroll in private schools than would have otherwise, then the public school will get less funding overall … because they will have fewer students. Furthermore, Indiana law requires that any savings from vouchers, in excess of what was initially estimated, must be allocated back to the public schools. By law, a calculation is done annually to compute if any excess savings have accrued, and then a redistribution of these excess savings is made.

In the first year of the voucher program, over $4 million of excess saving was redistributed back to the public schools. In the second year, nearly $5 million of excess savings was redistributed. For the third year, there will be no redistribution. This isn’t because there were no savings, but because there were no “excess” savings. That was due primarily to the fact that budget estimates of voucher participation have improved. All the voucher savings were captured in the initial School Funding Formula projections, so no excess saving distribution was triggered.

One more note: It’s true that voucher schools have a different set of standards than their public school counterparts. However, the standards for a voucher school are, in fact, higher than they are for public schools.

  • If a voucher school receives a grade of D or F for two consecutive years, they can no longer accept students using a voucher.
  • Public schools can receive a grade for F for six consecutive years before the state board of education steps in.