K-12 Education

Little state accountability for private school tax credits

More than 10,000 Iowa students received scholarships for 2014-2015

Second-grader Emily Wiegand organizes her backpack with newly purchased school supplies at home in Cedar Rapids on Monda
Second-grader Emily Wiegand organizes her backpack with newly purchased school supplies at home in Cedar Rapids on Monday, Aug. 10, 2015. The Wiegand family receives financial aid enabling them to attend St. Matthew Catholic elementary school through a School Tuition Organization. (Adam Wesley/The Gazette)

A state agency charged with administering generous tax breaks to private K-12 school donors isn't tracking whether scholarship recipients qualify for the aid, despite abuse of similar tax credits in Iowa and other states.

Individuals or corporations may give money to one of 12 qualifying school tuition organizations, or STOs, which provide scholarships to lower-income families wanting to send their children to private K-12 schools in Iowa. The state gives a 65 percent tax credit to each donor — up to $12 million each year.

But at a time when Gov. Terry Branstad has vetoed supplemental funding for public K-12 schools, causing some districts to warn of larger class sizes and delayed textbook purchases, several lawmakers say private school benefits are too rich.

“When we're not supporting public school systems, I don't see how we can support private schools,” said Sen. Bob Dvorsky, D-Coralville.

A Gazette review of Iowa's STO program showed the following:

•Although Iowa law requires recipients of STO scholarships to be low-income, the state does not verify this information, relying on an honor system within STOs.

•The 65 percent tax credit offered for STO donations is among the largest in Iowa. The only similar tax credit that comes close was a 50 percent film tax credit, halted after a 2009 scandal.

•Donations collected by STOs may be used to recruit promising athletes, as long as those athletes' families meet income thresholds. STO leaders say they don't give priority to athletes.


•School-choice lobbyists want to raise the annual STO tax credit cap from $12 million to $15 million. Some advocates are pushing for educational savings accounts to make state funds available for private school tuition.

School Choice

School choice is the buzz phrase for a national movement seeking to use public money for vouchers, charter schools or STOs for families wanting an alternative to public education.

“We're all about the choice, not what the choice is,” said Trish Wilger, executive director for the Iowa Alliance for Choice in Education.

The STO tax credit was billed as a way to keep private schools from closing and save the state money by diverting kids from public schools. And it's worked to some degree — Iowa's private school enrollment dropped 23 percent between 1991 and 2006, but only 2 percent since, according to the Iowa Education Department.

More than 36,000 Iowa children attended private schools last year, which means Iowa didn't have to pay the full cost of educating those children. The state Revenue Department estimated in a 2012 report the program prevented private school enrollment from decreasing by 172 to 183 students for each million in scholarships. With $13.5 million in scholarships last year, that comes to at least 2,300 students diverted from the public school rolls.

“If we didn't have it, the kids wouldn't go to St. Matt's,” said Darrell Wiegand of Cedar Rapids.

Darrell and Lindsay Wiegand live a block from Garfield Elementary, a public Cedar Rapids school, but they pay to send their three daughters — Jaden, 10, Emily, 7, and Samantha, 5 — to St. Matthew Catholic Elementary School because of the small class sizes and religious instruction. The couple — Darrell is an Applebee's manager and Lindsay a part-time Weight Watchers leader — get need-based aid from the local STO.

Tax Credit growth

When the Iowa Legislature approved $2.5 million for STO tax credits in 2006, the bill had broad bipartisan support — although Sen. Joe Bolkcom, D-Iowa City, said that was because it was tucked into a public school funding bill.


Since then, the private school tax credit has more than quadrupled to $12 million. By comparison, Iowa's per-pupil funding for K-12 public schools went up 29 percent during the same period.

The tax credit for STO donors is such a good deal accountants promote it to clients seeking to reduce their tax burden, said David Phillips, director of the Iowa Independent STO, which represents four private schools in Eastern and Central Iowa.

“If you're a high-income taxpayer and you make a donation, you get a 65 percent tax credit and federal tax deductibility,” Phillips said. “It's pretty close to a wash in terms of a payment in lieu of taxes.”

STOs must use at least 90 percent of donations for scholarships for students at 137 private schools — all but a handful of which are religious.

No state accountability

Iowa Code Section 422.11S requires students receiving financial aid through the STO program have family incomes no more than 300 percent of the federal poverty level — or $72,750 for a family of four. The law forbids donors from choosing who gets scholarships with their money.

But the Iowa Department of Revenue, which distributes the tax credits each year, doesn't know whether the program is being used legally.

Six STOs interviewed by The Gazette said they require students to submit their families' income-tax returns documenting household income. But the state doesn't make STOs turn over that paperwork for verification.


“It is the responsibility of the STOs, not the Department of Revenue, to verify the income level of the tuition grant recipients,” agency attorney Theresa Dvorak said. “There is no requirement in Iowa Code section 422.11S that the STOs provide this information to the Department before the STO issuing the tuition grants.”

Similar programs in other states have been abused:

• A Georgia private scholarship program created in 2008 was promoted as a way to help poor kids avoid struggling public schools, the New York Times reported in 2012.

But only a small share of the donations went to need-based scholarships. The bulk of the donations — whose donors received dollar-for-dollar tax credits — paid the tuition of the donors' children, the Times reported.

• A 2011 report by the Keystone Research Center of Pennsylvania's Educational Improvement Tax Credit program found a lack of accountability opened the door to misuse of public funds.

“Schools benefiting from the EITC scholarships are not required to report on student progress or document school quality,” reported the not-for-profit economic research center in Harrisburg, Pa. “Students receiving the scholarships are not required to take tests, and the state collects no data on their progress.”

Iowa's 2012 STO analysis said no similar problems had been identified here. But other tax credits have been squandered.

Former Gov. Chet Culver suspended the film tax credit in 2009 after an audit found filmmakers improperly using credits to buy personal items including luxury vehicles, electronics and a feather bed. Seven people were convicted of fraud or theft and the state was faulted for poor oversight.

Bolkcom would like to see the Iowa Revenue Department verify the private school tax credit is being used properly. “We ought to require reporting here and make sure there is accountability,” he said.

Avoiding bias

The state's largest STO is Our Faith, Our Children, Our Future, which represents 40 Catholic schools and school systems in the Dubuque Archdiocese, which includes Cedar Rapids. The STO brought in $5.7 million from 1,273 donations in 2014.

“Roughly one-third of all students participate in or are eligible for an STO award,” said Jeff Henderson, development director for the archdiocese. “For this year, 2015-2016, if a family is eligible, the minimum award is $500 toward tuition.”

The Iowa Independent STO, which represents the Iowa Mennonite School in Kalona, Scattergood Friends School in West Branch, Maharishi School of the Age of Enlightenment in Fairfield and the Bergman Academy in Des Moines, collected 16 donations worth a total $266,163 in 2014.

The group lets each school divvy up the cash among qualified students.

“Individual schools determine where their need is,” Phillips said. “If your school prioritizes education, they will look at high performers. If a school values volunteerism, they'll go that route.”

Phillips doesn't think any of the schools in his STO give scholarships based on athletic ability, but said if sports stars comply with family income requirements the students should be able to get money.

“School choice could be about athletic pursuits,” he said. “There's nothing wrong with that.”

Our Faith, Our Children, Our Future outsources its scholarship allocation to avoid allegations of favoritism.

Students pay $25 to apply directly through the Private School Aid Service of Westlake, Ohio, which provides an online portal for uploading signed tax records and other family information.


The Catholic Tuition Organization for the Diocese of Des Moines covers 16 Catholic schools in Iowa's southwest quadrant, including sports powerhouse West Des Moines Dowling.

The STO hires Financial Aid Independent Review Inc. of Eagan, Minn., to gather STO scholarship applications and use an allocation formula devised by the STO's board, Executive Director Jeanne Wells said. The board approves final awards.

“If that family gets an award, it's not because they are a fantastic football or basketball player,” Wells said.

The Des Moines-based STO received 519 donations in 2014 worth $3.2 million.

More choice?

School-choice advocates proposed three bills last session that would have required the state to set aside per-pupil funding into educational savings accounts for parents to use for private school expenses. The bill didn't get far.

Public schools had to settle for a 1.25 percent increase in recurring base funding, less than the 4 percent sought by Democrats, after Branstad vetoed a one-time supplemental payment of $55.7 million.

Supporters would like to boost the STO tax credits to $15 million a year — a 25 percent increase — but realize it's a long shot without more money for public education.

“The public school system is the bedrock of our economy,” Dvorsky agreed. “It makes no sense to shortchange that.”

More: Cedar Rapids families rely on aid to afford private schools

When Darrell Wiegand was diagnosed with pancreatic cancer last spring, St. Matthew Catholic Elementary School kicked into gear, delivering home-cooked meals and offering rides and child care for their three daughters.


It's that kind of support — along with small class sizes and religious instruction — that make Darrell and Lindsay Wiegand glad they decided to send their girls to St. Matthew, 2244 First Ave. NE.

“I felt like my kids would have an advantage going there, and I would do about anything I could to have them go there,” Darrell said.

But at $2,800 per year per child, St. Matthew would have been too expensive for the family without financial aid, he noted.

The Wiegands applied for scholarships through the Our Faith, Our Children, Our Future School Tuition Organization, which administers a state program providing financial aid to families who want to send their children to accredited private K-12 schools. The program is open to families at or below 300 percent of the federal poverty level, or $85,230 for a family of five.

Private donors provide the scholarship money — $18 million statewide last year — but the state contributes up to $12 million a year in tax credits for donors.

Across Iowa, 137 private schools benefit from the program. All but five of the schools are religious. One that isn't is Summit Schools, a preschool-through-fifth-grade secular private school at 1010 Regent St. NE, in Cedar Rapids.

Cassie Mitvalsky depends on financial aid to send her son Landyn, 9, to Summit.

“I'm a huge public school proponent,” said Mitvalsky, a social worker at Family First Counseling Service. “We were at Polk (Elementary) and it closed. We gave another public school a chance and it didn't work. So we went to Summit and it's been nothing but awesome.”

Summit classes are capped at 16 students and the school has longer recesses, which Mitvalsky said help the kids focus better in the classroom.


The need-based scholarship Landyn gets from the Independent School Association of Eastern Iowa, an STO that represents Summit and Iowa City's Willowwind School, makes private school possible.

“It allowed me to pinch pennies and make it attainable,” Mitvalsky said.

The Wiegands, both Iowa City/Coralville natives, went to public school growing up.

After college, they moved to Tulsa, Okla., where their daughters, Jaden, 10, and Emily, 7, went to public schools. When the family moved to Cedar Rapids last summer, Darrell visited several schools, including St. Matthew.

Principal Joe Wolf gave Wiegand a tour and told him about the financial aid.

“I was really pushing for public school because it would be easier and less expensive,” said Lindsay. But Darrell was adamant St. Matthew was the place for Jaden and Emily, who will be joined this fall by Samantha, 5.

Lindsay now loves St. Matthew, where Jaden sings in the choir and is learning guitar. The school has regular Wednesday masses, which Darrell and Lindsay also attend. Darrell's cancer is in check for now, but the family knows whatever happens they have support from their biological and school families.

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