With just two weeks before budget negotiations in Albany are slated to end, many in our community are waiting anxiously to see if the Education Investment Tax Credit (“EITC”) will be enacted as law. The bill was introduced by State Senators Marty Golden and Simcha Felder, among others, and promoted extensively by several Jewish advocacy groups. Since traditional vouchers are presumed to be unconstitutional in New York, the bill is designed to allocate state income tax credits to those entities and/or individuals that provide scholarships for use at private schools.
While different versions of the EITC have been proposed, most of the details in this article come from the New York State Senate version of the bill, which the Senate passed in January; the bill has not yet passed in the Assembly. Also, while other states have similar programs, New York’s proposed law has some unique elements that have significant implications for yeshivas; I will address some of those differences here.
The bill benefits public schools and private schools – and parents at each – and even parents who home-school their children. For simplicity, I will focus here on the Educational Scholarship Organization (“ESO”) aspect of the bill, as the ESO is the primary vehicle through which yeshivas, and by extension, yeshiva parents and students, would benefit from the proposed tax credit.
ESOs: A New Kind of Middleman
According to the Senate bill, the state will allocate, for non-public schools, $75 million in tax credits for qualified contributions to Educational Scholarship Organizations in 2016. But individuals will not be allowed to donate directly to yeshivas and private schools. Rather, donors must donate to independent Education Scholarship Organizations.
Under the current proposal, an Educational Scholarship Organization must be a not-for-profit organization that distributes at least 90% of the scholarship contributions it receives. In other words, the organization itself can retain up to 10% of the contributions it receives, potentially spawning an entire industry.
The scholarships must be granted to qualified students at no fewer than three qualified schools. All scholarships will be sent to the schools directly. But the bill does not require that each school associated with an ESO benefit equally; rather, an ESO may determine within its charter how it distributes its funds. This is in contrast to Florida’s program which grants scholarships to students directly and allows them to decide at which school they will use it.
ESOs must also apply to the Board of Regents to be authorized to grant donors a receipt necessary for obtaining the EITC credit. As part of the application process, they will have to present their criteria for granting scholarships. There are certain parameters: The legislation requires that students receiving scholarships reside in the state, and have household incomes under $500,000 ($250,000 under Governor Cuomo’s proposal, both adjusted for family size). All schools where scholarships are allocated must be not-for profit and serve students at any level from pre-K through high school. Individual ESOs are free to create their own criteria regarding household income, student grades, etc., as long they satisfy these requirements. The grant awarded is entirely up to each ESO as well, except that it cannot exceed the school’s regular tuition minus other scholarships that have already been granted.
Donors interested in receiving the credits must file a contribution certificate with the Department of Tax and Finance by January 31, 2016. The certificate includes the prospective donor’s name, intended contribution, and the ESO recipient. These certificates essentially function as an application from the donor, allowing the state to ensure that contributions under the program don’t exceed the $75 million credit allocation. In February of 2016, the Department of Tax and Finance will issue confirmation letters in response to the contribution certificates, and donors can then contribute accordingly. If the sum of contribution certificates exceeds the allocated amount of credits, each certificate submission will be granted on a pro rata basis of the original request.