SC school choice program for special needs students falls short of financial goal
/Editor’s note: This story has been updated to reflect that the contributions to Exceptional SC so far this year have been in pledges and received donations to the program, and to add that the program had received $477,000 in actual donations through the end of March, according to figures released by the Department of Revenue this month. The original version of this article did not make the distinction between actual and pledged donations clear.
A state program that raises money for scholarships to help children with special needs pay for private school once raised $17.5 million in about a day, according to its leader. But so far for this school year, it has raised only a quarter of that amount and is short of the maximum amount it could raise under state law.
The decline in funding has meant less money to pay for scholarships that families have come to rely on, according to private school leaders and critics of the state-run program.
The Exceptional SC scholarship program, which raises money for the private school scholarships, has seen donations slow down to a trickle, Executive Director Chad Connelly told The State.
The recent decline in donations, Connelly added, stems from a recent change in the federal tax code that makes the donations, eligible for a state tax credit, less desirable for taxpayers.
In 2017, the program raised $11 million between July 1 and Dec. 31. And in 2018, the program raised $17.5 million in a day and a half in July, including $5.5 million that had to be returned because it exceeded the state’s $12 million cap on the tax credits that make the scholarship program possible, Connelly said.
Then in the 2019 calendar year, donations took a dive. The program only raised $4.5 million to be used toward the 2019-2020 school year, falling far short of the $12 million cap.
So far this year, Exceptional SC is on the upswing, having raised about $2 million in pledges and donations that have come into the program, Connelly said.
However, as of the end of March, the program had only received about $477,000 in donations that qualified for tax credits, according to figures released by Department of Revenue in early April.
But schools whose families have come to depend on the scholarships say the state’s program has come up short.
At Greenville’s Camperdown Academy, which caters to students with dyslexia, all of the students expect to receive scholarships at the school where tuition is nearly $12,000 a semester. Through the program, Camperdown students receive $5,000 per semester in scholarship assistance.
However, Camperdown students so far have received only the money for the first semester of this school year, and there is no guarantee the money will be there for the second semester.
“No one likes $5,000 surprises that they have to pay,” said Camperdown Head of School Dan Blanch in an email to the State Newspaper. “Some may not be able to afford it, (but) the school needs the funds to pay teachers.”
At the Miracle Academy Preparatory School in Saint Stephen in Berkeley County, Principal Teresa Middleton said she has warned families at the school that the state scholarship money for the second semester may not come in.
Middleton added that some families may be faced with the tough decision of whether to come back next year.
“I don’t know when we’re going to be funded, if we’re going to be funded, how we’re going to be funded,” Middleton said.
“We’re like ‘How do we get to incumbent parents and say ‘You’re not going to get the scholarship at this point in March. We haven’t been told we’re not going to get it either,” Middleton said.
On Wednesday, Connelly attempted to dispel fears of schools not getting the scholarship money.
Exceptional SC is starting to release money for the spring. “As we’re getting money, we’re dispensing money,” Connelly said.
The private-school scholarship program was adopted by lawmakers several years ago as a way to help students with special needs afford private school tuition. Advocates for the program argued that private schools can offer better services to students with special needs.
To pay for the scholarships, lawmakers adopted a tax credit for donations made for the scholarships. The cap on tax credits is $12 million a year, meaning the program can raise that much in donations eligible for the tax credits. Taxpayers can use the credits to reduce up to 60% of their tax liability. Parents or guardians of children with special needs can apply to Exceptional SC for scholarships to help pay private school tuition.
Failing to raise the $12 million allowed in 2019 meant millions of dollars worth of potential scholarships lost, leaving families in the lurch, critics say.
Olga Lisinska and her husband Jeff Davis, who previously raised millions for the state’s special needs scholarships through their nonprofit, Palmetto Kids First, said they would have been able to raise the $12 million easily.
They blamed the fact the program is run by a government appointed board and nonprofit, not the IRS tax regulation, which they said should not be a hindrance. State lawmakers started off allowing independent nonprofits to raise money for the program, but later brought it in house, creating Exceptional SC to run the entire program.
“Your CPAs (certified public accountants) of the world actually know who has the most state income tax that would be eligible to have a credit,” Davis said. “That’s where you start, but then again you get out and talk to people who care about the cause who want to help.”
Connelly, a former S.C. Republican Party chairman who has been director of Exceptional SC since late 2017, said he has been trying to find new donors, including by reaching out to accountants who would know who would benefit from the tax credit. The program has an email list of 5,200 potential donors of people who have “an affinity of giving to charities like ours,” Connelly said.
“We funded every student in every school for the first semester,” said Tom Persons the chairman of the Exceptional SC Board. The program did not fund new applicants this year, Exceptional SC officials said.
Connelly said the average donation, which was $19,000 in 2018, has now dropped to $4,285 since March 2019.
Change in tax regulations
Connelly blamed Exceptional SC’s failure to raise the amount of money allowed by the state on a change in 2018 federal tax regulations.
Before the change, taxpayers in some states including South Carolina had the option of donating to scholarship programs to get tax credits that lowered their state tax liability, then claiming the donations as charitable deductions on their federal tax returns.
However, the IRS put a new rule into place in August 2018 that prevented taxpayers from claiming a federal charitable tax deduction if they also received a state tax credit.
That change has led accountants not to recommend donations to the state’s scholarship program because there is no tax incentive on the federal level, Connelly said.
Exceptional SC went from having 1,100 donors in 2018 to only 400 donors during this cycle, Connelly said.
Connelly said there is a push for change that to allow businesses to consider charitable donations they believe would “create name recognition and good will” as ordinary business expenses that would qualify for a federal deduction.
If that change goes through, “small business people (and) CPAs are going to unload” contributions to the program, Connelly said.
Other states such as Georgia, Florida and Arizona, with tax credit programs, are not having trouble with raising money. Even though the Georgia and Arizona programs are open to individuals, Connelly argued all three of the states’ programs are targeted toward corporations and are older than South Carolina’s program which is targeted toward individual donors.
“They don’t have the same tax structure we do,” Connelly said. “We don’t have an established set of donors anyway, and they were targeted at companies and corporations.”
In Florida for example, the program is geared towards corporations with deeper pockets looking for tax credits, rather than individuals. Florida also does not have a personal income tax.
Patrick Gibbons, a spokesman for Step Up for Students, an independent nonprofit in Florida which raises money for private school scholarships for low-income students, said the group has raised $650 million for the 2019-20 school year.
“What’s happening in programs based on personal income taxes .... is that the federal deduction rules change, which limits how much people can deduct on state taxes paid,” Gibbons said. “With limitation how much could be carried on state income tax, that’s really limiting people’s ability to make those contributions. The limitation doesn’t apply on corporations.”
This story was originally published March 13, 2020 at 5:00 AM with the headline "SC school choice program for special needs students falls short of financial goal."
