4 reasons why a new state tax break for private school tuition would hurt public education in Alabama

Update: Arise members stopped this plan in its tracks! After lawmakers received hundreds of emails and phone calls from our supporters opposing this bill, the Senate amended HB 251 on March 14 to remove the language that would have created a tax break for private school tuition. The House agreed to the change on March 16 and sent the revised bill to Gov. Kay Ivey, who signed it into law on March 22.

Alabama allows a state income tax deduction for contributions to college savings accounts known as 529 plans. But HB 251 and SB 189 would let Alabamians use 529s to get a state tax break on tuition at K-12 private schools as well. Proponents say the move would do little harm to Education Trust Fund (ETF) revenues. But there are four reasons to believe the change would cost the ETF millions of dollars a year:

1. This bill would change the nature of 529s in Alabama. 529 plans originally were designed as long-term savings plans for college costs. But if this proposed change is enacted, Alabama’s 529s could end up looking much more like a short-term tax break for private K-12 school tuition instead. By simply putting up to $10,000 for tuition payments in a 529 and then immediately withdrawing it, a couple could save up to 5 percent in state income taxes on that amount.

2. It’s reasonable to expect that participation rates in 529s for K-12 private school tuition would be much higher than those for college. Many parents can’t afford to save for their children’s college, so they hope for scholarships and loans to help cover the cost. But most parents of Alabama’s 83,000 private school students obviously can afford to pay tuition – because they already do.

3. Private schools and tax professionals likely would promote 529s in a whole new way. Colleges generally don’t promote 529s. Instead, they promote themselves as the college to choose. But many K-12 private schools likely would promote 529s for their students, as 529s essentially would offer parents a tax break of up to 5 percent on tuition. Many tax advisers also would urge parents with children in private school to use 529s as a tax-savings device.

4. The ETF’s revenue loss could add up quickly. Alabama allows couples to deduct 529 contributions of up to $10,000 per year. At a 5 percent income tax rate, each maximum contribution would cost the ETF $500 a year. And the potential revenue loss for the ETF could extend even further: Alabama allows grandparents to deduct contributions to their grandchildren’s 529s as well.

Click here to read a PDF version of this fact sheet.

Click here to read the Institute on Taxation and Economic Policy’s report on how states can prevent revenue losses in the wake of the 2017 changes to federal law on 529 plans.

By Kimble Forrister, executive director. Posted March 7, 2018. Last updated March 22, 2018.

Earthquake on Goat Hill -- How the Alabama Accountability Act passed and what it means

Alabama would provide income tax credits to help subsidize private or religious school tuition for parents of children zoned for "failing schools" beginning this fall if Gov. Robert Bentley signs the plan into law. The House and Senate approved the measure, known as the Alabama Accountability Act, mere hours after it was first introduced on Feb. 28, 2013. Bentley declared his intention to sign it, but a state trial court on March 6, 2013, issued a temporary restraining order to prevent the bill from going to him.

This paper by ACPP policy analyst Chris Sanders assesses the backdrop from which the Alabama Accountability Act emerged, summarizes its main provisions and considers its impact on the state's public education infrastructure.

Hands On: Alabama's Adult Workforce Development

As Alabama recovers from a recession that undercut a wave of record economic growth and employment, workforce development policymakers face a two-fold challenge: getting thousands of Alabamians back to work and gearing up the broader workforce for systemic changes in the economy.

This fact sheet offers an overview of skills training programs and related components of Alabama's complicated workforce development system.

Catching Up: Adult Paths to a High School Education

Too often, low-wage jobs in Alabama become dead ends, rather than stepping-stones for advancement. The highest unemployment rates in years only compound the danger. The 20 percent of Alabamians age 25 and older who didn't finish high school often face a lifelong struggle to get by. And Alabama is stranding these workers (and their families) by failing to strengthen programs designed to close the basic education gap.

This fact sheet looks at education opportunities for Alabama adults who lack a high school diploma, a basic requirement for moving up the wage scale.

Stuck: Low-Wage Jobs Are Holding Alabama Back

No matter what lies ahead for Alabama's economy, a high school diploma is no longer a ticket for employment. We emphasize this point with students, but we leave underprepared adults in the lurch. And it will require more than just each year's crop of high school graduates to meet the new economy's demands. Effective workforce development policies for adults in their most productive years are vital for equipping the current generation of workers with the skills and flexibility to support their families and command a living wage.

Read our fact sheet.

"Everyone Matters Here": Alabama's Small Schools

As budget pressures and other factors prompt state and local officials to consider school consolidation, it's important for lawmakers, educators and voters to understand the impact of school size on student achievement.

ACPP partnered with the Rural School and Community Trust to produce this overview of national research on the educational and economic advantages of small schools.

Dead End: Dropout Crisis Imperils Alabama's Economy

A full classroom of students drop out of high school every school day in Alabama, according to a 2008 report by the Southern Poverty Law Center. Only 60 percent of students statewide finish high school, and Wilcox County has a dropout rate of twice the state average, exceeding 80 percent. In every independent analysis, Alabama ranks between 42nd and 47th in the nation in graduation rate. This pattern has persisted for the past 25 years.

This fact sheet examines Alabama's dropout crisis, its implications for the state's economy, and possible steps toward a solution.

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