State cuts EITC; Tax credit prorated this year, cut further next year

The state budget recently approved by Gov. Ed Rendell cuts $15 million from a tax credit program used to help Pittsburgh students afford Jewish day schools and pre-K programs.
The budget approved on Oct. 9 cuts the Education Improvement Tax Credit Program, or EITC, by 20 percent, down to $60 million from the previous funding level of $75 million.
The budget further cuts the program down to $50 million in 2010-2011, although EITC proponents say those future cuts can be challenged in future budget deliberations.
The EITC rewards businesses that donate to educational funds, allowing schools to offer scholarships to students who might not otherwise be able to afford tuition or special programs. The EITC is used by at least 50 Jewish education programs in Pennsylvania.
“We really don’t know what the impact’s going to be,” said Hank Butler, executive director of the Pennsylvania Jewish Coalition, which lobbies on behalf of Jewish groups.
That uncertainty stems from a decision by lawmakers to prorate the tax credits this year.
Companies applied for credits this summer and early fall, but the budget process carried on more than 100 days beyond the constitutionally mandated deadline in June.
Next year, the state will once again accept requests on a first come-first served basis, funding the first $50 million in applications (unless funding for the program increases).
The EITC gives tax credits for 75 percent of donations up to $300,000. That jumps to 90 percent if a business agrees to donate the same amount for two years in a row.
Under the EITC, companies get tax credits for donating to certain scholarship funds, like the Pittsburgh Jewish Educational Improvement Foundation, administered by the United Jewish Federation. It also funds public school educational improvement programs.
The EITC gave out more than $4 million to Jewish educational organizations across Pennsylvania last year, according to a PJC survey. In Pittsburgh, the EITC has given out $8.3 million in scholarships to nearly 2,800 students since its creation in 2001.
Typically the credits are first come-first served, with the state accepting applications until the funding is used up for the year. With the prorating, the state will approve applications received by the start of October and scale those credits back to $60 million budget.
The state has received $79.7 million in tax credit requests, according to Ted Knorr, the director of the program with the Department of Community and Economic Development.
Generally, then, those requests will be funded at 75 percent (because the $60 million budget is 25 percent less than the roughly $80 million requested by businesses).
In reality, though, prorating the tax credits is more complicated, because the EITC program divides funding into three categories, each with preset funding levels.
Of the $60 million budgeted for EITC this year, $38 million is set aside for K-12 scholarships, $15.6 million is for innovative educational programs in public schools and $6.4 million is for pre-K scholarships. Knorr said the state has received requests for $43.6 million, $28.5 million and $7.6 million in tax credits respectively in those categories.
The impact of the cuts is also hard to measure because the EITC is not a state clearinghouse: businesses donate to scholarships that in turn give money to families. That means scholarship fund-managers, once they know how much money they will get this year, will then have to figure out whether they need to cut and decide how to do it.
Some students might not get scholarships, or some students might get less than before.
According to the REACH foundation, a Harrisburg organization that helped create the EITC program in 2001, more than 6,000 students across the state will lose scholarships this year — to both Jewish and non-Jewish schools —because of the cuts.
REACH arrived at that figure based on recent average scholarship amounts measured against the size of the current cut, according to its executive director, Andrew LeFevre.
The cuts to the EITC do not carry over to other educational spending in the budget, which increases funding to basic education by $300 million — touted by Rendell as the largest education increase in state history — and maintains the funding levels for three early childhood programs: Pre-K Counts, Head Start and the Accountability Block Grant.
For the purposes of the budget this year, the EITC received cuts similar to eight other tax credit programs like the Neighborhood Assistance Program and the Film Production Tax Credit. For a time, many proponents of the EITC worried the program would face larger cuts than the Film Production Tax Credit, and see the equal cuts as a small victory.
“We just wanted the cuts to be made fairly,” LeFevre said.
In the weeks and months leading up to the final budget, proposals floating around Harrisburg threatened to cut EITC funding in half or by a third. The 20 percent cut reduces the EITC program down to its 2007-2008 funding level, according to Butler.
“It’s much better than we expected,” Butler said.
Butler and LeFevre believe they helped mitigate those cuts by organizing a coalition of EITC supporters. Jewish and Catholic educators joined private schools to lobby lawmakers this summer. With the sign of further cuts to come next year, that coalition is already making plans to make its case for EITC funding in the 2010-2011 budget.
That momentum could be the one silver lining to the cuts, according to LeFevre.
“There was never a threat to the program,” he said, “and a lot of folks never felt like they needed to be involved.”
Proponents have a sense of the fight ahead: the new budget makes further cuts to the EITC in 2010-2011, down to $50 million from the new funding level of $60 million.
Butler sees that $50 million figure as a goal set by lawmakers, not a mandate.
“It’s a proposal. That’s what they’re talking about doing. That’s what they’re striving for,” Butler said. “There’s nothing set in stone.”