School Choice, Tax Credits, and the Fight Over Access

In this episode of the Straight-Up 30, host Ross Izard talks with Erik Billinger, Chief Development Officer at ACE Scholarships, about how private school scholarship programs work and why the new federal Education Freedom Tax Credit could be a major shift for families across the country. They break down ACE’s role as a scholarship-granting organization, the difference between traditional fundraising and tax credit-supported giving, and the policy fight now unfolding in Colorado over how the new federal program could be implemented. The conversation also explores why school choice is about more than academics and how access to the right school can change outcomes for students.

What we cover:
• What ACE Scholarships does and how scholarship-granting organizations work
• The difference between charitable giving and state tax credit scholarship programs
• How the new federal Education Freedom Tax Credit is designed to work
• Why Colorado is becoming an early testing ground for how states regulate the program
• The legal and policy tension between federal law, state law, and school participation
• Why families choose different schools, including safety, values, and academic fit

About the guest:
Erik Billinger is the Chief Development Officer at ACE Scholarships, a national nonprofit that helps low-income families access private K-12 schools through scholarships. ACE has awarded nearly $400 million in scholarships and supported more than 121,000 students across 13 states.

Resources:
ACE Scholarships: acescholarships.org
Education Freedom Tax Credit: educationfreedomtaxcredit.org

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Straight facts. Straight talk. Straight to the point.

Transcript

SPEAKER_01 0:09

Welcome to the straight up 30 where we make policy makes sense in 30 minutes or less. I'm your host, Ross Izzard, and we are here today to talk about sort of a complicated issue related to school choice and particularly to private school choice, insofar as it goes in Colorado and the federal level and kind of all over the country. And to do that, we have Eric Billinger from Ace Scholarships. ACE is a national nonprofit scholarship granting organization that serves kids all over the country who need help attending private schools of their choice. He is the chief development officer over there, which means that they keep you very, very busy making all this happen, including with the new federal program. We're glad to have you with us today. Exactly. Yeah. Thanks. Thanks, Ross.

SPEAKER_00 0:50

Thanks for having me.

SPEAKER_01 0:51

Maybe we could start with just an overview of ACE. I mean, it's been around for quite a while. Full disclosure, I worked at ACE Scholarships for a long time. I did government relations for ACE for a long time, and I still do, which is an awful lot of ACE has been around for 26 years.

SPEAKER_00 1:05

Our claim to fame is we have now given away almost $400 million. And we have supported over $120,000 kids for scholarships to private K through 12 schools. And we're in 13 states. So you mentioned national. We are going to go national next year with this introduction of the federal tax credit. But right now we're in 13 states. And currently, this school year, we have 16,300 kids on scholarship across about 1,200 schools. So that's what we do. So this year our budget is to raise $72 million and then turn around and give that away to families and kids that really need it and need access to a school that fits them better, their situation better. And so that's a high level. That's who ACE is. And uh can't believe it. It's been 26 years already.

SPEAKER_01 2:00

Yeah, and I think sometimes people get a little bit confused with the concept of a scholarship granting organization, right? Because it's you hear about scholarships a lot in the higher ed space. You don't hear them hear about them as often in the K-12 space. And so what ACE does, and correct me if I'm wrong here, but you are out raising money, private money from individuals who want to support educational choice for kiddos. It comes to ACE and then you hand that out in the form of scholarships so that they can go to what type of school.

SPEAKER_00 2:26

Yeah, private. So we're in the private market right now. So um so our average scholarship or our scholarship level for K through eight kids is three thousand dollars. And our average scholarship or scholarship amount for high school is at $4,000 right now. So the average price of a private school across our $1,200 that we support, believe it or not, is right around a $10,000 level. You know, a lot of people when they think private schools, they think the big elite, you know, $30,000, $40,000 uh private schools. So we have a few of those, but among our entire private school network, the average cost is right around $10, right? So if you throw in our $3,000 scholarship, the school will probably discount the seat a little bit, and then the families have to have some skin in the game. They they chip in as well. And so that's uh the secret sauce, the three-way partnership right there to make it make it work and give a kid that really can't afford to go to that school be able to afford to go.

SPEAKER_01 3:24

Yeah, it's really it's all about access, right? This is something these kids would not be able to access in the absence of private help. And it's been pretty incredible to watch ACE grow over the years. So when I was first getting started with ACE, they had a handful of states, and uh, I mean, the organization had been around for a while, they were doing great work, and then it just kind of started exploding. And it's like I remember there were a few times I would go to sleep on a Friday and there would be like five states, and then I'd wake up on Monday and there would be seven states, and we would go and do that. So the fact that we are out to 13 now with the plan to go fully national is huge. And ACE has kind of a couple of different tracks. So you've got your your pure private normal charity fundraising where it's coming in, and then you have state tax credit programs which have popped up in a lot of the states where you work. And I wonder if you could talk about the distinction.

SPEAKER_00 4:08

So four of our 13 states that we're in have a state tax credit program where it really incentivizes the donor to donate even more. So we'll they'll get a state tax credit. And um, I don't know if you want to get into the difference between a credit and a deduction, but surprisingly, it's especially with how much we're talking about the federal tax credit right now, a lot of people don't know the difference between a deduction and a credit. So a credit, right, if your liability is $10,000 to the state, you could literally give that $10,000 to an SGO, scholarship granting organization, instead of the government. So it it works as a credit to your liability. A deduction, right, reduces your income and you pay less taxes because you're you're being generous, right? So um just wanted to mention that real quick. But the four states that we're in that have state tax credit um is Montana, Kansas, Arkansas, and Louisiana. So so anybody listening out there, if you live in those four states, it's it's kind of a no-brainer.

SPEAKER_01 5:10

Yeah, and all of which I've gotten to work on, which has been a ton of fun. And I think it's interesting because these tax credit programs have been around for a long time. I mean, a couple of decades. And so just for anybody who's not familiar in depth with how these things work, usually when you give to a nonprofit or a charity like Ace, you get a tax deduction, as Eric mentioned. It reduces your taxable income by that amount, then they tax you at the normal rate. Uh, but if you get a tax credit for the donation, then they are actually just taking that completely off your tax bill. So if you owe $10,000, you give $10,000, you now owe nothing, which is a really strong tax incentive. And that's why these scholarship tax credit programs have gotten so popular, because now you're not just going out and fundraising like every other nonprofit out there. You have the backing of a state income tax credit or whatever tax it's applied to behind you, which is a huge boon for fundraising, right? So you have individuals and corporations who can now come in, they can provide more money with a tax incentive, and then ACE gets to turn around and hand out more money to kids, which is uh a pretty interesting exponential way to grow. And it's been around for a long time.

SPEAKER_00 6:12

Yeah, absolutely. And every state that has a tax credit program has different rules, different amounts. So, for example, um in Louisiana, there's no cap. So a donor, if their liability is a million dollars, they can do a million dollars. So Louisiana is pretty pretty uh unique in that way. It's 95%. It's not a hundred percent, but ninety-five is incredible. Montana, on the other hand, has a cap of 200,000 per donor. Um, and they do have a cap of as far as how many people can participate. Once they get to this last year, it was eight and a half million, I believe. Once you get to that, it's it's done, it's over. So it actually, Montana was unique. It that that cap was reached in five and a half minutes. I don't know if we've talked about that, but fills up very quick. Um Arkansas is actually 100%, and Kansas is currently at 75%. So um in Kansas, yeah, so every every state, so you have to check with your you know, your your state and what the exact rules are. But anytime you have a a state tax credit to help FGOs out, it's incredible.

SPEAKER_01 7:16

I think the big thing that you said is that there's a limit on it, right? So most of the time Louisiana is an exception. Exactly. But in most states, eventually you run out of money, right? It's uh the credit gets used up and you can only take in $10 million in Kansas or uh whatever the limit happens to be in your state, and then it's just done for the year, right? So you can parcel that out into scholarships for kids under that amount, but beyond that, there's not a lot of money available except through just regular private fundraising. And that has for a really long time been a topic of conversation in sort of the school choice policy universe. Uh, and there have been a lot of different ways that people have thought about how to approach it. You've got sort of direct funded, direct appropriated uh education savings account programs, you have old school voucher programs that have been around for a long time. But more recently, folks have taken an interest in applying the tax incentive to everybody across the country with federal legislation that's sort of modeled after the state level tax credit programs that have been so successful. And I wonder if you could talk a bit about that.

SPEAKER_00 8:13

I'd love to. So it's now called the Education Freedom Tax Credit. If anybody wants to research it, actually you can go to educationfreedom taxcredit.org, right? And it's uh all the information's right there. But it's incredible. The first, instead of state level, which is at the federal level, it is a lot sm smaller at $1,700 per tax filing. Um so but it's still a credit, it's a dollar for dollar credit where literally you're redirecting your tax liability and deciding to give it to an SGO instead of the government, which is incredible.

SPEAKER_01 8:46

Well, and it may only be $1,700, but a lot of people pay taxes, right? So when you roll that out across an entire nation of taxpayers, $1,700 suddenly becomes an awful lot of money that can be applied to education. Yep. And so as you might imagine, school choice can be kind of controversial. Uh this is not an exception. The bigger the the bigger the rollout, the more controversy you get. And so there's been a fair amount of conversation about how this is going to be implemented in the states, right? So it passed uh via legislation in Congress at the federal level, and now the states need to figure out how to go about actually making this thing happen starting in 2027, right?

SPEAKER_00 9:26

Exactly. Yeah. So 1127 is when we everybody can take advantage of it. The key thing here, Ross, is that there's a governor opt-in provision, right? And so every governor across the U.S. is either opting in or not opting in. And that simply all that's saying is you can raise that money in that state, but you can also spend the money in the state and help out families and kids in that state. So um lots of examples. I think we're currently at 28 governors have officially opted in. Um, you know, hopefully at some point, maybe down the road, it's all 50, right? I'm dreaming big. But just keep in mind that the governor opt-in is priority number one, and that's uh that's a key part of this whole equation.

SPEAKER_01 10:14

Yeah, so this is, you know, uh, this is where politics happens, right? So the governor has to opt in, and it's a binary yes or no. We're gonna do it or we're not gonna do it, right? But then there's other stuff to think about, right? So for instance, the federal law itself is relatively loosely drafted, right? Which isn't to say that it's a bad piece of legislation, it's just the federal law typically doesn't answer every single detailed question that you would ever have. Yeah. Which means that there is some level of conversation and debate about how much control states have over these programs if a governor chooses to opt in, right? And so it becomes in states that like Colorado uh have a political makeup that is not necessarily always favorable to school choice of any kind, but especially private school choice. It becomes a conversation of sort of how the program is going to be implemented and regulated. And there really aren't a lot of good, clear answers to that yet, right? And so for anybody watching who's not familiar with the process, Congress passed the law, so it's out there, it's been enacted. They now have to go and make rules for how the law is going to be implemented through the U.S. Department of the Treasury. Which we haven't heard yet.

SPEAKER_00 11:18

Final rules are still happening.

SPEAKER_01 11:20

Right. So that's still going on, right? So we don't have that listed quite yet. Yep. And then the states are kind of doing their thing and deciding what they want to do. And it sets up this really interesting policy issue where the federal law exists and says you can opt in. We don't have federal rules yet, and it's not totally clear what states have as far as leeway goes. And then you start getting policy experiments, right? And we've got one of these going on in Colorado right now in the form of House Bill 26 1292, which is a piece of state legislation started in the House that would sort of lay out a series of requirements on this new federal program when Colorado opts in, which Governor Polis has said that he will pretty recently, I think. Yep, yep, just a few weeks ago. Yep. So the bill would basically it says, okay, you can opt in, but when you opt in, we have all these additional regulations that you as a scholarship granting organization are going to have to accept. And then by extension, a private school that's participating in the program would have to accept or a public school because it's worth noting that the money can go to private schools or public schools. Yep. And that's a really interesting thing because private schools in general, we've learned this in places like Louisiana and elsewhere. We could probably name some other names, but we'll just pick on Louisiana for today. The more heavily you regulate independent schools who are, by definition, independent, right? They're all about having flexibility to implement their models, to follow their belief systems, to do things differently. The more you regulate them, the less likely they are to participate in the program. And so when you get state level legislation that is very heavy-handed, and sometimes it deals with special needs requirements, sometimes it deals with extremely broad non-discrimination requirements that go way beyond what's found in federal law, schools kind of start cocking an eyebrow and they're like, well, I don't know if I can do that, and maybe the money is too expensive, which then starts to curtail the program's ability to be effective. And it's a really interesting sort of setup where you know the goal at the end is to help kids and to get them access to schools, but we got to be able to create an environment where the schools can actually participate to do that. And Colorado is not the only state, but one of the first states to really step into the legal arena on seeing how this is going to play out.

SPEAKER_00 13:35

Yeah, it's interesting. Yeah, um, that just came about last week, as you know, and you know a lot more about this than I do. Um, you know, the bottom line, Ross, we want parents to have choice and we want to empower the parent to make the best choice for their kid. And um, like you said, this federal tax credit is is actually incredible. It supports kids that go to private school, charter schools, public schools. So it's helping all kids. So what's wrong with that, right? So we're just trying to um and keep encouraging that and keep reminding everybody that we're here to help everybody and all kids and empower those parents. Um so yeah, I mean it's unfortunate that that came about last week. It'll be interesting to see what happens. And in the meantime, we're gonna keep encouraging governors to opt in and we're gonna keep spreading the word about this incredible uh opportunity because I really do think it's gonna be massive for the whole country, you know, starting next year.

SPEAKER_01 14:33

Yeah, and there's just there's a lot going on with it, right? That's a really it's it's interesting to think through all the different implications of it. So, on the one hand, the goal of the legislation is to help all kids, as you said, right? And it was very specifically written in a way that kids in public schools, private schools, and even outside of those and like enrichment activities and other stuff can take advantage of this additional funding, which is coming from donations from taxpayers, like we talked about. But you've got sort of the state level piece and the general effects that that could have on participation in the program. And then you've got this whole host of interesting legal issues. And so when I was at ACE and you were there too, we were working on a series of U.S. Supreme Court cases that eventually settled the idea of whether or not you can exclude faith-based private schools from participating in school choice programs. Like Espinosa. Like Espinoza, okay. Montana. That's exactly right. Uh and this was an interesting First Amendment case because the idea it dealt more specifically with the idea of sort of non-sectarian schools and sectarian schools, which is language and state constitutions. Sectarian long ago was a pejorative term for Catholic, and there's a lot of history that we could go into that if we needed to. But it became a pretty big legal fight that took the better part of a decade and a half. It actually started here in Colorado, and then it worked its way up to the U.S. Supreme Court through a really tiny program at the time in Montana. And the court wound up ruling, no, you can't do that. If you're going to make a school choice program, you have to allow all schools, even faith-based schools, to participate in it. And that means that you cannot create requirements that would make it impossible for them to participate.

SPEAKER_00 16:06

Exactly.

SPEAKER_01 16:06

And then they had Trinity Lutheran, then we had Carson, then we had a whole series of cases that sort of laid this out. But we're back having the same conversation here again. And it's it'll be interesting to see how it gets applied to a federal program because up to this point we've really only had the conversation with relation to state programs. Now we're going to talk to the court about whether or not it applies in a federal program when the state is also passing legislation to regulate it.

SPEAKER_00 16:33

And you hit on this earlier, but the timing of it's interesting too, right? Because we haven't even got the rules from the Treasury Department. So love for you to speak a little bit more on that, but you would, you know, it's probably strategic, right?

SPEAKER_01 16:47

Yeah, well, that's a whole nother legal thing, right? This is like sometimes people run a bill and it's like four pages long, you know. Um, and you would think that a four-page bill would not be that problematic. But by the time you think through the practical implications, the constitutional implications, and then what you just brought up, which is the idea of preemption, and I actually think that's the most interesting part of this whole setup is which thing takes precedent, right? So you have federal law, which we know government 101 takes precedent over state law, right? Within reason. The feds can't legisl legislate everything, but we can talk about that another time. We don't always know how federal rules factor into that. So if you have a set of federal rules that don't exist yet, the state passes a law that creates all of these regulations, federal rules come out at some point after the fact, what happens then? Do the federal rules control? Does state law control? Or more likely, do we spend a bunch of time in court trying to fight this thing out and answer that question? Which in the meantime means kids aren't getting help. Crazy, isn't it? Yeah, I mean, you would assume that we would want the kids to get the help, but that's I'm being biased here on this one, I think. So I think we are gonna have a really interesting series of conversations at the Capitol about this particular bill. Um there are folks sort of all over the political spectrum who are involved in it, watching it, uh, who are going to be engaged in that debate. Uh, I know Ace will be one of them, uh, as will a whole bunch of other folks that are either on the school side or on the SGO side. It's not totally clear how it's gonna go yet. Um the Colorado legislature is not the friendliest when it comes to the idea of school choice. So it's gonna be a pretty hot debate, and it's kind of one of those things that snuck up on us a little bit. We were busy talking about the budget, we were busy talking about public education funding and a whole bunch of other issues. Now we have this massive conversation and education fight to be had about the federal tax credit program that we're gonna have to settle by May when everybody goes home.

SPEAKER_00 18:41

Yeah. Is that the timing of it?

SPEAKER_01 18:42

Yeah. Session closes out early May, and we're gonna have to fight about it before then. So the bill was originally scheduled for its first committee hearing next week on March 12th. They have pulled it off the calendar, and now we don't know exactly when it will be rescheduled, but when it is, I'm expecting that to be pretty fiery. It won't be boring, that's for sure.

SPEAKER_00 19:01

Interesting. Yeah. So that's the state we live in, right? And that uh that's what's going on. But um, I'm gonna continue to stay optimistic, and uh I think this education freedom tax credit can can really help a lot of families out. Because our data shows, and I don't know if you want to get into this, Ross, but our data shows you know, when we get a low-income child on a scholarship and put them into a a quality private school, their proficiency rates go up. And in fact, our data shows their fourth grade reading proficiency is three times more proficient. And when they get to eighth grade, three times. And then the other key uh measurement we do is eighth grade math. And they're three and a half times more proficient in eighth grade math. So the data doesn't doesn't lie, right? And it works. So um we're just gonna keep showing the data and keep doing good work and get as many kids um access, like you said. It's really all about access to quality school that fits them, you know. It could be for a number of different reasons, right, of why it's a better fit for them.

SPEAKER_01 20:07

So yeah, and that's worth mentioning too. School choice is not always just about academics, right? I mean, obviously we care about how the kids do in school and we spend inordinate amounts of time at the Capitol fighting about test scores and how this is going, and that does matter, right? But it's not the only reason that people pick schools. And so when you talk about a program like this federal tax credit or any type of choice program, you could have kids who are picking schools for academic reasons, they might be picking it for programmatic reasons, they might be picking it for safety reasons, they might be looking for schools that match their belief system. And when you sort of pull the rug out from underneath that out of the gate, you are starting to limit the choices of those families, whatever their reasoning might be, to go out and find what they need, which is not what we want.

SPEAKER_00 20:50

Yeah, exactly. You nailed it. Our data actually shows, Ross, that bullying is number one. Is that right? And then academics is number two. I mean, that makes sense. Right. Right. I mean, anybody who has kids little Johnny comes home upset, right? And what happened? What happened? Right? And that yeah, they got picked on, they got bullied. And um, if that continues for weeks on weeks and you know, for uh an extended amount of time, right? Mom and dad are gonna make a change or they want to make a change. So um yeah, and then like you said, matching their values, um, academics, standards, how high the standards are, you know, are they being challenged? Are they not? So it could be a number of different different things.

SPEAKER_01 21:30

Yeah, I mean, and the schools are sort of eager to do the work, right? So I would imagine that as this debate starts to heat up, we're gonna have a whole bunch of folks in the room. A lot of those are gonna be private schools who are like, hey, let us let us do our jobs, as the law says that we can, and that'll be an interesting thing to watch. So, Eric, if somebody wanted to learn more about ACE, where would they go?

SPEAKER_00 21:50

Yeah, Ace Scholarships.org is uh actually a brand new web page. Just came out last week. Uh so I think uh everybody will really enjoy it. Um That's the number one place you can go. Ace Scholarships.org.

SPEAKER_01 22:04

Is there a big red donation button?

SPEAKER_00 22:05

Of course. Okay. Awesome.

SPEAKER_01 22:07

Ace has been doing awesome work for more than two decades now. I love what you guys do. Really appreciate you being here to talk about this issue. We will probably talk about it again, I would imagine, over the course of session because it is not likely to be settled super duper quickly. But it's one of those education issues that might be a bit of a sleeper now and will not be forever. It's going to get pretty loud pretty quickly. So I know we'll be down there. I'll see you down there and we will not be bored. Absolutely. All right. That'll do it for today's episode of the Straight Up 30. We'll see you back here next week for another policy conversation. Until then, take care.