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Lawmakers and program managers review Education Tax Credit program and EFA operations, accountability and projected costs
Summary
At a Finance Division I work session, managers of the Education Tax Credit scholarship and the Education Freedom Account described program mechanics, compliance checks and fiscal implications should EFA eligibility expand statewide.
Committee members spent an extended work-session segment reviewing two school-choice related programs: the private-sector Education Tax Credit (ETC) scholarship program administered by the Children's Scholarship Fund and the state's Education Freedom Account (EFA) program. Presenters described program mechanics, accountability steps and projected fiscal consequences of wider EFA eligibility.
Children's Scholarship Fund officials said the ETC, passed in 2012, has stabilized at roughly $2 million to $3 million in private donations annually. Those donations provide scholarships for low-income students who change from public to nonpublic schools; donors (roughly 90% businesses) receive state tax credits. The nonprofit said it prioritizes renewals for returning scholarship recipients, then awards new scholarships from any remaining funds. The organization reported it can support returning students and that roughly 25% of ETC recipients are homeschool families.
State EFA operators described the program's eligibility rules (household income up to 350% of the federal poverty line), application requirements (tax returns or benefit documentation, residency and an annual record of educational attainment) and the program's technology and oversight. The EFA uses a state-assigned student identifier (SASID) and a digital wallet platform (Class Wallet) to manage grants. Families may place orders in a marketplace, request direct vendor payments or submit reimbursements; all orders are reviewed by a compliance team that can approve, deny, request more information or place an order on hold. Presenters said they had processed tens of thousands of orders and reported a roughly 10.6% denial/rejection rate (incomplete receipts, ineligible items or missing documentation are common reasons).
Program operators and lawmakers discussed accountability and avenues for alleged misuse. Speakers described the Class Wallet system as a closed loop: returns and refunds must be processed through the platform and funds go back to the student's digital wallet rather than to cash. Operators said they also deployed an anonymous hotline for fraud reporting and have a two-step appeals process: an internal appeal, then an external appeal to the Parent and Provider Oversight Commission; operators reported only two formal external appeals to date.
Committee members raised concerns about potential vulnerabilities, including purchasers who could resell purchased materials for cash and cross-border providers. Operators said they vet out-of-state private providers by confirming approval in the vendor's home-state education registry and that the EFA allows tuition payments to out-of-district public programs or community-college dual-enrollment when the student remains K'12 eligible.
Presenters also provided a sensitivity scenario showing that a universal expansion of the EFA could raise program costs into the tens of millions of dollars annually; they cautioned the committee that any immediate expansion would materially increase required state appropriations. ETC administrators asked the committee to note that ETC fundraising has stabilized but is donor-dependent.
Committee members asked for follow-up materials including usage counts, the ETC's annual report filed with the Department of Revenue, reconciliation and audit reports showing year-end swept balances that are returned to the Education Trust Fund. Operators said unspent balances are swept back to the state at the end of a student's participation (for example after graduation) and that funds are held in a non-interest-bearing FBO account for the benefit of the state. Committee members asked program staff to provide additional detail about wallet audit trails, vendor vetting and the child-level reconciliation process used to prevent double payments.
Speakers at the EFA/ETC session included Kate Baker Demers and Matt Sotherton of the Children's Scholarship Fund (ETC) and EFA program staff, who described operations, compliance procedures and audits.
