The Fiscal Impact of Tuition Tax Credits in New Mexico

Proposals to expand opportunities for children to attend independent schools prompt heated and complex debates. Proponents and opponents bring a number of philosophical and ideological arguments to public policy discussions, while lawmakers often justify their decisions on the basis of the perceived economic and fiscal impacts of the proposals. Evaluating the economic and fiscal impacts of a tuition tax credit proposal is a complex process that involves understanding many variables. This study seeks to inform the debate over a proposal being discussed in New Mexico that would give tax credits for contributions to organizations that provide scholarships to children enrolling in independent or private schools. The researchers use public data on income and charitable contributions in New Mexico, national surveys of the patterns of charitable giving to educational organizations, and the documented experiences of other states that have enacted tuition tax credits to develop estimates of the likely volume of contributions to scholarship-granting organizations and the resulting revenue impact of the tax credits. They construct a model to determine the impact tuition tax credits will have on total state education aid and to calculate the "breakeven" rate of migration, or the number of public school students that would have to migrate from public to independent schools in order to make the tax credit fiscally neutral from the perspective of New Mexico state government. Finally, they use district-level expenditure and enrollment data to estimate the percentage of expenditures that are fixed versus variable across school districts in New Mexico, and compare the revenue and cost impacts of tuition tax credits on school districts to determine the net fiscal impact of tuition tax credits on school districts. (Contains 7 tables, 12 figures and 17 footnotes.) [This study was sponsored by the Milton and Rose D. Friedman Foundation and the Albuquerque Partnership.]