SC’s special-needs scholarship program needs reform

TWO LEGISLATIVE PROPOSALS HAVE BIG POTENTIAL

By Sam Aaron and Bryce Fiedler

Despite good intentions, South Carolina’s special-needs scholarship program is failing to meet its goals, and major change is needed to ensure the state’s roughly 100,000 children with disabilities are getting the education services they need.

Our state needs a better system, one that provides reliable funding to more families with special needs children so that all students, no matter their challenges, can develop to the fullest extent possible with maximum support.

BACKGROUND

Many teachers in our public schools do an incredible job of educating children with special needs. Countless children across South Carolina have benefited from the dedicated work of these public servants. Under any reforms the Legislature may enact, many parents will decide that their neighborhood public school provides the best educational option for their children. 

However, it is important that other options are available for those who need them. Specialized education programs, especially for students with unique learning needs, are not always accessible in traditional schools. As such, many private and parochial schools in South Carolina have developed programs specifically for special needs students.

The fact that other options are needed is not debatable as a public policy matter. State legislators on both sides of the aisle made that decision years ago when they codified the South Carolina’s special needs scholarship program into law. Unfortunately, the program in its current state is failing to meet its goals and serve many of our most vulnerable students.

EXCEPTIONAL SC

South Carolina’s special needs scholarship program relies on tax-deductible private donations to fund a limited number of scholarships, which can be used by families to cover private school tuition, transportation, and textbooks costs, up to $11,000 per student. Total scholarship funding is capped at $12 million per year.

A separate but related tax credit, also worth $11,000, can be claimed by parents who pay for private school tuition out of pocket. These credits are generally capped at $2 million annually, though the amount can be raised if scholarship funding falls short. Unlike scholarships, a tax credit requires parents to pay for school out of pocket and get credited in the future.

The scholarship program is run by a government-designated nonprofit called “Exceptional SC,” whose governing board is appointed by legislators and the governor. When the program was officially codified in 2018, the law gave sole scholarship fundraising authority to Exceptional SC and stopped other nonprofits from participating.

But over the last several years, Exceptional SC has struggled tremendously to hit its fundraising target. Critically, the program has not reached its $12 million goal since 2018. And in the school years 2019-20 and 2020-21, the program awarded just $5.2 million and $3.2 million in scholarships, respectively.

As of October 2022, scholarship donations for last year totaled just $1,011,295. With funding so unreliable, families with enrolled children must often choose between borrowing money to pay for unfunded tuition or pulling their kids from school.

Several factors have seemingly contributed to the program’s failings. Among these is a recent change in the federal tax code that discouraged individual-level giving, which is the program’s biggest source of funding. Recent efforts to attract corporate funding have yielded little success.

The program has also suffered from internal issues and leadership challenges. Exceptional SC has not employed a director since its previous director left the job in 2020. The departure came in part because the program was spending more on administration than allowed by law, which prompted the Legislature to raise the cap from 2% to 5% of scholarship funding.

However, not all charity-based scholarship programs have had such problems.

Florida, which funds multiple scholarship programs via private donations, is widely viewed as one of the most successful school-choice states in the nation. Over 85,000 Sunshine State students received scholarships for the 2021-2022 school year, with nearly 2,000 schools in participation. Florida also has an Education Scholarship Account (ESA) program, which uses a share of public education dollars to provide even more scholarship opportunities, including for special needs students.

Unlike the Palmetto State, Florida has no personal income tax and set its sight on corporate donations from the beginning. According to the James Madison Institute, donors who give to Florida’s qualifying scholarship-funding organizations can get a tax credit for the state’s corporate income tax, insurance premium tax and excise tax.

UNDERWHELMING OUTCOMES

• For the 2018-19 school year, there were roughly 19 students with disabilities per special needs teacher in South Carolina, while the national average for that year was 16.7.
• For the 2019-20 school year, the U.S. graduation rate for students with disabilities was 70.6%, while the rate in South Carolina was 55.8%. By comparison, the graduation rate for all students shows South Carolina far less behind the national average (82.2% vs. 86.5).  
• For the 2020-21 school year, the dropout rate for students with disabilities in South Carolina was 4.7%, which was roughly double the dropout rate for all students (2.4%).

LEGISLATIVE OPPORTUNITIES

South Carolina’s special needs scholarship program has long been overdue for reform. Fortunately, two major legislative opportunities have been presented as potential solutions.

First is the K-12 education scholarship proposal (S.39) recently passed by the S.C. Senate. The bill would offer publicly funded scholarships to eligible students to pay for private school tuition, along with other education expenses like textbooks, computers, tutoring and transportation costs. An earlier version of the bill covered students with Individualized Education Plans (IEPs), who are students needing some form of special education, but that section was removed before passing the Senate.

We urge lawmakers to look at including students with IEPs in the final version of the bill. This program is especially important because it provides designated, consistent funding for families with special needs children, something which is severely lacking in the current system.

The second option is a similar but privately funded education-scholarship program, commonly known as the “PACE” plan (Providing Academic Choice in Education). A recently filed PACE bill would provide scholarships to special needs students, among others, to attend private schools of their choice. Scholarship donors would get an income tax credit equal to their donation, with total credits being capped at $25 million per year for special needs scholarships.

While PACE is similar in concept to the Exceptional SC program, it differs in at least two key ways. First, the program would allow multiple nonprofit organizations to raise money for scholarships, which would be privately run and far more efficient than the current program. Second, the bill as currently written lets donors reduce their tax liability up to 100%, whereas this is currently limited to 70%. While these changes don’t necessarily guarantee success, they are steps in the right direction which should help incentivize giving and provide more consistent funding.

With these proposals, South Carolina has the opportunity to join the ranks of other pioneering states when it comes to school choice. We strongly encourage the Legislature to pass both scholarship programs, while making sure special needs students are covered under the publicly funded option, so that South Carolina can provide a robust set of educational options for the state’s most vulnerable students.