With voters set to weigh in during this November’s election on last year’s legislation providing state tax credits for donations to private school scholarships, the Nebraska Legislature is expected to debate another proposal to divert public funds to private schools.

An amendment to LB 1402 (AM 3016), a bill likely to be debated on Tuesday, would create a state appropriation of $25 million to the state treasurer for the purpose of funding private school scholarships. The program could grow to $100 million annually, eating into what is available to spend on state budget priorities including health care, roads and bridges and public education.

A bill passed last year, LB 753, created dollar-for-dollar state income tax credits for donations to organizations granting private school scholarships. The program, implemented on Jan. 1, is subject to a referendum vote in the general election after more than 117,000 Nebraskans signed petitions last summer. 

How the new proposal differs from LB 753

Appropriation vs. tax credit. Unlike LB 753, which provides state income tax credits for donations to private school scholarships, LB 1402 is a direct appropriation of state funds potentially designed to block a referendum effort similar to what followed passage of LB 753 last year.

Referendum language in the Nebraska constitution reads: “The second power reserved is the referendum which may be invoked, by petition, against any act or part of an act of the Legislature, except those making appropriations for the expense of the state government …”

Through tax credits, LB 753 was designed as a workaround to constitutional provisions on state spending. The Nebraska constitution reads: “… appropriation of public funds shall not be made to any school or institution of learning not owned or exclusively controlled by the state or a political subdivision thereof.” As an appropriation, LB 1402 could be subject to a court challenge.

Escalating costs. LB 1402 would appropriate $25 million to fund private school scholarships in FY 25 and allows state spending on the program to grow by 125% each year until reaching $100 million. The escalator clause in LB 753 doesn’t kick in until the fourth year.

Assuming full implementation of the program, the state would spend $676.8 million on LB 1402 in its first 10 years, according to analysis by OpenSky. That’s a 28% increase over what LB 753 sets aside for tax credits over the first decade.

Private program managers. Under the amendment to LB 1402, the state treasurer would select up to three private vendors to manage the program. Those private vendors, which could include out-of-state companies set up to administer voucher programs in other states, can withhold up to 7.5% of the state’s annual appropriation as administrative fees, or almost $1.9 million in the first year.

Under LB 753, nonprofit Scholarship Granting Organizations (SGOs) subject to certification by the Nebraska Department of Revenue solicit donations eligible for the tax credit and award the scholarships. The SGOs can initially withhold 10% of donations as administrative costs. That cap drops to 5% in later years.

Programs continue to expand in other states

The bill passed last year, and this year’s proposal, are in line with initial school privatization measures in other states that generally start small, with provisions that prioritize scholarships for students from low-income families. Elsewhere, these programs have rapidly escalated in cost, reducing the funds that are available to provide state services that residents rely on and put additional pressure on property taxes.

In Arizona, the cost of its universal voucher program has exceeded budget projections by 1,346%. Florida’s voucher expansion grew from an estimated $646 million to $3.35 billion.

Unlike public schools, the private schools in Nebraska which would receive state funds under LB 1402 can pick and choose which students are admitted, and there’s no requirement to report on how their students are performing. Currently, private schools operate in fewer than half of Nebraska’s counties.

Read more on LB 1402 from Nebraska Examiner

Read op-ed from former senators on allowing voters to weigh in