School-sav­ings mea­sure moves on

Panel passes pro­posal to let 529 plans pay for pri­vate tu­ition

Arkansas Democrat-Gazette - - NATIONAL - JOHN MORITZ

Leg­is­la­tion al­low­ing col­lege sav­ings plans to be used to pay for pri­vate school tu­ition sailed through the House Ed­u­ca­tion Com­mit­tee on Tues­day.

For the past two weeks, Repub­li­can law­mak­ers sought changes to the state’s 529 pro­gram — which gives tax breaks to Arkansans who in­vest for col­lege sav­ings — by ar­gu­ing the state needs to fall in line with fed­eral pol­icy.

A new fed­eral law al­lows tax-free with­drawals from the plans to also pay for pri­vate school tu­ition, lead­ing to charges from some Democrats and pub­lic ed­u­ca­tion ad­vo­cates that the pro­posed changes are a “back-door voucher pro­gram.”

On Mon­day, the last day of this year’s fis­cal ses­sion, House Speaker Jeremy Gil­lam, R-Jud­so­nia, said “con­jec­ture” had de­railed ef­forts to pass the state pol­icy change as part of a spend­ing bill. The lan­guage had been added to the state trea­surer’s of­fice ap­pro­pri­a­tion, which failed to pass un­til the lan­guage was re­moved.

The 529 plan pro­posal was in­cluded in Gov. Asa Hutchin­son’s call for the spe­cial ses­sion that started Tues­day.

Gil­lam, in pre­sent­ing his ver­sion of the leg­is­la­tion to the House Ed­u­ca­tion Com­mit­tee, con­ceded that the cost es­ti­mates for House Bill 1008 re­mained sub­ject to spec­u­la­tion. He also re­peated mis­in­for­ma­tion cited by oth­ers dur­ing the fis­cal ses­sion about how the tax ben­e­fits could be used for pub­lic school stu­dents.

Af­ter hear­ing from Gil­lam, the Ed­u­ca­tion Com­mit­tee ap­proved the bill on a voice vote, send­ing it to the full House for con­sid­er­a­tion.

“What we are try­ing to do here is to make com­pat­i­ble our 529 plan with what the fed­eral gov­ern­ment has sent down from on high,” the speaker said. “If we do noth­ing, then we are pe­nal­iz­ing the cit­i­zens of Arkansas who have taken their lead from Congress.”

Un­der cur­rent state law, Arkansas tax­pay­ers can deduct up to $5,000 ($10,000 per fam­ily) each year for in­vest­ments made into their 529 plans. As the plans grow, taxfree with­drawals can be made to pay for higher ed­u­ca­tion ex­penses. With­drawals for kinder­garten-through-12th-grade pri­vate school tu­ition are no longer sub­ject to fed­eral taxes, but, with­out changes at the state level, they are still sub­ject to tax­a­tion in Arkansas.

The cost of those changes at the state level, ac­cord­ing to a De­part­ment of Fi­nance and Ad­min­is­tra­tion re­view, would be $5.2 mil­lion in lost rev­enue. Gil­lam, how­ever, said those es­ti­mates were based on ev­ery pri­vate school fam­ily tak­ing full ad­van­tage of the tax break, which he said is “not go­ing to hap­pen.” Crit­ics of the change, point­ing to other states, have said the fi­nance de­part­ment es­ti­mate low-balled the cost.

“I’m afraid it’s go­ing to ad­versely af­fect our bud­get that we didn’t count on,” said state Rep. Mark McEl­roy, I-Til­lar, who voted against it. “I also worry about it af­fect­ing pub­lic schools, and they’re strug­gling along in the Delta.”

Dur­ing his pre­sen­ta­tion, Gil­lam said the tax-free with­drawals also could be used by pub­lic school fam­i­lies to pay for out­side tu­tor­ing or test prep classes, re­peat­ing a point that had been pre­vi­ously made by fel­low Repub­li­cans and the trea­surer’s of­fice, which ad­min­is­ters the plans.

The fi­nance de­part­ment re­port, how­ever, said that changes made to the fed­eral law — and pro­posed to state law — would qual­ify only with­drawals for “tu­ition at an el­e­men­tary or sec­ondary pub­lic, pri­vate or re­li­gious school.”

In re­sponse to a ques­tion about the ap­pli­ca­bil­ity of the new fed­eral pol­icy, an IRS spokesman pointed to an on­line hand­book that said qual­i­fied K-12 ex­penses in­clude up to $10,000 in tu­ition “in con­nec­tion with en­roll­ment or at­ten­dance at an el­i­gi­ble el­e­men­tary or sec­ondary school.”

Asked about the dis­crep­ancy, Gil­lam said he may have “mis­spoke.”

Dur­ing the fis­cal ses­sion, the ap­pro­pri­a­tion for the trea­surer’s of­fice failed to get the three-quar­ters ma­jor­ity it needed to pass. Be­cause it is not an ap­pro­pri­a­tion, HB1008 needs only sim­ple ma­jori­ties in both cham­bers to pass. Only a hand­ful of law­mak­ers voiced op­po­si­tion to the bill in com­mit­tee Tues­day.

No mem­bers of the pub­lic spoke for or against HB1008 at the com­mit­tee hear­ing, but the Arkansas Ed­u­ca­tion As­so­ci­a­tion came out with a state­ment in op­po­si­tion shortly af­ter the vote.

The pro­posed bill “pro­vides a huge tax break for pri­vate school tu­ition,” said the as­so­ci­a­tion’s ex­ec­u­tive di­rec­tor, Tracey Ann Nel­son, in a state­ment. “These pro­pos­als di­min­ish our state’s abil­ity to meet the Con­sti­tu­tional re­quire­ment to pro­vide a free pub­lic ed­u­ca­tion for all stu­dents.”

In a po­si­tion state­ment dis­trib­uted to law­mak­ers, Hutchin­son said he sup­ported the leg­is­la­tion “as a mat­ter of pol­icy” while ad­vis­ing the law­mak­ers to mon­i­tor the fu­ture costs of the changes.

Out­side the Capi­tol, North Lit­tle Rock School Dis­trict Su­per­in­ten­dent Kelly Rodgers said the im­pact of the bill would be in its ef­fect on pub­lic school fund­ing — an ef­fect that he said ap­peared to be min­i­mal.

“I don’t re­ally have a con­cern with it,” Rodgers said. “I think some peo­ple have col­ored it as a voucher bill, but I don’t see that.”

Arkansas Demo­crat-Gazette/STA­TON BREIDENTHAL

Rep. John Walker, D-Lit­tle Rock, waits for an an­swer to a ques­tion Tues­day dur­ing dis­cus­sion on the bill to al­low tax-free col­lege sav­ings funds to pay for pri­vate school tu­ition. The mea­sure sailed through the House Ed­u­ca­tion Com­mit­tee on a voice vote.

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