Bills to expand use of 529 plans handily advance

The Arkansas Senate and House of Representatives on Wednesday handily approved bills that would extend tax breaks for 529 college savings plans to money used for tuition at private elementary and secondary schools.

The Senate voted 23-6 to send Senate Bill 6 by Sen. Jason Rapert, R-Bigelow, to the House for further action.

The Senate’s action came after the bill narrowly cleared the eight-member Senate Education Committee in a voice vote Wednesday morning. During the committee’s meeting, Senate Republican leader Jim Hendren of Sulphur Springs disagreed with an Arkansas Public Policy Panel official calling it a voucher bill, and Sen. Linda Chesterfield, D-Little Rock, disputed Chief Deputy Treasurer Grant Wallace’s testimony that the bill would benefit Arkansans of all socioeconomic status.

Meanwhile, with little debate, the House of Representatives voted 62-16 to send an identical bill, House Bill 1008 by House Speaker Jeremy Gillam, R-Judsonia, to the Senate. The special session is expected to end today.

Gov. Asa Hutchinson, who put the legislation on the agenda for the special session this week, said he supports the legislation as a matter of policy.

“Bringing Arkansas’ 529 plan in line with federal changes makes more sense than failing to do so, and, as a result, maintaining a totally different 529 plan, which is based on federal rules that no longer exist,” the Republican governor in a written statement distributed to senators. “Similarly, I support a parent’s willingness to invest in the education of their children and believe the state’s 529 plan is an appropriate vehicle to encourage and support the expenses which result.”

But the cost associated with the bill could be significant, based on the state Department of Finance and Administration’s analysis, he said.

“What’s more, the future impact of this legislation could grow further, if more parents and extended family utilize the advantages offered by a new 529 plan to send their children to private school. Therefore, I ask that the Legislature monitor the ongoing costs of deduction [of] 529 expenses for K-12 education, view this bill as a pilot project initiative, and make adjustments in the future, as needed,” Hutchinson said in his written statement.

Under current state law, Arkansans taxpayers can deduct up to $5,000 ($10,000 per family) each year for investments made into their 529 plans. As the plans grow, tax-free withdrawals can be made to pay for higher education expenses. Withdrawals for kindergarten through 12thgrade private school tuition are still subject to taxation in Arkansas, unless state law is changed.

The Finance Department has projected that legislation allowing Arkansans to use funds from their 529 college savings plans for K-12 expenses would cost the state up to $5.2 million a year in tax revenue. That estimate assumes new 529 plans are created if the law changes to allow deductions for private school tuition, the department said.

“They are assuming the worst-case scenario if everybody took full advantage of it and took the full deduction, and we know that is probably not going to be the case,” Rapert told the Senate Education Committee.

Bill Kopsky, executive director of the Arkansas Public Policy Panel, told lawmakers that the state would be far better off spending $5 million more a year on various options to improve education ranging from pre-kindergarten programs to after-school and summer school programs than on this voucher legislation that provides public tax dollars to private schools that aren’t required to meet state standards.

“This is really about a moral and constitutional obligation to provide an equitable and adequate education to every child in the state of Arkansas, and we believe this bill undermines that,” Kopsky said.

But Hendren said the passage or failure of the legislation would have no impact on the public school budget that the Legislature approved in the fiscal session that adjourned Monday.

Hendren said calling the legislation a voucher program “is a misreading of what the definition of a voucher is.

“My understanding of a voucher is we are going to take general revenue dollars that have been paid by all the taxpayers of Arkansas and then we are going to give it to a particular family and say you can now take that and you can pay for private education,” he said. “But that’s not what this bill does.”

Kopsky countered that the Finance Department estimated that the legislation would reduce state tax revenue by up to $5.2 million a year.

“This is a tax benefit, specifically for families who are taking a deduction on money they are spending on private school tuition, so it is tax dollars that would go into general revenue coffers that could be spent on K-12 education,” he said. “You can not call that a voucher if you like because it got a little more complicated than the dance you did to get there.”

Hendren said, “We are just going to have to agree to disagree.”

Wallace, who is the chief deputy treasurer for programs and services, told the Senate committee that “529 plan [funds], whether we like it or not, can be used for K-12 expenses right now and are we going to punish the account holders in Arkansas because they quite frankly can choose to go to another state, invest those funds in another state program and use those funds for K-12 education.”

“This is an effort quite frankly to keep our plan competitive,” he said. “This is not just a program that is benefiting just the wealthy. It is benefiting all Arkansans across all socioeconomic status.”

But Chesterfield questioned whether Arkansans who earn the poverty level of about $16,000, will be investing in a college savings plan rather than paying for food, rent and other expenses.

“Everybody looks at this thing in a different lens and your lens and my lens are totally different because I see no benefit for those persons,” she said. “[P]lease don’t tell me this is going to benefit everybody because it is not.”