Private schools raking in cash thanks to 2011 reform law

When The Oaks Academy decided a year ago to launch a second inner-city private school, its leaders committed to nearly doubling the $1 million they raise annually for student scholarships.

It seems like a lot to ask, but they’re confident they can do it due in part to a generally overlooked part of the 2011 education reform package that is helping private schools line up more donations.

Donors already had incentive to contribute thanks to a law that allows them to claim a 50-percent tax credit on scholarship gifts. But the law requires that donations be funneled through third-party granting organizations, and it wasn’t clear if donors could designate which school they wanted their money to go to.

The 2011 reform package makes it clear they can direct gifts, a move that seems to have unleashed the tax credit’s full potential.

The clarification—as well as heavy promotion of the new law by two Indianapolis-based scholarship-granting organizations—has prompted more than 100 schools to begin telling their donors about the tax credit.

Gifts to fund private-school scholarships statewide already are at $3.1 million for the current school year, up 40 percent compared to all of the previous year. Total contributions under the program are capped by law at $10 million.

The new source of funds is another way the roughly 400 private schools around Indiana could increase in number and capacity, thereby playing a larger role in the future of Indiana’s education system.

While the tax credits will generate less money than the private school voucher program the Legislature also passed in 2011, private schools feel they can count on the credits for years to come because they are less controversial.

Indiana’s voucher program—which gives an average annual scholarship of $4,500 to low- and middle-income students to attend a private school—is the subject of a constitutional challenge that will be heard by the Indiana Supreme Court.

Lindell

“Everyone believes tax credits are fairly stable and here to stay. That’s not the case with vouchers,” said Mike Lindell, chief operating officer of the Indianapolis-based think tank Sagamore Institute, which set up a scholarship-granting organization in 2011.

Sagamore is now working with 50 schools around the state—including Cathedral High School in Indianapolis and the Pinnacle School in Bloomington—and so far has received more than $1.3 million in contributions during this school year. By the end of May, it will have awarded about 400 scholarships.

“What they discovered is, they could increase their donor base,” Lindell said of private schools. Next year, he hopes Sagamore’s scholarship-granting organization pulls in as much as $2.5 million.

Also, the pioneer of private-school scholarships, Indianapolis-based Education Choice Charitable Trust, has expanded its scope statewide, tripling the number of schools with which it works to 150. It has also nearly tripled the number of scholarships it has awarded, to 1,450, and has more than doubled its total fundraising, to more than $1.2 million.

“It has helped increase donor participation. Because now donors have the confidence of knowing they can help their alma mater or that they’re helping a specific school in a community,” said Mindy Colbert Mesta, executive director of Education Choice.

The tax credit for private-school scholarships was passed by the Legislature in 2009. But at that time, it appeared to require donors to contribute to a general scholarship funding organization, which would then pass out scholarships to students at a variety of schools.

That’s primarily how Education Choice operated, working with schools in the Indianapolis area.

Mesta said the organization received an interpretation of the 2009 law from the Indiana Department of Education that OK’d donors designating funds to a specific school. But that interpretation was not widely known by donors or by the schools hitting them up for cash.

The Oaks has received scholarships from Choice for the past decade, but it did not encourage its donors to make contributions.

But over the past year, The Oaks held several information sessions for donors—especially targeting Indiana business owners who have large state tax liabilities—showing them how the tax credit allowed them to give more to the Oaks without increasing their out-of-pocket costs.

The Oaks also will make donors aware of their giving options during an April 18 fundraising event headlined by Gov. Mitch Daniels, a longtime supporter of the school.

The Oaks raised about $750,000 through Sagamore’s scholarship program over the past year. Those scholarships will cover most of Oaks’ $8,600 yearly tuition for about 100 students.

The Oaks’ fundraising needs are particularly high because it has a quota that half its students come from low-income families. And nearly 80 percent of its students receive some form of financial aid.

To be eligible for a scholarship tax credit program, a student’s family must have income that is less than double the federal poverty limit. Also, a student must either have received a tax credit scholarship the previous year or have been enrolled in a public school the previous year, or be entering kindergarten or first grade.

No donor can designate a gift to a specific student.

Dave Smitson, president of Indianapolis-based engine distributor Cummins Crosspoint LLC and chairman of The Oaks’ board of trustees, said he doubled his personal gift to the school this year while taking advantage of the state tax credit.

Smitson declined to specify how much he gave. But he said the state tax credit, in combination with federal tax deductions, can make a $150,000 donation have a net cost to the donor of just $49,000.

“For me personally, it was, ‘Why not just double my gift and be more generous?’” Smitson said, adding that many other donors responded in the same way. The Oaks’ scholarship fundraising this year has already brought in more than $1.3 million.

Next year, when The Oaks opens its new school along Rural Street just south of Interstate 70, it will need nearly $2 million in scholarship fundraising. The new school, called Oaks Academy-Brookside, initially will enroll 96 students, with 30 of those transferring from The Oaks’ current location at 2301 N. Park Ave.

The new school will start out with students in pre-kindergarten through second grade, and will add one grade each year until its eldest students are eighth-graders.•