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Outsourcing decision making to an independent scholarship organization increases the risk to the General Fund.

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It is unusual, under any circumstances, for New Hampshire to consider outsourcing the administration of a huge new program such as the ESA initiative to an outside entity, especially one about which the State has no detailed information. However, the possibility is especially concerning in the case of SB 193.

There could be any number of qualified “scholarship organizations” in New Hampshire by the time an ESA program is created, if it is.  Here is the application to become a scholarship organization “qualified” to receive millions of dollars in New Hampshire state funds and make grants to induce thousands of New Hampshire children to leave public schools.  It consists entirely of the organization’s name and address and its tax exemption letter.

SB 193 says that a single scholarship organization will manage the whole program. However, the bill specifies no process or criteria for selecting the organization to which the State would grant such enormous power and which would provide its own oversight.

So far, there are two such organizations, both formed to administer the Education Tax Credit (ETC) program created in 2012. One is the Children’s Scholarship Fund of New Hampshire, the parent organization of which is a $24 million New York-based organization with highly paid executive staff. The other is the Giving and Going Alliance, affiliated with the Concord Christian Academy, which provides no information on its 990 or its website.

When asked for a copy of these organizations’ applications to become scholarship organizations, the New Hampshire Department of Revenue Administration said they were confidential.

While there is no meaningful information available about either organization, both have operating history in the State. CSF (nee “Network for Educational Opportunity) registered as a scholarship organization in 2013 and GGA registered soon after. CSF has had a continuous presence in the New Hampshire legislature and played a central role in the development of both the 2012 ETC bill and the 2018 ESA bill.

A tabulation of their ETC grant making activity to date shows that they have disbursed a total of $1,476,655 over 5 years. CSF says they have served 260 students. GGA does not say how many students they have served. There is no contact information for a person at GGA.  While the ETC program requires limited reporting, several observations can be made:

  • The combined organizations have awarded a total of 779 grants.
  • Their grants have been concentrated in relatively few, primarily property poor, New Hampshire communities (tabulated here)
  • Most of the grants CSF and GGA make for private school tuition go to religious schools – 81-85% in recent years. Seventy-nine grants have gone homeschoolers over the past two years.
  • The ETC program initially allowed scholarship organizations to take 10% of the funds they handled for administrative purposes. The figure is now 5%.

The State of New Hampshire is essentially funding these two organizations to do their own thing. The Giving and Going Alliance, for instance, was originally established to help students attend Concord Christian Academy, but the statute does not allow that. GGA has now expanded its mission to include grants to students at several other Christian schools. In other words, students can get GGA grants only if they attend one of its member schools. It made 75 grants in 2017 – 50 to the Concord Christian Academy students and 25 each to two students attending two other schools.

Under either the ETC or the ESA programs, the scholarship organizations are not required to report how many applications they received or how they made their selection decisions. According to media reports, however, it appears that at least 1,000 children applied for ETC grants last year. Of the 332 students selected by CSF and GGA in 2017, 107 attended six of GGA’s seven member schools.

There are many problems with outsourcing, but two obvious ones are:

  • The incentives are poorly aligned. The more grants a scholarship organization gives, the more money it gets. But the fastest way to move the money is to concentrate on several communities, as CSF has done, or schools, as GGA has done. This inequitable decision making would be a fundamental misdirection of the public purpose of the State’s funds but also would increase the General Fund obligation.
  • There is no transparency into the operations and finances of the scholarship organization. There is no provision for detailed state oversight of the parents’ expenditures. If the scholarship organization chooses to audit a student account and finds a problem, the department may hold a hearing, etc. This is a cumbersome and ineffective after-the-fact system for assuring that many millions of public dollars are properly spent. A much more effective debit card system has become a scandal in Arizona.

The agendas and priorities of the scholarship organizations have had minimal impact on New Hampshire public education so far because the program, funded by business tax credits, has garnered little business support and continues to be small. However, SB 193 proposes to create a major ESA initiative with unlimited funding and impact on New Hampshire’s system of public education.

It is surprising that a bill that could send tens of millions of New Hampshire dollars to an unaccountable organization headquartered out of state, qualified by putting its name and address on a one page form, has come this far through the legislative process.

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