Tax advantages proposed for elementary tuition savings

Contributions to Nebraska’s educational savings plan could be used to pay tuition at private and parochial elementary and secondary schools under a bill heard Jan. 26 by the Revenue Committee.

Sen. Lydia Brasch
Sen. Lydia Brasch

The Nebraska Education Savings Trust Plan provides tax-advantaged 529 accounts, which are meant to encourage saving for college costs. Contributions grow tax-deferred, and withdrawals are exempt from state and federal taxes as long as they are used for qualified higher education expenses such as tuition, books, supplies and room and board. Up to $10,000 in contributions can be deducted from state income taxes.

LB804, introduced by Bancroft Sen. Lydia Brasch, would add tuition to public, private and parochial elementary or secondary schools to the list of qualified expenses beginning in 2020.

Brasch said expanding the allowable expenses under Nebraska’s 529 plan would allow more low- and middle-income families to save for tuition at private and parochial schools.

“LB804 allows everyday Nebraskans the opportunity to save their own money for their children’s education and to spend their money at the school that they are most comfortable with and aligns with their family’s beliefs,” she said.

The state Department of Revenue estimates the bill would reduce state revenue by approximately $2.8 million in fiscal year 2018-19. That would rise to $6.8 million in FY2021-22.

Nebraska State Treasurer Don Stenberg testified in support of the bill. He said the state’s 529 plan has accumulated approximately $4.8 billion in more than 254,000 accounts—79,000 of them owned by Nebraska residents.

In December, Congress extended federal 529 benefits to include K-12 parochial and private education expenses, Stenberg told the committee. LB804 would ensure that Nebraska account holders could receive federal benefits on withdrawals for those expenses in addition to those used for higher education, he said.

Tom Venzor, executive director of the Nebraska Catholic Conference, also testified in support. Families currently are penalized by choosing to send their children to parochial or private school because they have to pay taxes to support public schools in addition to tuition, he said.

Venzor said LB804 would encourage more middle-class families to save for their children’s education and that even small financial incentives can make a difference when deciding whether to attend public or parochial school.

“LB804 recognizes the need for state government to support parents in their responsibility to direct the education of their child as they see fit,” Venzor said.

John Bonaiuto, speaking on behalf of the Nebraska Association of School Boards, testified in opposition to the bill. He said the expanded use of 529 plans would reduce state revenue, possibly forcing cuts in state aid to public schools.

“This drains resources, which are already under attack under the various property tax reform proposals and the general spending cuts and the efforts to reduce tax revenues,” Bonaiuto said.

Regina Werum, a social science teacher from Lincoln, also testified in opposition to the bill, saying that LB804 is an effort to bolster private school expansion at the expense of the state’s public schools. The bill would benefit only those households that can afford to save money in 529 accounts, she said, and it would not require that the contributions be used only for accredited schools.

“What I see here makes the fiscal conservative in me shudder,” Werum said. “And it makes the social justice-driven Jesuit in me shudder, too.”

Also testifying in opposition was Ann Hunter-Pirtle, executive director of Stand for Schools, which believes the proposal’s cost could be much higher than estimated. The state Department of Revenue assumed a 50 percent participation rate in 529 plans by FY2021-22, Hunter-Pirtle said, but if it is closer to 100 percent, LB804 could reduce state revenue by closer to $12 million that year.

“If you’re a family already paying private school tuition, why wouldn’t you open a 529 account under this bill?” she said.

The committee took no immediate action on the bill.

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