Bill would revive tax credit scholarship program

Nebraskans again could receive a tax credit for contributions to organizations that grant scholarships to students to attend private school under a bill heard Feb. 6 by the Revenue Committee.

LB509, sponsored by Elkhorn Sen. Tony Sorrentino, would allow individuals, passthrough entities, estates, trusts and corporations to claim a nonrefundable income tax credit of up to 50 percent of their state income tax liability on contributions made to nonprofit organizations that grant scholarships to students to attend private school.

Sorrentino said the proposal is “nearly identical” to the program created by the Legislature in 2023 with LB753. That program was repealed by LB1402, passed last year, which instead required the state treasurer to establish a program to provide scholarships to eligible students to pay costs associated with attending a qualified private school.

LB1402, which appropriated $10 million to the program in fiscal year 2024-25 and FY2025-26, was repealed by voters in the November 2024 general election after being placed on the ballot by a successful referendum petition process.

More than 4,500 students received scholarships under the two programs, Sorrentino said, and many of those families are now anxious that they will not have the financial means to keep their children in the school of their choice.

“That’s why I’m bringing back the scholarship tax credit legislation — to give these parents hope for the future and to give kids a chance at the best K-12 education that they could possibly receive based on their needs,” he said.

Credits for individuals, passthrough entities and corporations would be capped at $100,000, and credits for estates or trusts would be limited to $1 million. The credit could be carried forward and applied to the taxpayer’s income tax liability for the next five years. A taxpayer could not designate their contribution for the benefit of a specific student.

Only Nebraska residents would be eligible for the scholarships. They could be used to pay all or part of the cost to educate an eligible student at a qualifying privately operated elementary or secondary school that complies with certain federal anti-discrimination provisions and fulfills the applicable accreditation or approval requirements established by the State Board of Education.

A scholarship-granting organization would have to provide the state Department of Revenue with sufficient information to show that it would use a priority ranking system to distribute scholarships to certain students, including those whose household income does not exceed 185 percent of the federal poverty level.

LB509 would limit the total annual amount of credits for 2025, 2026 and 2027 to $25 million. After that, if at least 90% of the prior year’s credits are claimed, the annual limit would increase by 25%. Annual increases could continue until the limit reaches $100 million.

The department estimates that all credits would be claimed in each of the program’s first three years and that LB509 would reduce state general fund revenue by $31.3 million in FY2028-29.

Michele Rivera of Kearney testified in support of the bill. She said her daughter Rylee experienced “tremendous” academic and personal growth after switching from a public school to a Catholic school with the help of a $2,000 scholarship she received under the LB753 program.

“That scholarship made it easier for us to focus on Rylee and getting her the best education for her individual needs,” Rivera said.

Also in support was Jeremy Ekeler, executive director of Opportunity Scholarships of Nebraska. Of the scholarships his organization granted under LB753, he said, nearly half went to students whose families qualified for the Children’s Health Insurance Program, 45% to students in rural areas and 38% to students of color.

“Two things can be true at the same time,” Ekeler said. “We can invest in choice for parents and invest in great public schools.”

Testifying in opposition to LB509 was Tim Royers, president of the Nebraska State Education Association. Like the previous program, he said, LB509 would not require qualifying private schools to meet the same nondiscrimination and accountability requirements as public schools.

He said polling and last year’s election results show that the majority of Nebraska voters do not support tax credit scholarships.

Also in opposition was Jean McGuire of Lincoln, who said it would be “indefensible” for lawmakers to ignore voters’ wishes on the issue of using public funds to benefit private schools.

“The message they wanted to send to you as legislators was and remains clear,” McGuire said. “Do not divert public funds to pay for private schools.”

Rebecca Firestone of OpenSky Policy Institute also testified in opposition, saying the proposed credit would provide a tax benefit nearly 20 times greater than the deduction available for other types of charitable donations.

She said LB509 also would reduce state general fund revenue at a time when the Legislature is facing a $430 million revenue shortfall.

The committee took no immediate action on the bill.