A257

An Act establishing a pilot program in the Department of Treasury to allow tax credits for contributions to certain nonprofit educational funding entities and supplementing P.L.1945, c.162 (C.54:10A-1 et seq.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. Beginning in the first full privilege period following the effective date of this act, the Director of the Division of Taxation in the Department of the Treasury shall establish a five-year pilot program to provide tax credits to corporations which contribute funding to nonprofit organizations which provide educational scholarships to help low-income children residing in Camden, Newark, Orange and Trenton pay tuition at out-of-district public schools or in-district or out-of-district nonpublic schools. The goal of the pilot program shall be to allow low-income children in these cities to choose an educational model suited to their individual needs.

b. In each privilege period of the pilot program, a taxpayer shall be allowed a credit against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), in an amount equal to 100% of the contributions made by the taxpayer to a scholarship organization during the privilege period; provided, that the taxpayer shall designate at the time the contribution is made that the contribution is made pursuant to this section.

c. The order of priority of the credit allowed under this section and any other credits allowed by law shall be as prescribed by the director. The amount of the credit applied under this section against the tax imposed pursuant to section 5 of P.L.1945, c.162 for a privilege period shall not reduce the tax liability to an amount less than the statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162. An unused amount of credit shall expire at the end of the privilege period. In aggregate, the total tax contribution of all participating corporations shall not exceed $24,000,000 the first full privilege period, $48,000,000 the second privilege period, 72,000,000 the third privilege period, 96,000,000 the fourth privilege period, and $120,000,000 the fifth privilege period.

d. For the purposes of this section:

"Household income" means income as defined for the purposes of determining eligibility for a free or reduced price lunch pursuant to the State School Lunch Program.

"Low-income child" means a child from a household with an income that does not exceed 2.50 times the official federal poverty level based on family size, established and adjusted under Section 673(2) of Subtitle B, the "Community Services Block Grant Act," Pub. L.97-35 (42 U.S.C. s.9902(2)), for the school year preceding the school year for which an educational scholarship is to be distributed.

"Scholarship organization" means an organization that has been determined by the federal Internal Revenue Service to be qualified as a tax-exempt organization pursuant to paragraph (3) of section (c) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.501, and that:

(1) requires that any tax-creditable contributions accepted by it be designated by the contributor at the time of contribution as a contribution pursuant to this section;

(2) distributes not less than 95% of the tax-creditable contributions that it accepts pursuant to this section as educational scholarships to low-income children;

(3) requires that a child receiving an educational scholarship from the organization is eligible to enroll in a public elementary or secondary school in Camden, Newark, Orange or Trenton;

(4) prohibits a child from receiving in any school year an educational scholarship from the organization that exceeds the lesser of (a) the audited per pupil cost at the out-of-district public school or nonpublic school from which the child is receiving instruction or (b) $6,000 for elementary schools grades K-8 and $9,000 for high schools grades 9-12;

(5) prohibits a child from receiving in any school year more than one educational scholarship from the organization and from receiving an educational scholarship, regardless of amount, from any other scholarship organization; except that the child may receive financial assistance from persons other than a scholarship organization; and

(6) has complied with such other requirements for establishing that it is a scholarship organization as the director may require pursuant to section 4 of this act.

"School" means a public or nonpublic school located in this State offering a program of instruction for kindergarten through 12th grade, or any combination of those grades.

2. a. Beginning in the first full privilege period following the effective date of this act, the Director of the Division of Taxation in the Department of the Treasury shall establish a five-year pilot program to provide tax credits to corporations which contribute funding to nonprofit organizations which provide grants to public schools in Camden, Newark, Orange and Trenton for innovative educational programs. The goal of the pilot program shall be to enhance the curriculum and academic programs offered by public schools in these cities.

b. In each privilege period of the pilot program, a taxpayer shall be allowed a credit against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), in an amount equal to 100% of the contributions made by the taxpayer to an educational improvement organization during the privilege period; provided, that the taxpayer shall designate at the time the contribution is made that the contribution is made pursuant to this section.

d. For the purposes of this section:

"Educational improvement organization" means a organization that has been determined by the federal Internal Revenue Service to be qualified as a tax-exempt organization pursuant to paragraph (3) of section (c) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.501, and that:

(1) requires that any tax-creditable contributions accepted by it be designated by the contributor at the time of contribution as a contribution pursuant to this section;

(2) distributes not less than 95% of the tax-creditable contributions that it accepts pursuant to this section as grants to a public school in Camden, Newark, Orange or Trenton for innovative educational programs; and

(3) has complied with such other requirements for establishing that it is an educational improvement organization as the director may require.

"Innovative educational program" means an advanced academic or similar program that is not a part of the regular academic program of a public school but which enhances the curriculum or academic program of the public school.

3. a. One year prior to the expiration of the pilot program, the Director of the Division of Taxation in the Department of Treasury, in consultation with the Commissioner of Education, shall report to the Governor, the Speaker of the General Assembly and the President of the Senate on the fiscal impact of the pilot program on public and nonpublic schools and on the State budget.

b. One year prior to the expiration of the pilot program, the Commissioner of Education, in consultation with the Director of the Division of Taxation, shall report to the Governor, the Speaker of the General Assembly and the President of the Senate on the educational merits of the pilot program. The report shall provide information on the performance of the public and nonpublic schools participating in the program, including pupil achievement, attendance rates, and dropout and graduation rates; parental and pupil satisfaction with the pilot program; parental involvement; and the overall merit of the program for the pupils, parents, public school districts, and participating nonpublic schools.

4. The Director of the Division of Taxation shall adopt regulations in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), to implement the provisions of this act. The regulations shall, at a minimum:

a. require that a school which admits a child receiving an educational scholarship under this pilot program shall accept the scholarship as payment in full for the child's tuition and any other costs of attendance payable to the school;

b. require that a school which admits a child receiving an educational scholarship under this pilot program shall, in the event that more children apply for admission under the pilot program than there are openings at the school, hold a lottery to determine which children are selected for admission, except that preference for enrollment may be given to siblings of students who are enrolled in the school;

c. require that a nonpublic school which receives children pursuant to the pilot program shall be open to all students who are eligible to participate in the pilot program on a space-available basis and shall not discriminate in its admission policies or practices on the basis of intellectual or athletic ability, measures of achievement or aptitude, status as a handicapped person, proficiency in the English language, or any other basis that would be illegal if used by a public school district; however, nothing in this subsection shall prohibit the director from establishing regulations which permit a school to limit admission to a particular grade level or to areas of concentration of the school, such as mathematics, science, or the arts; and

d. require any nonpublic school which receives children pursuant to the pilot program to be in full compliance with all federal, State and local laws applicable to the nonpublic school.

5. The Department of Education, in consultation with the Director of the Division of Taxation, shall publicize the pilot program to the parents of children attending public schools in Camden, Newark, Orange and Trenton.

6. This act shall take effect immediately.

STATEMENT

This bill establishes a pilot program to provide a tax credit under the corporation business tax (for incorporated businesses) for contributions to a qualified "scholarship organization" or "educational improvement organization." A tax credit will be equal to 100% of the contributions a corporation makes to a qualified organization. While there is no limit on the amount that can be contributed for credit, a corporation may not apply the credits to reduce its tax liability to an amount less than the statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162, and the total tax credit of all participating corporations is capped at $24,000,000 the first full privilege period, $48,000,000 the second privilege period, 72,000,000 the third privilege period, 96,000,000 the fourth privilege period, and $120,000,000 the fifth privilege period.

The bill defines a "scholarship organization" as an organization that has been determined by the federal Internal Revenue Service to be qualified as a tax-exempt organization pursuant to paragraph (3) of section (c) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.501, and that: requires that any tax-creditable contribution which the organization accepts be identified as such by the contributor at the time the contribution is made; distributes not less than 95% of the tax-creditable contributions that it accepts as educational scholarships to low-income children; requires that a child receiving an educational scholarship from the organization is eligible to enroll in a public elementary or secondary school in Camden, Newark, Orange or Trenton; prohibits a child from receiving in any school year an educational scholarship from the organization that exceeds the lesser of (a) the audited per pupil cost at the out-of-district public school or nonpublic school from which the child is receiving instruction or (b) $6,000 for elementary schools grades K-8 and $9,000 for high schools grades 9-12; prohibits a child from receiving in any school year more than one educational scholarship from the organization and from receiving an educational scholarship, regardless of amount, from any other scholarship organization; and has complied with such other requirements for establishing that it is a scholarship organization as the director may require.

The bill defines an "educational improvement organization" (EIO) as an organization that has been determined by the federal Internal Revenue Service to be qualified as a tax-exempt organization pursuant to paragraph (3) of section (c) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.501, and that: requires that any tax-creditable contribution which the organization accepts be identified as such by the contributor at the time the contribution is made; distributes not less than 95% of the tax creditable contributions that it accepts as grants to a public school in Camden, Newark, Orange or Trenton for innovative educational programs; and has complied with such other requirements for establishing that it is an EIO as the director may require. The bill defines "innovative educational program" as an advanced academic or similar program that is not a part of the regular academic program of a public school but which enhances the curriculum or academic program of the public school.

The bill requires the Director of the Division of Taxation to adopt regulations. These must, at a minimum, include the following requirements: a school which admits a child receiving an educational scholarship under the pilot program (participating school) must accept the scholarship as payment in full; in the event that more children apply for admission under the pilot program than there are openings at a participating school, the school must hold a lottery to determine which children are to be selected for admission, except that preference for enrollment may be given to siblings of students who are enrolled in the school; and, for a participating nonpublic school, the school must be open to all students who are eligible to participate in the pilot program on a space-available basis, must not discriminate in its admission policies or practices on the basis of intellectual or athletic ability, measures of achievement or aptitude, status as a handicapped person, proficiency in the English language, or any other basis that would be illegal if used by a public school district, and must be in full compliance with all federal, State and local laws applicable to the school.