Scholarship Granting Organization Training

1. Scholarship Granting Organization Training Workshop 1: Administrative Best Practices Presenters: & Mary Eaker Executive Director Institute for Quality Education Lisa Kelly President & Executive Director Georgia GOAL Scholarship Program

2. SGOs: Could stand for… Stress Generating Organizations

3. Indiana Tax Credit Scholarship • Indiana Code 20-51 and Indiana Code 6-3.1-30.5 create a School Scholarship and School Scholarship Tax Credit Program. • Funding for scholarships come from private, charitable donations to qualified scholarship granting organizations (SGOs). • Donors (individuals or corporations) are eligible to take advantage of a 50% tax credit. • While there are no limits on the size of qualifying contributions to an SGO,the entire tax credit program has a limit of $14 million for FY2019. This permits up to $28 million in donations and scholarships for FY2019.

4. Indiana Tax Credit Scholarship • Both the Indiana Department of Revenue and Indiana Department of Education have adopted rules to implement the program. An organization that seeks certification as an SGO must submit the application and agreement as well as documents that establish eligibility under applicable statutes and rules. The documents must include: • Proof of 501(c)(3) status. • Proof, through articles of incorporation or other documents, that the organizationis organized at least in part to grant school scholarships. • Program policies. • Program procedures. • Promotional or descriptive materials about the program, including eligibility criteria and application forms

5. Georgia Tax Credit Scholarship • Enacted in 2008, Georgia’s education tax credit program was the 6th of its kind in the nation. Initially the available credits were $50 million per year, increased to $100 million as of 2019! • Funding for scholarships come from private contributions to qualified student scholarship organizations (SSOs). • Donors (individuals or corporations) are eligible to contribute in exchange for a 100% Georgia income tax credit. • Georgia taxpayers may contribute up to the following limits: • $1,000 (single) • $2,500 (married filing jointly) • $10,000 (individual with ownership in S Corp, LLC or partnership) • C corporations and trusts: 75% of their annual Georgia income tax liability 

6. Georgia Tax Credit Scholarship 2018 data provided by Georgia Department of Revenue • Number of tax credit contributions: 22,900 • Value of tax credit contribution revenue: $52 million • Number of scholarships awarded: 13,895 • Value of scholarships awarded: $55.6 million • Number of SGOs in our State: 30 • Percentage of market share for our organization: 40%

7. SGOs: So many groups to engage! Taxpayer contributors Scholarship recipient families Media Department of Education Private school communities SGO Department of Revenue State legislature IRS/Treasury Competitor SGOs Public policy organizations

8. How can we navigate with efficiency & effectiveness? Constituents’ needs are varied, the pace is intense, and running the organization like a business, serving stakeholders with efficiency and quality, is the key to taxpayer contributor satisfaction and the growth of the program.

9. SGO Straw Poll • What is your greatest challenge in running your organization? • What do you simply not have the time (or resources) to take on?

10. Administrative Best Practices • Conquering the startup phase and moving to “survive and thrive!” • Guiding principles to enhance success • Business practices: an essential foundation • Building your SGO brand and building program momentum • Other practices which have become some of our “best” • How to deal with unwelcome changes

11. Major challenges for Startup – and even maturing – SGOs • Competition • Customer acquisition and retention • Technology / automation • Market changes (including statutory & regulatory) • Managing multiple constituencies • Battling the nay-sayers (communications/PR)

12. Differentiate by providing automated systems, marketing / PR toolkits, and best practices

13. Institutionalize best practices ASAP. “GOALTenders Playbook” provided to participating schools, containing strategies, correspondence, materials and a timeline for most effective fundraising

14. IQE – What sets us apart • The Institute for Quality Education is the only SGO in Indiana that is also an advocacy organization. • We actively work with parents, teachers, schools and communities around the state to advance policies that ensure every child has access to a quality education. • We are passionate about protecting and expanding the tax credit scholarship program and ensuring policy makers fully appreciate the impact it is having on Hoosier students.

15. IQE - Who We Are • Our staff has individuals dedicated to state-wide outreach, communications, research and policy. • To help parents learn more about their school choice options and whether they qualify for financial assistance, we have developed a free online tool available at MySchoolOptions.org. Schools may point parents to this tool as a resource. • Additionally, IQE partner schools have access to our SGO administration system which allows them to easily track donations in real time, request disbursement payments, and manage the application process online. • Video explaining the Indiana Scholarship Tax Credit https://www.youtube.com/watch?v=xmmtD-2qS6I

16. IQE - What We Do Dedicated to servicing the SGO program, donors and schools. IQE will: • Work closely with partner schools to facilitate the submission and processing of scholarships applications online • Provide an efficient award process and scholarship disbursements • Ensure donations are restricted to the school of the donor’s choice Marketing and Communication • Organizationally we have spent approximately $1 million each year marketing choice programs to Hoosier families who are likely eligible based on income or other criteria. • IQE sends regular monthly newsletters to our partner schools to help keep them updated on our organization, IDOE and legislative news. • Video that explains the Scholarship Tax Credit https://www.youtube.com/watch?v=xmmtD-2qS6I

17. Moving into survive & thrive mode • Put a stake in the ground and do things you don’t feel ready to do, e.g., • Annual Report/Financial Audit • Statewide Conference • Institutionalize everything – make it consistent, repeatable, scalable • Then, improve it! • Treasure, nurture and affirm each stakeholder • Celebrate every victory (remember why you’re working so hard)!

18. Transparency & to affirm donor loyalty: Annual Report mailed to all 20,000 GOAL contributors

19. Annual meetings for participating schools to discuss strategy, best practices, legislative developments and to hear state and national speakers address our law & program • A Worthy Public Policy that Makes Sense and Cents for Georgia Dr. Ben Scafidi, Director, Education Economics Center, Kennesaw State University • Special Recognition and Remarks Representative John Carson (R-Marietta) • Fighting the Good Fight to Preserve this Program Tim Keller, Institute for Justice • Breakout Session 1 – Panel discussion on “How to raise the bar at my school” • Breakout Session 2 – Taxes and legislation • Lunch and Presentation of GOAL Achievement Awards

21. Guiding principles • In addition to a formal mission, goals & objectives, our informal mantra became “that no one associated with this program will ever go to bed at night with the slightest concern” related to being involved with our organization • Taxpayer contributors • Scholarship recipient families • Participating private schools

22. Business practices: policies & processes • Essential to making this happen is the creation of clear and precise policies, related to: • All requirements under the statute, and those not included in the statute • Ethics, transparency and mission • Providing the best possible service to all constituencies • Going beyond requirements in transparency and accountability • Then, to continually work to improve, streamline and automate processes

23. Building your brand and momentum • Create enthusiasm and recognizable “SGO Identity” • Conduct stakeholder satisfaction surveys to build loyalty • Deliver the best service in the marketplace • Provide unsurpassed efficiency • Become the gold standard for doing “business” and taking care of your constituents

24. A few other practices among our “best” that we adopted early

25. Best Practice: SGO Advisory Committee Advisory committee of participating school officials (with 3 year terms) – has proven invaluable!

26. Best Practice: Indiana SGO Association Mission • To ensure access to tax credit scholarships for eligible Hoosier Students and to protect the integrity of the Indiana School Scholarship Tax Credit Program through open communication and self-regulation. Purpose • To participate in regular meetings (2x per year) and discuss program management, policy updates, servicing issues and opportunities to collaborate.

27. Best Practice: Surveys are our Friend • Surveys of constituent groups (using Survey Monkey survey tool) • Participating School Officials – surveyed annually • How do you feel about the overall support provided by GOAL as your partner SSO? • Parents of scholarship recipients – every two to three years • Provides pure gold for sharing with contributors, lawmakers and the public and provides the reality (which is almost always at odds with the perspective of program opponents)

28. Dealing with challenges & unwelcome changes • We can establish best practices, business systems, and constituent loyalty that are top-notch, and yet… • Legislative, state or federal regulatory changes can throw a wrench in the gears • What to do and how to do it, under these circumstances? • A couple of examples and our efforts to make the best of them

29. Example Problem #1: Georgia program oversubscribed with diminishing returns!

30. Georgia’s Program was Oversubscribed 2015, 2016, 2017, 2018 What are we to do?! Never, never, never give up!

31. Then, during 2018 Georgia General Assembly

32. After almost a decade of efforts to expand this program:

33. Georgia Has Something to Celebrate

34. IndianaHistorical Tax Credit Info • FYTotal Credits AvailableCredits UsedDate exhausted • FY11 $2,500,000.00 $408,053.00 • FY12 $5,000,000.00 $2,069,466.00 • FY13 $5,000,000.00 $2,483,864.00 • FY14 $7,500,000.00 $7,088,000.00 • FY15 $7,500,000.00 $7,500,000.00 June 2015 • FY16 $8,500,000.00 $8,500,000.00 February 2016 • FY17 $9,500,000.00 $9,500,000.00 December 2016 • FY18 $12,500,000.00 $12,395,047.00 • FY19 $14,000,000.00 $10,881,457.00 • *as of 06/28/2019 Indiana Scholarship Tax Credit Scholarship Program works hand in hand with the Choice Scholarship Program (voucher) which is the most expansive voucher program in the country. In 18/19 there were 36,000 students on a voucher and 4263 students received a tax credit scholarship.

35. Example Problem #2: IRS Proposed Regulations!

36. A Review of the Basics – Federal Tax Impact • Before 2018: A contribution was tax-deductible to the full extent of the federal charitable tax laws, as our organizations are 501(c)(3) charities. For the majority of taxpayers, the result was simply a “wash” for purposes of their federal tax impact – no cost or financial advantage (unless taxpayer was subject to AMT). This is because the taxpayer could also deduct the payment of their state income taxes if they did not make a contribution to our organizations. • In 2018: Federal tax legislation (Tax Cuts & Jobs Act) created a financial advantage for many taxpayers: all those who itemized and owed more than $10,000 in state & local taxes. Taxpayers were ‘getting back’ a deduction they had lost by contributing to our organizations. • Beginning August 27, 2018: Proposed IRS regulations removed the federal tax financial advantage for all taxpayers, and potentially created a cost for some!

37. Breakthrough! IRS Notice Dated June 11, 2019 • Taxpayers with total SALT deductions of less than $10,000 who desire to contribute without losing their federal deduction for state income taxes paid may elect to treat their charitable contribution as a state income tax payment. • This eliminates the unintended penalty that may have caused some taxpayers to “bail.” • Although this penalty did not affect many, the “possibility” of the cost was a significant disincentive to CPAs and financial advisors, and therefore, their clients. Embrace the positive!

38. Proposed IRS Regulations – Another wrinkle • On December 28, 2018, the IRS issued guidance (Rev. Proc. 2019-12) providing a safe harbor for “C” corporations to deduct (as ordinary and necessary business expenses) payments made to state charitable programs in exchange for a state income tax credit. • When may the owners of interests in pass-through business entities deduct contributions to SSOs as deductible business expenses?

39. Potential Incentive for Pass-throughs • In a call on June 10, a senior Treasury official gave reason for optimism that pass-through entities will be treated in the same manner for federal income tax purposes as C-Corps, per a new Proposed Regulation to be issued in the near future. • When a pass-through business is permitted to take a federal business deduction, the net income of the business to the business owner is reduced by the amount of the contribution, which, in essence, is the same treatment as if the business owner received a charitable deduction.

40. Our Response to a Reluctant CPA: “Why is this good news?” • This as good news because it eliminates the possibility of any negative federal income tax impact for donors to our program.   • Keep in mind that the purpose of this tax credit is to provide taxpayers with an opportunity to make an important philanthropic impact within our state – at no cost to them.  In essence, taxpayers may pay their state income taxes – an expenditure that they are required to make anyway – through contributing to provide K-12 educational opportunities to deserving families.  • It was never anticipated that these taxpayers would be able to ‘make money’ at the federal level, though we experienced that outcome for a portion of 2018 for Georgia • So, the really good news is that Georgia and Indiana taxpayers may act on their altruistic motivations to improve access to quality education in our state, with very little effort and at no cost!  • There just are not many opportunities as impactful and as positive as this one.

41. So, what does it take to survive as an SGO ? • Working harder than you ever anticipated you would • Being fortunate enough to find the right team, who will also work harder than they thought they would • Embracing the reality that every member of the organization will be wearing multiple hats during this stage (maybe forever?) • Putting ‘all hands on deck’ in different areas during different ‘busy seasons’ in order to avoid bottlenecks • Putting every spare penny into automation, to achieve efficiencies and scalability, and continually reviewing and streamlining all business processes • Staying positive, when things beyond your control are negative and always doing the “next best right thing”