Gov. Tom Wolf said Wednesday that he will veto a proposed expansion of Pennsylvania’s Educational Improvement Tax Credit, which directs millions of potential tax dollars each year to private schools and educational programs.

But that doesn’t mean that the proposal from House Speaker Mike Turzai, R-Allegheny, is going to disappear anytime soon.

Turzai’s bill would nearly double the size of the EITC private school scholarship program, which provides up to $110 million per year in tax credits to businesses that donate to K-12 scholarship funds. The bill also calls for that cap to increase by 10 percent annually if 90 percent of the credits are claimed.

With a few legislative maneuvers, it’s possible the tax credit program could still get a boost in the state’s 2019-20 budget. It just may not be what Turzai initially proposed.

As part of the state’s annual budget process, the governor signs off on dozens of code bills that authorize state statutes to take effect in the new fiscal year.

These bills govern everything from education and agriculture to human services and liquor sales.

The General Assembly can make line-item amendments to the code bills before they vote to send them to the governor’s desk. If lawmakers want to authorize an increase to the tax credit program, they can do it by tweaking the state’s school code, which lays out the program’s budget and rules.

A spokesperson for Turzai declined to discuss strategy Wednesday afternoon, saying only that “Governor Wolf should sign the bill.”

Wolf’s spokesperson was equally circumspect.

“I can’t speculate about code bills that don’t exist yet,” spokesperson J.J. Abbott said.

In short, the EITC expansion could remain an important bargaining chip during budget negotiations this month, despite Wolf’s looming veto. With that in mind, here’s a look at how the program works and who stands to benefit from it.

How potential tax dollars turn into scholarships

Since 2001, Pennsylvania’s EITC program has allowed businesses and individuals to lower their tax bills by donating to private schools, scholarship organizations, pre-K programs, and other educational enrichment initiatives.

The bulk of the tax credits — $110 million per year — are reserved for donors that give to scholarship organizations, which provide financial aid to children attending K-12 private schools.

Donors can also get tax credits for giving to Educational Improvement Organizations — non-profit museums, civic clubs, and community centers that provide innovative programs in public schools. The program also sets aside a small sliver of tax credits for donors that give to pre-k scholarship funds.

Businesses can donate up to $750,000 each year to EITC-eligible organizations, and then claim 75 percent of that donation as a credit that offsets their state tax bill. The credit can increase to 90 percent if they commit to donate funds for two consecutive years.

For instance, a business that pledges a $100,000 donation for two consecutive years could receive a $90,000 credit each year, which chops $90,000 off their tax bill.

Who benefits?

Critics of the EITC program say it deprives the state of potential tax revenue and subsidizes private school tuition for families that choose to leave public schools.

But lawmakers who support EITC tout it as a win-win for businesses and school students. The businesses get attractive tax credits that encourage them to stay in Pennsylvania, they say, and students get scholarships that offer them an alternative to public schools.

There’s no question that the tax credits are in high demand. Corporate and individual donors gave a total of $137.5 million to EITC organizations during the 2017-18 cycle, according to data from Pennsylvania’s Department of Community and Economic Development, which administers the program.

In return, they received a total of $124 million in Pennsylvania tax credits. (The program budget was capped at $135 million that year.)

The program is most popular in Montgomery County, where businesses and individuals claimed $35 million in tax credits on $39 million in charitable gifts. Donors in Allegheny County — where Turzai serves as a state Representative — gave $15.7 million the same year, making it the second-leading source of EITC contributions.

Some of the largest contributors to EITC programs are Limited Liability Corporations (LLCs). These “special purpose entities” represent individual donors giving to private charities, according to Bill O’Brien, executive director of Business Leadership Organized for Catholic Schools, a leading recipient of EITC funds.

O’Brien’s organization, which predominantly grants scholarships to children attending Catholic schools in the Philadelphia area, operates more than a dozen organizations named BLOCS Scholarships LLC.

Those groups were some of the largest donors to EITC programs last year, giving a total of $15.6 million to claim $14 million in tax credits.

O’Brien said the LLCs represent hundreds of individuals who donate to the BLOCS scholarship fund. The foundation passes the tax credits on to its donors, and manages the special purpose entities to save them the headache of doing it themselves, he said.

O’Brien said that most of the donors are “high-net-worth” individuals making sizable gifts. Individual donations usually start at $5,000, he said, but most are closer to $15,000 or $20,000.

All told, EITC gifts went to almost 1,170 different organizations across Pennsylvania in 2017-18, including private religious schools, secular preparatory schools, and community organizations like the YMCA and the Salvation Army.

The vast majority of EITC donations fund private school scholarships for children whose families meet certain income criteria.

Under the current program guidelines, a family that makes $100,608 per year can receive an EITC scholarship for their child — that’s because the program allows for a starting income of $85,000, plus $15,608 for the student and each additional child in the house. So a family with two children could make up to $116,216 and still qualify for EITC scholarships.

BLOCS was the single largest recipient of EITC contributions last year, taking in $18.5 million in contributions, according to DCED data.

Foundations supporting Jewish schools in Pittsburgh and Philadelphia took in $12.5 million during the 2017-18 fiscal year. Catholic dioceses in Altoona, Pittsburgh, and Allentown, meanwhile, received $6 million total for their scholarship funds in the same time period.

Private secular schools are also among the leading recipients of EITC cash. Shady Side Academy in Pittsburgh took in just under $1 million last year. The Agnes Irwin School, an all-girls high school on the Philadelphia Main Line, received $671,928.

In total, the K-12 scholarship organizations gave out 37,725 scholarships totaling $68,507,072 in aid in the 2017-18 fiscal year, according to DCED.

Those modest scholarships can offset the cost of private school tuition, but critics of the tax credit program say that it’s not nearly enough to make private education possible for Pennsylvania’s neediest children.

The Department of Community and Economic Development doesn’t collect data on the family income of scholarship recipients, a spokesperson said Thursday, but some independent scholarship track it themselves.

At BLOCS, three-quarters of scholarships go to families earning less than $75,000 per year, O’Brien said.

Most of the scholarships BLOCS gives out don’t cover full tuition. Last year, the average scholarship BLOCS granted was $2,500 for high school students and $1,800 to $2,000 for grade school students.

The vast majority of the children who receive BLOCS scholarships go to Catholic schools, where tuition can run $4,500 for elementary students and up to $10,000 for high schoolers, O’Brien said.

O’Brien said that poorer families may receive larger grants that offset most of their tuition. But most families pay at least something out of pocket to finance their children’s private education, he said.

“Families pay what they can — maybe $100 to $50 a month — because we want [them] to have some skin in the game,” O’Brien said. “This is a decision they are making for their child, and we want them to want it. If you’re just giving it away it doesn’t do anyone any good, but we try to help as many families as we can.”

What’s the cost?

Pennsylvania doesn’t have to spend anything on tax credit programs, save for the salaries of state employees who administer them. But the state does sacrifice tax revenue every time it grants a tax credit.

The $124 million in educational tax credits the state granted last year represents money that could have flowed into the state’s General Fund — the pot of money that funds schools, roads, and all the other public goods and services in Pennsylvania.

Corporate tax credit programs generally enjoy broad bipartisan support, since they’re one of the simplest ways to convince businesses to set up shop — and stay — in the state. EITC is particularly popular among school choice advocates, who say that children and their families should have alternatives to traditional public schools.

But public education advocates say Pennsylvania doesn’t get much payoff for all the revenue it loses through EITC. They’d rather see that money flow into the state’s public schools.

Skeptics like Sen. Lindsey Williams, D-Allegheny, also say it’s hard to measure the program’s success.

Since the state doesn’t collect data on the income level of children who receive scholarships, Williams argues,  there’s no way to know if the scholarships make private education accessible to low-income children, or simply subsidize families whose children would enroll in private schools anyway.

“What I’m concerned about is that there is virtually no accountability,” Williams said in a Senate Education Committee meeting last week. “We don’t have hard facts about who is benefitting and how these kids are doing in the schools.”