LITIGATION BACKGROUNDER

Nevada Tax Credit Scholarships

Nevada’s Legislature ignores the state’s Constitution to reduce support for educational choice

To ensure that students of every background have the educational opportunity they need to succeed, the state established the Nevada Educational Choice Scholarship Program, a need-based program funded by private donations incentivized by tax credits. Families looking for just the right school for their children—but for whom private school is a financial impossibility—have the option to apply for a scholarship from one of the nonprofit organizations that raise money through private donations.

To accommodate the state’s growing population and increasing education costs, the 2015 law (A.B. 165) establishing the Scholarship Program increased the number of tax credits available by 10% annually, a so-called “escalator provision.” But after years of successfully providing education to thousands of students, the Legislature and governor acted to repeal the escalator provision in 2019.

However, the Nevada Constitution does not allow the legislature to do anything to increase tax revenue without a two-thirds vote in both the state house and senate. The legislation repealing the escalator provision, which would result in raising revenue, only passed with 13 of 21 votes in the senate, one short of the required two-thirds supermajority.

Nevada parents, a scholarship organization, and private donors have teamed up with the Institute for Justice to file suit in Nevada state court challenging the constitutionality of the reduction in tax credits. If legislators want to raise millions of dollars in tax revenue and effectively gut educational choice scholarships, they must follow Nevada’s Constitution.

The Nevada Educational Choice Scholarship Program

In 2015, Nevada joined 27 other states and the District of Columbia in providing need-based scholarships by creating a tax-credit-funded scholarship program for K-12 students: the Nevada Educational Choice Scholarship Program. This program provides scholarships to families in need who want to choose a private education for their children.

Like most tax credit programs, scholarships are administered by third-party scholarship organizations that use the donated funds to award scholarships. Donors to these organizations are eligible for a state tax credit. In the 2018-19 school year, approximately 2,300 students received scholarships to 61 different schools under the program. The average scholarship award was $5,370, roughly half of the average per-pupil funding for students in the state’s public schools.

To account for the rising costs of education, the 2015 law included an “escalator provision,” which increased the amount of tax credits available each year by 10%. But in June 2019, the Nevada Legislature repealed the escalator provision by passing A.B. 458, thereby removing millions of dollars of planned tax credits. Many families across the state have already lost their scholarships because of this decrease in funding.

A.B. 458 has deprived Nevada families of much-needed funding

Plaintiffs Flor Morency, Bonnie Ybarra, and Keysha Newell are all low-income mothers who were counting on renewed scholarships to keep their children in their current private schools. A.B. 458 has put their children’s educational placements in jeopardy. These plaintiffs’ stories are not unique. They echo those of dozens of other families who are relying on the scholarships to make tuition payments, including families living in poverty and those with disabled children.

Flor Morency

Flor Morency is the mother of twin children, a boy and a girl, who have received scholarships through the Scholarship Program. In public school, Morency’s son was bullied because he was small compared to other boys in the class. And in public school, Morency’s children were also in very crowded classes of around 32 students per classroom. After placing her children into a private Catholic school, Morency saw a marked improvement in her son’s grades. But in July, Morency was informed by her scholarship organization that her children could no longer receive a scholarship because A.B. 458 has made it statistically impossible to grant scholarships to all renewing students.

Bonnie Ybarra

Bonnie Ybarra has three elementary school-aged girls living at home. The two oldest struggled academically at their prior public schools, receiving dismal grades, and the younger of those two was bullied and physically assaulted by other students. Thankfully, Ybarra was able to obtain Program scholarships for both girls to attend a private school where both girls have been able to turn their academic careers around. Ybarra’s youngest daughter was set to join her two sisters at the private school this year, as a kindergartner.

Sadly, in July, Ybarra learned that her daughters’ partial scholarships would not be renewed because of A.B. 458. As a result, Ybarra cannot afford the tuition for all three girls to attend the private school. Thankfully, the school has given the Ybarra family a one-year reprieve and slashed tuition rates for the girls. But, absent an infusion of scholarship funds into the program, Ybarra’s girls face a return to the public-school system that previously failed to meet their educational needs.

Keysha Newell

Keysha Newell is the mother of two children, one in elementary school and the other in preschool. Newell’s daughter is currently enrolled in a private school using a scholarship from the Scholarship Program. While in public school, she struggled to develop her social and interpersonal abilities, but she has thrived at a local Montessori school. Based on that experience, Newell also plans to enroll her youngest child—who has a learning disability—in a private school. But without additional funding, the Scholarship Program may not have the funds to provide her youngest with a scholarship.

A.B. 458 also prevents scholarship organizations and donors from serving Nevada families

Plaintiff AAA Scholarship Foundation is a scholarship organization registered with the Nevada Department of Education to accept donations and provide scholarships. AAA has provided scholarships to 1,311 Nevada students. The majority of families served by AAA are minorities and all are low-income. By removing the millions of dollars in planned tax credits, A.B. 458 has deprived AAA of millions of dollars in potential funding for future scholarships.

Plaintiffs Sklar Williams and Environmental Design Group are Nevada companies that donate thousands of dollars each year to the Scholarship Program. Tax credits make their donations financially feasible. They each would like to continue donating and even to increase their donations to the program, but without the millions of dollars in tax credits removed by A.B. 458, donating more will become increasingly difficult for the companies.

Plaintiffs have challenged A.B. 458 as unconstitutional

The Nevada Constitution provides checks and balances against removing tax credits. It requires that any bill that “creates, generates, or increases any public revenue in any form” must pass by “two-thirds of the members elected to each house.”[1] Because A.B. 458 raises revenue by millions of dollars, it requires a two-thirds vote. Indeed, the Nevada Department of Taxation categorized the bill as a “revenue” item and “reviewed the bill and determined it would increase general fund revenue.”[2]

A.B. 458, however, did not receive a two-thirds supermajority in the Nevada Senate. It passed by only 13 of 21 votes, one vote short of two-thirds. Therefore A.B. 458 is not valid and cannot stand between Nevada families and their scholarships. Plaintiffs’ suit argues that A.B. 458 violates Article 4, Section 18 of the Nevada Constitution.

The litigation team

The litigation team consists of Institute for Justice Attorney Joshua House and Senior Attorney Tim Keller.

About the Institute for Justice

The Institute for Justice is the national law firm for protecting educational choice. Since its founding 28 years ago, IJ has successfully defended educational choice programs in numerous state supreme courts, intermediate courts of appeal, and trial courts, as well as twice at the U.S. Supreme Court.[3]

The Institute for Justice will once again be in front of the U.S. Supreme Court to defend parental choice in education in the case of Espinoza v. Montana Department of Revenue, which will answer the question of whether the U.S. Constitution permits a state to invalidate a school choice program simply because the program gives families the option of choosing religious schools alongside non-religious schools.

[1] Art. 4, § 18(2)

[2] Cite.

[3] Zelman v. Simmons-Harris, 536 U.S. 639 (2002); Arizona Christian School Tuition Organization v. Winn, 563 U.S. 125 (2011).