HB5614 103RD GENERAL ASSEMBLY

LRB103 38737 RJT 68874 b

103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB5614

Introduced 2/9/2024, by Rep. Tim Ozinga

SYNOPSIS AS INTRODUCED:

New Act
35 ILCS 5/541 new

Creates the Students in Need Scholarship Act. Provides that the Department of Revenue shall award income tax credits to taxpayers who make authorized contributions to scholarship granting organizations. Sets forth limitations with respect to the aggregate number of credits awarded by the Department in a calendar year and the amount of credits awarded to an individual taxpayer. Sets forth provisions concerning scholarship granting organizations and requirements for scholarship granting organizations. Specifies which students are eligible for a scholarship. Provides for reporting. Sets forth further provisions concerning administering the scholarship program created by the Act. Amends the Illinois Income Tax Act to make a conforming change. Effective immediately.

A BILL FOR

AN ACT concerning finance.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Students in Need Scholarship Act.

Section 5. Definitions. As used in this Act:

"Authorized contribution" means the contribution amount that is listed on the contribution authorization certificate issued to the taxpayer.

"Board" means the State Board of Education.

"Contribution" means a donation made by the taxpayer during the taxable year for providing scholarships as provided in this Act.

"Custodian" means, with respect to eligible students, an Illinois resident who is a parent or legal guardian of the eligible student or students.

"Department" means the Department of Revenue.

"Eligible student" means a child who:

(1) is either:

(A) a member of a household whose federal adjusted gross income the year before he or she initially receives a scholarship under this program, as determined by the Department, does not exceed 200% of the amount required for the individual to qualify for the federal free or reduced price lunch program;

(B) a student with an individualized education program or Section 504 plan under the federal Rehabilitation Act of 1973; or

(C) a student who had a sibling, whether by whole blood, half blood, or adoption who was an eligible student under subparagraph (A) or (B);

(2) is eligible to attend a public elementary school or high school in Illinois in the semester immediately preceding the semester for which he or she first receives a scholarship or is starting school in Illinois for the first time when he or she first receives a scholarship; and

(3) resides in Illinois while receiving a scholarship.

"Federal poverty guidelines" means the poverty guidelines updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. 9902(2).

"Family member" means a parent, child, or sibling, whether by whole blood, half blood, or adoption; spouse; or stepchild

"Focus district" means a school district which has a school that is either (i) a school that has one or more subgroups in which the average student performance is at or below the State average for the lowest 10% of student performance in that subgroup or (ii) a school with an average graduation rate of less than 60% and not identified for priority.

"Necessary costs and fees" includes the customary charge for instruction and use of facilities in general and the additional fixed fees charged for specified purposes that are required generally of non-scholarship recipients for each academic period for which the scholarship applicant actually enrolls, including costs associated with student assessments, but does not include fees payable only once and other contingent deposits that are refundable in whole or in part. The Board may prescribe, by rules consistent with this Act, detailed provisions concerning the computation of necessary costs and fees.

"Scholarship granting organization" means an entity that:

(1) is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code;

(2) uses at least 95% of the qualified contributions received during a taxable year for scholarships;

(3) provides scholarships to students according to the guidelines of this Act;

(4) deposits and holds qualified contributions and any income derived from qualified contributions in an account that is separate from the organization's operating fund or other funds until such qualified contributions or income are withdrawn for use; and

(5) is approved to issue certificates of receipt.

"Qualified contribution" means the authorized contribution made by a taxpayer to a scholarship granting organization for which the taxpayer has received a certificate of receipt from such organization.

"Qualified school" means a non-public school located in Illinois and recognized by the Board pursuant to Section 2-3.25o of the School Code.

"Scholarship" means an educational scholarship awarded to an eligible student to attend a qualified school of their custodians' choice in an amount not exceeding the necessary costs and fees to attend that school.

"Taxpayer" means any individual, corporation, partnership, trust, or other entity subject to the Illinois income tax. For the purposes of this Act, 2 individuals filing a joint return shall be considered one taxpayer.

Section 10. Credit awards.

(a) The Department shall award credits against the tax imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act to taxpayers who make qualified contributions.

(b) Contributions made by corporations, including Subchapter S corporations, partnerships, and trusts under this Act may not be directed to a particular subset of schools, a particular school, a particular group of students, or a particular student. Contributions made by individuals under this Act may be directed to a particular subset of schools or a particular school but may not be directed to a particular group of students or a particular student.

(c) No credit shall be taken under this Act for any qualified contribution for which the taxpayer claims a federal income tax deduction.

(d) Credits shall be awarded in a manner, as determined by the Department, that is geographically proportionate to enrollment in recognized non-public schools in Illinois. If the cap on the aggregate credits that may be awarded by the Department is not reached by June 1 of a given year, the Department shall award remaining credits on a first-come, first-served basis, without regard to the limitation of this subsection.

Section 15. Approval to issue certificates of receipt.

(a) A scholarship granting organization shall submit an application for approval to issue certificates of receipt in the form and manner prescribed by the Department, provided that each application shall include:

(1) documentary evidence that the scholarship granting organization has been granted an exemption from taxation under Section 501(c)(3) of the Internal Revenue Code;

(2) certification that all qualified contributions and any income derived from qualified contributions are deposited and held in an account that is separate from the scholarship granting organization's operating or other funds until such qualified contributions or income are withdrawn for use;

(3) certification that the scholarship granting organization will use at least 95% of its annual revenue from qualified contributions for scholarships;

(4) certification that the scholarship granting organization will provide scholarships to eligible students;

(5) a list of the names and addresses of all members of the governing board of the scholarship granting organization; and

(6) a copy of the most recent financial audit of the scholarship granting organization's accounts and records conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules adopted by the Department.

(b) A scholarship granting organization whose owner or operator in the last 7 years has filed for personal bankruptcy or corporate bankruptcy in a corporation of which he or she owned more than 20% shall not be eligible to provide scholarships.

(c) A scholarship granting organization must not have an owner or operator who owns or operates a qualified school or has a family member who is a paid staff or board member of a participating qualified school.

(d) A scholarship granting organization shall comply with the anti-discrimination provisions of 42 U.S.C. 2000d.

(e) The Department shall review and either approve or deny each application to issue certificates of receipt pursuant to this Act. Approval or denial of an application shall be made on a periodic basis. Applicants shall be notified of the Department's determination within 30 business days after the application is received.

(f) No scholarship granting organization shall issue any certificates of receipt without first being approved to issue certificates of receipt.

Section 20. Annual review.

(a) Each scholarship granting organization that receives approval to issue certificates of receipt shall file an application for recertification on an annual basis. Such application for recertification shall be in the form and manner prescribed by the Department and shall include:

(1) certification from the Director or Chief Executive Officer of the organization that the organization has complied with and continues to comply with the requirements of this Act, including evidence of that compliance; and

(2) a copy of the organization's current financial statements.

(b) The Department may revoke the approval of a scholarship granting organization to issue certificates of receipt upon a finding that the organization has violated this Act or any rules adopted under this Act. These violations shall include, but need not be limited to, any of the following:

(1) failure to meet the requirements of this Act;

(2) failure to maintain full and adequate records with respect to the receipt of qualified contributions;

(3) failure to supply such records to the Department; or

(4) failure to provide notice to the Department of the issuance of certificates of receipt pursuant to Section 35 of this Act.

(c) Within 5 days after the determination to revoke approval, the Department shall provide notice of the determination to the scholarship granting organization and information regarding the process to request a hearing to appeal the determination.

Section 25. Contribution authorization certificates.

(a) A taxpayer shall not be allowed a credit pursuant to this Act for any contribution to a scholarship granting organization that was made prior to the Department's issuance of a contribution authorization certificate for such contribution to the taxpayer.

(b) Prior to making a contribution to a scholarship granting organization, the taxpayer shall apply to the Department for a contribution authorization certificate.

(c) A taxpayer who makes more than one contribution to a scholarship granting organization must make a separate application for each such contribution authorization certificate. The application shall be in the form and manner prescribed by the Department, provided that the application includes:

(1) the taxpayer's name and address;

(2) the amount the taxpayer will contribute; and

(3) any other information the Department deems necessary.

(d) The Department may allow taxpayers to make multiple applications on the same form, provided that each application shall be treated as a separate application.

(e) The Department shall issue credit authorization certificates on a first-come, first-served basis based upon the date that the Department received the taxpayer's application for the certificate subject to the provisions of subsection (e) of Section 10 of this Act.

(f) A taxpayer's aggregate authorized contribution amount as listed on one or more authorized contribution certificates issued to the taxpayer shall not exceed the aggregate of the amounts listed on the taxpayer's applications submitted in accordance with this Section.

(g) Each contribution authorization certificate shall state: (1) the date such certificate was issued; (2) the date by which the authorized contributions listed in the certificate must be made, which shall be 60 days from the date of the issuance of a credit authorization certificate; (3) the total amount of authorized contributions; and (4) any other information the Department deems necessary.

(h) Credit authorization certificates shall be mailed to the appropriate taxpayers within 3 business days after their issuance.

(i) A taxpayer may rescind all or part of an authorized contribution approved under this Act by providing written notice to the Department. Amounts rescinded shall no longer be deducted from the cap prescribed in Section 10 of this Act.

(j) The Department shall maintain on its website a running total of the amount of credits for which taxpayers may make applications for contribution authorization certification. The running total shall be updated every business day.

Section 30. Certificates of receipt.

(a) No scholarship granting organization shall issue a certificate of receipt for any qualified contribution made by a taxpayer under this Act unless that scholarship granting organization has been approved to issue certificates of receipt pursuant to Section 15 of this Act.

(b) No scholarship granting organization shall issue a certificate of receipt for a contribution made by a taxpayer unless the taxpayer has been issued a credit authorization certificate by the Department.

(c) If a taxpayer makes a contribution to a scholarship granting organization prior to the date by which the authorized contribution shall be made, the scholarship granting organization shall, within 30 days of receipt of the authorized contribution, issue to the taxpayer a written certificate of receipt.

(d) If a taxpayer fails to make all or a portion of a contribution prior to the date by which such authorized contribution is required to be made, the taxpayer shall not be entitled to a certificate of receipt for that portion of the authorized contribution not made.

(e) Each certificate of receipt shall state:

(1) the name and address of the issuing scholarship granting organization;

(2) the taxpayer's name and address;

(3) the date for each qualified contribution;

(4) the amount of each qualified contribution;

(5) the total qualified contribution amount; and

(6) any other information that the Department may deem necessary.

(f) Upon the issuance of a certificate of receipt, the issuing scholarship granting organization shall, within 10 days after issuing the certificate of receipt, provide the Department with notification of the issuance of such certificate in the form and manner prescribed by the Department, provided that such notification shall include:

(1) the taxpayer's name and address;

(2) the date of the issuance of a certificate of receipt;

(3) the qualified contribution date or dates and the amounts contributed on such dates;

(4) the total qualified contribution listed on such certificates;

(5) the issuing scholarship granting organization's name and address; and

(6) any other information the Department may deem necessary.

(g) Any portion of a contribution that a taxpayer fails to make by the date indicated on the authorized contribution certificate shall no longer be deducted from the cap prescribed in Section 10 of this Act.

Section 35. Reports.

(a) Within 180 days after the end of its fiscal year, each scholarship granting organization must provide to the Department a copy of a financial audit of its accounts and records conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules adopted by the Department. The audit must include a report on financial statements presented in accordance with generally accepted accounting principles. The audit must include evidence that no less than 95% of qualified contributions received were used to provide scholarships to eligible students. The Department shall review all audits submitted pursuant to this subsection. The Department shall request any significant items that were omitted in violation of a rule adopted by the Department. The items must be provided within 45 days after the date of request. If a scholarship granting organization does not comply with the Department's request, the Department may revoke the scholarship granting organization's ability to issue certificates of receipt.

(b) A scholarship granting organization that is approved to receive qualified contributions shall report to the Department, on a form prescribed by the Department, by January 31 of each calendar year. The report shall include:

(1) the total number of certificates of receipt issued during the immediately preceding calendar year;

(2) the total dollar amount of qualified contributions received, as set forth in the certificates of receipt issued during the immediately preceding calendar year;

(3) the total number of eligible students utilizing scholarships for the immediately preceding calendar year and the school year in progress and the total dollar value of the scholarships;

(4) the name and address of each qualified school for which scholarships using qualified contributions were issued during the immediately preceding calendar year, detailing the number, grade, race, gender, income level, and residency by zip code of eligible students and the total dollar value of scholarships being utilized at each qualified school by priority group, as identified in subsection (d) of Section 40 of this Act; and

(5) any additional information requested by the Department.

(c) On or before the last day of March for each calendar year, for the immediately preceding calendar year, the Department shall submit a written report to the Governor, the President of the Senate, the Speaker of the House of Representatives, the Minority Leader of the Senate, and the Minority Leader of the House of Representatives regarding this Act. The report shall include, but not be limited to, the following information:

(1) the names and addresses of all scholarship granting organizations approved to issue certificates of receipt;

(2) the number and aggregate total of certificates of receipt issued by each scholarship granting organization; and

(3) the information reported to the Department required by subsection (b) of this Section.

(d) The sharing and reporting of student data under this Section must be in accordance with the requirements of the Family Educational Rights and Privacy Act and the Illinois School Student Records Act. All parties must preserve the confidentiality of such information as required by law. Data reported by the Department under subsection (c) of this Section must not disaggregate data to a level that will disclose demographic data of individual students.

Section 40. Scholarship granting organization responsibilities.

(a) Before granting a scholarship for an academic year, all scholarship granting organizations shall assess and document each student's eligibility for the academic year.

(b) A scholarship granting organization shall grant scholarships only to eligible students.

(c) A scholarship granting organization shall allow an eligible student to attend any qualified school of the student's choosing, subject to the availability of funds.

(d) In granting scholarships, beginning in the 2024-2025 school year and for each school year thereafter, a scholarship granting organization shall give priority to eligible students who received a scholarship from a scholarship granting organization during the previous school year. Second priority shall be given to the following priority groups:

(1) eligible students who are members of a household whose previous year's total annual income does not exceed 185% of the federal poverty guidelines;

(2) eligible students who reside within a focus district; and

(3) eligible students who are siblings of students currently receiving a scholarship.

(e) A scholarship granting organization shall begin granting scholarships no later than February 1 preceding the school year for which the scholarship is sought. Each priority group identified in subsection (d) of this Section shall be eligible to receive scholarships on a first-come, first-served basis until April 1 immediately preceding the school year for which the scholarship is sought, starting with the first priority group identified in subsection (d) of this Section. Applications for scholarships for eligible students meeting the qualifications of one or more priority groups that are received before April 1 must be either approved or denied within 10 business days after receipt. Beginning April 1, all eligible students shall be eligible to receive scholarships without regard to the priority groups identified in subsection (d) of this Section.

(f) Except as provided in subsection (g) of this Section, scholarships shall not exceed the lesser of (i) the statewide average operational expense per student among public schools or (ii) the necessary costs and fees for attendance at the qualified school. A qualified school may set a lower maximum scholarship amount for eligible students whose family income falls within paragraphs (2) and (3) of this subsection (f); that amount may not exceed the necessary costs and fees for attendance at the qualified school and is subject to the limitations on average scholarship amounts set forth in paragraphs (2) and (3) of this subsection, as applicable. The qualified school shall notify the scholarship granting organization of its necessary costs and fees as well as any maximum scholarship amount set by the school. Scholarships shall be prorated as follows:

(1) for eligible students whose household income is less than 185% of the federal poverty guidelines, the scholarship shall be 100% of the amount determined pursuant to this subsection (f) and subsection (g) of this Section;

(2) for eligible students whose household income is 185% or more of the federal poverty guidelines but less than 200% of the federal poverty guidelines, the average of scholarships shall be 75% of the amount determined pursuant to this subsection (f) and subsection (g) of this Section.

(g) The statewide average operational expense per student among public schools shall be multiplied by the following factors:

(1) for students determined eligible to receive services under the federal Individuals with Disabilities Education Act, 2;

(2) for students who are English learners, as defined in subsection (d) of Section 14C-2 of the School Code, 1.2; and

(3) for students who are gifted and talented children, as defined in Section 14A-20 of the School Code, 1.1.

(h) A scholarship granting organization shall distribute scholarship payments to the participating school where the student is enrolled.

(i) For the 2024-2025 school year and each school year thereafter, each scholarship granting organization shall expend all qualified contributions received during the calendar year in which the qualified contributions were received. No qualified contributions may be carried forward to the following calendar year.

(j) A scholarship granting organization shall allow an eligible student to transfer a scholarship during a school year to any other participating school of the custodian's choice. Such scholarships shall be prorated.

(k) With the prior approval of the Department, a scholarship granting organization may transfer funds to another scholarship granting organization if additional funds are required to meet scholarship demands at the receiving scholarship granting organization. All transferred funds must be deposited by the receiving scholarship granting organization into its scholarship accounts. All transferred amounts received by any scholarship granting organization must be separately disclosed to the Department.

(l) If the approval of a scholarship granting organization is revoked as provided in Section 20 of this Act or the scholarship granting organization is dissolved, all remaining qualified contributions of the scholarship granting organization shall be transferred to another scholarship granting organization. All transferred funds must be deposited by the receiving scholarship granting organization into its scholarship accounts.

(m) Scholarship granting organizations shall make reasonable efforts to advertise the availability of scholarships to eligible students.

Section 45. State Board responsibilities.

(a) Students who have been granted a scholarship under this Act shall be annually assessed at the qualified school where the student attends school in the same manner in which students that attend public schools are annually assessed pursuant to Section 2-3.64a-5 of the School Code. Such qualified school shall pay costs associated with this requirement.

(b) The Board shall select an independent research organization, which may be a public or private entity or university, to which participating qualified schools must report the scores of students who are receiving scholarships and are assessed pursuant to subsection (a) of this Section. Costs associated with the independent research organization shall be paid by the scholarship granting organizations on a per-pupil basis or by gifts, grants, or donations received by the Board under subsection (d) of this Section, as determined by the Board. The independent research organization must annually report to the Board on the year-to-year learning gains of students receiving scholarships on a statewide basis. The report shall also include, to the extent possible, a comparison of these learning gains to the statewide learning gains of public school students with socioeconomic backgrounds similar to those of students receiving scholarships. The annual report shall be delivered to the Board and published on its website.

(c) Beginning within 120 days after the Board first receives the annual report by the independent research organization as provided in subsection (b) of this Section and on an annual basis thereafter, the Board shall submit a written report to the Governor, the President of the Senate, the Speaker of the House of Representatives, the Minority Leader of the Senate, and the Minority Leader of the House of Representatives regarding this Act. Such report shall include an evaluation of the academic performance of students receiving scholarships and recommendations for improving student performance.

(d) Subject to the State Officials and Employees Ethics Act, the Board may receive and expend gifts, grants, and donations of any kind from any public or private entity to carry out the purposes of this Section, subject to the terms and conditions under which the gifts are given, provided that all such terms and conditions are permissible under law.

(e) The sharing and reporting of student learning gain data under this Section must be in accordance with requirements of the Family Educational Rights and Privacy Act and the Illinois School Student Records Act. All parties must preserve the confidentiality of such information as required by law. The annual report must not disaggregate data to a level that will disclose the academic level of individual students.

Section 50. Qualified school responsibilities. A qualified school that accepts scholarship students must do all of the following:

(1) provide to a scholarship granting organization, upon request, all documentation required for the student's participation, including the non-public school's cost and student's fee schedules;

(2) be academically accountable to the custodian for meeting the educational needs of the student by:

(A) at a minimum, annually providing to the custodian a written explanation of the student's progress; and

(B) annually administering assessments required by subsection (a) of Section 45 of this Act in the same manner in which they are administered at public schools pursuant to Section 2-3.64a-5 of the School Code; the Board shall bill participating qualified schools for all costs associated with administering assessments required by this paragraph; the participating qualified schools shall ensure that all test security and assessment administration procedures are followed; participating qualified schools must report individual student scores to the custodians of the students; the independent research organization described in subsection (b) of Section 45 of this Act shall be provided all student score data in a secure manner by the participating qualified school.

The inability of a qualified school to meet the requirements of this Section shall constitute a basis for the ineligibility of the qualified school to participate in the scholarship program as determined by the Board.

Section 55. Custodian and student responsibilities.

(a) The custodian must select a qualified school and apply for the admission of his or her child.

(b) The custodian shall ensure that the student participating in the scholarship program takes the assessment required by subsection (a) of Section 45 of this Act.

(c) Each custodian and each student has an obligation to comply with the qualified school's published policies.

(d) The custodian shall authorize the scholarship granting organization to access information needed for income eligibility determinations.

Section 60. Recordkeeping; rulemaking; violations.

(a) Each taxpayer shall, for each taxable year for which the tax credit provided for under this Act is claimed, maintain records of the following information: (i) contribution authorization certificates obtained under Section 25 of this Act and (ii) certificates of receipt obtained under Section 30 of this Act.

(b) The Board and the Department may adopt rules consistent with and necessary for the implementation of this Act.

(c) Violations of State laws or rules and complaints relating to program participation shall be referred to the Attorney General.

Section 65. Credit period. A taxpayer may take a credit under this Act for tax years beginning on or after January 1, 2024.

Section 900. The Illinois Income Tax Act is amended by adding Section 541 as follows:

(35 ILCS 5/541 new)

Sec. 541. Students in Need Scholarship Act credit.

(a) For taxable years beginning on or after January 1, 2024, each taxpayer for whom a tax credit has been awarded by the Department under the Students in Need Scholarship Act is entitled to a credit against the tax imposed under subsections (a) and (b) of Section 201 of this Act in an amount equal to the amount awarded under the Students in Need Scholarship Act.

(b) For taxable years ending before December 31, 2023, for partners, shareholders of subchapter S corporations, and owners of limited liability companies, if the liability company is treated as a partnership for purposes of federal and State income taxation, the credit under this Section shall be determined in accordance with the determination of income and distributive share of income under Sections 702 and 704 and subchapter S of the Internal Revenue Code.

(c) The credit may not be carried back and may not reduce the taxpayer's liability to less than zero. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The tax credit shall be applied to the earliest year for which there is a tax liability. If there are credits for more than one year that are available to offset the liability, the earlier credit shall be applied first.

(d) A tax credit awarded by the Department under the Students in Need Scholarship Act may not be claimed for any qualified contribution for which the taxpayer claims a federal income tax deduction.

Section 995. Inseverability. The provisions of this Act are mutually dependent and inseverable. If any provision is held invalid other than as applied to a particular person or circumstance, then this entire Act is invalid.

Section 997. Saving clause. Any repeal or amendment made by this Act shall not affect or impair any of the following: suits pending or rights existing at the time this Act takes effect; any grant or conveyance made or right acquired or cause of action now existing under any Section, Article, or Act repealed or amended by this Act; the validity of any bonds or other obligations issued or sold and constituting valid obligations of the issuing authority at the time this Act takes effect; the validity of any contract; the validity of any tax levied under any law in effect prior to the effective date of this Act; or any offense committed, act done, penalty, punishment, or forfeiture incurred or any claim, right, power, or remedy accrued under any law in effect prior to the effective date of this Act.

Section 999. Effective date. This Act takes effect upon becoming law.