House File 398 - Introduced HOUSE FILE 398 BY SHIPLEY A BILL FOR An Act establishing an education scholarship account program 1 for pupils attending a nonpublic school or receiving 2 private instruction, establishing an education scholarship 3 account fund, providing an income tax exemption, making 4 appropriations, providing penalties, and including 5 applicability provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 1538YH (2) 89 md/jh

H.F. 398 Section 1. Section 8.6, Code 2021, is amended by adding the 1 following new subsection: 2 NEW SUBSECTION . 17. Education scholarship applications. To 3 adopt rules relating to applications for an education 4 scholarship pursuant to section 257.11B, including application 5 processing timelines and information required to be submitted 6 by a parent or guardian. 7 Sec. 2. NEW SECTION . 257.11B Education scholarship account 8 program. 9 1. a. For the school budget year beginning July 1, 2022, 10 and each succeeding school budget year, resident pupils 11 eligible to enroll in kindergarten through grade twelve and who 12 are attending a nonpublic school, as defined in section 285.16, 13 or receiving private instruction, and who are not otherwise 14 ineligible under this section, shall be eligible to receive an 15 education scholarship in the manner provided in this section. 16 b. For purposes of this section: 17 (1) “Private instruction” means competent private 18 instruction or independent private instruction as defined in 19 section 299A.1, subsection 2. 20 (2) “Resident” means the same as defined in section 282.1, 21 subsection 2. 22 2. a. By January 31 preceding the school year for which 23 the education scholarship is requested, the parent or guardian 24 of the pupil requesting to receive an education scholarship 25 shall submit an application to the department of management, on 26 application forms developed by the department of management, 27 indicating that the parent or guardian intends to enroll the 28 pupil in a nonpublic school or place the pupil under private 29 instruction. 30 (1) In addition to such information deemed appropriate by 31 the department of management, the application shall require 32 certification from the nonpublic school of the pupil’s 33 enrollment for the applicable school year or a statement from 34 the intended provider of private instruction for the pupil for 35 -1- LSB 1538YH (2) 89 md/jh 1/ 9

H.F. 398 the applicable school year. 1 (2) Applications submitted for pupils, other than those 2 eligible to enroll in kindergarten, shall include evidence 3 of the pupil’s completion and performance on each statewide 4 assessment administered to the pupil required by the pupil’s 5 nonpublic school or, for pupils receiving private instruction, 6 that the parent or guardian has satisfied the provisions 7 of section 299A.3. To receive an education scholarship, 8 completion of all reports and evaluations described under 9 section 299A.3 is required for each pupil receiving private 10 instruction. 11 b. By March 1 preceding the school year for which the 12 education scholarship is requested, the department of 13 management shall notify the parent or guardian of each pupil 14 approved for the following school year to receive an education 15 scholarship and the amount of the education scholarship for the 16 pupil. 17 c. Education scholarships shall only be approved for one 18 school year and applications must be submitted annually for 19 education scholarships in subsequent school years. 20 3. The department of management shall assign each pupil an 21 education scholarship in an amount equal to the regular program 22 state cost per pupil for the same school year. 23 4. An education scholarship account fund is created 24 in the state treasury under the control of the department 25 of management consisting of moneys appropriated to the 26 department of management for the purpose of providing 27 education scholarships under this section. For the fiscal 28 year commencing July 1, 2022, and each succeeding fiscal year, 29 there is appropriated from the general fund of the state to the 30 department of management to be credited to the fund the amount 31 necessary to pay all education scholarships approved for that 32 fiscal year. The director of the department of management has 33 all powers necessary to carry out and effectuate the purposes, 34 objectives, and provisions of this section pertaining to the 35 -2- LSB 1538YH (2) 89 md/jh 2/ 9

H.F. 398 fund, including the power to do all of the following: 1 a. Make and enter into contracts necessary for the 2 administration of the fund. 3 b. Procure insurance against any loss in connection with the 4 assets of the fund or require a surety bond. 5 c. Contract with a private financial management firm 6 to manage the fund, in collaboration with the treasurer of 7 state, including providing for the disbursement of education 8 scholarships in the form of an electronic debit card or checks 9 that are payable directly from the pupil’s account within the 10 fund. 11 d. Conduct audits or other reviews necessary to properly 12 administer the program. 13 e. Adopt rules under chapter 17A for the administration of 14 the fund and accounts within the fund. 15 5. a. For each pupil approved for an education scholarship, 16 the department of management shall establish an account 17 for that pupil in the education scholarship account fund. 18 Unless already made available to the parent or guardian under 19 paragraph “b” , the amount of the pupil’s education scholarship 20 shall be deposited into the pupil’s account on July 1, and such 21 amount shall be immediately available to the parent or guardian 22 for the payment of qualified educational expenses incurred 23 by the parent or guardian for the pupil during that fiscal 24 year using the payment method authorized under subsection 4, 25 paragraph “c” . 26 b. Upon written request of the parent or guardian, the 27 amount of the pupil’s education scholarship shall be deposited 28 into the pupil’s account and be made available as soon as 29 practicable after the department of management provides notice 30 under subsection 2, paragraph “b” , if qualified educational 31 expenses for the pupil for the applicable school year are due 32 prior to July 1 of the school year. 33 c. A nonpublic school or a provider of private instruction 34 that accepts payment from a parent or guardian using funds from 35 -3- LSB 1538YH (2) 89 md/jh 3/ 9

H.F. 398 a pupil’s account in the education scholarship account fund 1 shall not refund, rebate, or share any portion of such payment 2 with the parent, guardian, or pupil. 3 d. Moneys remaining in a pupil’s account upon conclusion 4 of the fiscal year shall remain in the pupil’s account in the 5 education scholarship account fund for the payment of qualified 6 educational expenses in future fiscal years during which the 7 pupil participates in the program or for payment to the pupil 8 as provided under subsection 8. 9 6. For purposes of this section, “qualified educational 10 expenses” includes tuition and fees at a nonpublic school, 11 textbooks, fees or payments for educational therapies, 12 including tutoring or cognitive skills training, curriculum 13 fees and materials for a course of study for a specific subject 14 matter or grade level, tuition or fees for nonpublic online 15 education programs, education materials and services for pupils 16 with disabilities, including the cost of paraprofessionals 17 and assistants who are trained in accordance with state law, 18 standardized test fees, and other expenses incurred by the 19 parent or guardian that are directly related to the educational 20 enrichment or personal fulfillment of the pupil under private 21 instruction or at an accredited nonpublic school. 22 7. A person who makes a false claim for the purpose of 23 obtaining an education scholarship provided for in this 24 section or who knowingly receives the scholarship or makes 25 a payment from an account within the education scholarship 26 account fund without being legally entitled to do so is guilty 27 of a fraudulent practice under chapter 714. The false claim 28 for an education scholarship or a payment from an account 29 shall be disallowed. If amounts from the scholarship have 30 been disbursed from the applicable account in the education 31 scholarship account fund, the department of management shall 32 initiate legal proceedings to recover such amounts. A parent 33 or guardian who commits a fraudulent practice under this 34 subsection is prohibited from participating in the education 35 -4- LSB 1538YH (2) 89 md/jh 4/ 9

H.F. 398 scholarship program in the future. 1 8. a. For each pupil with a positive balance in the 2 pupil’s account in the education scholarship account fund upon 3 graduation from high school or completion of an equivalent 4 level of private instruction, the department of management 5 shall pay such amount from the pupil’s account to the 6 pupil within thirty days of the graduation or completion of 7 instruction or the pupil’s eighteenth birthday, whichever 8 is later. If, however, the pupil becomes ineligible under 9 this section prior to graduation or completion of private 10 instruction or fails to graduate or complete private 11 instruction by the pupil’s twentieth birthday, the department 12 of management shall close the pupil’s account and transfer any 13 such remaining amount to the general fund of the state. 14 b. For each pupil who graduates from high school or 15 completes an equivalent level of private instruction prior to 16 the pupil’s seventeenth birthday, the department of management 17 shall deposit in the pupil’s account in the education 18 scholarship account fund an amount equal to the regular program 19 state cost per pupil for the applicable school budget year 20 for each full school budget year between the pupil’s date of 21 graduation from high school or completion of an equivalent 22 level of private instruction and the pupil’s eighteenth 23 birthday. 24 9. This section shall not be construed to authorize the 25 state or any political subdivision of the state to exercise 26 authority over any nonpublic school or private instruction 27 provider or construed to require a nonpublic school or private 28 instruction provider to modify its academic standards for 29 admission or educational program in order to receive payment 30 from a parent or guardian using funds from a pupil’s account 31 in the education scholarship account fund. A nonpublic school 32 that accepts payment from a parent or guardian using funds from 33 a pupil’s account in the education scholarship account fund 34 is not an agent of this state or of a political subdivision 35 -5- LSB 1538YH (2) 89 md/jh 5/ 9

H.F. 398 of this state. Rules adopted by the department of management 1 to implement this section that impose an undue burden on a 2 nonpublic school are invalid. 3 Sec. 3. Section 422.7, Code 2021, is amended by adding the 4 following new subsection: 5 NEW SUBSECTION . 48. Subtract, to the extent included, 6 the amount of an education scholarship under section 257.11B 7 received by the taxpayer for payment of qualified educational 8 expenses or paid to the taxpayer under section 257.11B, 9 subsection 8. 10 Sec. 4. APPLICABILITY. The following applies to school 11 budget years and fiscal years beginning on or after July 1, 12 2022: 13 The section of this Act enacting section 257.11B. 14 Sec. 5. APPLICABILITY. The following applies to tax years 15 beginning on or after January 1, 2022: 16 The section of this Act enacting section 422.7, subsection 17 48. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill provides education scholarships for pupils 22 attending a nonpublic school or receiving private instruction 23 and establishes an education scholarship account fund. 24 Under the bill, pupils who are eligible to enroll in 25 kindergarten through grade 12 and who attend a nonpublic school 26 or are placed under private instruction under Code chapter 299A 27 are eligible to receive an education scholarship. The parent 28 or guardian of the pupil requesting to receive an education 29 scholarship must submit an application to the department of 30 management indicating that the parent or guardian intends to 31 enroll the pupil in a nonpublic school or provide private 32 instruction. To receive an education scholarship, completion 33 of all reports and evaluations under Code section 299A.3 is 34 required for each pupil receiving private instruction. 35 -6- LSB 1538YH (2) 89 md/jh 6/ 9

H.F. 398 The bill requires that by March 1 preceding the school 1 year for which the education scholarship is requested, the 2 department of management must notify the parent or guardian of 3 each pupil approved for the following school year to receive an 4 education scholarship and the amount of the scholarship for the 5 pupil. Education scholarships must be approved for each school 6 year and applications must be submitted each year. 7 The amount of the education scholarship is equal to the 8 regular program state cost per pupil for the same school budget 9 year. 10 The bill creates an education scholarship fund in the state 11 treasury under the control of the department of management 12 consisting of moneys appropriated to the department of 13 management for the purpose of providing education scholarships. 14 For the fiscal year commencing July 1, 2022, and each 15 succeeding fiscal year, there is appropriated from the 16 general fund of the state to the department of management for 17 deposit in the fund the amount necessary to pay all education 18 scholarships approved for that fiscal year. For each pupil 19 approved for an education scholarship, the department of 20 management must establish an account for that pupil in the 21 education scholarship account fund. The amount of the pupil’s 22 education scholarship is deposited into the pupil’s account 23 on July 1 and such amount is available for use by parents and 24 guardians for the payment of qualified educational expenses, as 25 defined in the bill, incurred by the parent or guardian for the 26 pupil during that fiscal year. 27 Upon written request of the parent or guardian, the amount of 28 the pupil’s education scholarship shall be deposited into the 29 pupil’s account and be made available as soon as practicable 30 after the notice of receipt of the scholarship is given to the 31 parent or guardian if qualified educational expenses for the 32 pupil for the applicable school year are due prior to July 1 of 33 the school year. 34 The bill authorizes the department of management to 35 -7- LSB 1538YH (2) 89 md/jh 7/ 9

H.F. 398 contract with a private financial management firm to manage the 1 education scholarship account fund, in collaboration with the 2 treasurer of state, including providing for the disbursement of 3 education scholarships in the form of an electronic debit card 4 or checks that are payable directly from the pupil’s account 5 within the fund. 6 The bill provides that moneys remaining in a pupil’s account 7 upon the conclusion of the fiscal year shall remain in the 8 pupil’s account in the education scholarship fund for the 9 payment of qualified educational expenses in future fiscal 10 years during which the pupil participates in the program or for 11 payment to the pupil as authorized in the bill. 12 Under the bill, for each pupil with a positive balance in the 13 pupil’s account upon graduation from high school or completion 14 of an equivalent level of private instruction, the department 15 of management is required to pay such amount to the pupil based 16 on timelines established in the bill. For each pupil who 17 graduates from high school or completes an equivalent level 18 of private instruction while participating in the education 19 scholarship account program prior to the pupil’s seventeenth 20 birthday, the department of management shall deposit in the 21 pupil’s account in the education scholarship fund an amount 22 equal to the regular program state cost per pupil for the 23 applicable school budget year for each full school budget 24 year between the pupil’s date of graduation from high school 25 or completion of an equivalent level of private instruction 26 and the pupil’s eighteenth birthday. If, however, the pupil 27 becomes ineligible for the program prior to graduation or 28 completion of private instruction or fails to graduate or 29 complete private instruction by the pupil’s twentieth birthday, 30 the department of management shall close the pupil’s account 31 and transfer any such remaining amount to the general fund of 32 the state. 33 The bill provides that a person who makes a false claim 34 for the purpose of obtaining an education scholarship or who 35 -8- LSB 1538YH (2) 89 md/jh 8/ 9

H.F. 398 knowingly receives the scholarship or makes a payment from an 1 account within the fund without being legally entitled to do so 2 is guilty of a fraudulent practice and is subject to a criminal 3 penalty. The bill allows the department of management to 4 initiate legal proceedings to recover scholarships and amounts 5 improperly awarded or paid from accounts. 6 The bill provides that an education scholarship received 7 by a taxpayer or amounts paid to the pupil are not taxable 8 income for purposes of state individual income taxation. This 9 provision of the bill applies to tax years beginning on or 10 after January 1, 2022. 11 The section of the bill enacting the education savings 12 account program applies to school budget years and fiscal years 13 beginning on or after July 1, 2022. 14 -9- LSB 1538YH (2) 89 md/jh 9/ 9