What’s really behind a controversial tuition tax break bill

By Erik Gunn

A proposed state tax break on tuition that apprentices pay is heading to Gov. Tony Evers’ desk.

The legislation — SB-125 — passed both houses of the Legislature on near-party line votes. With almost uniform opposition from Democratic lawmakers as well as from labor unions, a veto seems likely.

The bill has been advanced by Associated Builders and Contractors (ABC), a trade group for non-union construction employers. Critics of the legislation have focused on the differences between ABC’s employer-centered apprenticeship programs and the more numerous apprenticeship programs operated jointly by unions and the employers that hire their members.

One of those differences — and the reason that SB-125 and its Assembly companion, AB-115, were introduced — is that apprentices in the ABC programs pay tuition for the required classroom portion of their training. By contrast, union-affiliated apprenticeship programs pay all of their apprentices’ training costs, including the tuition for classroom time.

“The union apprenticeships don’t rely on any public funding,” Dan Bukiewicz, president of the Milwaukee Building and Construction Trades Council, told the Wisconsin Examiner. “They’re not asking for any tax dollars. There is zero burden to the public when you go through a union apprenticeship.”

Submerged in that discussion, however, is where the tuition dollars go — and why advocates sought new legislation instead of relying on existing state law.

Wisconsin’s tax code allows students — or taxpayers who claim them as dependents — to deduct college tuition from their income when calculating their taxes, up to just under $7,000. The UW system along with public and private colleges, including the state’s technical schools, all qualify, as do a limited group of private trade schools vetted by the state Department of Safety and Professional Services.

In public statements, the advocates for SB-125 have said or implied that apprentices were excluded from that tax deduction.

At a Senate public hearing March 24, the legislation’s author, Sen. Andre Jacque (R-De Pere) said that “apprenticeship programs are not currently included” among the classes that qualify for the state tax deduction on tuition. He testified at the time that his bill would “extend the deductibility of post-secondary tuition to apprenticeship instruction.”

Nothing in the state tax code, however, automatically excludes apprenticeship students from the current tuition tax deduction.  

During the SB-125 floor debate on Oct. 26 before the Assembly vote on the Senate bill, Rep. Shannon Zimmerman (R-River Falls), the author of the Assembly companion bill, touted the proposal as an alternative for people who could not or did not want to join a union-connected apprenticeship program.

“This gives them an option to seek and obtain the necessary training, most often from our wonderful technical colleges across the state of Wisconsin, and better arms them to jump into our workforce and fill the vacant jobs,” Zimmerman said.

Technical college students, however — including those enrolled in apprenticeship programs — already qualify for the existing tuition tax break, or the “tuition subtraction” as state tax law calls it.

“There is nothing in the current statutes that prohibits an apprentice from receiving the Wisconsin tuition subtraction so long as the courses are taken at either a Wisconsin technical college, a Wisconsin private college, any UW system college, an approved vocational school under S. 440.52” — the state law regulating private trade schools — “or a public institution of higher education under the Minnesota-Wisconsin reciprocity agreement,” said  Patricia Mayers, communications director for the Wisconsin Department of Revenue (DOR).

Where the money goes 

The barrier isn’t being an apprentice. It’s where an apprentice pays tuition.

To get the tax break, a student (or a person claiming the student as a dependent) must pay tuition to a qualified institution. That distinction — not simply being an apprentice — is why some apprentices don’t qualify for a tax deduction even though they pay tuition: They are paying an organization that is not on the list of those that qualify for the deduction.

SB-125 would effectively erase that distinction for apprentices by making all apprenticeship-related tuition tax deductible, as long as the apprenticeship program is approved by the state Department of Workforce Development (DWD).

Apprenticeship was once a way to pass on skills that were traditionally acquired by watching and then doing. In 1911, Wisconsin became the first state in the U.S. to create formal, registered apprenticeship programs, supervised by what is now the Bureau of Apprenticeship Standards in DWD.

The outline of an apprenticeship program, including how much time will be used for in-class instruction and how much for on-the-job training, must be submitted to one of several DWD apprenticeship committees for approval. State law requires apprentices to be paid wages for classroom as well as on-the-job work, but doesn’t specify whether the employer must pay for the classroom tuition.

Today you can find apprenticeship programs in fields from funeral directing to barbering. There are a growing number in manufacturing, sponsored by individual employers.

Advocates have said SB-125 wouldn’t just benefit the non-union construction apprentices, but apprentices in those other fields as well.

But it’s not clear how many apprentices in those other trades would need the bill to become law in order to qualify for the tax deduction.

If the apprentice’s employer pays the classroom tuition, the apprentice doesn’t need or qualify for the tax break, of course; the same is true if the apprentice pays but then gets reimbursed by the employer.

And an apprentice who pays the classroom tuition directly to a qualifying provider such as a technical college is already eligible for the tax deduction.

At the Madison College School, “apprentices that pay tuition to the college do receive 1098-T forms, which can be used to deduct tuition expenses when filing taxes,” said Saul Castillo, interim associate dean at the college’s School of Technologies and Trades.

Birth of a bill

The apprentices who are unable to get the tax break under the current law are those who pay tuition to a third party, such as ABC. It’s not clear whether other trade organizations in the state follow that practice.

John Schulze, director of legal and government relations for ABC, said in an interview that the idea for SB-125 was born about five years ago.

“I got a call from a mom,” Schulze said. She was completing the state tax return. “She told me, ‘My son is going for a cosmetology degree. I can deduct his tuition. My daughter is a laborer apprentice [in an ABC program]. I can’t write her tuition off on our taxes.’”

Previous versions of the bill in the 2017-18 biennium and the 2019-20 biennium passed the Assembly but died in the Senate. Opposition was minimal, the lobbying registration records for those bills show.

Not in 2021.

For SB-125/AB-115, construction unions and the union-allied Construction Business Council lined up firmly in opposition. Democratic lawmakers who had initially signed on dropped off the bill, some quickly, some only at the last minute.

“We don’t think that it’s an initiative that supports the expansion of apprenticeships in general,” said Steve Kwaterski, political and communications director for the Wisconsin Laborers Union district council.

The construction industry still accounts for the largest share of apprentices in Wisconsin. Unions representing specialized trades and the employers who have contracts with those unions together administer the majority of the construction apprenticeship programs through joint, trade-specific committees. Labor negotiations include provisions for employers to fund those programs as part of the overall compensation package.

Today, the union-affiliated apprenticeship programs spend an estimated $30 million annually to cover the cost of training apprentices, according to Kwaterski. The Laborers Union alone spends $2 million a year, with a facility in DeForest outside Madison that provides training for apprentice laborers from around the state, he said.

Non-union apprenticeships

The ABC apprenticeship programs stand outside that system. The organization of non-union contractors started its group of non-union apprenticeship programs in the late 1980s, registering them with the state alongside the union programs.  

Since then, ABC and other non-union construction apprenticeship programs have grown employ about one third of the apprentices in the sector, according to DWD.

ABC’s member businesses are heavily concentrated among electricians and plumbers, according to Schulze. That’s also mirrored in the state’s apprenticeship data, where nearly 47% of apprentice electricians are non-union and more than 68% of plumbing apprentices are. (Not all non-union apprentices in the state are through ABC.)

Schulze says some ABC apprenticeship classes are taught at a technical college. For others, however, the classroom is at a job site, taught by someone who has had a career in the trade.

In either situation, ABC collects tuition for the class — passing it through to the technical college provider or else funding a classroom program of its own. The organization maintains a portal for tuition payments on its website.

Large contractors are more likely to cover the costs directly for their apprentices, according to Schulze. But small contractors with just one or two apprentices can’t afford that, he said. “They’re just smaller businesses. They don’t have the money to pay for their apprentices’ [tuition].”

Without ABC’s pass-through system to collect tuition, apprentices paying tuition directly to technical colleges for classes would be able to get the tax break provided under the current law, Schulze acknowledged. But the classes it offers outside the colleges would not.

Comparing the outcomes

Bukiewicz, the Milwaukee building trades council president, and other union officials have questioned how rigorous or complete the non-union apprenticeship programs are. The union-affiliated ones are increasingly standardized, not just across the state but nationally.

According to Schulze, however, ABC’s programs get vetted by the state to be registered just as the union-affiliated programs do. They’re evaluated by the same trade-specific state committees at DWD, he said, and have to meet the same criteria.

Stephen Herzing, executive director of the Keystone Institute, a Pennsylvania research and policy center, hasn’t seen evidence of strong non-union programs in that state. “Non-union apprenticeship infrastructure is, with some exceptions, weak and underfunded,” Herzing said. “And I don’t think there’s any sign that that’s changing.”

In essence, according to its advocates, the joint union-employer approach ensures a robust financial base to support the cost of training, because employers on their own are wary of investing heavily in training only to see the employee move on to another employer.

Cihan Bilginsoy, an economist at the University of Utah, reviewed statistics from 34 states and found that more participants in joint union-employer-run programs completed their apprenticeships — 34% — than did those in employer-only programs at 25%. Dropout rates were also lower in the joint programs — 48% — than the employer-only ones at 58%.

“The union side is much smaller, but they carry the main burden of training,” said Bilginsoy. “Also, their completion rates are higher.”

Wisconsin was not among the 34 states in his review, however.

A Divided vote

As the Assembly prepared to vote on SB-125 on Oct. 26, Rep. Katrina Shankland (D-Stevens Point) rose from her seat and extolled the facilities that construction unions have built around Wisconsin to train apprentices, with “private union wages” bearing the cost. “But what this bill does is, it says, ‘You know what? We’re going to ignore that,’” she said.

“I don’t believe in an unlevel playing field,” Shankland said, expressing the fear that the tax break could lure potential apprentices “away from some of the best training facilities in the nation.”

Zimmerman then stood in defense of the measure, pitching it as “an option for the little guy, [who] maybe does not or cannot participate in some of the union [programs], or maybe they choose not to.”

The day before, the Senate had passed the bill 19-13 without discussion; one Republican had voted with the Democrats against it. When it was the Assembly’s turn, Rep. Deb Andraca (D-Brookfield) was the only Democrat to favor it in the 60-35 vote.

In his interview, Schulze, the ABC lobbyist, questioned why Democrats who had voted for similar legislation in previous years spurned it this time. Zimmerman had raised the same question in the floor debate.

Shankland said in an interview that the bill had come to look to her like an attack on unions, in keeping with the passage of other legislation in the last decade that undercut organized labor: getting rid of prevailing wage requirements on state building projects, barring project labor agreements that unions and contractors could sign in advance of starting a construction project, and the “right to work” law that bars unions from requiring the workers they represent to shoulder some of the expense.

“I’ve seen some of my Republican colleagues over the years disadvantage union workers specifically,” Shankland said.