Kudos to Arizona Representative Doug Coleman, R-Apache Junction, who has introduced HB 2063 to cap the limit for corporate donations to School Tuition Organizations. His bill looks to cap the “year-over-year limit at 2 percent or inflation for the Phoenix metropolitan area” for corporate donations. 501(c)(3) tax-exempt organizations, these STOs allocate at least 90% of their annual revenue to tuition awards for students to use to attend qualified schools. Proponents claim STOs allow underprivileged students the opportunity to attend private schools they would otherwise not have access to. Critics however, note that these corporate credits don’t truly serve the “low-income” population.
According to Arizona law, the current definition of “low-income” for this credit is a “family of four with an annual income of $82,996.” Given that the median household income for an Arizona family of four in 2014 was $50,068, that annual income really can’t be legitimately defined as “low income.” Jonathan Butcher, of the Goldwater Institute, said: “The eligibility is set up to help students no matter where they are in their life and where their family is,” he said. “The scholarships seem to be pretty modest, often around $2,000. Families can use the scholarships to get close to where tuition may be.”
Problem is, tuition at many private schools is much more than the scholarship amounts and parents are left to cover the rest. Senator Steve Farley, D-Tucson said “it’s almost impossible for someone who is poor to benefit because even if they get a scholarship, they still have to come up with the rest of the tuition.” For the 2013/2014 school year, limits were $4,900 for grades K-8 and $6,200 for grades 9-12. The average corporate tax credit scholarship for students at All Saints’ Episcopal Day School in Phoenix was $9,405. With the average private school tuition in Arizona for 2015 at $10,236, it is hard for low-income families to bridge the gap. And, there is no rule to preclude parents from getting multiple scholarships for their child from multiple tuition organizations. The state doesn’t track how common that is. Senator Steve Yarbrough, R-Chandler, (who profitably runs the Arizona Christian School Tuition Organization), “admits many of the scholarship recipients likely would go to private school without the financial help.” Unfortunately, it is almost impossible to prove these allegations since the STOs aren’t required to divulge information required to get to the truth.
Representative Coleman’s bill is meant to help ensure the program’s sustainability. Although Arizona lawmakers placed a statewide $10 million annual cap on the corporate credits, the law allows a 20% per year increase. Next year, the cap for all private school tuition corporate tax credits will increase automatically to $62 million and by 2030; it will be ten times that amount. That number is especially significant when one considers that for the last budget year, Arizona’s corporate income tax collections were $663 million, and more than 7 percent of state tax revenues. One has to wonder where all this money is going and what the diversion away from the general fund does to the state’s ability to operate.
Senator Debbie Lesko, R-Peoria, is against the cap claiming it gives “needy” children opportunities they wouldn’t otherwise have. She also claims that more money in scholarships means less students in public schools and that ultimately, saves taxpayers money. This claim only holds water if a student started out in public school before switching to a private school. A 2009 Arizona Republic article reported that out of the 50,000 private school students, only 7,350 students had been added since the tax-credit program started [in 1998]. Not exactly an indication of resounding success. The more likely driver for Senator Lesko’s support of this program is the fact that she is the Arizona state chair for the American Legislative Exchange Council (ALEC.) This Koch brothers-backed, tax-exempt organization works with its corporate members to create model legislation favorable to their corporate interests. Then ALEC provides these model bills to state legislators to implement back in their home states. ALEC’s Education Task Force has pushed school choice, vouchers, charters, parent trigger laws and yes, education tax credits. Along with providing the template for the legislation titled “The Great Schools Tax Credit Program Act” ALEC provides recommendations to state legislators designed to help them “sell” the program to the public. They acknowledge the model legislation includes “students presently enrolled in a private school” and therefore “reward[s] many families already financing their child’s education.” They tell legislators to consider limiting “eligibility to students who attended a public school in the last year or are starting school in their state for the first time.” This, they point out, will likely produce “a savings for state taxpayers since a scholarship covering private school costs in many cases will be less than the cost of state support provided to students attending a public school.”
They also recommend to lawmakers that if they “decide to include a statewide tax credit cap in the legislation…language should be added to automatically allow the cap to increase by 25% in any year after 90 percent of the cap was reached in the previous year.” As for the contribution amount allowed, ALEC states that although a 50% cap is deemed more equitable, making a higher “percentage of a donor’s tax liability eligible” for a credit can make it easier to raise donations. Higher amounts though they acknowledge, “open the program up to charges that money is being diverted from non-education programs to support private schools.”
The dollar amounts are significant. For the 2008 tax year, nearly three-fourths of corporations (over 35,500) that filed income taxes in Arizona had the minimum tax liability of $50. In 2009, there were 54 corporations reducing their state income tax via the private school tuition tax credits, lowering their income tax by over $5.5 million with a carry forward of $1.2 million to reduce future taxes. Then In 2010, 63 corporations donated $11 million to private school tuition organizations, with 8 donating at least $500,000.
This, all the while corporate taxes have been shrinking in Arizona. At 9.3% in 1990, corporate income tax is currently at 6.968% and will phase down to 4.9% by 2017. When fully phased in, these cuts will cost the state about $270 million each year, that’s enough to restore full-day kindergarten across the state and much, much more. This doesn’t even include the commercial property tax rate, which has also been cut from 25% in 2005 down to 18% this year.
In addition to the issue of sustainability, is the issue of which private schools are getting the corporate tax credit money. At least one-fourth of the 64 schools on the states approved list of School Tuition Organizations certified to receive donations for the corporate income tax credits are religious institutions. Yes, the Arizona Supreme Court has deemed this constitutional via what many believe are convoluted reasoning, but it still should give pause to the majority of taxpayers – those that support the separation of church and state. Additionally, I was unable to determine of the $11 million donated by corporations in 2011 and in subsequent years, how much was actually paid out? There are numerous questions about these school tuition organizations and the corporate tax credits that fund them. Unfortunately, laws designed to preclude transparency and accountability prevent these questions being answered. It is obvious to me that Representative Coleman’s bill makes total sense, which unfortunately means it will probably be a tough sell in the Arizona Legislature. Let’s hope against hope that reason prevails.