Private school scholarship restrictions rejected - East Valley Tribune: East Valley Local News

Private school scholarship restrictions rejected

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Posted: Thursday, March 4, 2010 5:43 pm | Updated: 3:52 am, Sat Oct 8, 2011.

State lawmakers refused Thursday to limit taxpayer-funded scholarships for private schools to the poor and the middle class.

Rigged Privilege: A Tribune investigation

State lawmakers refused Thursday to limit taxpayer-funded scholarships for private schools to the poor and the middle class.

On a 33-22 margin, the House rejected putting income limits on the program. Rep. Rick Murphy, R-Glendale, said there is no reason to deny the benefits to the children of all.

Rigged Privilege: A Tribune investigation

The move came over the objection of several lawmakers who said the program amounts to a form of welfare for the rich. Rep. Steve Farley, D-Tucson, said the lack of income limits defeats one of the key purposes of the law: to provide school choice opportunities for those of limited means.

Lawmakers also rejected a proposal to prohibit the organizations that award these scholarships from considering the "recommendations" of the donors. Rep. Tom Chabin, D-Flagstaff, said that essentially allows donors to earmark their donations for their grandchildren and the children of friends.

This matters because Arizona provides a dollar-for-dollar credit against state income taxes for amounts donated, up to $1,000 for couples. What that means is any contribution to help a student go to private school amounts to an equal reduction of funds paid to the state, including aid for public education.

Murphy, the prime sponsor of the legislation, did agree to back off a demand to actually increase by 50 percent the amount that taxpayers can divert from what they owe the state.

That came after he found some members of his own Republican party balking at the idea of increasing the maximum tax credit to $1,500 a year for couples. Rep. Michele Reagan, R-Scottsdale, said such a move is questionable at a time when the state is facing a deficit for the coming year of more than $3 billion.

A state constitutional provision specifically bans state funds from helping private schools.

The 1997 law gets around that because the money is given by individuals to the organizations that provide the scholarships for these schools. The Arizona Supreme Court has said that the dollar-for-dollar tax credit for donations is legal even though it reduces state revenues because the cash never made it into the state treasury itself.

Murphy said the credits also save money. He said the average scholarship is $1,900, far less than state aid to public schools.

But Farley said the flaw in that argument is the presumption that all these children would be going to public schools in the first place.

"What we're doing is just simply a bailout for rich families so that they can get tax money to pay for a school they were going to pay for anyway because they have the means," he said. "That way, there is no money saved for the state because that kid wasn't going to go to a public school in the first place."

He supported a proposal by Rep. Anna Tovar, D-Tolleson, to limit eligibility to those families whose income is no more than 185 percent of the level the federal government uses to determine if students get free or reduced-price lunches. That computes to $75,467 for a family of four.

Murphy said there's no reason for that limit.

"Just because somebody makes $100,000 a year, if they've got eight kids they're probably pretty close to the poverty level," he said.

In fact, what Tovar wanted would still cover that family: Her proposed income limit for a family of eight would be $128,668.

For the 2008 tax year, the amount of money diverted through individual income tax credits was more than $55.2 million. Another $10.8 million was diverted through a separate credit for corporations, with scholarships from those funds already subject to the income limits that Tovar unsuccessfully sought to put on the individual tax credit program.

The issue of letting donors make recommendations goes to the related question of whether people of means are abusing the system.

Technically speaking, contributors cannot make their donations contingent on the money going to help a specific student. But the law permits scholarship organizations to consider the recommendations of those who write the checks as long as that recommendation does not come from the child's own parents.

Rep. David Schapira, D-Tempe, said those recommendations "are almost always, if not always, accepted and designated to that student." He said that only makes sense.

"If you as a donor give your contribution to a scholarship tuition organization recommended for a specific student and it doesn't go to that student, you're not going to give to that STO anymore," he said.

Murphy said there's nothing wrong with the law.

"It's appropriate for folks to be able to have a recommendation," he said, pointing out that it is not legally binding for the scholarship organization.

The tax credit program for corporations does not permit recommendations.

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