Panel's tuition tax credit proposals expected - East Valley Tribune: News

Panel's tuition tax credit proposals expected

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Posted: Monday, December 7, 2009 5:01 pm | Updated: 1:45 am, Sat Oct 8, 2011.

House Speaker Kirk Adams expects a legislative committee looking at Arizona's Private School Tax Credits program to come out with recommendations Thursday that make scholarship charities more transparent and accountable to the public.

Rigged Privilege: A Tribune investigation

House Speaker Kirk Adams expects a legislative committee looking at Arizona's Private School Tax Credits program to come out with recommendations Thursday that make scholarship charities more transparent and accountable to the public.

He said it also may be necessary for the Legislature to address the widespread practice of taxpayers earmarking their donations for specific students.

Rigged Privilege: A Tribune investigation

Survey data incomplete on tuition tax credits

Arizona's $55-million-a-year tax credit program allows taxpayers to donate to nonprofit charities - known as school tuition organizations or STOs - that in turn give scholarships for students to attend private schools. In exchange, donors receive a dollar-for-dollar state tax credit. A separate program allows corporations and insurance companies to make a donation and receive a tax credit.

In August, the Tribune published an investigation, Rigged Privilege, that found the individual taxpayer program is rife with abuse, lacks oversight, and has failed to increase to any significant degree the access that disadvantaged children have to private schools.

Though the state law prohibits parents from donating on behalf of their own children, the Tribune found many parents skirt the law by making deals with other parents to recommend each other's children for scholarships.

The Tribune investigation and other media reports prompted Adams, R-Mesa, to appoint the Private School Tuition Tax Credit Review Committee in October, following weeks of media scrutiny about the STOs and how scholarships are used.

The committee created by Adams is led by Rep. Rick Murphy, R-Glendale. During its first two meetings, the group - whose members also sit on the House Ways and Means Committee - heard about information collected through surveys and from the state Department of Revenue, as well as other sources.

Based on those reports, Adams said several issues are apparent.

"There does need to be - and I think there is widespread agreement - there needs to be more accountability and transparency," he told the Tribune.

For instance, Georganna Meyer, chief economist with the Arizona Department of Revenue, has said she does not have any authority over the STOs. They are only required to make an annual report about their collections and donations. And, even when it appears the STOs are not handing out 90 percent of donations in scholarships - as required by state law - Meyer said she cannot do anything about it.

Adams said the other issue that may be addressed in a bill is the "earmarking" of donations for particular students that some STOs allow. The problem is state law requires STOs to be 501(c)3 charities under federal tax law, and federal law forbids such charities from accepting donations destined for a particular person.

"We need to deal with the tax liability and concerns when this earmarking goes on," Adams said. If a nonprofit group allows this, tax experts told the Tribune it could put their nonprofit status in jeopardy.

"I think there are reforms that can be made to improve the STOs while at the same time preserving the critical mission of these STOs," Adams said.

At Thursday's meeting, the committee is scheduled to discuss recommendations that may be turned into bills during the next legislative session, scheduled to start in January.

"The goal of this committee has been - and continues to be - to ensure the tax credit program is working the way it was designed and truly benefits students who need assistance," Murphy said in press release. "I believe the work of this committee has demonstrated the need to chart a corrective course that guarantees students who need this benefit are indeed receiving them as the law intended."

The public will also be invited to speak at Thursday's meeting.

While Murphy has led the Republican-created committee, Rep. David Schapira, D-Tempe, has led a task force created by the Democratic caucus just days after publication of the Tribune investigation.

Schapira is critical of the STOs for not participating more with his group following the creation of Murphy's committee, which is the official House panel.

"I think we'd like to hear more from the individual STOs but none of them have been willing to," he said. "It's tough to gather information from folks being so tight-lipped. There have been some I've been able to meet with privately, but none of them willing to go on the record or speak to the whole."

The STOs have answered questions from both the Arizona Attorney General's Office and Murphy's group. The AG sent a letter to 19 STOs asking for more information about their 2008 revenues and scholarships.

Murphy created a survey that was sent to the STOs and answered by 51 of the 53 known groups.

But what was asked did not get to the heart of the matter, said Rep. Tom Chabin, D-Flagstaff, who sits on both legislative task forces. He said he has requested five years' worth of IRS 990 forms from the STOs.

Those forms include information about directors and board officers, salaries, expenses and any outside groups hired by the STOs.

"With Mr. Schapira's task force, the bipartisan task force, we're willing to take a look at the problems and the challenges to the whole STO program just as they are: Is there a problem? Let's look at it. Let's address it," Chabin said following the last committee meeting in November. "By contrast (on the official committee), I really have been disappointed in the hesitancy to ask hard questions and to get to the truth of practices that have been employed by the schools and the STOs which jeopardize the entire program. I think the survey that Mister Murphy designed ... and the compiling of information that resulted from that survey really proved to be of any little use in crafting legislation that is going to address the problems of taxpayer abuse and the abuse of taxpayer STO dollars."

Chabin also questioned the presentation at the last committee meeting by Charles North, an economics professor from Baylor University in Texas.

North said he was being paid by the Center for Arizona Policy to put together a study looking at the savings the tax credit provides to Arizona's coffers and to give that presentation before the committee in November.

The Center for Arizona Policy, a conservative nonprofit research and education organization, listed North's study on its Web site following the meeting. The center also has blasted media reports about the tax credit program.

While meetings for both the Republican-created and Democrat-created panels have been open to the public, they haven't both been accessible to people unable to attend: The Capitol television station did not air or tape Schapira's last meeting.

Sarah Muench, spokeswoman for the Democratic caucus, told the Tribune she was assured that would not be a problem in the future.

Schapira's panel does not plan to meet again as a group, but members will present recommendations during the regular legislative session.

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