Tax credit sponsor’s vision unrealized - East Valley Tribune: News

Rigged Privilege Tax credit sponsor’s vision unrealized

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Posted: Thursday, August 6, 2009 2:34 pm | Updated: 3:03 am, Sat Oct 8, 2011.

Twelve years ago, Trent Franks envisioned a statewide system to enable poor kids to go to private schools. Most of the charities that formed as a result went in a different direction.


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Trent Franks wanted to take money from the rich and give it to the poor.

Private education has long been the providence of the affluent. Low- and middle-income families often can’t afford the cost.

Franks, now a U.S. congressman from Arizona, thought he had the answer. It was a scholarship charity in Phoenix called the Arizona School Choice Trust, which in the early 1990s was raising about $100,000 a year to send low-income students to private schools of parents’ choice.


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“It was such a noble effort, and I could see that it was making a difference,” said Franks, who was on the trust’s board at the time.

The trust continues to do that, now with more than $1 million in donations through Arizona’s Private School Tuition Tax Credits. The subsidy takes income tax dollars, otherwise destined for state coffers, to pay for private education.

Franks said the trust inspired the way he wrote the tax credit legislation, which forbids parents from making a donation to pay their own children’s tuition.

School tuition organizations, STOs for short, which run the tax credit system, would follow the trust’s lead in providing scholarships to the underprivileged, the congressman believed.

A few of the scholarship charities have done so.

But not most, and the largest STOs have traveled far astray of the trust’s model, accepting income tax donations earmarked to pay tuition for specific students, no matter how much parents earn.

“There are some myths associated with supporting STOs and the scholarship programs, and that is that it’s for everybody,” said Michael Kelly, the school choice trust’s executive director. “We don’t subscribe to that.”

A Tribune investigation of the tax credits found these subsidies have largely failed to increase access to private schools for low- and middle-income students and for minorities in particular.

The system is rife with abuse by scholarship charities, private schools and parents, the newspaper found.

And it has continued to grow in size and cost, with individual taxpayers shifting $55 million in income tax dollars from the Arizona general fund to private schools last year, Arizona Department of Revenue records show. Since 1997, the total cost has been $350 million.

The tax credit program remains untouched even as the state suffers through the worst economic conditions in its history.

Private school tax credits are helping the state during this crisis, the system’s supporters argue, because the program takes students out of public classrooms and off the taxpayer rolls.

However, enrollment data shows that private schools have grown little — 6,800 students — in the 12 years since the tax credits became state law. Public schools, by comparison, have swelled by 280,000.

In 2006, state lawmakers created a second private school tax credit, to allow corporations to donate their income tax dollars to STOs.

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That tax credit is far different from the one for individual taxpayers. The law limits how much income tax money can go to private schools in a single year and requires that scholarships go to low-income students who transfer from public schools.

Such programs help the school choice movement, and STOs should use them to expand educational options for all Arizona families, said Clint Bolick, a constitutional law expert for the Goldwater Institute.

“We should fight for universal school choice, but each (STO) really does have to search its soul to determine its own mission,” said Bolick, who is also board chairman of the Arizona School Choice Trust.

With the advent of tuition tax credits, Franks said he expected a crop of new private schools to open. These campuses would specifically serve underprivileged students, who otherwise go to public schools.

In many cases, low-income students do not have a ready supply of relatives and family friends to make tax credit donations on their behalf.

The state law that Franks authored does not address whether donors can name the student to receive tuition money, though it does forbid parents from donating to pay their own child’s tuition.

Franks said the state statute didn’t need to address that, because STOs must be tax-exempt nonprofit charities. Federal tax code doesn’t allow these charities to accept donations earmarked to benefit one individual.

However, that practice is commonplace at the largest STOs. Most years, about 97 percent of tax credit donations to the Arizona Scholarship Fund, the state’s third largest STO, are earmarked for specific students or specific private schools, said ChamBria Henderson, Arizona Scholarship Fund’s executive director.

In comparison, the Arizona School Choice Trust prohibits earmarks for specific students. Donors can name which school to help, but the scholarship recipients must be from low-income families.

“We do not allow, permit or support recommendations,” Kelly said. “If someone recommends a child, we do not support that.”

Those kinds of standards, Franks said, are supposed to pervade the private school tax credit system.

The trust is one of just seven STOs in the state that base scholarships primarily on financial need.

“This is the rich giving willingly to a fund that gives to kids — most of the time, 95 percent of the time — that they don’t even know that live in south Phoenix,” he said.

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