Many of Arizona’s known school tuition organizations received a questionnaire Monday from lawmakers seeking to learn more about how they run the Private School Tax Credit program. But one legislator said he wants those groups — known as STOs — to answer even more questions.
Many of Arizona’s known school tuition organizations received a questionnaire Monday from lawmakers seeking to learn more about how they run the Private School Tax Credit program.
But one legislator said he wants those groups — known as STOs — to answer even more questions.
Arizona law allows taxpayers to donate up to $1,000 to an STO, which then gives scholarships to students in private schools or to preschool students with special needs who attend private preschools.
In 12 years, the tax credit program has grown to $55 million annually with little oversight or regulations.
In August, the Tribune published Rigged Privilege, an investigation that showed widespread abuse by the organizations and families that use the tax credit. In some cases, STO directors are hiring family members and friends to help run their nonprofit groups, and parents are skirting state law that prohibits them from donating on behalf of their own children by getting family, friends and neighbors to donate for their kids instead.
Following the Tribune’s investigation and articles written by the Arizona Republic, lawmakers announced the creation of two panels to take a deeper look at the tax credits.
Rep. Tom Chabin, D-Flagstaff, sits on both the official House committee, appointed by House Speaker Kirk Adams, R-Mesa, and the Democratic Caucus-created panel chaired by Rep. David Schapira, D-Tempe.
The official committee, led by Rep. Rick Murphy, R-Glendale, met for the first time last week. During the meeting, Murphy unveiled a two-page questionnaire to be sent to the directors of the 55 known STOs in Arizona.
Chabin said it was the first time he had seen the questionnaire. Following the meeting, he said he asked Murphy to add a few more questions.
But the letter went out Friday without any of Chabin’s additions.
Murphy said he did talk to Chabin, but there was a short timeline to get the letters out. Murphy said he was under the impression he would not hear back from Chabin until this week, so the letter was finalized and mailed.
Murphy also said he wanted to keep the focus of the survey on who is getting the scholarships.
“I don’t want to get too wide of a scope because if we ask for everything under the sun we won’t get useful answers,” he said late Tuesday. “The main goal is to help students and families with financial need get scholarships. I wanted to keep the questions focused on things that have a direct impact on that.”
Chabin said he learned Tuesday morning that the letter had already been sent when he stopped by Murphy’s office.
“I need to consider some options,” Chabin said later Tuesday morning. “I think every Arizonan wants answers to all the questions — the questions Mr. Murphy has issued and the questions that quite frankly the articles in the Tribune beg.”
Murphy’s survey was sent with a Nov. 4 deadline. In the version presented to the tax credit committee on Oct. 14, it stated that Arizona law allows the committee to issue a subpoena for directors to appear at a hearing and produce the requested documents.
A number of the questions in Murphy’s letter focus on what factors or financial considerations are used to determine who receives scholarships. The letter also asks directors to estimate the percentage of scholarship recipients who come from families whose incomes do not exceed 185 percent of the income limit required to qualify a family for the federal school lunch program.
Chabin said he presented Murphy more questions, asking the STOs to detail capital purchases and travel expenses, as well as their hiring practices, any outside groups hired to do legal, accounting or other work for the organizations and any relationship between an organization’s director, board member or employee who might also be tied to those outside groups.
The Tribune’s investigation found that at the Arizona Scholarship Fund, the third-largest collector of tax credit donations in the state, director ChamBria Henderson’s two daughters, her son, and his sister-in-law have all been employed by the group.
The state’s largest STO, the Arizona Christian School Tuition Organization, hires an outside group — HY Processing — to process scholarship applications and enter family income information into databases.
For its services, HY Processing was paid more than $400,000 a year. ACSTO was organized by attorney David J. Harowitz and Rep. Steve Yarbrough, R-Chandler. The two are listed as partners of HY Processing, according to Arizona Corporation Commission records.
Chabin said he’s most concerned that some practices by the STOs might lead to a loss of federal 501(c)(3) (nonprofit) status, which is required by state law. That’s one reason he created the additional questions for the survey.
“If we have a superintendent of schools, if we have a director of a state department or an operation, that can’t hire their children, brother or sister … (then STOs) can’t contract with (family either). That violates state law. That should not be tolerated,” he said. “If those practices are being employed, the taxpayers have a right to know all about it.”
Linda Zell, who for the past four years has run the Jewish Tuition Organization, said Murphy’s questions can mostly be answered by her group but it might take time. She is the sole paid employee of the STO, which last year provided 400 scholarships to students at six schools in the Valley.
Financial need is the primary requirement for scholarship awarding, Zell said. This year, 50 percent of the students receiving scholarships come from families that have incomes less than $30,000 annually, she said.
“They provide us with their tax returns, any schedules we need,” she said. “They can write a statement of need and we have our own application they complete as well.”
Yarbrough wrote in an e-mail to the Tribune that the committee “did not serve up a softball.”
“We are going to have to dig and do some analyzing and some special computer records research to get our ‘best estimate’ for #3,” he wrote, referring to the question about family income levels and the federal lunch program. “We require actual tax returns, but those have information not relevant to the reduced-price lunch eligibility calculation and the information for the reduced-price lunch analysis requires some information not reflected on a tax return. So, we are bringing in some expertise to help do the extrapolation analysis so we are confident we are giving it our best estimate.”
The private school tax credit program does not require families to meet income levels to receive scholarships. But when the program was created in 1997, lawmakers touted it as a way to make a private education more accessible to disadvantaged children.
Larry Mohrweis, who runs the Flagstaff Scholarship Fund, said the questions “will be fairly easy.” His group gave out about $200,000 last year, with 98 percent of the scholarships going to low-income families, he said.
Mohrweis, who testified at the Democratic-led tax credit panel in September, has criticized some of the practices by STOs for several years.
But he praised Murphy’s set of questions and said he has offered to come and speak to Murphy’s group.
“It’s good to gather information. I think what Murphy is doing is an excellent idea,” he said.