Schools teach parents how to skirt law - East Valley Tribune: News

Rigged Privilege Schools teach parents how to skirt law

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Posted: Tuesday, August 4, 2009 1:14 pm | Updated: 1:19 pm, Tue Dec 4, 2012.

At dozens of private schools, enrollment materials include step-by-step instructions on how parents can work the tax credit system to get a majority, or all, of their children’s tuition paid for at no personal cost.

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Gethsemane Lutheran School did not appeal to its faithful’s sense of charity when asking for money to fund student scholarships.

Rather, the Tempe Christian elementary and middle school appealed to their bank accounts.

“You make money!” Gethsemane’s Web site shouted in bold letters.

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Special report: Rigged Privilege

More than 300 private schools across Arizona receive money from the state’s Private School Tuition Tax Credits program, which takes income tax dollars, otherwise destined for state coffers, to pay for private education.

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.

Instead, schools that receive the most tax credit scholarships dramatically increased their tuition. Several campuses doubled the price.

And a small handful even mandate that parents make a tax credit donation to the private school as part of their children’s tuition, violating state and federal law.

At dozens of private schools, enrollment materials include step-by-step instructions on how parents can work the tax credit system to get a majority, or all, of their children’s tuition paid for at no personal cost.

The most ambitious administrators publish multipage guides on the subject.

Private education costs have risen so sharply that even executives at school tuition organizations have begun to criticize the schools they partner with to raise income tax donations and distribute scholarships.

“What’s wrong with this picture?” said ChamBria Henderson, director of the Arizona Scholarship Fund. “Shame on you schools for raising tuition beyond what would be normal if the tax credit weren’t available.”

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However, many of the largest private school scholarship charities — particularly the Arizona Scholarship Fund — have aided and abetted the price hikes.

Henderson argues that schools alone are responsible for their tuition rates and how they use tax credit money.

Arizona’s general fund gets shorted $55 million a year through tax credits to pay student tuition.

That amount has swelled in recent years, up from $42 million in 2005, records from the Arizona Department of Revenue show.

Lawmakers twice increased how much households can donate for tuition credits this decade. The price of private education has grown accordingly.

In their efforts to help parents recruit income tax donors, private schools sometimes make dubious claims or suggest activities that violate federal tax code.

Donors cannot, for instance, “make money” by donating their income tax dollars for a Gethsemane Lutheran student.

The school supported that contention by stating donors could claim a contribution as a deduction on their federal taxes, which is false if earmarked to benefit specific students. The Internal Revenue Service does not consider such donations to be charity, and therefore deductible.

Wendell Robson, Gethsemane’s principal, did not respond to repeated requests for comment.

Gethsemane works with the Arizona Christian School Tuition Organization, the state’s largest STO, to provide its families with tax credit scholarships.

Steve Yarbrough, ACSTO’s executive director, said he was not aware of the statements on Gethsemane’s Web site when the Tribune asked about the school’s claims last month.

“With as many schools as we work with, more than 120, I’m not even sure that I’ve seen the Web sites for all of them by any means,” Yarbrough said. “We do try to make sure they are giving accurate information.”

He added that Gethsemane’s choice of words was regrettable.

“I’m going to suggest clearly and strongly to them that they not make that sort of claim,” Yarbrough said.

The “tax credit” page on Gethsemane’s site is now blank, save for a link to ACSTO.

NO QUID PRO QUO

Summit School of Ahwatukee’s handbook for parents on tuition tax credits is 14 pages long.

Its explanation of how to donate to the Arizona Scholarship Fund, its STO of choice, is more extensive than those available from the charity itself. The handbook contains five theoretical families, each with different financial circumstances, and details how they take a private school tax credit.

In the “frequently asked questions” section, the first query is basic.

Why should parents donate their income tax dollars specifically to Summit, the school, rather than to an individual student?

The school’s answer is even simpler: because they have to.

“All families at Summit pledged to make a contribution to the ASF Specific School Fund with Summit School of Ahwatukee designated as the recipient on their enrollment form,” the handbook states.

The condition violates the state’s tax credit law because it requires the donation as part of the parents’ tuition payment. The law forbids parents from taking a tax credit that benefits their own children.

What’s more, the mandatory tax credit also breaks federal tax code, which prohibits quid-pro-quo donations to nonprofit charities like STOs, in which donors receive something of personal value in exchange for their contribution.

In July, Summit altered its enrollment documents for the upcoming school year, requesting donations instead of mandating. The word change came after Tribune inquiries about the school’s use of tax credits.

Bill Andrew, chairman of Summit’s board of directors, said the statements in the private school’s handbook and application materials were inaccurate and inappropriate.

“That’s actually very poorly worded,” Andrew said.

About half of Summit’s families made tax credit contributions to benefit the school itself, many of them believing it was a condition of enrollment, he acknowledged.

Summit has never expelled students because their family did not make the tax credit donation, Andrew said. “That was not our intent, or the spirit of what we were trying to do, and we never enforced it that way,” Andrew said.

Parents could get away with not making the donation, said Paul Bosch, whose son just finished eighth grade at Summit, but the school didn’t make the tax credit sound optional.

Bosch said he and his wife for years have used their $1,000 private school tax credit to help pay tuition for a friend’s child at a different school, leaving them without income tax dollars to spare for Summit.

However, he helped Summit lean on other families for donations.

Summit requires parents to volunteer a certain number of hours to help the school. Bosch said he met the quota by calling other Summit parents to remind them to make their tax credit donation for Summit.

“I hope I’m not being hypocritical,” Bosch said of his thoughts at the time.

The Bosches gave money out of their own pocket to Summit’s capital fund for buildings.

Henderson, the Arizona Scholarship Fund’s director, said the Summit mandate was, at best, problematic. Regardless, for years the scholarship charity accepted such donations on behalf of Summit and other private schools.

“I know of probably only two or three schools that have this requirement,” Henderson said, “and I shake every time I think about it.”

‘POUND THE PAVEMENT’

Private schools have turned parents into fundraisers.

Instructions for where and how to seek out income tax donors are included on Web pages, discussed at school meetings and handed out with copies of the student code of conduct. Administrators emphasize that parents think big, and consider asking anyone they know.

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“The list could include: friends, family, co-workers, people with whom you do business, neighbors, fellow churchgoers, people at your gym or yoga studio, members of your professional association, and much more,” a flyer from the Tucson Waldorf School states.

Gilbert Christian Schools uses its monthly newsletters to remind parents to “pound the pavement” in search of potential donors.

Community Montessori, a private kindergarten in Phoenix, has parents of all its students join in.

“I tell parents, if you want to be a part of the school and feel like you’re not paying for it, you have to go out there and contribute and get out there and recruit family members and friends,” said Janet Wheeler, Community Montessori’s director.

The instruction and encouragement is ostensibly to help families with children in the schools.

But in many cases, it’s the schools that benefit most from the fundraising efforts.

Much like universities raise their prices each time Congress adds more financial aid for low-income students, many Arizona private schools increased tuition each time the tax credit program expanded.

In 2005, the Goldwater Institute, a Phoenix think tank that advocates for limited government, reported that the private elementary schools charged $3,688 a year on average; high schools were more expensive, at $6,696.

Then in 2006, state lawmakers increased the amount that taxpayers can contribute each year to school tuition organizations from $825 for married couples, to $1,000.

For the school year just beginning, tuition at the private schools that receive the most tax credit scholarships is anecdotally as much as 30 percent higher than the average prices Goldwater found four years ago.

Notre Dame Preparatory in Scottsdale — which collected $620,868 in tax credits last year — charges $10,400 in yearly tuition, not counting application and registration fees. In 2004, families paid $7,235 per student.

At the Phoenix Hebrew Academy, kindergarten tuition was $9,600 last year; enrolling in grades first through eighth cost $10,500. A kindergarten education at the academy cost $7,800 in 2005; the elementary grades were $7,500.

Brophy College Preparatory in Phoenix has almost doubled tuition since 2001, now charging more than $12,000. The elite campus collects the second-most tax credit scholarship money, $1.5 million last year.

THEIR OWN STO

“Cover everything in prayer!” the Flagstaff Community Christian School advises parents in a tip sheet about securing private school tax credit donations. “Let God orchestrate this for you and He will make sure this information gets into the right hands.”

However, few private schools leave such matters to chance, or to higher powers.

The state tax credit law stipulates that STOs must be willing to provide scholarships to more than one school. The provision is intended to discourage private schools from setting up scholarship charities just for themselves, said Georganna Meyer, chief economist at the Arizona Department of Revenue.

Regardless, many campuses have done just that.

The state law stipulates that STOs must be willing to give scholarships to other schools, not that they actually do so.

“I encourage them, if just for the sake of appearances, do more than one school,” Meyer said.

The Dynamite Montessori Foundation is an offshoot of a Cave Creek private school, Dynamite Montessori.

The scholarship charity gave its namesake $23,154 in scholarships in 2008. It also provided three other Montessori schools just more than $3,000, the state Revenue Department records show.

The Arizona Tuition Organization (AZTO), another tax credit charity, distributed $1.2 million in scholarships from income tax donations in 2008. Of that, $1 million paid tuition for students at Northwest Christian School in Glendale.

Matt Davidson, Northwest’s superintendent, is on the AZTO board of directors.

Like the state’s other large private schools, Northwest’s families do not limit themselves to one scholarship from one charity.

Northwest students, who go from kindergarten through high school, received the largest amount in tax credits last year, $1.6 million, with scholarship money arriving from several different STOs.

About 200 students at Northwest applied for and received tuition money from multiple scholarship charities, said Tom Hartzler, the school’s administrative services director.

If the schools do not operate their own STO, administrators typically form partnerships with one or more of the large scholarship charities, such as the Arizona Christian School Tuition Organization and the Arizona Scholarship Fund.

These partnerships help private schools ensure income tax dollars that parents lined up for their children’s tuition arrive at the campus when the bill is due.

Such partnerships come in handy when problems surface. Like when an STO uses tax credit money donated for a student at one private school to, instead, pay tuition for another student at a different campus.

Carrie Slade, Summit School’s business manager, said the Arizona Scholarship Fund has made that mistake on occasion. Slade said she helps parents work with the scholarship charity to track the donations by check number to prove that the Summit student has been shorted.

“And ASF says, ‘Oh my gosh, you’re right, we’re so sorry,’” she said. “And they move the funds over right away. But we have to keep on top of them.”

Ethnic breakdown at schools receiving top scholarship dollars

"AI" indicated American Indian or Pacific Islander. "HISP" indicates Hispanic.

School tuition organization (STO) cash flow

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