Lawmakers seek info from scholarship groups

An Arizona House committee is sending a questionnaire to private school tuition organizations across the state to find out how they administer tax credit donations, the number of low-income families receiving scholarships and the percentage of revenue distributed as scholarships.

The five-member Private School Tuition Tax Credit committee, chaired by Rep. Rick Murphy, R-Glendale, was created in September to look into the state’s $55-million-a-year program that allows taxpayers to take a tax credit in exchange for donating to charities that give scholarships for children to attend private schools.

Rigged Privilege: A Tribune investigation

Lawmakers call for school tax credit probe

Tribune investigation cited in tax credit suit

Tribune tax credit series wins national award

State tuition groups might have to open books

Report: Tuition tax credits cost state budget

In August, the Tribune published Rigged Privilege, an investigation that found the individual Private School Tuition Tax Credit 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.

The aim of the committee, appointed by Speaker Kirk Adams, R-Mesa, is to ensure accountability measures and transparency in the program and to make improvement recommendations, if needed.

Murphy said through the questionnaire, the committee could learn more about criteria some school tuition organizations, known as STOs, use to dole out scholarships and get an idea of the percentage of scholarships and taxpayer dollars that go to families of students with financial need.

“We want to make sure that whatever recommendations we come up with are based on the real facts as they exist out in the field and not assumptions that are made perhaps with a broad brush,” Murphy said. “We don’t want to be guessing and making policy on a guess.”

He added that if there are some abuses or “maybe some folks got off track,” the survey of STOs will give lawmakers factual information to go on in coming up with solutions. The questionnaire seeks a reply from the STOs postmarked by Nov. 6.

A hearing on Wednesday, the first of three expected to take place before the committee makes its final recommendations by early December, was a rundown of the individual tuition tax credit program, along with a Department of Revenue official outlining that agency’s limited role in administering the program. A handful of parents and students who have benefited from the program also offered testimonials.

At the outset, Murphy clarified the role of the committee and what it was not formed to do: “There is a time and place to debate the overall merits of school choice and whether we should have it or not. … But what we hope to accomplish in this committee is to take a practical look at the individual scholarship tax credit program and decide are there some areas where we could improve it and make it work better.”

Rep. Tom Chabin, D-Flagstaff, pointed out that with there being no income requirements, even children of the wealthiest families can qualify for scholarships.

He also noted the concerns of abuse highlighted in various articles by Northern Arizona University professor Lawrence Mohrweis, who’s on the board of directors of a Flagstaff STO.

In the individual Private School Tuition Tax Credit, STOs are allowed to award scholarships to any students, regardless of family income. That’s unlike a separate corporate income tax credit program in which corporations and insurance companies can make donations to the STOs in exchange for tax credit. In the corporate program, scholarship recipients must demonstrate financial need.

Murphy said that with Arizona being the first state to “pioneer” such a program, he’s not surprised that it’s time to explore some improvements, something other states have done.

“It’s not surprising that we need to take the first school choice program and perhaps give it some extra bells and whistles or some extra features,” Murphy said.

Among those testifying was Georganna Meyer, chief economist at the state Department of Revenue, who has administered the tax credit programs since their inception. STOs are required to file an annual report with the Arizona Department of Revenue stating the amount of donations collected, how many donations they received, the number of scholarships awarded, how many dollars in scholarships were paid out and which schools received the scholarships. They do not have to report any information on which students receive scholarships.

Meyer pointed out that the numbers she reports annually are based on the STOs she knows about.

“There may be STOs out there that I do not (know about),” Meyer said.

She also said she doesn’t have any regulatory authority over STOs, other than that they’re required to report to her.

“If they don’t, I nag them,” she said. “But there you go; that’s my authority.”

Chabin asked a series of questions about penalties for any violation of the laws by the STOs or if anyone had any authority to regulate them. The answers all pointed to no one having any power of oversight.

State law does require STOs to disburse 90 percent of revenue as scholarships, with up to 10 percent kept for administrative expense. Meyer said she does periodically look at the numbers on total scholarships and donations, and if percentages look “wildly skewed,” she checks with the STOs and urges them to review their numbers.

“But I have no authority over that, and they’re well aware of that,” Meyer said.

Barring any extensive review of the books, she said it’s “nearly impossible” to check how well the 90-10 rule is being met. The Tribune’s analysis of available data found that two-thirds of STOs were out of compliance with the 90-10 rule over the past five years.

Chabin asked if it’s an allowable itemized tax deduction for a parent to have an agreement with a neighbor, for instance, in which each names the other’s child as a beneficiary of a private school tax credit. After interviewing dozens of parents, the Tribune found that such arrangements are common. Meyer said by state law it is allowable, but there may be a federal issue with such a deduction. Tax experts say such agreements violate federal tax laws over charitable donations, the Tribune reported in August.

Phoenix resident Tiffani Motley brought her 15-year-old son, Justin Thortvedt, who attends Valley Christian High School in Chandler on a scholarship from the Arizona Christian Tuition Organization, an STO operated by Rep. Steve Yarbrough, R-Chandler. She said this program has helped Justin, who has a learning disability, to advance and has boosted his self-esteem. The school keeps him structured and out of trouble, Motley said.

“Without this program, I would have to work three jobs,” she stressed.

The next House committee hearing is scheduled tentatively for early to mid-November, following an analysis of the questionnaire sent to the STOs.

At the end of Wednesday’s meeting, a disappointed-sounding Chabin said that had the panel stuck strictly with the hearing agenda and without any questions from him, “we would have wondered why we needed this committee to do anything.”

He urged for a more rigorous examination into the program.

”We have to recognize that there are problems in the STO system. We have to recognize that we need legislation to address it, and we have to be open as a committee to a bipartisan solution on this,” Chabin said.

Rep. Andy Biggs, R-Gilbert, was out of town and missed Wednesday’s meeting. Also on the committee are Rep. Jack Brown, D-St. Johns, and Rep. Debbie Lesko, R-Glendale.

After the hearing, Chabin also said that while he appreciated the testimony provided by parents who benefit from the program, there is still a need to stop any abuses that are also taking place.

“The hearing was not designed to explore the problems we set out to look into,” Chabin said.