AG looks at private school scholarship groups

The Arizona attorney general has sent letters to 19 of the state’s nonprofit school tuition organizations asking them to explain why they didn’t spend 90 percent of donations on scholarships for private school students as required by law.

Attorney General Terry Goddard looked at information provided to the state Department of Revenue by the organizations, known as STOs, for 2008.

Since 1997, Arizona law has allowed individual taxpayers to donate up to $1,000 each year to an STO to give out as scholarships for private school students. The taxpayer then receives a dollar-for-dollar tax credit.

Last year, more than $55 million was donated to 55 STOs. According to state law, they must use 90 percent of their donations for scholarships.

In early August, the Tribune published Rigged Privilege, an investigation into the state’s Private School Tax Credit program that found the program to be rife with abuse. Looking at six years of data, the Tribune reported that two-thirds of STOs failed to use 90 percent of donations for scholarships.

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On Aug. 24, the Attorney General’s Office issued letters to 19 organizations based on information they submitted to the revenue department for 2008.

Five of those 19 did not file a response with the attorney general by the stated Sept. 8 deadline, according to documents obtained by the Tribune.

David Lyon, co-founder of the Children’s Scholarship Network of Arizona, Inc., said his STO had not yet formally responded to the letter, but that unofficially it has been in touch with the Attorney General’s Office. According to Lyon, the Children’s Scholarship Network was started in the fourth quarter of 2009. Since then, the organization has paid out “99 percent of all funds collected in the last 10 days of the year by January.”

Lyon added that the organization is in favor of reforms.

STOs can use 10 percent of donations for administrative purposes. Lyon said he would like that brought down closer to 3 percent so that more of the money collected can go toward scholarships for children in need.

In many letters to the attorney general, the STOs maintain that they did not give out all the funds in 2008 because those dollars were collected so late in the year that they were used as scholarships in 2009.

“One needs to take a multiyear view of donations and scholarships to secure an accurate picture,” Marc Weidinger, executive director of School Choice Arizona, wrote in his response.

School Choice Arizona collected $180,408 in individual tax credit donations in 2008 and gave out $65,909 in scholarships.

“As you may know, most donations are received at the end of the calendar year and awarded a few months later,” Weidinger wrote.

Several STOs also stated that they give out “multiyear” scholarships, so they “hold back” some of the funds for future years.

Arizona law does not have a timeline that states when the dollars must be disbursed, only that 90 percent of the donations must be given as scholarships.

“I have always maintained from the beginning that you cannot take something collected in 2008 and expect them to pay out that in 2008,” said Georganna Meyer, the state’s chief economist who oversees all reporting by the STOs to the Department of Revenue. “That would be physically impossible because so many people give money in December.”

There also is nothing in the statute that prohibits the STOs from giving out multiyear scholarships, but it is not a practice followed by all organizations.

In its analysis, the Tribune used multiple years of data to see how much STOs spent on scholarships because STO executives argued strongly to the newspaper that it was unfair to judge a scholarship charity’s performance by looking at a single year.

The Tribune took the sum of each STO’s scholarship awards for the years 2003 to 2008 and subtracted it from the sum of each STO’s contributions received for the same period. The resulting dollar amount for each STO was divided by that group’s contributions to find the percent of funds that did not go out as scholarships. Based on that formula, the newspaper determined that two-thirds of the state’s STOs were out of compliance with the law over the past five years.

Anne Hilby, spokeswoman for the Attorney General’s Office, said the matter is still under review.