Tax credits for schools raise long-term budget concerns

One lawmaker wants to rein them in; others say they promote education choice

Rep. Doug Coleman, R-Apache Junction

Rep. Doug Coleman, R-Apache Junction

PHOENIX - Saying the current trend is a recipe for financial disaster, a Republican lawmaker wants to cap the amount of money corporations can divert from what they owe the state to instead help send children to private and parochial schools.

Rep. Doug Coleman of Apache Junction is targeting a decade-old law which creates a dollar-for-dollar tax credit for corporations that donate to "school tuition organizations.' These STOs then turn around and provide scholarships that parents can use to pay the tuition and fees of their children.

To protect the budget, lawmakers put in a $10 million annual cap on corporate credits.

But Coleman noted the law allows that to increase by 20 percent a year. The result, he said, is it now has grown to more than $51 million; for next year the limit increases automatically to nearly $62 million.

More alarming, he said, is the compound effect of future increases will move the cap to $662 million by 2030.

To put that in perspective, total corporate income tax collections last budget year were $663 million. And corporate taxes amount to more than 7 percent of all state tax revenues.

Coleman's bill, HB 2063, would cap the year-over-year limit at 2 percent or inflation for the Phoenix metropolitan area.

Sen. Debbie Lesko, R-Peoria, is already gearing up to fight the measure.

"I'm a big believer in giving students and parents a choice in where they send their children,' said Lesko. She said her own children have gone to traditional public schools.

"But not all children are built the same,' Lesko continued, saying the tax credit give more children the opportunity for an alternative.

Lesko also noted that the corporate credit, unlike a similar one available to private individuals, goes only to what she calls "needy' children.

Coleman sniffed at that contention.

"Right now the scholarships can be given to anybody who makes $80,000 or less,' he said, with the actual figure based on family size. "So to say that it's just benefitting low income, I would argue that $80,000 is not a low-income family."

But Lesko's ultimate argument boils down to her contention that the more money that goes into scholarships means more children not in public schools. And that, Lesko said, saves money for taxpayers in the long run.

Figures from the state Department of Revenue put the most recent average scholarship from corporate tax credits at $1,869. But the agency also reports that one specific foundation which gathers money from corporations gave out scholarships averaging $5,569.

The most recent figures from legislative budget analysts put average state aid at $4,242 per student; when federal and local dollars are added, the figure goes to $9,078.

"To me, there's a savings,' Lesko said.

Nor does she believe that logic falls apart if more and more students were to use tax credits to go to private and parochial schools.

"We'd be spending more than that if all of the students went to the public schools,' Lesko said.

Coleman, however, said the scholarships appear to mainly benefit the schools - schools which are not subject to the same requirements as traditional public and charter schools to accept all applicants. And he said that more money for scholarships only exacerbates the situation.

"There's no assurances that the private schools won't still try to maintain exclusivity by raising their tuition,' he said.

Coleman, who is a teacher, is not alone among Republicans in his desire to put a lid on corporate donations.

Rep. Heather Carter, R-Cave Creek, put forward a similar proposal last session during budget debates. And while it was defeated, said she remains committed to pushing the idea.

"This 20 percent is not sustainable,' she said.

And Rep. Kate Brophy McGee, R-Phoenix, said legislators need to look at all these tax credits that are "diverting more and more dollars away before they ever hit the general fund.'

HB 2063 contains another provision also likely to prove controversial.

Right now the organizations that collect the money and give out scholarships, both from individual and corporate donations, can keep 10 percent for administrative costs. Coleman wants to trim that in half.

He pointed out that the state Department of Education administers a different program known as "Education Scholarship Accounts.' The voucher-like program provides state funds to parents of children who meet certain conditions, with those dollars also able to be used for private or parochial school tuition and fees.

Coleman said if proponents of funding children to attend outside schools want as much as possible to go for the scholarships they should support the change.

But Senate Majority Leader Steve Yarbrough, R-Chandler, who operates the Arizona Christian School Tuition Organization, said Coleman is off-base with his comparison to the state program. He said the Department of Education simply taps the treasury; scholarship organizations have to raise their own.

"The organization that I work for has a significant marketing team that is engaged in hundreds of thousands of pieces of mail and all sorts of fundraising efforts,' Yarbrough said. And he said operations of tuition organizations are "extraordinarily lean' compared to other charities.

The most recent federally required financial disclosure for Yarbrough's organization shows revenue of nearly $17.1 million, with $14.5 million paid out in grants. Yarbrough has a listed salary of $100,887 plus $44,818 in other compensation.