Ariz. Tax Credit Scheme Gets Bogged Down In Money Problems

A program in Arizona that funnels tax support to religious and other private schools has come under fire for lax oversight and not spending enough money on students.

The Arizona plan, which is a type of backdoor voucher scheme, allows corporations and individuals to make donations to non-profit groups that in turn provide financial aid to students in private schools. The corporations and individuals then receive a 100 percent tax credit for the money they have donated.

The Arizona Republic found that some of the non-profit organizations that collect the money have failed to use 90 percent of it to fund “scholarships,” as the law mandates. The program has also been scored for lack of oversight.

The Arizona Attorney General’s office is considering litigation against some of the non-profits, the Phoenix newspaper reported.

During a November hearing before the Arizona House of Representatives legislative task force, Assistant Attorney General Susan Myers said one of the problems is that the tax-credit law does not spell out penalties for non-compliance.

Myers reported that she examined 19 organizations that provide tuition aid. Many of them fell short of the 90 percent mark, leaving $3.9 million unspent.

The Republic’s own analysis found an even bigger problem, with 21 organizations failing to meet the 90 percent goal. As a result, $10.3 million was left unspent.

One drawback to the program, Myers noted, is that it does not impose a deadline on the non-profits to disperse the funds. Several of the groups insisted to Myers that they will eventually hit the 90 percent requirement.

Myers recommended closing several loopholes in the plan. She said donors should be barred from targeting funds to a specific student and called for requiring that unused funds revert to the state treasury; she also said there should be an income limit on aid recipients.

The revelations come at a time when the state is dealing with a budget crunch. Facing a $2 billion budget shortfall, legislators have slashed funding to several programs, including public schools.

The program is also under fire on church-state grounds. The Republic reported that 93 percent of the $54 million distributed under the plan went to religious schools in 2008.

In April, the 9th U.S. Circuit Court of Appeals ordered a lower court to hold a full trial on whether the Arizona scheme unconstitutionally favors religion by steering parents to religious schools.

Attorneys at the Institute for Justice, a pro-voucher program, are asking the Supreme Court to review the ruling.