Arizona's voucher program was struck down by the Arizona Supreme Court in March 2009. Ariz Republic story here. In April, 2011, the remaining education tax credit program was upheld by the US Supreme Court based on the lack of standing of the plaintifs. NYT story here. In 2010 Arizona passed an Education Savings Account program.
DNHPE Comment: This is probably the best overall explanation of Education Tax Credits and vouchers.
Arizona’s Private School Tuition Tax-Credit Program: How We Got Here and Where are We Going?.
In June of 2009, Arizona Education Network published an article explaining how individual and corporate tax school tax credits worked. (We encourage you to read this article first in order to understand the structure of the Arizona private school tax-credit program before continuing with this article.) Since then, investigative reports in the East Valley Tribuneand the Arizona Republic have brought into question the efficacy of the program and the practices of the School Tuition Organizations, which act to pass through the tax credits to the private schools. In the wake of the investigations, two house panels have held hearings into private school tax credits.
Arizona Education Network decided to take a closer look at the private school tax credit program and its history in order to understand the evolution of the program, the issues that have been raised and the potential changes in the future. In order to respond to the many inquiries we have received (and make this easier on the layman), we will be using the Q & A format.
Why is there so much interest in using public tax dollars for private schools?
There are several arguments made:
What are vouchers?
Vouchers are payment certificates directly issued by the government to parents to pay for private school. They have been very controversial because, historically, they have run into problems with the Establishment Clause of the First Amendment of the U.S. Constitution. The First Amendment states that: Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; and court cases regarding vouchers have centered on these clauses.
How did vouchers wind up being upheld by the Supreme Court?
The path of vouchers in the legal system is very interesting and it all has to do with the changing interpretation of the Establishment Clause. Here are some of the Supreme Court cases that determined the progress to federally approved vouchers.
Why doesn’t Arizona use vouchers?
Even though federal law now permits vouchers, the use of vouchers is not permitted under the Arizona state constitution. This is because the Arizona constitution contains a “Blaine Amendment Clause“. The Blaine amendment was a constitutional amendment proposed by then Congressman James Blaine in 1875 to ban the use of revenue raised by taxation for private schools; specifically religious schools. While the amendment to the constitution failed, many states (including Arizona) adopted a version of the amendment into the state constitution. The Arizona constitution article IX, Section 10. reads:
“No tax shall be laid or appropriation of public money made in aid of any church, or private or sectarian school, or any public service corporation.”
Thus, Arizona lawmakers needed to find another way to to fund private school: tax-credits.
How do tax-credits avoid the “Blaine Amendment” prohibition?
Tax-credits are not refunds; they are “credits.” The funds never make their way into the state general fund, but they come back as a credit OUT of the state’s general fund. The tax-credit money must be paid to a middle-man, a school tuition organization (STO), which then distributes the funds to students through “tax-credit scholarships”. Because the funds are not received by the state directly and are not paid out by the state, they are not subject to the Blaine Amendment.
Was the private tuition tax-credit challenged in court?
Yes, it was challenged in Kotterman v Killian (1999) and went to the Arizona State Supreme Court.
Are there any other cases that may affect tax-credits in the future?
There is currently a case working its way through the federal appeals court. On October 21, 2009, the full 9th U.S. Circuit Court of Appeals affirmed its April 2009 decision that the Arizona School Tuition Organizations Program for private schools is unconstitutional.
In the case of Winn v Arizona Christian School Tuition Organization, the court supported “Plaintiffs argue[ment], however, that Section 1089 violates the Establishment Clause precisely choices available under the program serve to restrict parents’ opportunities to select secular educational options for their school-age children, skewing parents’ incentives to send their children to religious schools. As such, the program is not ‘neutral in all respects toward religion’ and, concomitantly, is not a ‘program of true private choice.’” This returns the argument to the Establishment Clause and the Zellman case’s neutrality test. It will be interesting to see how the Supreme court applies these issues to tax-credits vs. vouchers.
Interestingly, “[a]n analysis of 2008 scholarships by The Arizona Republic showed religious schools received 93 percent of the $54 million given to school-tuition organizations that year. The Republic went on to report that, “If the U.S. Supreme Court decides not to review the case, it will go back to the Arizona’s U.S. District Court for a full hearing. If the Supreme Court decides to review the case, the justices would ask for further legal and oral arguments from attorneys on both sides. The court could reverse the Appeals Court decision and end the case or uphold the Appeals Court decision to send the case to a lower court for a full trial.”
How does Arizona’s tax-credit specifics compare to those of other states?
Arizona pioneered the use of tax-credits to circumnavigate the restrictions of the “Blaine Amendment”. Several other states have implemented tax-credit programs following the Arizona model. Click here to see a chart that compares Arizona tax-credits to those available in Pennsylvania, Florida, Iowa, Rhode Island and Georgia.
Arizona’s individual tuition tax-credit plan should adopt that same standards as Arizona’s corporate tuition tax credit plan.
Do tax-credits save the state money?
Proponents of tax-credits argue that tax-credits issued on behalf of students attending private school save the state money because the tax-credit is less than the per-pupil funding level allocated by the state for a student in public school. However, the state saves moneyonly if the benefitted students start out in public school. When tax credits support students who are already in private school and would have chosen private school anyway, there is no savings to the general fund. The Arizona Republic article points out that out of the 50,000 private school students, only 7,530 students have been added since the tax-credit program started. Moreover, if public school students switch from public to private schools they only receive a partial subsidy of their private school tuition, leaving the families to make up the difference between the subsidy and the full cost of private school tuition. Therefore, there is a cost-shift from public payment for education to private, individual payment for education. Is that the best way to build an educated work force? How will low income students be able to afford to subsidize their education?
Why publicly financed education?
Parents have the choice of sending their children to a public school or a private school at their own expense. More importantly, choice is now available under the public school umbrella; among traditional public schools and charter schools.
Universal public education in the United States is a cornerstone of our democracy. While citizens of the United States pay taxes for a variety of services, none has had a greater economic impact on the United States than the investment in public education.
Reforms in public education are moving to outcome-based models. By shifting tax funds to private schools, lawmakers risk sending funds to institutions with no accountability for how funds are spent or any test of outcome of their education model. In a time of tight budgets and cuts to public education, allowing tax-credits to private schools, without any accountability for spending or assessment of success does not appear to be a sound public policy decision.
MaryLee Moulton, Arizona Education Network
MaryLee Moulton can be contacted at email@example.com
Tax credit sponsor’s vision unrealized, East Valley Tribune, June 15, 2010
Researcher: Tax credits cost state millions, Livewire Blog, AZ Central.com, February 8, 2010
Tax Credits & STOs: Overview, Arizona Education Network, June 6, 2009
Rigged Privileged, East Valley Tribune, August 1, 2009
‘Republic’ analysis: Tuition tax credits drain state money, Arizona Republic, October 14, 2009
Public Schools: Make Them Private, Milton Friedman, Cato Institute, June 23, 1995
Attorneys to ask high court to review Ariz. tuition tax credits, Arizona Republic, October 22, 2009
Wellman, Kevin, G., NeoVouchers, New York: Rowman & Littlefield , 2008.
Report: Arizona No. 1 in voucher programs
Michelle Reese | Posted: Wednesday, February 11, 2009 5:30 pm
Arizona programs that provide scholarships or vouchers for students to attend private schools benefited 29,539 students last school year.
The news came this week while leaders on both sides of the voucher debate await a decision from the Arizona Supreme Court on the constitutionality of one voucher program.
In the annual report released Tuesday by the Alliance for School Choice, Arizona ranked No. 1 in the number of programs available to students that allow them to receive funds to attend a private school.
Compared to the nine other states (and the District of Columbia) that offer private school choice tuition programs, Arizona ranks third in the number of students who receive funds, with Pennsylvania leading with 43,764 students and Florida not far behind with 41,843 students benefiting.
There are several programs available to families in Arizona, including individual and corporate tax credits dispersed to students through tuition organizations, and voucher programs from the state that provide funds for foster children and students with disabilities to attend private schools.
It is that last piece that has been debated among parents, school groups and leaders, leading to the Supreme Court hearing in December.
State Superintendent of Public Instruction Tom Horne is a proponent of the vouchers. His argument is that the state already pays money to some private schools when public school district officials deem it a better fit for a child.
But opponents say the voucher program is taking away resources from public schools.
A trial court agreed with the backers of the program, but an appellate court ruled it unconstitutional. The original lawsuit was filed nearly two years ago.
Last year, lawmakers decided not to fund the program for the current school year, but the state Department of Education found the money to keep it going.
"We've for a number of years been first in the country for parental choice," Horne said. "I just believe that the more parental choice you have, the more schools compete to do well academically so parents will want to send their children there. It's just like any part of life, when people have competition they do better."
But Chris Thomas, legal representative for the Arizona School Boards Association - which filed the lawsuit - said the problem with the vouchers is state law does not allow state money to pay for religious education.
"This is the first time in Arizona we've tried that," Thomas said of the voucher program that began in 2006. "We have some pretty clear provisions in our law that there can be no public money supporting religious instruction. There can be no direct or indirect aid for religious instruction in the state."
There are 225 special-needs and foster children statewide who received vouchers last year to attend private schools.