Controversial Arizona tax-credit scholarship program grants $1B to students

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As students head back to school and parents face hefty private-school tuition bills, Arizona’s education tax-credit scholarship program is on track to celebrate its 20th anniversary this year by hitting the $1 billion mark in scholarship dollars granted.

Taxpayers giving to the program hit that record number last year, saving more than $1 billion on their state taxes via those contributions.

Donors — both individuals and corporations — get a dollar-for-dollar credit on their taxes for giving to non-profit school-tuition organizations. The STOs then give out scholarships to students attending private schools, keeping up to 10 percent of the money for salaries and other administrative costs.

Tax credits suck money directly from the state general fund, which is used to pay for everything from public schools to prisons. But it’s impossible to know exactly how much — if at all — this program cuts into state revenue.

What the supporters and critics say

Supporters of Arizona’s tax-credit program have for years said it’s a financial gain for the state because scholarships total less per student than the state would pay to educate that student in a public school.

But the state only discloses how many scholarships are allocated, not how many students participate in the program. And many students receive multiple scholarships, possibly collecting more than they would have gotten from the state to attend a public school.

Critics have said the program is a drain on the general fund because many of these children would never have been on the state-school rolls in the first place. Data indicates private-school enrollment has remained relatively stagnant as the scholarship program has grown.

What are STOs and who are they helping?

The STO program is separate from the state Empowerment Scholarship Account program, which allocates state funds directly from the Department of Education to qualifying students to be used for things like private-school tuition and other education expenses.

Students can’t participate in both programs at once.

Here’s a look at where all those redirected tax dollars have gone, according to an analysis of state data released this summer:

  • All but two of the top 20 schools to receive the most money over the past two decades are Catholic or Christian schools.

St. Mary’s Catholic High School in Phoenix has been the largest recipient, with $25.6 million in scholarships since 1998. According to the school website, tuition is $14,700 a year, and 85 percent of its approximately 550 students receive some type of scholarship through the STO program.

Salpointe Catholic High School in Tucson was next, with $24.5 million, and then Brophy College Preparatory in Phoenix with $23.6 million. The two non-sectarian schools on the list are Phoenix Country Day School with $9.2 million and Tucson’s Gregory School with $8.9 million.

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  • The average scholarship is $1,779. There were 73,555 scholarships given out in 2016.

The state discloses only how many scholarships are allocated, not how many students participate in this program. Many students receive multiple scholarships and often from more than one non-profit STO.

That makes it impossible to know how much each student actually gets or how it compares to the approximately $3,600 the state allocates for students attending a public school. More is allocated to schools for students with special needs.

Average scholarships per school vary widely; schools that serve primarily students with special needs also get the most per scholarship. The Foundation for Blind Children scholarships in 2016 averaged $11,553, while St. Mary’s averaged $1,752.

  • 43 percent percent of scholarship recipients are considered “low-income.” 

In this case, the state is counting “low-income” as students whose families earn at or below 185 percent of the federal poverty level. For a family of four, that equates to about $45,000 year.

Different definitions are used when it comes to who qualifies to receive the scholarships.

For scholarships given through the individual tax credits, “low-income” is still counted at 185 percent of the federal poverty level. But the corporate tax credit for “low-income” families has a more-generous definition — a family of four can earn just over $83,000 and still qualify.

  • Most of the money goes to schools in Phoenix and Tucson.

Students at Phoenix schools — where the metro area’s largest Catholic high schools are located — got $39 million in 2016. Students at Tucson schools got $33 million.

The next highest were students at Scottsdale schools, who received $7 million.

No students in La Paz or Greenlee counties received scholarships, but students in all the other counties did.

  • About half of the state’s STOs allow donors to “recommend” which student should receive a scholarship with the donated money.

State law forbids STOs from allowing donors to designate recipients but allows recommendations as long as other criteria are also considered. STOs do not have to publicly disclose their selection criteria, making it impossible to know whether STOs are actually following this portion of the law.

It is common for STOs — and schools — to encourage parents to ask family members and friends to donate to a particular STO and “recommend” their child for scholarships.

Originally published by Alia Beard Rau with the Arizona Republic on August 18, 2017 at 7:00 am