Tax Benefits for Private Schools

The Arizona budget has been a controversial piece of politics for some time now. After Governor Ducey campaigned on the promise to get the budget to a surplus, huge cuts have been made to state colleges, public schools and several other necessary programs. A new conversation is emerging now about how much state funding should be spent on private schools.

PHOENIX (AP) – An effort by some Republican lawmakers to roll back an annual 20 percent boost in the amount of corporate tax credits available for contributions to private school tuition organizations has returned this session.

Rep. Doug Coleman, R-Apache Junction, said legislation he’s sponsoring would start anew the conversation that sidetracked a similar effort last year. He says the Legislature needs to renew its look at the credits benefiting private school students because the credits are threatening regular and charter school funding.

The programs currently allow about $56 million a year in tax credits for corporations that donate to private school tuition organizations, or STOs, but automatic yearly increases could set that limit soaring.

“Currently the amount of STOs increases 20 percent a year until it’s $600 million,” Coleman said. “And I just believe that when our public system is so underfunded we’re eliminating a choice. So I wanted to raise the issue, start the discussion and we’ll see where it goes.”

Coleman’s House Bill 2063 would cut the annual increase from 20 percent to 2 percent or the amount of inflation.

Republican Sen. Steve Yarbrough opposes the rollback and said that the scholarships save the state money because they’re much lower than what the state pays public schools. He pointed to individual tax credits for STOs, which have remained stable for five years between $50 and $60 million, and said corporate credits will likewise stop growing.

“It is a huge benefit economically for the state as well as for those kids. So what is the race to try to diminish the growth of opportunity?” Yarbrough said.

Several House Republicans worked together last year to keep a new STO law from passing and got an agreement from the sponsor of a second STO bill to consider adding transparency measures.

Another issue addressed by Coleman’s legislation is the amount STOs like Yarbrough’s are allowed to keep for administration costs. Public schools generally use about 6 percent of their money for actual administration, while STOs can keep 10 percent just for simply acting as a conduit for the cash.

Coleman’s legislation cuts that to 5 percent.

Democrats have long opposed the tax credit program, one of several designed to give parents more choice in schools.

“You get to the point where this gets to be a huge and growing hit to the general fund,” said Sen. Steve Farley, D-Tucson. “We need to be conservative with our fiscal budget and that means we can’t have tax credits blow a hole in our revenue future indefinitely.”