Tuition Tax Credit for Private Schools Scam

Arizona's Tuition Tax Credits
Arizona is the self-proclaimed leader in diverting tax dollars to benefit the parents of children who attend private schools. Proponents claim these programs are improving education but the truth about tuition tax credits tells a different story. Arizona's tuition tax credit program has not demonstrated gains in student achievement and, for the most part, benefits parents of private school children who can afford to pay private tuition on their own.

Rep. Yarbrough Getting Rich on the Taxpayers' Backs
Representative Steve Yarbrough (R-Chandler) owns the Arizona Christian School Tuition Organization (STO), the largest tuition tax credit business in the state. These STOs can keep 10% of the tax dollars donated to them before passing along scholarships to private schools in the form of scholarships. According to the Department of Revenue, Yarbrough's STO took in over $11.4 million of our tax dollars in 2007 (most recent year reporting), 21.% of the $54.3 million that STOs took in statewide. He passed along $10.3 million of these tax dollars to private schools. According to his own responses to citizen inquiries, Yarbrough has paid himself a salary of nearly $100K per year.

Rep. Yarbrough Writes the Laws that Created His Business
Over the last six years Yarbrough has sponsored a number of bills to expand tuition tax credits for private schools.

He is at it again
Now he is attempting to pass two more bills that will expand these programs, HB2288 and HB2287. His bills have passed out of the House Committee on Ways and Means. You can be sure these bills go no further by warning your representatives that their support will allow this scandal to continue. Send them a message asking them to stop Yarbrough before his self-serving legislation damages the integrity of the entire House of Representatives.

The Whole Story
"This has turned into something so close to vouchers, you almost can't tell the difference." John Huppenthal, then chair of the Arizona Senate's Education Committee, a long-time voucher supporter.

Arizona's tuition tax credit program has not demonstrated gains in student achievement and, for the most part, benefits parents of private school children who can afford to pay private tuition on their own. According to the Center for Policy Alternatives, approximately 76 cents of every dollar of the grants awarded through the program have gone to families whose children already attended private schools. In spite of this, these plans do not require data collection and evaluation to determine if they actually do increase student achievement or any other benefit.

This program has established a legal system for individuals to misuse our tax dollars in the form of School Tuition Organizations (STOs). STOs collect these tax credits but are not required to immediately pass on the funds for scholarships to private school and some carry a balance of unexpended funds. These funds are not regulated and are potential investment capital for STOs. And, each STO owner can keep up to 10% of the funds for themselves.

Representative Steve Yarbrough has introduced his annual bills to expand tuition tax credits.

One bill, HB2288 eliminates the sunset date (June 30, 2011) for the corporate income tax credit for donations to a student tuition organization (STO). Corporate income tax credits for contributions to school tuition organizations (STOs) are capped at $10 million a year with a 20% annual increase in the cap beginning in 2007. The state has cap has risen from the original $10 million in 2007 to $14.4 million this year. Next year is the final year of the cap increases and the program will cap out at $17.28 million and be reviewed for further implementation by the legislature, unless this bill passes. If HB2288 passes, the 20% annual increases will continue automatically thereafter.

The STO that receives the corporate tuition tax credit contributions must use the funds on vouchers for students of low-income families, but "low income" is defined as families making nearly 3.5 times the federal poverty level.  A family of four would qualify for this voucher with an annual income up to $68,450.  That's well above the state's median household income of around $42,000. It's also above the median income for an Arizona family of four, which is $60,160.  The original maximum amount of the voucher a STO can award with these contributions is $4,200 for grades K-8 and $5,500 for grades 9-12.  Each year after 2006, this amount can be raised by $100. 

HB 2288 also allows insurers to take a credit against their insurance premium tax liability for donations to a school tuition organization.

Representative Yarbrough's other bill, HB2287, allows employers to reduce withholding tax amounts for employees who participate in the STO program. The direct impact of this legislation is to reduce paperwork for those participating in the program, thus increasing the likelihood that participation will grow.

Representative Yarbrough has been the Executive Director of the Arizona Christian School Tuition Organization since 1998.  STOs can keep 10% of the money they get for administrative purposes.  His STO took in over $11.4 million of our tax dollars in 2007 (most recent data). Of that amount only $10.3 million dollars were distributed to private schools, and according to his own emails to constituents, Representative Yarbrough pays himself salary of almost $100,000 per year.

This story raises concern for the integrity of the House of Representatives because Representative Yarbrough was the Chair of the House Ethics Committee when the original Corporate Tuition Tax Credit bill passed and he was its sponsor. He now Chairs the Ways and Means Committee that is responsible for tax policy.

Finally, considering Arizona's general fund has a deficit of over $1 billion that will increase  next year, it would be wise to put an end to the drain of revenue caused by the tuition tax credit programs. Arizona's general fund could recapture $54 million by eliminating tuition tax credits for private schools. By eliminating the sunset date, the fiscal impact grows annually at a rate of 20%. 

Learn more about voucher and tuition tax credit schemes in Arizona.