Horizon, Host: Ted Simons

August 17, 2009


Host: Ted Simons

School Tuition Organizations

  |   Video
  • The East Valley Tribune recently completed a series about how School Tuition Organizations, which funnel money from tax credit eligible charitable contributions to students, might be violating the law. The Tribune's Ryan Gabrielson will tell us more about his reports.
Guests:
  • Ryan Gabrielson - East Valley Tribune
Category: Education   |   Keywords: east valley tribune, school tuition organizations,

View Transcript
Ted Simons:
A published series on how S.T.O.s, school tuition organizations, might be violating the original purpose and the law. They are using them for scholarships to help kids attend private, often religious, schools. I'll talk to the reporter who worked on the series. First, here's what Congressman Trent Franks had to say about it.

Trent Franks:
The one point I think should be made -- and I hope this article, this investigative article will talk about the debate in the legislature. The original bill I wrote said these scholarships would go to children, and children could use them at schools of their parents' choice. The parents were the ones that decided which school to choose and the scholarship charity simply said we will scholarship this child. Once we do that, it's the parents' decision.

Ted Simons:
What's the change?

Trent Franks:
I think the legislature should go in and clarify what the original intent of the legislation was. There was an amendment in that original legislation that kind of confused a few things. I think it should be very simple, that most of the time those who have tax liability are the wealthier in our society. Most of the time those who cannot afford a school other than going to the free public school that costs twice as much on the average as private school, then we just simply want to empower those who don't have that option. Right now rich parents can send their kids to any school they want. The poor cannot. The original intent of this legislation -- and it has gone a long way towards this end -- was to encourage those wealthier in society to fund an alternative, and fund scholarships so that children that weren't doing well in their existing school, to be able to access something that would give them a better chance to walk on a higher road and a sunnier road of life.

Ted Simons:
Here now to talk more about the series on S.T.O.s is "East Valley Tribune" reporter, Ryan Gabrielson. On a past investigational series we have spoken. This investigation started with?

Ryan Gabrielson:
At a time when almost every part of the state government was shrinking, this program is talking about expanding, adding a new program when the voucher program for disabled kids and for -- was struck down by the courts. They started shifting the voucher program into a new tax credit with donations from corporations. It didn't start with me, it started with my partner on the project, Michelle Reece, and one of our editors, C.C. Todd.

Ted Simons:
So again, the State gives dollar for dollar tax credits for these donations to…

Ryan Gabrielson:
Officially the donations are to what are called school tuition organizations, S.T.O.s. They are scholarship charities. Under federal tax law they are 501(c) charities. When you make a donation that donation is supposed to be tax deductible and serve a charitable purpose. The original idea, and why the state law requires them to be 501(c) 3s, they were supposed to help a group of people who wouldn't normally have choice. The law is used in a very unusual way. It doesn't say that a parent can't designate money for their own kid. It doesn't say, can you designating for any kid? With that wide-open loophole the law is being used in a very different way from what Representative Franks originally talked about.

Ted Simons:
First, just in general, are tax credits making private school education more accessible?

Ryan Gabrielson:
There are individual cases, yes, some students. On the whole, global perspective, no, absolutely not. You can't get information on income level of families in private schools. They are private schools, they don't release that. The only thing we have available to access is -- they are more accessible than 12 years ago -- is racial demographics. They do report to the federal government every other year. What has happened with the schools that have received the most money, some of them received more than a million a year in tax credits. What happened to the enrollment at those schools? First off, did it grow? They didn't grow substantially. Did it change who's going to these schools? In 1996, the year before the tax credits, they were 80% white. Today they are 78.5% white.

Ted Simons:
That's the demographics. Are there more schools to choose from?

Ryan Gabrielson:
Not really, very few, a small handful of schools. Statewide, private schools make up about 50,000 of students everywhere. There's 1.1 million in public schools. The private schools have grown by about 5,000 to 6,000 students total. During the same time period, public schools grew by almost 300,000 kids. A small handful of schools opened up, like Notre Dame High School in Scottsdale, Surrey Garden in Gilbert. Those schools account for almost the entire growth of private schools, period. There wasn't a revolution that opened the gates of private school.

Ted Simons:
The intent was to get more access to private schools, and you're saying not necessarily. To get more private schools on the ground and open: not necessarily. To get more kids out of public schools and into private schools that want to go: not necessarily.

Ryan Gabrielson:
There's no evidence to support any claims of that.

Ted Simons:
How do parents and schools and S.T.O.s, how do they work their way around to what they are not supposed to be working their way around?

Ryan Gabrielson:
It's pretty simple. They change what they call things. Federal tax law forbids donations that are earmarked or designated to benefit one person. It's not charity if you're giving money to help one person. If you're giving money to a charity to disburse, that's charity. Instead of calling these earmarks or designated donations, they call them recommendations. We found from actually going out and talking to parents and schools and reading the surprisingly blunt details that schools publish on their own websites, describing how the program works, they aren't recommendations. They are designations. That will allow them to be within what the law allows. The state law doesn't even address it.

Ted Simons:
I was going to ask about oversight. You're saying no state oversight?

Ryan Gabrielson:
There is no actual regulation of the system by the State. The State Department of Revenue has one person, the chief economist, Georgianna Meyer, who oversees the program, in that she receives annual reports about donations and scholarships, each S.T.O. the State gave out. She's not required -- able to get any other information about who gets scholarships, who is making donations and that sort of thing. She doesn't have the mechanisms to catch blatant, out-of-control law-breaking. Which is what we've actually found. It's become the norm in many cases.

Ted Simons:
For those who aren't familiar with S.T.O.s and what they are, they are kind of a conduit, correct?

Ryan Gabrielson:
They are middlemen. When the state law passed, it required classified nonprofit charities to basically handle the money. You just -- can't just make a donation directly to a private school because that gets into problems with the state constitution anyhow. The state income tax donation can be converted into a tuition payment.

Ted Simons:
They are converting these payments, according to your report -- we should mention, not every school is doing this.

Ryan Gabrielson:
No.

Ted Simons:
But some of the largest are. They were converting for individual designated students. Is this true -- let's say my kid, I can't recommend for my kid, but I can get you to do it.

Ryan Gabrielson:
Yeah. Casual quid pro quo exchanges, illegal under federal tax law, are the norm. Some parents are going to great lengths to create highly complex Webs of tax credit trading, sometimes using multiple school tuition organizations, making it virtually impossible to catch. Sometimes it's, I'll do one for your kid, you do one for mine. Grandmas, grandpas, uncles, aunts, donating income tax, instead using that money to go to pay for Timmy's private school education.

Ted Simons:
We're talking $300,000 some-odd in the program.

Ryan Gabrielson:
Over the life of the program it’s been about 350 million dollars. It’s grown to be about a 50 million dollar a year program.

Ted Simons:
The S.T.O.s, could they not say, this is like blaming the IRS for tax cheats. We can't keep these people from doing things. Why blame us if parents, teachers, schools, wind up going around the law?

Ryan Gabrielson:
That's the argument they make. They can't necessarily stop the illegal transactions. That's true. They can stop the illegal transactions they themselves are undertaking. It's the same system as any other designation; they just came up with a wording change. That's their doing.

Ted Simons:
What kind of response so far are you getting? What are you hearing from the S.T.O.s, and what are you hearing from lawmakers?

Ryan Gabrielson:
Surprisingly positive, actually. The State House Representatives formed a task force, mostly Democrats but with a few Republicans, as well, that are going to look at changes in the state law. There are certainly instances where low-income kids benefit, but they are not typical, we found. We talked with dozens and dozens and dozens of people in this system. Standard operating procedure is parents with means are the ones who benefit most.

Ted Simons:
But you will hear critics say anything that offers a parent or parents’ choice is something that should be considered positive. Granted, some folks are working around the lines here. But these kids are getting the education their parents think they need.

Ryan Gabrielson:
Well, it's almost a different debate. This law was passed and there was some language put into it to suggest that it's not supposed to be just a rebate for people saving the state money. They are trying to specifically put in there, saying you can't designate your own dependent. This wasn't supposed to be a rebate program for parents. That's a different debate and a different subject. If the state legislature wants to pass that, you won't hear a peep from the "East Valley Tribune."

Ted Simons:
Is there any sense that tuition, since the start of this program, one of the intents was to drop tuition costs? Are costs dropping?

Ryan Gabrielson:
If you can raise enough income tax credits, yes, but no. The schools that received the most money had doubled their tuition in the past decade at a rate well beyond inflation or normal cost increases. It works a lot like every time federal government increases financial aid for poor college kids, almost every university in the country ups the tuition. There's a new set of resources to funnel money in. Every single time the state legislature increased what parents and taxpayers could give, tuition shot up for schools that just a few years ago cost $6,000 a year, they now cost $10,000 a year.

Ted Simons:
Is there any self-policing going on from here, now that the information is out?

Ryan Gabrielson:
We haven't heard anything -- the S.T.O. industry hasn't spoken to us in a uniform way. Some of them have said, we think there is need for reform. There are a lot of players in the S.T.O. industry who feel there needs to be a major reform for a number of years. 18 They are losing out on donations because people of means are designating for people they know.

Ted Simons:
Great work. And thank you again for joining us tonight on "Horizon." we appreciate that.

Ryan Gabrielson:
Thank you.

Town Halls

  |   Video
  • Town halls being held nationwide on President Obama's health care reform plan have been tumultuous. Patrick Keney, chair of the Arizona State University Political Science Department, will talk about the town halls in terms of democracy and freedom of speech.
Guests:
  • Patrick Keney - Arizona State University Political Science Department
Category: Medical/Health   |   Keywords: arizona state, politics, health care, town hall,

View Transcript
Ted Simons:
Tonight on "Horizon," President Obama concludes his visit to Arizona, but the anger at town hall meetings over his health care plan continues. Learn more about a local newspaper's special report on how some of Arizona's student tuition organizations could be 3 violating the law. Next on "Horizon." Good evening, and welcome to "Horizon," I'm Ted Simon. President Obama spent the weekend in Arizona, arriving Saturday and visiting the Grand Canyon yesterday. Today here in town he spoke to the national convention of the Veterans of Foreign Wars. The speech took place at the Phoenix Convention Center where the surrounding streets featured protesters debating the president's health care reform ideas. I'll talk to a political expert about recent health care protests at town halls, but first, here's part of what the president had to say this morning to the assembled veterans.

Barrack Obama:
We're dramatically increasing funding for veterans' health care. This includes hundreds of millions of dollars to serve veterans in rural areas, as well as the unique needs of our growing number of women veterans. We are restoring access to V.A. health care for a half a million veterans who lost eligibility in recent years, our priority veterans. Let me say this. One thing that reform won't change is veterans’ health care. No one is going take away your benefits. That is the plain and simple truth. [Applause] We're expanding access to your health care, not reducing it.

Ted Simons:
Here to talk about recent health care protests at town halls is Patrick Kenney, chair of the Arizona State University political science department. Good to see you again, thanks for joining us.

Patrick Kenney:
Thank you.

Ted Simons:
These town halls have been quite lively. It looks from a distance as if they are rather testy at the Democrats' town hall meetings and not as testy when the Republicans hold town halls. Is that the way you see it?

Patrick Kenney:
I think that's correct. The Republicans aren't the one pushing this reform, the biggest reform since the mid sixties, around Medicaid, Medicare, and civil rights. Consequently, the Democrats are the party in power and the protests are focused on them.

Ted Simons:
The anger at some of these town hall meetings, is this a grass roots movement?

Patrick Kenney:
That's difficult to know. We don't have any real good data on that. Most likely no, and here's why. These major reforms like this are very difficult to percolate down to the grass roots in this amount of time, just a few months. So the level of emotion and intensity, and some on the knowledge side, that level you probably wouldn't see at the grass roots because most people are going about their daily business, trying to find work, meet their daily needs.

Ted Simons:
Who would be organizing these sorts of things? Are these grass roots organizations? Are these lobbyists? Corporate interests?

Patrick Kenney:
All of that. There are special interests lobbying organizations opposed to reform. In particular they are opposed to having some kind of government-supported program in there. And they behave very much like the grass roots organizations. The reason is these are town halls that are open. Congressmen and senators hold these fairly frequently. We don't hear about them, they hold them all the time. This is a good place to go and tell people what you're thinking.

Ted Simons:
Talk about the media's impact in getting folks together for these meetings.

Patrick Kenney:
The media's impact in particular is the level of anger disseminated at some of these meetings. If you compare this to the Social Security in the '30s or to Medicaid or certainly civil rights, we are quiet compared to some of those protests. However, the media is 24 hours. Everyone has access to it, there's lots of different venues, radio, internet, television. We're much more aware. That's true on all political issues, I think.

Ted Simons:
Critics of these town hall protesters are calling this an Astroturf movement, not grass roots, but fake grass roots. Is that a valid criticism?

Patrick Kenney:
I think it probably is, but a true grass roots, it's a little too quick for them to be mobilized. You have organizations targeting groups or individuals to attend these, helping them with the script, what to say, when to say it. The passion is there, because there's a sizable minority, I guess, it would be my guess from looking at the public opinion polls, really opposed to changing the health care system at all.

Ted Simons:
Compare and contrast what these organizations might be doing, and what organizations on the other side of the aisle, the moveon.orgs of the world, what they have done.

Patrick Kenney:
The support, the more Democratic-oriented groups, they are on television with ads. That's the biggest difference. There are a lot of ads opposed to it, I think. But they knew, I think, which is smart politically, tactically, if you raise a high level of passion among ordinary citizens, that captures people's attention.

Ted Simons:
So there are those interests, as well as whoever is behind the tea parties and those things?

Patrick Kenney:
I think that's correct.

Ted Simons:
I read on a number of occasions the comparison between what's happening right now and some of the disruptive tactics used in the '60s against the Vietnam War. Is a group taking a page out of some of the folks that got famous in the '60s and '70s?

Patrick Kenney:
The point here is to raise the level of awareness about a topic and an issue. They are doing it effectively, probably not the same size. The civil rights or war in Vietnam were much bigger and bigger quicker. We will get a bill out of Congress in the next few months and this will dissipate and trickle away.

Ted Simons:
You mentioned getting a bill out of Congress in the next few months. How much of an impact is that in shaping the debate?

Patrick Kenney:
I think it's not only shaping the debate, it has an impact on how Congressmen and senators think about their votes. We have good research that shows they pay close attention to these things. They are often self-reinforcing. Conservative congressmen opposed to this are hearing most dramatically from their constituencies and the same with people who want change. It's highly unlikely that the people who most need health care are the ones out there. They are the least likely able to organize and be there, right? Because they are poor, disadvantaged, the working poor can't find there, can't get there.

Ted Simons:
Is health care at the core of these protests, or is something else going on?

Patrick Kenney:
Well, there's lots of people insinuating that it might be broader, it might be anti-Obama, anti-Democratic Party. You even hear race entered into it. My guess is by and large it's driven by health care and the idea to stop or slow this huge movement on health care. I don't have any strong evidence but that's my guess.

Ted Simons:
And the polar divide we've seen for quite a while in American politics between Democrats and Republicans, conservatives and liberals, that is also showing itself, a different manifestation.

Patrick Kenney:
It starts with Clinton and the Republican Congress in 1994, and has been just almost as intense all the way through the last decade and a half. Both sides are diametrically opposed to each other on certain issues. Health care is one of them.

Ted Simons:
I don't know if this is something you can answer. From a distance, it seems as though the country has gotten used to the left marching and shouting, lots of protests over the last 30, 40 years, from the left. Not seeing quite so much in the way of public protests, yelling and screaming, from the right. We're getting it now. Is America a little uncomfortable with that?

Patrick Kenney:
There's some really good political research. Some finds Americans are uncomfortable with this really intense kind of debate. They just don't like it; they turn away from it and don't like to follow it. I think that's true probably on both sides. The last time we saw the left mobilize was against the Iraq War in 2003. Or maybe here in the southwest on the immigration issue. You see that level, people out there and talking and protesting.

Ted Simons:
With that in mind, could some of the more vocal protests, could those types of tactics backfire?

Patrick Kenney:
Much has worked, so they can backfire. They lower the level of paying attention, the level of awareness. They hear about it and turn away from it. Also, this debate is so complicated. I can see people turn away for that alone. Again, we do not have a bill yet to put on the table and talk about.

Ted Simons:
I guess the last point is the cliché that Democracy is a messy business, welcome to the example.

Patrick Kenney:
Democracy is very messy, especially when large numbers of people are involved. Most Americans don't like the messy process of democracy. They don't like compromise, the fighting, all the back-room deals. That's going on, or will go on when they go back after this August recess.

Ted Simons:
Isn't America grand, but once the mess starts to come around they get a little hesitant about it.

Patrick Kenney:
Exactly. People with strong principles don't like to compromise. People with less than strong principles think the ground is in the middle. People don't like the shouting and deal-making. They like the output but not the mess that goes into it.

Ted Simons:
Patrick thanks for joining us.

Patrick Kenney:
All right.

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