February 17, 2010
Host: Ted Simons
- A mid-week legislative update with a reporter from the Arizona Capitol Times.
- Jim Small - Arizona Capitol Times
Ted Simons: Still ahead -- a legislative update and what state lawmakers are doing to stop the illegal use of private school tuition-tax credits. Joining me now with a midweek legislative update is Arizona "Capitol Times" reporter Jim Small. Jim, good to see you. Thanks for joining us.
Jim Small: Thanks for having me.
Ted Simons: We have the Cubs taking the center table at the capitol here. This panel, I guess, okays a surcharge, huh?
Jim Small: The house committee met this morning and talked about the legislation that was introduced last week, maybe the week before. It was designed to help the city of Mesa -- to help keep the Cubs in the city of Mesa for spring training. The Cubs are kind of the anchor team for the Cactus League. They're the most popular team. Their fans come and spend money. One of the things they need is they need a $200 million training complex. The city can't afford to do it all on its own. John McComish a representative who lives in Ahwatukee had said he was kind of the spearhead on this legislation. It would put a surcharge on rental cars $1 and 8% surcharge on every spring training ticket sold in the valley. So, it's an idea -- the idea is to obviously get a lot of money to help the Cubs stay in Mesa. It's also kind of angered every other team in the Cactus League.
Ted Simons: Not only every other team in the Cactus League, but the baseball commissioner, the Brewers are out here, all of them say no, this is not fair. It's not comprehensive. It's designed to help one team and one team only. Lawmakers, though, say, we're not buying it.
Jim Small: Well, it was kind of a mixed reaction on the panel. It was by in large, it was Republican support. It had one democrat support it in committee. Even one Republican said, there may be a better way to do this. We want to move this forward and want people to talk about it. All the teams weren't involved in planning this. It was really the city of Mesa and the Cubs that came together and put together this idea and the other Cactus League teams weren't part of this.
Ted Simons: I was going to say, a committee is one thing, getting out of committee is one thing, but a full vote is something else. Are we going to see something radical in this?
Jim Small: I don't know. Mr. McCombish said, if someone has a better idea, I want to see it. The Major League Baseball and the commissioner's office said they want to do increment tax which is sales tax collected in certain districts, spring training districts and using that as revenue to bond again. Mr. McComish said, that's not an idea I'm crazy about. The legislature didn't like that a few years ago in Tucson. That hasn't gone well. That legislation has really tightened the leash on that. That's an idea that may be a tough sale.
Ted Simons: Amanda Reeves chosen by the board of supervisors to replace Sam Crump. Who is Amanda Reeves?
Jim Small: She's from legislative district 6. She was one of three people nominated last week by the precinct committeemen in the area to replace Mr. Crump. And the board of supervisors was the official replacement and she was sworn in.
Ted Simons: That's the third time the board of supervisors chose someone who had political ambitions elsewhere. There's a push to give more rural areas more say in this. What does this involve?
Jim Small: The way it works, in a rural area, a lot of the rural districts cover multiple counties. Take a district like district 30 that covers Pima County, Cochise and Santa Cruz. If someone were to resign, he would resign. He lives in Pima County. Only elected committeemen in Pima County can nominate three people and those three people have to be from Pima County. There was something voted down last week that would allow people in entire districts to select three people to nominate and send it into the board of supervisors of whoever the person resigned lived. That would be the Pima County board of supervisors.
Ted Simons: In general, were most folks thinking this was a solution than a problem?
Jim Small: It's definitely a problem. Anyone who represents a rural district will tell you that there is a problem here. Really coming up with a solution is difficult, because a solution like that doesn't guarantee that the folks in the other two counties will actually get any more of a voice because the board of supervisors is almost certain to choose someone who comes from their county. If there's someone from each county selected, the board of supervisors will say, we're going to take the one from our county because we know him best. We want to be responsible to our voters who don't live in Santa Cruz or Cochise County.
Ted Simons: Before you go, we had leadership on last night and speaker Adams said maybe a couple of weeks a budget could happen and you could see '10 and '11 together. Are you hearing that happen, too?
Jim Small: I think we'll see something introduced and move through the process in the next couple of weeks. Whether they can actually get something done and get the 31 of 16 and the signatures they need, that's a completely different kettle of fish.
Ted Simons: Thanks, Jim. Good to see you.
Jim Small: Thank you.
- An update on the status of Arizona’s housing market with Arizona Republic Real Estate reporter Catherine Reagor.
- Catherine Reagor - Arizona Republic
Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons. In today's headlines, the nation's housing starts were up 2.8% in January but building permits were down. Here to tell us what that means and what's happening in Arizona's housing market is Catherine Reagor, real estate reporter for "The Arizona Republic" good to have you here. Thanks for joining us.
Catherine Reagor: Thank you.
Ted Simons: What does it mean?
Catherine Reagor: Our building permits are not up. Same thing. Last year we had 8500 building permits in the valley after a record of 6200 in 2006. So, we are way off and they're suggesting the market will stay around that level this year because we have so many extra homes, speculative homes. We're still absorbing that. That will put pressure on price and foreclosures.
Ted Simons: I want to stay with foreclosures. The nation says it's seeing a resurgence and we're still waiting for the good news.
Catherine Reagor: Yes, and we'll probably wait another two years.
Ted Simons: Interesting. Let's get to foreclosures. It's still the major factor as far as home concerns?
Catherine Reagor: Yes. Definitely the biggest percentage of homes for sale are foreclosures. The good news is, in January, we saw a significant drop in preforeclosures and foreclosures in metro Phoenix. That could be for a number of reasons.
Ted Simons: Let's talk about some of the reasons.
Catherine Reagor: It could be that loan modifications are working. It could be lenders are being more proactive. It could be that lenders are overwhelmed or it could be that people can afford their mortgages. Whatever the reason now, it looks like a good ending.
Ted Simons: Obama administration coming out with the loan modification numbers. In general, what are they telling us?
Catherine Reagor: 12% of the people that applied and I believe that were eligible have received some type of loan modification. That is a low number but it's a big jump from December. The Obama administration really went out and put pressure on lenders. Of course we need to see a lot more. Foreclosure numbers, though, have dropped and could easily, you know, jump back again and, you know, 60,000 in 2009 for metro Phoenix is tough. We're going to feel that for a long time.
Ted Simons: Is the townhouse and condo market still especially bad?
Catherine Reagor: hit hard. What's really hard is because of all these condos that have H.O.A.s that are in trouble and because of not enough homeowners to pay. They get in the quagmire. We have so many condo projects under construction. Some half completed, some going into the foreclosure and there are some of the high-rises downtown that are for sale and the rest are foreclosures. We'll have to work through that. We know from national real estate consultants, there are no plans to build or buy any condo projects here for a few years.
Ted Simons: Interesting. Mortgage applications are down as well. Demand obviously still slow. As far as the overall market, though, is concerned, what are we hearing? What are we seeing here? Double dip, are we going to see the five-year arms when things were so hot and heavy, some of that stuff will come home to roost.
Catherine Reagor: That is a concern. On the good news front, which lots of people want to hear right now, home prices have hopefully hit bottom and have been leveled off since last March. The report called it last April and looked at median home prices, and we are not falling anymore. The concern is, what happens to the foreclosures? And if lenders take another step back because of the negative am mortgages at adjustable rates and sell them for bargain prices, we could go along, dip, recover, dip. If homeowners get frustrated and walk away, that's another part of the foreclosure market that we can't hit.
Ted Simons: I can't let you go with the concern about the property taxes and what people are paying and what municipalities are having to deal with.
Catherine Reagor: We have very low property taxes. It's a complex convoluted system. Nobody complains because they're so low and they lag. Now people this September are going to get property tax bills on their valuations from last year that showed a 23% decrease. And the school districts, the word is out, that it gets the money to offset the budget shortfall, now is the time to raise property taxes. It won't be a one-year thing but a three-year thing because of the lag.
Ted Simons: Basically because of the lag, what we're seeing right now, that doesn't come home to roost for another year.
Catherine Reagor: Yes, yes.
Ted Simons: And we're talking overrides and all sorts of cities are trying to do something to raise the money that they would have gotten through property value.
Catherine Reagor: I thought the Maricopa County assessor put it well. How many potholes do you want? Do you want the music class your daughter lost back? It's what you're willing to pay for.
Ted Simons: How do Arizona's property taxes compare to the rest of the country?
Catherine Reagor: We're the 39th lowest. Other states that do, you know, have similar, are much higher. We traditionally have been so low, you don't really raise an eyebrow when you notice. We've never had the kind of price spikes or price declines in the past four years.
Ted Simons: Good information. Thanks so much for joining us. We appreciate it.
Catherine Reagor: Thank you.
Tuition Tax Credit Reform
- State Representatives Rick Murphy and David Schapira debate legislation to reform Arizona’s private school tuition tax credit law.
- Rick Murphy - State Representative
- David Schapira" State Representative
Ted Simons: Last summer, a series of investigative reports by the "East Valley Tribune" and "The Arizona Republic" revealed widespread abuses of the state's private school tuition-tax credit law. The law gives individual taxpayers a dollar-for-dollar state income tax credit of up to $500 when they donate to a school tuition organization. STOs are charities that must use at least 90% of their revenue for grants and scholarships to help kids attend private schools, but the newspapers revealed a lack of oversight and accountability. And, as David Majure reports, an enormous loophole that lawmakers are now trying to close.
After the "East Valley Tribune" released an investigative series on Arizona's private tuition-tax credit law, "Horizon" spoke with one of the reporters who worked on it.
Blatant, out of control, law breaking which is what we actually found. The law breaking has become the norm in many cases.
Ryan Gabrielson who has since left the tribune talked about school organizations and their mission to put charitable contributions to help kids attend private schools.
Under federal tax law they're called 501(c)(3) carriers. When you make a donation to these organizations, that donation is supposed to be tax deductible. It's supposed to be a charitable, serve a charitable service. These were supposed to help a charitable class, usually areas that don't have private schools.
He said it was to help poor kids attend a private school. Congressman Trent Franks said that's why he wrote the law back when he served in the State Legislature.
We want to simply empower those who don't have the option. Right now rich parents can send their kids to any school they want. The poor cannot. The original intent in this legislation and it's gone a long way toward this end was to encourage those wealthier in society to fund an alternative and to fund scholarships so 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 higher road and sunnier road of life.
But quite often according to the tribune STOs were not charitable in nature. They were earmarked for a particular child. Taxpayers to contribute to an STO can claim a tax credit if their donation was for the direct benefit of their dependents. STOs and parents found a loophole.
Most of the time parents just casually trade. I'll do one for your kid, you do one for mine. In addition to grandma, grandpa, uncle, aunt, friends from church or work donate their contributions, using that money to go for somebody's private school education. 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 schools published on their own website describing how these work, these are not recommendations. They're designations. They changed the wording thinking it would allow them to be within what the law allows. State law doesn't even address this.
But now state lawmakers are trying to address the problem. House Bill 2664 requires the state to certify school tuition organizations. To become certified, an STO must not allow donors to designate student beneficiaries as a condition of any contribution. However, donors can recommend student beneficiaries as long as scholarships are not awarded solely on the basis of those recommendations. The bill requires STOs to require tax exempt status under section 501(a) of the federal tax code. It increases the tax amount from 500 to $750, increasing annually to cover inflation. And it includes provisions for added oversight and accountability.
Ted Simons: Joining me now is Glendale Republican, representative Rick Murphy, who chaired a committee that reviewed Arizona's tuition-tax credit law. That committee's recommendations are contained in the House Bill 2664 which representative Murphy is sponsoring. Also joining us is representative David Schapira, a Tempe democrat who serves on the House Education Committee and who also chaired a separate review of private school tuition-tax credits.Good to have you both on "Horizon."
Ted Simons: Reform, why is the reform necessary?
Rick Murphy: Well, first of all, Arizona was one of the pioneers in school choice and with tax credit packages in the first place. And so, being that we were a trailblazer, it's not surprising that as other states moved into the same area and started having their own tuition-tax credit laws, that they found ways to improve the wheels, so to speak, and that now we need to go ahead and pick all the best of those and incorporate those into what we do.
Ted Simons: Are the best of those being incorporated in this bill?
David Schapira: I don't think so. I think we're taking steps in the right direction on each of the areas that I think Rick and I share concern about when it comes to these STOs. The problem is, we're not going far enough. We still have a way where donors can specifically designate a student regardless of that student's income. Unfortunately there are other abuses in the system that we're not going to fix with this bill.
Ted Simons: Why not expressly prohibit designation, taxpayer designation for students?
Rick Murphy: Actually, Ted, the bill does prohibit designation. What it allows to do is a recommendation. I don't think there's conflict in that. A recommendation simply means we would like for a scholarship to go for this donation to go to this student, but the STO is free to do something different.
Ted Simons: Why not get rid of the recommendation? If it's for a charity, a scholarship and there's a big bowl of kids out there with a big bowl of money, why not donate, let the organizations figure out where that money is going to go?
Rick Murphy: I think keeping the recommendation process available is appropriate and it's not going to cause any harm. There are clear prohibitions in the bill, in current statute, but also strengthened in the bill that that would disallow any earmarking or designations or I'll only give if you give it to this kid.
Ted Simons: What's wrong with recommending if it's not an express designation?
David Schapira: There’s no difference from the system now and when this bill comes to be. Right now both "The Arizona Republic" and the "East Valley Tribune" investigation showed that we're really not doing what this program was intended to do. We're not giving these scholarships to students with financial need who would not have otherwise gone to private schools. We're giving them to kids who are already there and that's the problem with the recommendations. These STOs are giving the tax credit scholarships to students who would have been at the schools anyway.
Ted Simons: The tribune report mentioned that it seems that the program, by their numbers, not making private schools for accessible, not giving scholarship to the underprivileged. We had Trent Franks on the program saying his original intent for underprivileged kids an opportunity to have a choice to go to private schools doesn't seem to be happening. Do the reforms change that?
Rick Murphy: First of all, it is already happening. all of the data to analyze that was not available from every STO because it wasn't required or kept by every STO from before. From the ones who did have the data to figure that out, that already determined that 2/3 of all of the scholarship dollars go to students that need the free and reduced lunch criteria, financial need category. So I believe that once the rest of that data comes in after we require it to be collected, that that figure will go up even more. And so financial need will be required to be a consideration. And furthermore, a lot of those students were already being served and I think that will increase as the bill takes place.
Ted Simons:2/3, not 3/3. Is 2/3 good enough for you?
David Schapira: The way the bill is written, it doesn't change anything. There's a fundamental flaw. As long as the donor can recommend a specific student, the system isn't going to work because the STOs are always going to give to those students. If they don't, the donor will never recommend again. They won't donate again if it's not given to the one student they want it to. As Mr. Murphy mentioned, there are no reporting requirements right now. Fortunately one good thing in the bill, the STOs will be required to report. As far as considering financial need, the STO could say 1% of our decision was based on financial need and the other 99% was on financial recommendation.
Ted Simons: What about those who say it's nice the intent was there and in certain ways the law requests that but everything seems relatively vague right now. It's nice for the underprivileged. Why not for everyone? Why shouldn't every kid have that choice?
David Schapira: People make the argument that the purpose of having these tax credits is to have dollars follow the students and to make sure that we're actually saving the state money because it cost less to educate these kids in private schools than public schools. The fact of the matter is, the kids getting these tax credits would have been there anyway. So the fact of the matter is, it's not money following students. It's just money given to these private businesses to educate these kids, money that would not have been taken out of state taxpayer dollars otherwise.
Ted Simons: How do you respond to that?
Rick Murphy: There's a number of fallacies in that long statement to address. With regard to congressman Franks and his original intent. I like and respect congressman Franks, but the sponsor's original intent to the bill doesn't mean that was the original intent of all the legislators that voted on the bill. In other words, the bill would not have been expanded to allow other students to receive it unless those voting for the bill wanted it that way, because he wouldn't have needed to --
David Schapira: What we heard from Mark Anderson who spoke to representative Murphy and I a few weeks ago is the intent of congressman Frank and Mark Anderson was to go to kids with financial need. In order to get enough Republican votes in the chamber at that time, they had to say rich kids could get these scholarships as well. That was the deal that was cut.
Ted Simons: Is that your understanding?
Rick Murphy: I wasn't in the legislature at that time. Obviously the bill had to be expanded in order to get the votes. That means the legislative intent is encompassing of all those voting yes wanted to do.
Ted Simons: If we have a program that needs reform, most folks thought it definitely needed some kind of reform, the question is what kind. Something that needs that kind of reform, why increase the dollar-for-dollar tax incentive, why increase the bill?
Rick Murphy: I think a lot of the concerns that were raised were blown out of proportion. There definitely are issues that need to be addressed, as I said, and those are being addressed rather strongly in the bill. The ultimate consequence for STOs that don't comply is they can lose their ability to be an STO. I don't know how much stronger of a consequence you could have. Furthermore, if, in fact, it stays state money, which I believe it does, why wouldn't you want to expand it in time of crisis like this?
Ted Simons: Saves the state money, state oversight, accountability, what's the difference?
David Schapira: It’s a tradeoff to get just a couple of reforms that really aren't doing the job. We have to expand the program so drastically that the dollar amount that is being proposed to expand these tax credits to actually exceeds the average tax debt the average Arizonan has to the state of Arizona. Most Arizonans if they give these contributions would have no debt to the state. We would have no money coming into the state coffers.
Ted Simons: Do you think that's a great comparison?
Rick Murphy: No, I think it's a ridiculous comparison. There's no way all fuels was going stay state money. The reality is, even if only 1/3 or 35% or so of the scholarships go to students who would otherwise be in public schools, at that point it's a wash. Any percentage above that saves the state money. The math is pretty simple.
Ted Simons: We'll stop it right there. Gentlemen, thank you very much. We appreciate it.