Horizon, Host: Ted Simons

August 20, 2009


Host: Ted Simons

Tuition Tax Credits


  • How to improve Arizona's tuition tax credit law. A recent investigative series by the East Valley Tribune indicates the law is rife with abuse.
Guests:
  • David Schapira - State Representative
  • Clint Bolick - Goldwater Institute and chairman of the Arizona School Choice Trust
Category: Government   |   Keywords: tuition,

View Transcript
Ted Simons:
Next, month, state lawmakers will take a look at reported abuses of Arizona's tuition tax credit law. The law was designed to help low-income kids gain access to private schools. To qualify for a dollar-for-dollar state income tax credit, an individual must make a charitable donation to a school tuition organization. Those STOs then use the money to give private school scholarships to kids. They're supposed to be kids who can't otherwise afford private school, but an investigative series by "The East Valley Tribune" revealed that's not always the case. I spoke with Tribune reporter Ryan Gabrielson about that earlier this week on "Horizon."

Ryan Gabrielson:
Federal tax law forbids donations that are earmarked or designated for a -- to benefit one person. It's not charity if you're saying I'm just going to give money to help this one person. If you're giving money to a charity to disperse based on need and other things, that's charity. So instead of calling these earmarks or designated donations, they -- designations, they call them recommendations and we found by talking to parents and schools and reading the surprisingly blunt details that the schools publish on their website, these aren't recommendations. They're designations and they changed the wording thinking that would allow them to be within what the law allows and the state law doesn't even address it. So, yeah.

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

Ryan Gabrielson:
There's no actual regulation of the system by the state. The state Department of Revenue has one person, the chief economist who oversees the program and receives annual reports about what donations and scholarships each STO received and gave out. She's not by law required -- not required -- able to get any other information about who gets scholarships, who is making donations. She doesn't have the mechanisms to even catch blatant, out-of-control lawbreaking, which is what we've found. The lawbreaking has become the norm in many cases.

Ted Simons:
Joining me now is state representative David Schapira, a Tempe democrat who, next month, will chair a taskforce looking into reported violations of the state's tuition tax credit law. And Clint Bolick, a constitutional law attorney for the Goldwater Institute and chairman of the board for the Arizona school choice trust, an STO that predates Arizona's tuition tax credit law. Good to have you both on "Horizon." Thanks for being here. Clint, the history and intent of this program. What was it, what has it become?

Clint Bolick:
Initially adopted in 1997 designed to help kids who were primarily low income, like our organization does, go to private schools if their parents chose those for them. Basically, it gives Arizona taxpayers today up to $1,000 per couple for a tax credit for scholarships for other people's kids. By and large, that is how the program works. It's helped thousands of low-income kids over the years. There's two more programs, but as Ryan Gabrielson pointed out in the "The East Valley Tribune," there's people who have been gaming the system and using it to benefit their own kids.

Ted Simons:
Gaming the system, we'll get to that. But the program, just overall, the idea and the intent, do you agree with it?

David Schapira:
I think that the Trib story does say what Clint said. It gives it slightly different proportions. What Ryan outlined was that a very large portion of the people taking advantage of this program are not low income. But the program has not expanded the enrollment at the private schools and hasn't changed the makeup as far as what he's found. I don't think the program is working and I think that's what the Trib story shows and it's necessary that the legislature come back and readdress this so it can follow its intent.

Ted Simons:
Or readdress whether or not the program should exist at all.

David Schapira:
That's not the purpose of the taskforce we formed. It's to identify the problem. To look into the allegations made in the stories, to investigate this issue and determine what changes might need to be made and craft some legislation for the next session to make changes so that the program can follow its original intent.

Ted Simons:
What kind of changes would you like to see as far as the program is concerned?

Clint Bolick:
There are other programs that have been adopted since the one we're talking about today that limit the beneficiaries to either -- low income-kids or special needs. For any charitable organization that you're benefiting other kids. This is not about benefiting your own kids and we'd like to see some monitoring by the state to make sure that the money is being spent as -- as it should be. We've been advocating these for years. We're glad Democrats are finally coming to the table on these programs because we've been trying to get them there for a long time.

Ted Simons:
Have they been trying to get you there for a long time?

David Schapira:
Since I began my service on the education committee and I've been interested in this program. To ensure that the program is doing what it was intended. One of the many programs, as Clint mentioned, we've made changes that increased the allocation of money dedicated to these programs. It was one of the few increases in allocation to funding this year other than additional money from the governor's office. And so that's something that is of concern to me. Something I've worked on this year where we're cutting funding for other educational entities, including K-12 and universities and why increasing for a program that's not doing what it was intended to do?

Ted Simons:
I would imagine there had to be at least a whisper that some things were not being done on the up and up. Why does it take the report to get you interested?

Clint Bolick:
We've been interested for a long time. When we have designed model school choice programs they have these protections in them and the more recent programs have these protections. But the abuses are recent in vintage. The early scholarship organizations like the one I chair were focused on low-income kids and unfortunately, people saw opportunities to game the system and taken them. And I've been a critic of that both inside the organization and outside for a long time now.

Ted Simons:
Can you get regulation, some kind of oversight that goes after the folks gaming the system? I know you're not big on regulation and oversight.

Clint Bolick:
We're big on accountability and I think that oversight to make sure the mission is accomplished, that money isn't skimmed, that sort of thing, we favor that for every type of program. But the violations that the "The East Valley Tribune" talked about are really tax violations because these are nonprofits that are doing things under federal law they're not supposed to do and there have been calls for I.R.S. investigations and I say let those investigations come and the chips fall where they may.

Ted Simons:
How do you keep two parents saying I'll donate for my kid and you donate for yours?

David Schapira:
The first thing we do, and this doesn't necessarily require legislation, ensure that those parents are aware that it's against the I.R.S. -- the I.R.S. code states you cannot donate money to a 501(C)(3) and earmark it. The folks -- the STOs -- some, as was discovered, are advising parents to earmark to each other and we've heard of instances where parents are actually loaning money to someone else and that person is then making a contribution toward their kid's tuition. This is a big problem and if the STOs are making -- are part, we need to make the parents aware.

Ted Simons:
Some are saying you're making us responsible for activity we're not condoning or suggesting. It's like the IRS at blame when someone cheats on their taxes. How do you hold the STOs accountable?

David Schapira:
They came up with the idea of allowing parents to earmark their contributions. So they're not blameless in this. They came up with the program and the way of doing it. And some of them, and we hope to uncover that, are advising the parenting to do the exact thing which is against the federal law.

Clint Bolick:
The critical thing -- not to throw the baby out with the bath water. There are great STOs, the Catholic organizations and several others that have a charitable mission and not only are they providing educational life preservers for kids who desperately need them, but when they work the way they should, like the corporate tax program does, they save the state money because the corporate tax credit is capped, the tuition is capped, and you have to be a kid who was in a public school or starting kindergarten. So it can save the state money and provide educational opportunities at the same time.

Ted Simons:
The Tribune series seemed to show that private schools were no more accessible now than before the program started and that tuition at private schools is no less expensive now than it was before the programs. Indeed, that suggests a flawed program. Why are those results out there?

Clint Bolick:
I think it was a flawed report because I can attest from my own organization and several of the others, there are tens of thousands of kids who benefited who would not have been able to go to private school otherwise. And with competition from charter schools and so forth, private schools are probably going to be losing students so if there's the same number of students going, this program has been a huge part of making that possible. So I think cutting it off would be really cutting ourselves -- our own throats because it would mean a Diaspora of kids --

Ted Simons:
It seems it's not working as it was thought. Is the program fatally flawed?

David Schapira:
I don't think so. There's a way to tailor the program. Whether or not this program should continue to exist is not the purpose of me being here and us calling this taskforce that will meet next month. The purpose is to tailor the program so there aren't parents instructed to violate federal law. And one of the points that Clint made, there's a lot of STOs that are doing what they're supposed to do. Bringing students into a system that might not otherwise been able to afford to go a private school. But the same STOs are part of the problem, there are examples of parents who wanted to send their kid to one school and had people contribute to that STO so they could. They can't transfer that money, that money cannot be moved over. In many cases, the STO reduced to -- refused to give it -- that parent is not getting what they thought they would out of the system.

Ted Simons:
How should an investigation go on this? I.R.S., U.S. attorney's office -- all be included?

David Schapira:
We need to include the government agencies that have oversight over these issues and, yes, the I.R.S. and state have oversight over the 501(C) (3)'s and we need laws that are reconciled between the federal and state law. If the state law says it's ok to do earmarks and federal law says it's not --

Ted Simons:
Are there states out there along these lines doing what Arizona is doing and has done? Anything we can learn?

Clint Bolick:
Not only can we learn -- there are a number of other states doing this. Florida and Iowa doing it successfully. But we can learn from the newer programs. The corporate tax credit program. Enacted after the program we're talking about is limited to low-income kids. The tuition scholarships are capped in that program. 100% of the money in that program goes to low-income kids. So I think all we need do is make modest changes and those changes have been -- we haven't been able to get bipartisan support for them in the past. The Democrats have only wanted to kill the program rather than improve it. I'm delighted to hear what David is saying and I think that there can be a very, very easy solution to this problem.

Ted Simons:
The Goldwater Institute is not shy in going to court over everything from tattoo parlors and hockey teams.

Clint Bolick:
Unfortunately, the things that have been done are legal under Arizona law. As David mentioned there's a conflict between federal and state law. This really is a matter for the I.R.S. to enforce or for us to change legislatively and, of course, I always prefer change than sending people to jail.

Ted Simons:
What have you got?

David Schapira:
Determine who we're going to talk to in the meeting and at 10:00 in the morning, we're having a hearing of a bipartisan taskforce to work to develop legislation to be introduced in January.

Ted Simons:
Very good, thanks for joining us.

Clint Bolick:
Good to be here.

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