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ARIZONA HOUSE OF REPRESENTATIVES
Forty-ninth Legislature – First Regular Session
AD HOC COMMITTEE ON
PRIVATE SCHOOL TUITION TAX CREDIT REVIEW
Minutes of Interim Meeting
Wednesday, October 14, 2009
House Hearing Room 3 -- 1:00 p.m.
Chairman Murphy called the meeting to order in House Hearing Room 5 at 1:10 p.m. and attendance was noted by the secretary.
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Mr. Brown |
Mrs. Lesko |
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Mr. Chabin |
Mr. Murphy, Chairman |
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Mr. Biggs |
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Introduction of Members and Opening Remarks
Chairman Murphy and each of the Members gave a brief introduction to the audience. Chairman Murphy then explained that the purpose of this Committee is not to debate the merits of school choice, but to take a practical look at the individual scholarship tax credit program that will identify areas of improvement which would enable the program to better serve students and families.
Overview of Private School Tuition Tax Credits
Jennifer Anderson, House Research Analyst, Education, explained that the charge of this Committee is threefold:
· to review and assess the individual tax credit for private schools
· to ensure that the application, administration, and approval process used by the school tuition organizations (STO) includes accountability measures and transparency of accounting
· to determine whether improvement measures are needed and, if so, to prepare legislation for the 2010 Regular Session
She added that the Committee is also tasked with submitting a report by December 15, 2009 of its work and its findings.
Ms. Anderson gave a brief history of the individual income tax credit, which was first authorized by the Legislature in 1997 as a $500 credit for contributions to STOs, which then provide scholarships to non-governmental K-12 schools. In 2000, the credit amount was increased to $625 and the scholarships extended to pre-school students. In 2003, the reporting requirements were updated and in 2005 the credit was raised again to a maximum amount of $825 and then to $1,000 for subsequent years (Attachment 1).
Ms. Anderson stated that there has been litigation regarding the constitutionality of the tax credit program, which the Arizona Supreme Court upheld, and there is Federal litigation still in process.
Ms. Anderson explained that there is also a corporate income tax credit program that began in 2006, with a cap currently at $17,280,000 state-wide which increases at 20 percent per year. Also, the amount of each individual scholarship is currently capped at $4,500 to $5,800 depending upon the student’s grade and increases at $100 per year. She added that in the recent Legislative Session, a second corporate income tax credit program was started that would provide scholarships to disabled (special needs) and foster care students.
She noted that in Attachment 1 there is additional information, including current statutes and original bills, summaries of organizations’ donations, and comparisons to other states’ programs.
Mr. Chabin asked if there were income requirements for the income tax credit program or the corporate income tax credit program for special education. Ms. Anderson replied that there are no income requirements for the recipients of the scholarships from individual income tax credit STOs.
She explained that, for the corporate income tax credit program, student eligibility requirements include a family income that does not exceed 185 percent of the Federal poverty level, equivalent to $75,000 for a family of four. Mr. Chabin commented that this allows children from wealthy families to qualify for these scholarships and asked what the statute says about these requirements. Ms. Anderson replied that the statute says that the STO can give scholarships to children to allow them to attend any qualified school of their parents’ choice.
Mr. Chabin asked why this tax credit goes through an STO rather than directly to the school. Discussion ensued about using the STOs, which take a ten percent handling or administrative fee.
Reporting and Auditing Requirements
Georganna Meyer, Arizona Department of Revenue (DOR), explained that she has been administering this program since its inception in 1998 and now administers all three programs. She collects from the STOs their reports on dollars received in donations, how many donations, and how many scholarships and what amounts were paid out school by school. She added that for the corporate and special needs programs she collects the same information which then requires the signature of a certified public accountant.
Mr. Chabin asked if she knew of any abuse of the programs, such as “donor-directed contributions” wherein families direct their donations to each others’ children. Ms. Meyer replied that nothing prohibits this practice. She added that the DOR does not have regulatory authority.
Mr. Chabin asked if DOR has authority to investigate concerns. Ms. Meyer replied in the negative.
Mrs. Lesko asked for confirmation that there is a requirement for the STO to report to the DOR, but that the DOR would not know if an STO is not reporting. Ms. Meyer said that is correct.
Mr. Chabin asked if there was an abuse of the 10 percent allowance for administrative expenses. Ms. Meyer replied that she has no authority, but that she does look at the numbers and if the percentages are skewed she will contact the STO and inquire. She added that any interest accumulated must also be disbursed 90/10.
Mr. Chabin asked if there are auditing requirements. Ms. Meyer explained that a taxpayer might be audited, but not the STOs; she can deny a credit claim to an STO, but she does not audit STOs. Discussion ensued on the 90/10 stipulation and how that is monitored. Chairman Murphy stated that some of the larger STOs achieve greater than 92 percent disbursement to scholarships.
Testimonials
Tiffani Motley, Phoenix parent, informed the Members that her son uses the program and that she has found the smaller environment of the Christian School to be beneficial. She added that she would have to work three jobs if not for this scholarship program.
Sofia Rodriquez, Tucson parent, stated that she has three children in Catholic school and that the existence of this program helps her with their tuitions.
Myra Zwagerman, East Valley parent, described the struggles that her autistic son had in public school and the success he is enjoying at Valley Christian, which offers smaller class sizes.
Luis Rocha, Tucson parent, has five children, four of whom are in the Mother of Sorrows school in Tucson. He stated that without this program he would have to choose which child to put in private and which in public schools.
Rosalinda Perez, Rio Rico parent, has two boys who attend a Catholic school in Nogales. She feels very fortunate to be in this program that enables her boys to learn in a good environment.
Sarah Jones, student, explained that Holy Angels School in Globe is the only private school in the area and that she and her siblings would not be able to attend this school without the scholarship program.
Diego O'Bolger, Tucson parent, stated that his children attend school with scholarships from the Catholic Tuition Support Organization and that he is a strong advocate of this program.
Chairman Murphy thanked all the participants. He announced that today’s Agenda was concluded and the next meeting would be scheduled sometime in early- to mid-November. He explained that, at that meeting, the Members will be analyzing the results of a questionnaire which will be mailed to every STO today. The questionnaire will ask for specific data and information in an effort to make certain that whatever recommendations this committee comes up with are based on the real facts as they exist out in the field. He does not want to act on assumptions perhaps made with a broad brush and “make policy on a guess”; he wants to answer questions such as “how can we make the program function better” and “how can we identify and remedy situations where STOs have gotten off-track.”
Mr. Chabin asked for time to review the questionnaire and provide feedback. He agrees that there are some problems with the STO system and that the committee needs to address those. He stated that the best way to preserve the program is to solve the problems.
Chairman Murphy stated that the questionnaire is available; staff distributed copies to the Members (Attachment 2). Discussion ensued about scheduling the November meeting.
Without objection, the meeting adjourned at 2:23 p.m.
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Jane Dooley, Committee Secretary
October 19, 2009
(Original minutes, attachments and audio on file in the Office of the Chief Clerk; video archives available at http://www.azleg.gov)
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AD HOC COMMITTEE ON
PRIVATE SCHOOL TUITION TAX CREDIT REVIEW
October 14, 2009
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