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Q&AZ: 5 Things To Know About Arizona’s Private School Tax Credit

By Mariana Dale
Published: Monday, January 7, 2019 - 7:03pm
Updated: Wednesday, June 10, 2020 - 11:55am
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“Why does the state give me my money back when I make a donation to a private school? The state’s money should go back to the public schools.”

Chris W. from Scottsdale asked us this question through Q&AZ.

She sent her children to private schools in Arizona and is one of thousands of Arizonans who donated to support them and had that money subtracted from her state tax bill.  

“To me, they should send that money that I donated to the school, as a donation from the goodness of my heart, that money should go back to the public school,” she said when we talked on the phone.

Here are five things we learned researching the program.

1. Arizona’s private school tax credit was the first in the nation.

Arizona lawmakers in 1997 wanted to find a way to get more dollars into private schools.

“The benefits are really, really significant,” said former Arizona Senate President Steve Yarbrough, who was an early supporter of the program. “First of all, there is a great financial benefit to the taxpayers of the state of Arizona.”

Yarbrough himself opened a nonprofit that benefited from the program.

Arizona’s Constitution bars public dollars from religiously affiliated schools — the tax credit was a work-around.

The Private School Tuition Organization Tax Credit is the original program’s official name. The state now also has an additional “switcher” tax credit program, established in 2012, which benefits students who switch from public to private schools.  

Individuals can give about $1,107 and couples about $2,213 through the two programs.

Technically, the money goes to a nonprofit organization, not the private school itself. That nonprofit doles the money out to students through scholarships.

The taxpayers receive a a dollar-for-dollar credit, equivalent to their donation, to reduce their state income tax.

2. Supporters saw the tax credit as an important step toward expanding school choice

The 1990s marked the start of Arizona’s school-choice boom.

State lawmakers developed the legal framework to create charter schools and first tried to implement school voucher programs.

Conservative leaders wanted to make it easier for students to leave traditional public schools.

“Parents are then free to choose the school they deem best, religious or otherwise, and neither the school nor the parents have to fear intrusive government strings that come with government funding,” wrote tax credit architect Trent Franks in a 1999 Arizona Republic op-ed.

3. The program has helped low-income families send their children to private schools.

There are dozens of organizations that distribute tax-credit-funded scholarships.

Dawn Kennedy directs the Brophy Community Foundation, which supports students at almost 40 different religious schools, including Brophy College Preparatory and Xavier College Preparatory in Phoenix.

Almost 98 percent of the money the foundation distributes goes to low-income families. In Arizona, a low-income family would be equivalent to a family of four that makes $48,000 or less annually.

“We’re here to help the underserved and lift up those families that have the greatest need so that they can afford a private-school education,” Kennedy said.

Last year, the foundation awarded $5,266,621 to 1,802 students.

4. But, most families that use the program fall above the federal poverty guideline.

An analysis from the Arizona Legislature found that in fiscal year 2016, almost 70 percent of the families who got scholarships through the program made more than 185 percent of the federal poverty guideline.

For a family of four, that would be an income above $44,955.

“The program has failed to keep its promise of primarily aiding special-needs and low-income students and of expanding school choice,” reported The Arizona Republic in an extensive 2015 investigation.

5. Private-school tax credits were worth $160.7 million in fiscal year 2017.  

That’s the combined cost of the individual and corporate tax-credit programs for private schools.

They break down like this:

  • $66.9 million for the original program
  • $38.3 million for the “switcher” program
  • $55 million in corporate private-school tax credits

There are rules on how the nonprofits handle the tax-credit money. For example, they have to give 90 percent of the money to scholarships, and money can’t be limited to students of one school.

Some organizations might let you recommend a student for a financial award, but you can’t give money contingent on its distribution to one child.

If you’re wondering whether there’s a comparable program for public schools, the answer is yes — kind of.

The same year year that state legislators created the private-school tax credit, they created a tax credit for donations to benefit extracurricular activities at public schools.   

“They can’t be used to hire teachers and improve school outcomes,” said Dave Wells, research director for the Grand Canyon Institute.

The institute recently published a policy paper arguing the “fiscal effectiveness is greatly overstated.” Wells was on KJZZ's The Show to talk about that research.

The public-school tax credit raises significantly less money than the private-school credit — $46.2 million in fiscal year 2017. A single person can give $200 a year and a couple can give $400.

If you want to learn more about Arizona’s school tax-credit programs, one place to start is this report from the Joint Legislative Budget Committee.(See pages 21, 28, 34 and 50).

It’s a lot to unpack. If you still have questions about private-school tax credits, or anything else happening in Arizona, use the form below.

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