Arizona tuition tax credit law not working, report finds

4/23/02 – Backers of a 1997 Arizona law giving tax credits to encourage private school tuition grants promoted it as a tool to give the poor more educational choices. But in practice, the law appears to mostly benefit people already enrolled in private schools, a new analysis shows.

Thirty-two states have rejected tuition tax credits in recent years, but the issue continues to garner attention because backers of public aid for private schools see the concept as more likely to be enacted than vouchers. As a result, "lawmakers should closely examine this new evidence about a high-profile tuition tax credit program," says Marc Egan, director of NSBA's Voucher Strategy Center.

The Arizona law grants state taxpayers a dollar-for-dollar credit against their state income tax liability for contributions to School Tuition Organizations (STOs), which, in turn, award tuition grants to students to use at private primary or secondary schools. Under the law, STOs must disburse at least 90 percent of their revenue in the form of private school tuition grants.

A parallel program offering $250 tax credits for donations to public schools for extracurricular fees similarly favors the wealthy over low-income families, according to the report released March 25 by the Education Policy Studies Laboratory at Arizona State University.

"Arizona's private school tuition tax credit is not achieving its goal of providing poor families opportunities to enroll their children in private schools," concludes Glen Wilson, assistant director of the Education Policy Studies Lab and author of The Equity Impact of Arizona's Education Tax Credit Program: A Review of the First Three Years (1998-2000).

At the same time, he says, "Funds from Arizona's public school extracurricular tax credit are disproportionately going to wealthier schools."

The analysis notes that tuition is not the only barrier to private school for poor families. Fees for books and supplies, transportation problems, selective admission criteria that operate against children living in poverty, and religious barriers also play a role in keeping the poor out of private schools. These factors aren't addressed by the tuition grants provided through the tax credit program.

According to the report, the two programs are "expensive and inefficient at reaching low-income students."

The study found that the average tuition tax credit grant made in 2000, $856, covered slightly more than a fourth of the cost of the median tuition charged by private elementary schools, $3,175, and less than one-fifth of the median private junior high or high school tuition. The relatively small size of the grants "suggests that few poor families will be able to move their children from a public school to a private school" as a result of the program.

The tax credit program has cost the state $74 million in its first three years, a figure expected to rise to more than $100 million at the end of the current year.

The study calculates that for every dollar given out in tuition grants, as little as 19 cents in grant money went to students moving from public to private schools–which means 76 cents went to families whose children already were enrolled in private schools.

Based on those projections, the study calculates, the program might have helped fewer than 3,900 poor students–2 percent of the state's projected population of poor public school students–attend private school, at a cost to the state of about $15.5 million. In fact, the actual percentage of poor students helped is probably much smaller, the analysis states.

"Again, we see that the promises made to get these kinds of programs enacted ring hollow when the actual facts come to light," Egan says. "This is reminiscent of the Ohio report that showed how few of Cleveland's voucher recipients had ever been in public schools, even though voucher advocates continue to claim the program is about helping students 'escape' public schools."

"Tuition tax credits are becoming the darling of the voucher lobby," Egan says. "But reports like this one show that they carry as much baggage and false promises as voucher programs."

The report recommends abolishing the tax credit entirely. Short of that, the report says, reporting requirements for School Tuition Organizations should be strengthened to allow more detailed study of the tax credit's effects. Moreover, the law should have a means test, making eligibility for the tax credit dependent on income.