Arizona tax credit scholarships and their costs or benefits to taxpayers

For the last two decades, Arizona taxpayers have had the ability to receive a dollar-for-dollar tax break on donations supporting student scholarships to private schools.

School Tuition Organizations (STO), launched here in 1997, started with just individual tax credit donations. The program expanded to corporations in 2006, provided a designated fund for students with disabilities and those in foster care in 2009, and most recently a “switcher” tax-credit scholarship program in 2012 for students who previously attended a public school.

“Arizona’s STOs have helped match up scholarship donations to tens of thousands of low-income families and children with special needs. Children who face economic disadvantages and other major challenges are accessing some of the best private schools in the state,” said Kim Martinez, American Federation for Children Arizona Communications Director. “Education is the only hope these children have to achieve a brighter future. STO’s are invaluable to these families who desperately need information, resources and opportunity to help their children succeed.”

While the tax credit programs provide benefits to families, individual taxpayers and corporations, critics like the Grand Canyon Institute (GCI) say that the cost per student receiving a STO scholarship is $10,700 annually, which is much higher than the average public-school student.

But Marty Lueken, an economist and education policy expert at EdChoice, said that GCI’s fiscal analysis takes the wrong approach.

“I think that that regression isn’t an appropriate tool for any fiscal analysis of a school choice program like Arizona’s,” he said. “Rather, using the state’s school funding formula is more appropriate to determine the fiscal effects on taxpayers.”

Additionally, GCI’s analysis looked only at a national data set to compare Arizona with the rest of the country , which Lueken said is “problematic” because as a border state, the trends of school enrollment, demographics, economic factors, and others do not represent national trends.

While GCI says those factors “would not have a separate impact on Arizona’s private schools,” Lueken disagrees.

“Economic factors can and usually do have heterogeneous effects. This is why economists, even for the most basic/baseline models, would control for state-specific economic conditions such as the state’s GDP and population,” he said.

The federal data GCI used is based on a survey with less than 100 percent response rate, which lists 320 private schools in Arizona, but the Arizona Department of Revenue reported that over 600 private schools have participated in the programs since their inceptions.

Lueken said that GCI’s “regression model is terribly naïve,” pointing out that the GCI analysis does not consider the many factors that play into a parent’s decision to attend a private school.

GCI concluded that “many, if not most, students attending private schools… would enroll in charter schools if these subsidies were eliminated.”

But STO parent Jules Grier disagrees.

“The primary driver of our choice has to do with the size of classrooms and also the spiritual aspect,” said Grier, who has three children at Bethany Christian School in Tempe. “If we didn’t have STOs, I would try to personally fund their education, and if I couldn’t, I would consider all of the schools in my vicinity.”

EdChoice, in its own analysis, found that tax-credit scholarship programs actually save taxpayers money. The study showed that across the country, the programs generated between $1.7 billion and $3.4 billion in taxpayer savings, which is about $3,000 per scholarship student.

Jason Bedrick, EdChoice Director of Policy said whenever a student exits the public school system, that system no longer bears the costs associated with educating that child.

“If the forgone revenue from the tax credits is less than the value of the average scholarship, than each student switching out of the system saves money for the taxpayer,” he said.  “Tax-credit scholarships move us toward a more student-centric system that empowers families to choose the learning environment that’s right for their child.”

For more information on the four tax credit scholarship programs, click here.