Law & Courts

Supreme Court to Weigh Arizona Tuition Tax Credits

By Mark Walsh & Mary Ann Zehr — May 25, 2010 6 min read

In a move welcomed by school choice supporters, the U.S. Supreme Court has agreed to weigh the constitutionality of a 13-year-old Arizona program offering tax credits for donations made to organizations that provide scholarships for children to attend private schools.

The case accepted May 24 involves a ruling by a federal appeals court last year that Arizona’s tax-credit program is likely to impermissibly advance religion in violation of the First Amendment’s prohibition against any government establishment of religion.

A three-judge panel of the U.S, Court of Appeals for the 9th Circuit, in San Francisco, in an April 2009 decision about whether a challenge to the program could go forward, found that the majority of those Arizona scholarships go to students attending religious schools, and that some of the “school tuition organizations,” or STOs, restrict their scholarships to that purpose.

“We conclude that the plaintiffs’ complaint ... sufficiently alleges that Arizona’s tax-credit-funded scholarship program lacks religious neutrality and true private choice in making scholarships available to parents,” the panel said.

The court said the program could be distinguished from the Ohio private-school-voucher program upheld by the U.S. Supreme Court in 2002 in Zelman v. Simmons-Harris.

The state of Arizona and two groups that provide scholarships under that state’s program appealed to the U.S. Supreme Court, which granted two of the three petitions for review—Arizona Christian School Tuition Organization v. Winn (Case No. 09-987) and Garriott v. Winn (No. 09-991). The court put the third appeal aside for now.

Andrew R. Campanella, a spokesman for the Alliance for School Choice, a Washington-based advocacy organization, hopes the Supreme Court will overturn the 9th Circuit ruling, saying Arizona’s program provides a “free open market for opportunities,” because taxpayers decide to which scholarship organizations they want to contribute.

“Many that provide scholarships go to nonreligious schools,” Mr. Campanella said.

Clint Bolick, the litigation director of the Goldwater Institute, a Phoenix-based think tank that is supportive of the state tax-credit program, said it should be easy for the Supreme Court to uphold the program because of the precedent it set in its 1983 ruling in Mueller v. Allen.

In that case, Minnesota taxpayers received state tax deductions for private school tuition of their own children, and 97 percent of the funds were going to religious schools. With the Arizona program, Mr. Bolick said, “the relationship between the state and religious schools is even less direct because the state is providing credits for people who are contributing scholarships for other children.”

However, Kevin G. Welner, a professor and the director of the Education and the Public Interest Center at the University of Colorado at Boulder, said Arizona’s tax-credit program differs from conventional voucher systems like the one that the Supreme Court upheld in 2002.

Mr. Welner, who has voiced concern about tax-credit programs, said that instead of a state having created a neutral system that permits parents to select from participating private schools, whether religious or secular, Arizona has created a system that “tells wealthier taxpayers that they can choose which private schools will be available to parents.”

“The key question framed for the court is whether the state can effectively delegate to its wealthier taxpayers a decision process that, as applied, favors some religious institutions over others,” Mr. Welner said in an e-mail.

Push for Review

Although the full 9th Circuit court declined in October to rehear the Arizona case, eight of the 27 active members of that court dissented, with U.S. Circuit Judge Diarmuid F. O’Scannlain saying, that the three-judge panel’s holding “casts a pall over comparable educational tax-credit schemes in states across the nation.”

Eight states filed a friend-of-court brief on the side of Arizona urging the Supreme Court to take up the case, arguing that the 9th Circuit panel’s ruling raises doubts about tuition tax credits elsewhere.

The states—Florida, Indiana, Louisiana, Michigan, New Jersey, Pennsylvania, South Carolina, and Utah—argue that “promoting charitable giving through tax incentives is an efficient and legitimate way to achieve the states’ goal of improving the quality and accessibility of private schools.”

The appeal from the state of Arizona points out that the program was enacted in 1997 and has been upheld under the federal Constitution by the Arizona Supreme Court. Taxpayers can receive a dollar-for-dollar credit of up to $500 (or $1,000 for married couples) for donations to school tuition organizations.

The STOs must spend at least 90 percent of their annual revenues on scholarships or tuition grants. The organizations may not limit their grants to a single school, but they may limit them to religious schools, as several of the groups do.

The Arizona Department of Revenue said in an April report that 73,391 donations totaling $50.8 million were reported for 2009. School tuition organizations reported providing 27,582 scholarships totaling $52.1 million for students attending 370 private schools in the same year, the department said. The Arizona Christian School Tuition Organization received the highest amount in donations, some $10.4 million, and it paid out an average scholarship of $1,957, according to the report. The Catholic Tuition Organization of the Diocese of Phoenix was second last year, with $9.2 million, and its average scholarship was $1,861, the report said.

Earlier this year, Arizona Gov. Jan Brewer, a Republican, signed a measure into law that revised the tuition tax-credit program to require more accountability by school tuition organizations, such as requiring them for the first time to register and be certified by the state revenue department. The law also requires the organizations to report the number of scholarships being awarded to students from low-income families.

Parental Choice?

The appeal by the Arizona Christian School Tuition Organization argues that under the tax-credit program, “the private choices of taxpayers, the STOs, and parents direct tuition funds to students. The taxpayer chooses to donate or not, and if he donates, to which STO. The privately formed, nonprofit STOs raise money to award scholarships to schools of their choice.”

But a brief filed on behalf of the taxpayers who challenged the tax credits argues that the program uniquely relies on religious organizations to award most of the scholarships and lets them require parents to enroll their children in religious schools.

“The Arizona program is neither based on financial or academic need nor neutral with respect to religion,” said the taxpayers’ brief. “Instead, it awards most of its scholarships to the children of middle-class and wealthy parents on the basis of religion.”

The Arizona case has been to the U.S. Supreme Court once before, on a narrow question of whether federal courts were barred from hearing such challenges to a state tax law under a 1937 federal law, the Tax Injunction Act. In 2004, in Hibbs v. Winn, the justices ruled 5-4 that the federal law did not bar the suit.

The Supreme Court will take up the new appeals in the Arizona case during its next term, which begins in October.

Assistant Editor Mary Ann Zehr contributed to this story, as did the Associated Press.
A version of this article appeared in the June 09, 2010 edition of Education Week as Supreme Court to Weigh Constitutionality Of Arizona’s Tuition Tax-Credit Program

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