School Choice & Charters

Tax Credits Pass Muster In Arizona

By Mark Walsh — February 03, 1999 5 min read

In a legal victory for the private-school-choice movement, the Arizona Supreme Court last week narrowly upheld a $500 state tax credit for contributions to scholarship programs that pay for private school tuition.

The Arizona plan, adopted in 1997, does not include vouchers in the sense of the publicly financed choice programs in Milwaukee and Cleveland. But like those programs, it benefits students attending religious schools.

Turning back arguments that the plan violates federal and state constitutional prohibitions against government aid to religion, the Arizona high court voted 3-2 to allow the tax credit.

“The decision will resonate widely as a major First Amendment precedent,” said Clint Bolick, the litigation director of the Washington-based Institute for Justice, which supports vouchers and tax credits for private school students and which helped defend the Arizona program.

Although the Arizona decision is legally binding only in that state, it could be appealed to the U.S. Supreme Court, which last year passed up an opportunity to rule on private school choice when it let stand the Wisconsin Supreme Court’s decision upholding the Milwaukee voucher program. (“‘Green Light’ for School Vouchers?,” Nov. 18, 1998.)

Voucher Momentum?

Opponents of the Arizona tax credit said last week that they were considering an appeal.

“We believe that this decision, while disappointing, does not give any great assistance to the voucher movement,” said Penny Kotterman, the president of the Arizona Education Association, which challenged the law along with the National Education Association.

But Arizona Superintendent of Public Instruction Lisa Graham Keegan said the ruling should boost efforts in the current state legislature to enact a pilot voucher program.

“Clearly, this decision provides momentum for Arizona to continue down the path of expanding parental choice,” Ms. Keegan, a supporter of the tax credit and vouchers, said in a statement.

Arizona’s law allows any taxpayer to claim a credit for a contribution up to $500 to a “school tuition organization,” which can then use the money to help pay children’s private school tuition.

A tax credit is subtracted directly from a tax owed to the government, and is usually more beneficial to the taxpayer than a deduction. (A deduction is subtracted from a taxpayer’s net income, reducing the amount on which a tax is assessed.)

Under the law, Arizona parents may not designate the tax credit to benefit their own children. And a tuition organization cannot designate the money to benefit students of only one private school.

The state supreme court majority said the tax credit passed muster under the U.S. Constitution because it met the same criteria set by the U.S. Supreme Court when it upheld a Minnesota tax deduction for private school expenses in the 1983 case of Mueller v. Allen.

The federal high court upheld the Minnesota deduction because it was one of many deductions allowed by the state; it was open to all parents incurring educational expenses; and the funds reached private schools “only as a result of numerous, private choices of individual parents.”

“Arizona’s statute provides multiple layers of private choice,” the majority opinion by Chief Justice Thomas A. Zlaket said. “Schools are no more than indirect recipients of taxpayer contributions with the final destination of these funds being determined by individual parents.”

The majority also appeared to endorse some of the “empowerment” argument advanced by the school choice movement.

“Until now, low-income parents have been coerced into accepting public education,” Chief Justice Zlaket wrote. “Arizona’s tax credit achieves a higher degree of parity by making private schools more accessible and providing alternatives to public education.”

Strong Dissent

Justice Stanley G. Feldman wrote a vigorous dissent, arguing that the tax credit violates both federal and state constitutional provisions against government aid to religion.

“The [majority] argues that the decision to contribute is purely a matter of individual choice and that religious institutions are only incidental beneficiaries,” Justice Feldman wrote. “In reality, this is not a choice but government action designed to induce taxpayers to direct financial support to predominantly religious schools.”

The dissenters were troubled by several aspects of the law. Justice Feldman said nothing in the law prohibits a group of taxpayers of the same religion from forming a school tuition organization that would only support schools affiliated with that religion.

In addition, he noted that while the legislature approved a maximum $500 credit for private-school-tuition contributions, it authorized only a $200 credit for contributions to public schools. That money can go only to reimburse fees paid for extracurricular activities.

“Thus, the tax credit does not offer the same or even similar benefits to all taxpayers,” Justice Feldman said.

But the majority said the disparity was warranted because private school tuition is usually greater than extracurricular fees.

Public schools have, in fact, received hundreds of thousands of dollars in benefits from the $200 tax credit. Some districts were holding the contributions in escrow pending the resolution of the court case, even though the public school tax credit wasn’t directly challenged.

Familiar Adversaries

The Arizona case attracted less national attention than the voucher cases in Wisconsin and Ohio. In Ohio, the state supreme court has heard arguments on the Cleveland voucher program but has not yet issued a ruling.

But many of the same advocates for and against private school choice were involved in the Arizona case. They include Mr. Bolick of the Institute for Justice in favor of the tax credit, and the NEA, People for the American Way, and Americans United for Separation of Church and State, against the credit.

Trent Franks, a conservative activist and a former state legislator in Arizona who promoted the tax credit, said the concept is easier to sustain politically and legally than vouchers.

“This is far better than vouchers--it is easier to pass and easier to uphold,” said Mr. Franks, who also supports vouchers. “I think this is the direction the country will go in.”

A version of this article appeared in the February 03, 1999 edition of Education Week as Tax Credits Pass Muster In Arizona


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