Subscribe
Jobs
Cars
Real Estate
Apts
Classifieds
Shop
From heated negotiations over state spending in the Indiana General Assembly’s special session, a new tax credit still managed to emerge – $2.5 million a year for a school scholarship tax credit. It represented a tough blow for public school administrators battling to protect funding for their districts; now it represents a challenge for state officials to ensure scholarships benefit the students they were intended to help.
To begin, the state should look to Arizona – the Wild West of the school choice frontier – for an example of what to avoid. There are enough similarities between Indiana’s newly enacted tax credit and the abuse-plagued program in Arizona to serve as warning.
The East Valley Tribune in Mesa investigated the state’s private school tuition tax credit for a troubling series of articles published last month. It found that the program, sold as a means of making private schools accessible to children from disadvantaged families, has steered $350 million to private education without increasing minority students’ access to private schools. The abuses prompted a school choice advocate who has defended the Arizona tuition tax credit in court to call on the scholarship-granting organizations to “search their souls.”
The investigation found:
•Wealthy Arizona parents exchange tax credits so the cost of their own children’s private education would be covered and their income tax bills reduced.
•Executives at some of the largest tuition organizations used donations to buy luxury cars and real estate and invest in their own for-profit businesses.
•Private schools dramatically increased tuition, pushing access to disadvantaged children even further out of reach.
Indiana’s newly approved tax credit has some limits that Arizona’s program, approved in 1997, did not.
Arizona’s gave donors a dollar-for-dollar credit, while Indiana’s program credits donors at 50 percent of their donations. The Arizona program cost the state about $55 million a year, while Indiana’s is capped at $2.5 million over each of the next two years.
But there are similarities. Arizona’s program called for taxpayers to give money to non-profit organizations called School Tuition Organizations (STOs), which in turn would give money to children for private school tuition. Indiana’s law calls for donations to be made to Scholarship Granting Organizations (SGOs), non-profit groups that will award scholarships to children.
Both states limit the non-profit groups to using no more than 10 percent of donations for administration, with the balance spent directly on scholarships. Indiana’s new law makes the scholarships available to students from families earning not more than 200 percent of the federal guidelines for free or reduced-price lunch. That’s about $44,000 a year for a family of four.
Arizona’s program was intended to prohibit donors from earmarking contributions to individual students, but some tuition organizations began allowing “recommendations” for scholarships for specific children. State law also prohibited taxpayers from taking a tax credit for donations to benefit their own children, so a system evolved in which parents recruited relatives, friends and others to make a tax donation in their child’s name and receive a dollar-for-dollar credit in return. The Tribune noted that one Lutheran school Web site boasted “You make money!” in its appeal for scholarship donations.
Indiana’s new program is modest compared to its Arizona counterpart, but it’s the proverbial foot in the door.
“Arizona’s general fund gets shorted $55 million a year through tax credits to pay student tuition,” according to the Tribune. “Lawmakers twice increased how much households can donate for tuition credits this decade. The price of private education has grown accordingly.”
The Indiana Department of Education is charged with developing guidelines for Indiana’s new program under emergency rule-making authority. Spokesman Cam Savage said the department anticipates filing proposed rules within 30 days. They will go into effect upon publication in the Indiana Register, likely in October, with tax credits available for 2010.
Like Arizona’s tuition tax credit plan, there appears to be few provisions in the law for oversight beyond reporting participation on the DOE Web site. The Indiana lawmakers who supported a new school spending program in the midst of an economic meltdown should pledge vigilance to ensure Arizona’s experience is not repeated here.
