Private School Tax Credits Dealt Setback

Arizona's tax credit program to help pay for kids to attend private schools was dealt a setback Wednesday when the 9th Circuit Court refused to overturn a previous ruling that the program is unconstitutional because some participating nonprofits only give scholarships to religious schools.

The individual Private School Tuition Tax Credits program allows taxpayers to donate to nonprofit school tuition organizations, known as STOs, to fund scholarships. The taxpayer then gets a dollar-for-dollar state tax credit in return.

There have been numerous legal challenges to the program and rulings, but none - including Wednesday's decision by the Ninth Circuit Court - have stopped it from continuing to operate. The Institute for Justice, a Libertarian public interest law firm representing a defendant in the case, said it will appeal to the U.S. Supreme Court.

In April, a three-judge panel said there is some merit to an argument that the scholarships, as they are given out by some STOs, are unconstitutional.

"Arizona's tax credit program channels a disproportionate amount of government aid to sectarian STOs, which in turn limit their scholarships to use at religious schools. The scholarship program thus skews aid in favor of religious schools, requiring parents who would prefer a secular private school but who cannot obtain aid from the few available nonsectarian STOs, to choose a religious school to obtain the perceived benefits of a private school education," the court ruled in April.

Wednesday's ruling concurred with that decision.

"85 percent or more of the state financed scholarship money is available only to students whose parents are willing to send them to sectarian institutions. If these facts are proved true, the Arizona Department of Revenue's execution of the scholarship program (Section 1089) violates the Establishment Clause," the judges wrote Wednesday.

Defendants in the case - including the Arizona Christian School Tuition Organization and the Arizona School Choice Trust - had filed the request for the full court to hear the case.

Though the full court denied that request, eight judges dissented from that opinion.

"This case involves an Establishment Clause challenge to an Arizona educational tax credit program that provides scholarships to students wishing to attend private schools. This case is more notable, however, for what it does not involve: state action advancing religion. The government does not direct any aid to any religious school. Nor does the government encourage, promote, or otherwise incentivize private actors to direct aid to religious schools," Judge Diarmuid F. O'Scannlain wrote in his dissenting opinion."Rather, 'state aid reaches religious schools solely as a result of the numerous independent decisions of private individuals,'" he wrote, referring to a court case about Ohio's voucher program.

This particular legal challenge began in 2000 and has bounced back and forth between the 9th Circuit Court and the U.S. Supreme Court for a number of reasons.

Paul Bender, an Arizona State University professor, argued the case on behalf of the American Civil Liberties Union of Arizona, which contends the tax credit violates the U.S. Constitution's ban on government action to enhance or inhibit religion. Bender praised Wednesday's decision.

"This says you cannot have STOs that distribute money on a basis of religion," he said.

Three of the largest STOs in the state are the Arizona Christian School Tuition Organization and the STOs for the Diocese of Phoenix and the Diocese of Tucson. Several other STOs support religious-based schools, including the Jewish Tuition Organization, Higher Education for Lutheran Programs and the BEST Student Fund, which gives scholarships to two schools with Muslim ties.

Tim Keller, an attorney with the Institute for Justice, said the large number of judges dissenting in Wednesday's case makes a good argument for the U.S. Supreme Court to hear it.

It will be several months before a decision is known. If the Supreme Court review is denied, the case goes back to the 9th Circuit Court. If that happens, Bender said, his group will ask for a summary judgment, which could put the tax credit program in jeopardy.

Keller said he would be prepared for that.

"I would anticipate this case being around for a couple more years at least," Keller said.

Keller said that parents do have a choice in choosing a private school because there are many different STOs in the state, and parents have a choice of schools, including a nonreligious private school.

Bender has said the case has a "long, torturous history."

"Ten years. It's really tragic. We are right. I think the money is being distributed in a religiously discriminatory way, which is unconstitutional," he said.

Lawrence Mohrweis is an accounting professor at Northern Arizona University and volunteer director for the Flagstaff Scholarship Fund, an STO. Last month, he spoke in front of a state House, Democratic-led panel looking at the tax credit program.

Mohrweis said that Arizona's program is "still considered constitutional" by the courts.

"The 9th Circuit Court's decision does not halt the program. Instead the 12-year-old case may now be sent back to a federal trial court to determine whether, in fact, Arizona's faith-based STOs have created an environment that limits parental choice," he said in an e-mail.

The Flagstaff Scholarship Fund was formerly known as the Flagstaff Christian Scholarship Fund but changed its name more than a year ago because it offers scholarships to a variety of schools, including secular schools. The private school program has been under considerable scrutiny for months. In August, the Tribune published Rigged Privilege, an investigation that found the program, which has grown to $55 million a year, is rife with abuse. Two legislative panels are now reviewing the program to determine if changes are needed.