Arizona Appeals Court Upholds Corporate Tuition Tax Credits

Published May 1, 2009

The Arizona Court of Appeals handed a victory to school choice supporters by upholding the constitutionality of the state’s corporate tuition tax credit program.

In Green v. Garriott, a three-judge panel in March decided the tax credit program, which aims to encourage business donations for tuition grants to students attending private schools, “passes constitutional muster.” The opinion holds the credit does not violate the state’s constitutional provisions regarding religion and education and accords with federal constitutional provisions.

The majority opinion, signed by Judges John Gemmill and Patricia Norris, says the credit benefits a valid nonreligious educational purpose and does not directly aid religion. While agreeing with most of the majority opinion, the third judge, Donn Kessler, dissented in part, saying he was not sure the credit doesn’t violate the U.S. constitutional ban against advancing religion.

“This ruling offers immediate relief to the nearly 2,000 Arizona school children who rely on corporately funded scholarships to escape from their failing public schools and to attend a private school that meets their educational needs,” said Tim Keller, the lead attorney for the Institute for Justice, who argued the case. “If the program continues to grow at the same rate as the past, this ruling has the potential to improve the lives of tens of thousands of Arizona schoolchildren.”

Big Effect

The court upheld a 2007 ruling from an Arizona trial court and cited a 1999 Arizona Supreme Court ruling upholding a similar tax credit program for individuals donating to scholarship-granting organizations.

In 2007 a Maricopa County Superior Court judge dismissed a lawsuit filed in 2006 by the American Civil Liberties Union and Arizona School Boards Association, citing the same Arizona Supreme Court decision upholding individual tax credits.

The effects of the Court of Appeals decision are far-reaching. Under the Corporate School Tuition Organization Tax Credit, more than 16 school tuition organizations in the state distribute scholarships, and approximately 150 Arizona schools accept students using them.

Critics of the tax credit argue it takes money from the public school system and violates constitutional provisions barring the public from funding religious schools. Constitutionally, Arizona must provide a “general and uniform” public school system, and program opponents say that means no state money can go even indirectly to religious alternatives to traditional public schools. Keller disagrees.

“To date, every tax credit scholarship program challenged in court by education reform opponents has been upheld as consistent with both the federal and state constitutions,” Keller pointed out.

Helping Low-Income Children

Critics also have argued the program only helps rich kids go to private schools. But enrollment data show otherwise, as the average annual family income of tax credit recipients in 2006-07 was $28,458. In 2007-08 the average was $35,533, according to surveys by the Arizona School Tuition Organization Association.

School choice advocates in Arizona made the corporate tax credit a high priority in the 2005 and 2006 legislative sessions. Even before the ruling the Arizona State House approved a bill earlier this year to remove a scheduled 2011 expiration date. At press time that bill was awaiting Senate action.

“The most urgent next step for reformers in Arizona is to repeal the corporate tax credit scholarship program’s automatic sunset in 2011,” Keller said. “If this program were to end, not only would low- to moderate-income families lose this education life preserver, but Arizona’s budget would receive a crushing blow as thousands of students return to the public schools they once left to find a better education.”

Pending Cases

Although some critics claim the credits should be suspended because they cost the state money, school reform advocates point out they actually save money because public schools cost thousands of dollars more per child.

“In light of Arizona’s substantial budget deficit, this ruling is a crucial victory because it reaffirms that school choice programs not only constitute sound economic and educational policy, but that school choice is constitutional,” Keller said.

At press time a lawsuit concerning Arizona’s individual school tuition tax credit program was pending before the Ninth U.S. Circuit Court of Appeals. The Arizona Supreme Court found the state’s two voucher programs, for disabled and foster children, unconstitutional on March 25. (See story on facing page.)

Sarah McIntosh ([email protected]) is a lecturer in constitutional law at Wichita State University in Kansas.

For more information …

Green v. Garriott:

“The Arizona School Tuition Organization Association Survey of Corporate Tuition Tax-Credit Scholarship Recipients’ Family Income: School Years 2006-07 and 2007-08,” by Vicki E. Murray, Ph.D.: