Federal Court Hears Challenge to Arizona Tax Credit Program

Published March 1, 2008

The Ninth U.S. Circuit Court of Appeals heard a three-year-old challenge to Arizona’s individual tax credit scholarship program in late January, but gave no indication as to when it might render a decision.

The case marked the first time a federal appellate court has heard such a case since the U.S. Supreme Court declared Cleveland’s citywide school voucher program constitutional in 2002.

At issue in Winn v. Garriot is Arizona’s 10-year-old tuition tax credit program, under which individuals receive credits on their personal income taxes for making donations to school tuition organizations (STOs), which enable parents to send their children to the private school of their choice.

The American Civil Liberties Union (ACLU) is challenging the program’s constitutionality, claiming it violates the federal Establishment Clause, said Tim Keller, the Institute for Justice attorney who argued the case on behalf of several Arizona families.

“The argument [the ACLU] made in their briefs is that it has the forbidden effect of advancing religion, because of the high percentage of parents who choose, of their own accord, to send their children to private religious schools,” Keller said.

“That argument seemed to change a bit at the hearing–they said that for a scholarship organization to have religious affiliations violates the Constitution, and that a scholarship-granting organization must fund the entire universe of private schools to avoid an Establishment Clause violation,” Keller explained.

Strong Precedent

Precedent falls on the side of school choice. Winn v. Garriot was originally filed in U.S. District Court for the District of Arizona in February 2000; that court dismissed the challenge and upheld the law in March 2005. A previous challenge to the program, Kotterman v. Killian, was dismissed by the Arizona Supreme Court in January 1999 and by the U.S. Supreme Court in October 1999. Both courts found the program to be legal under the U.S. Constitution.

Approximately 25,000 children in Arizona currently receive scholarships to attend the school of their family’s choosing through the individual tax credit program. The state operates a similar program that grants tax credits to corporations donating to STOs, which the ACLU is also challenging in a separate case filed last year, as well as voucher programs for foster kids and disabled students.

Florida, Iowa, Pennsylvania, and Rhode Island offer corporate tax credit programs as well.

Private Choice

Keller says it would be “absurd” for the Ninth Circuit to strike down the individual tax credit program in Arizona.

“The Establishment Clause is concerned with the state remaining neutral regarding religion, and that any funds flowing to religious institutions not be directed by a state actor,” Keller explained. “In this case, only private individuals decide which STOs to fund in the first place, and only parents decide which STOs they’ll apply to to fund their particular [school] choice.

“All the legal precedents have said repeatedly the constitutionality doesn’t hinge on where and how the beneficiaries of a particular program intend to use their benefits,” Keller continued. “You have to look at all the educational options the state provides.

“Arizona has open enrollment, charter schools, magnet schools, a family-friendly homeschool policy, the corporate tax credit program, and two voucher programs,” Keller said. “To look at all that and think a parent could possibly be coerced into choosing a religious option is absurd.”

Wide Interest

Other experts agree. In Missouri, a bill to create a tuition tax credit program similar to Arizona’s is pending in the state legislature, and a study showing the benefits such a program would have for the state’s residents was released in mid-January by the Show-Me Institute, a think tank based in St. Louis.

“Wealthier Missourians already have choice options. We’re trying to extend that choice to all Missourians,” explained Justin P. Hauke, a policy analyst with the group. “We’ve estimated that the tuition tax credit bills currently under consideration in the Missouri General Assembly have the potential to save the state up to $14 million per year.

“Such legislation is a win-win for everyone,” Hauke continued. “It allows taxpayers to target their tax dollars toward education and meaningful reform, it provides options to thousands of Missouri families who otherwise would have little control over their educational options, and it saves the state money.”

According to a similar study released by the Friedman Foundation for Educational Options, a national group based in Indianapolis, Arizona’s tax credit program has saved the state nearly $18 million since its inception.

Karla Dial ([email protected]) is managing editor of School Reform News.

For more information …

“The Fiscal Effects of a Tuition Tax Credit Program in Missouri,” by Michael Podgursky, Sarah Brodsky, and Justin P. Hauke, Show-Me Institute, January 14, 2008: http://showmeinstitute.org/publication/id.101/pub_detail.asp

“School Choice by the Numbers: The Fiscal Effect of School Choice Programs, 1990-2006,” by Susan L. Aud, Ph.D., Friedman Foundation for Educational Choice, April 2007: http://www.heartland.org/Article.cfm?artId=21956