Federal Court Upholds Arizona Tax Credits

Published May 1, 2005

Ruling in what school choice advocates have called “the most frivolous” challenge ever filed against a school choice program, a federal district court judge on March 24 upheld Arizona’s scholarship tax credit program as constitutional, dismissing a lawsuit from the state American Civil Liberties Union (ACLU) chapter.

Since Arizona enacted the Tuition Tax Credit Program eight years ago, it has been under almost continuous legal assault by opponents of school choice, first in state courts and more recently in federal ones.

“The Tuition Tax Credit is a neutral, secular program whose benefits are available to all Arizona taxpayers and students,” U.S. District Court Judge Earl H. Carroll declared in Winn v. Hibbs. “Furthermore, multiple layers of private choice ensure that the State itself does not aid recipients with regard to their religion.”

“Arizona’s Tuition Scholarship Tax Credit provides thousands of Arizona children the opportunity for a better education, but there are thousands more eager families on waiting lists,” said Jennifer Barnett, a staff attorney with the Institute for Justice, whose Arizona chapter filed the motion to dismiss the ACLU suit. “With the district court’s affirmation that there is no First Amendment obstacle to school choice in Arizona, policymakers should seize the moment to expand education opportunities for all of Arizona’s schoolchildren.”

Arguments Rejected

The Tuition Tax Credit Program allows Arizona taxpayers to receive a dollar-for-dollar credit of up to $500 for individuals–$625 for married couples–for donations to scholarship tuition organizations (STOs) that help families pay the cost of sending their children to private schools. Through 2003, the STOs had received $113.3 million. Most of the STOs are religiously affiliated, and most of the money went to scholarships designated for use at religious schools.

Opponents of the program argued that because most STOs were religious, parents who wished to send their children to a secular private school might not be able to find an appropriate STO, thus allowing state revenues to fund education in a religiously preferential manner, violating the First Amendment’s establishment clause.

Carroll rejected that argument, pointing out states may provide assistance to private schools without violating the establishment clause.

“In Mueller v. Allen the Supreme Court held that … a state may ‘conclude that there is a strong public interest in assuring the continued financial health of private schools, both sectarian and non-sectarian,'” Carroll noted. He also pointed out the U.S. Supreme Court did not attach any significance to the percentage of funds going to religious education, as long as the program was neutral toward religion and preserved true private choice.

“The benefits of the Tuition Tax Credit are available to a broad spectrum of groups,” Carroll wrote. “[M]oney which otherwise would go to the State can only go to religious schools after being filtered through multiple layers of private choice.”

Constitutionality Upheld

Taxpayers have no incentive to support religious STOs over secular STOs, Carroll noted, nor do they have any financial incentive to support STOs at all, since a scholarship organization is not permitted to award scholarships to the children of its supporting donors. As for the scholarships being a “skewed financial incentive” for parents to send their child to a religious school, Carroll pointed out any child could attend any public school in the state at no charge. By contrast, the average STO scholarship of just $1,222 was unlikely to cover the full cost of attending a private school.

“The ruling affirms what every court that has ever considered the question has held: that scholarship tax credits are constitutional,” declared Clint Bolick, president and general counsel of the Alliance for School Choice, a nonprofit group based in Phoenix that is leading the national effort to expand school choice options for children from economically disadvantaged families.

Opponents first challenged the law on First Amendment grounds in state court, but in 1999 the Arizona Supreme Court upheld the program. In 2000, the Arizona Civil Liberties Union shifted the challenge to the federal courts, suing on the grounds that the scholarship tax credit violates the First Amendment’s establishment clause.

According to the Associated Press, the ACLU has not decided whether to appeal Carroll’s ruling.

George A. Clowes ([email protected]) is associate editor of School Reform News.

For more information …

The March 24, 2005, decision of Judge Earl H. Carroll in the U.S. District Court for the District of Arizona is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #16849.